The Broad Based Economic Empowerment Act: Stripping the Façade and Penalising Window Dressers

Lisa Jana

Published with the kind cooperation of BKM Attorneys – for more information visit www.bkm.co.za

The Broad-Based Black Economic Empowerment Amendment bill (“the Bill”) which was gazetted by the Minister of Trade and Industry on the 7th of December 2011 has not yet seen the light of day but is well worth knowing as its promulgation into an act of Parliament, which is envisaged for the end of 2012, will have far reaching consequences for businesses in South Africa. This Bill seeks to amend the Broad Based Black Economic Act 23 of 2003 („the Act”) in six broad measures. These broad measures are discussed in detail below.

DEFINING FRONTING PRACTICES

The Bill seeks to attack the issue of fronting by putting a definition to the practice. Fronting is defined by the Bill as any practice, transaction or arrangement that directly or indirectly undermines of frustrates the achievement of the objectives of the Act.

PROMOTION OF COMPLIANCE BY ORGANS OF STATE AND PUBLIC ENTITIES WITH THE ACT

The Bill enjoins every organ of state and public entity to take into account, as far as is reasonably possible, and apply any relevant code of good practice issued in terms of the

Act. This is noteworthy in that every public department, when conducting business with the private sector, must ensure that the persons they engage with are compliant with the Act.

This effectively creates a selective procurement policy where first priority is given to compliant suppliers.

The Bill further empowers organs of state or public entities to also determine and implement their own transformation policies and implement any transformation policy so determined as it were a code of good conduct in terms of the Act. The transformation policy would prevail in the event of there being any conflict between the policy and a code of good conduct in terms of the Act.

In addition to the above powers, in terms of the Bill, any organ of state or public entity will be empowered to cancel, at its sole discretion (in addition to any other remedies available), any contract or authorisation awarded to an enterprise on account of false information furnished by or on behalf of such enterprise in respect of its B-BBEE status.

STRENGTHENING OF EVALUATION AND MONITORING OF COMPLIANCE WITH THE ACT AND CREATION OF A COMMISSION

The Bill creates a Broad-Based Black Economic Empowerment (“B-BBEE”) Commission which will effectively act as an ombudsman for matters relating to the Act. The Commission is to be headed by a Commissioner with national jurisdiction. The functions of the Commission will entail overseeing general adherence to the Act, receiving and investigating complaints relating to the Act, maintaining a registry of major B-BBEE transactions and promote the advocacy of B-BBEE initiatives among other duties.

The Bill arms the Commission with extensive powers to contract with any persons, juristic or natural, including but not limited to engaging the services of a special investigations unit.

This effectively empowers the Commission to engage special services to aid investigations into B-BBEE compliance and contraventions investigations.

The Commission will also have the powers to make determinations regarding fronting practices in B-BBEE transactions.

PROVISION AND CREATION OF OFFENCES AND PENALTIES

The Bill creates offences and their concomitant penalties. It creates an offence for intentional misrepresentation of information for purposes of securing a favourable B-BBEE status, providing false information to an organ of state and failure by a public officer to report any of the former offences in terms of the bill.

A person convicted in terms of the Bill would be liable to at a minimum, a fine and/or twelve months imprisonment up to a maximum of ten years imprisonment. In respect of juristic persons, the fine will be calculated up to a maximum of ten percent of such juristic person’s annual turnover.

In addition to the above penalties, any person convicted for the aforesaid offences will be banned from further contracting with any organ of state or public entity.

These amendments will overall arm the Act and change the landscape of conducting business with government, which is the single largest buyer of goods and services in South Africa.

Published with the kind cooperation of BKM Attorneys

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