The Department of Trade and Industry’s willingness to address troublesome issues regarding Broad-Based Black Economic Empowerment (B-BBEE) is welcomed, but some proposals regarding the eradication of ‘fronting practices’ require a more careful approach.
Wade van Rooyen, Managing Director at Grant Thornton Verification Services says: “Certain proposals in the current format might have unintended negative consequences.
The majority of fronting offences will be committed unintentionally by companies not deliberately seeking to frustrate empowerment, but that are uninformed”, referring to proposals in the Broad-Based Black Economic Amendment Bill published recently for public comment.
‘Fronting practices’, broadly defined in the Bill as “a transaction, arrangement or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of this Act”. The penalties proposed for transgressions in this area range from a fine to a prison sentence.
Van Rooyen welcomes the establishment of a B-BBEE Commission, but says that despite the powers afforded to the Commission, there are still significant hurdles to overcome if fronting is to be eliminated.
“While the B-BBEE Commission may investigate and pronounce on fronting, it must still institute successful court proceedings or refer matters to other bodies to give effect to its findings.”
He also cites concern about the detection of fronting. “The methodologies presently published and required to be used by practitioners need to be improved if all instances of fronting are to be detected.”
If these issues can be addressed successfully, van Rooyen believes great strides will be made towards the improvement of the current legislation and the achievement of economic freedom. “However lengthy these processes may seem – and however long they take to finally implement – they will ultimately punish enough fronting offenders to serve as a major deterrent for anyone considering the practice,” he concludes.
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