By Dumisani Mpafa
“A businessman, who earned a few hundred Rands a week, was a millionaire without knowing it as his employers allegedly used him as a “front” to win multi-million-rand government contracts”, screamed a headline in the Daily Dispatch in 2008. This couple used a company registered in the name of their gardener, Mpangeli Mawonga, to tender and secured lucrative multimillion rand contracts with the provincial government and paid him R300 and later R700 a week during that period. It was wild west; there was no clear regulatory framework, the Codes of Good on B-BBEE have just been gazetted previous year, there were no accredited verifcation agencies and companies had to do what was called ‘self-assessment’ to demonstrate compliance with B-BBEE. There was no BEE Commission and fronting thrived, it was crass, vacuous and perpetrators had no concern for consequences.
Many gory fronting stories continued to be flighted in the media, and this prompted the Association of BEE Verification Agencies, the predecessor of Association of BEE Professionals (ABP) to convene a convention, themed “Fronting
a threat to transformation” on 1st June 2011. This was meant to create awareness about the adverse effects of fronting in the economy and that it undermined the spirit of the B-BBEE Act. The B-BBEE framework had to be tightened.
The Draft B-BBEE Amendment Bill was published in December 2011 and gazetted as Act of parliament in 2013. This B-BBEE Act not only defined what fronting is but also criminalized fronting practices. It introduced the BEE Commission, stipulated fines and penalties for circumventions and fronting. In terms of Section 13 (O) of the B-BBEE Amendment Act, any Person convicted of fronting and misrepresentation may be imprisoned for up to 10 years or an entity may be fned up to 10% annual turnover and in terms of Section 13(P) any convicted person may be barred from doing business with organs of state for a period of 10 years from the date of conviction. In terms of Section 13(A), any contract awarded to an entity on account of false information in respect of B-BBEE status may be cancelled by the organs of state.
With the tightening of the legislative framework, it is not unreasonable to believe that fronting would cease to exist. Instead, it has become even more prevalent, albeit it being more sophisticated and difficult to detect. It includes such longwinded and convoluted schemes like opportunistic intermediaries where a black-owned service provider with a better B-BBEE status bids and secure contracts but will pass on those contracts to untransformed white-owned companies at a fee.
In a webinar hosted by the B-BBEE Commissioner on the 20 October 2020 chilling statistics about the number of fronting cases reported to the commission was shared. The Commission reported that they received 822 cases and of those 687 are fronting cases. The mining sector is the biggest culprit in terms of the number of cases, followed
by the transport sector and then construction sector. There is no question that the majority of those who are engaged in fronting, both Black and white are extremely knowledgeable of the B-BBEE laws and have the knowhow to circumvent it without being found.
Not only is fronting illegal but it also inhibits the genuine transformation that is critical to deal decisively with the vestiges of apartheid and ensure achievement of social justice. Fronting should be viewed as a serious corporate
governance matter; the Companies Act contends that a director may be held personally liable and possible declared delinquent resulting from an act or omission that constitutes wilful misconduct or wilful breach of trust.
The excuse often used by the Board of Directors and top executives that they didn’t know that their organisation was engaging in fronting practices to secure contracts can no longer be a valid legal defence. The board of directors
through their Social and Ethics Committee must develop a policy that prescribes establishment of procedures to be followed. This is to ensure that their B-BBEE processes and BEE initiatives are not only ticking the right boxes but are in keeping with the spirit and letter of the B-BBEE Act and the Codes of Good Practice. The policy must stipulate
that fronting practices are not tolerated and must include preclusion of using professionals that aren’t affiliated to any professional body and who are not professionally accountable anywhere. Only when directors have taken these reasonable steps to ensure that there is no fronting taking place in their organisations should they be absolved of
Since fronting has become so pervasive and entrenched in our transformation landscape, it is critical that all social partners; labour, civil society, business and government work closely with the BEE Commission and the law enforcement agencies to expose fronting practices. It is also essential that the law enforcement agencies who received these complaints understand fronting and fronting practices so that they are able to process reported cases. The call for the establishment of a B-BBEE Tribunal is even more timely and relevant today than ever before.
For the reason that fronting makes for great headlines, it is essential to root it out as it tends to cloud the many great initiatives that are implemented by a well-meaning companies.