Fronting means a deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes. Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person. Verification agencies, and /or procurement officers and relevant decision-makers may come across fronting indicators through their interactions with measured entities.

Fronting Practices

Window-dressing: This includes cases in which black people are appointed or introduced to an enterprise on the basis of tokenism and may be:

  • Discouraged or inhibited from substantially participating in the core activities of an enterprise; and
  • Discouraged or inhibited from substantially participating in the stated areas and/or levels of their participation;

Benefit Diversion: This includes initiatives implemented where the economic benefits received as a result of the B-BBEE Status of an enterprise do not flow to black people in the ratio as specified in the relevant legal documentation.

Opportunistic Intermediaries: This includes enterprises that have concluded agreements with other enterprises with a view to leveraging the opportunistic intermediary’s favourable B-BBEE status in circumstances where the agreement involves:

  • Significant limitations or restrictions upon the identity of the opportunistic intermediary’s suppliers, service providers, clients or customers;
  • The maintenance of their business operations in a context reasonably considered improbable having regard to resources; and
  • Terms and conditions that are not negotiated at arms-length on a fair and reasonable basis.

Responsibility to Report Fronting

In order to effectively deal with the scourge of Fronting, verification agencies, and/or procurement officers and relevant decision makers are encouraged to obtain a signed declaration from the clients or entities that they verify or provide business opportunities to, which states that the client or entity understands and accepts that the verification agency, procurement officer or relevant decision maker may report Fronting practices to the dti. Intentional misrepresentation by measured entities may constitute fraudulent practices, public officials and verification agencies are to report such cases to the dti.

Fronting Indicators

The black people identified by an enterprise as its shareholders, executives or management are unaware or uncertain of their role within an enterprise;
The black people identified by an enterprise as its shareholders, executives or management have roles of responsibility that differ significantly from those of their non-black peers;
The black people who serve in executive or management positions in an enterprise are paid significantly lower than the market norm, unless all executives or management of an enterprise are paid at a similar level;
There is no significant indication of active participation by black people identified as top management at strategic decision making level;
An enterprise only conducts peripheral functions and does not perform the core functions reasonably expected of other, similar, enterprises;
An enterprise relies on a third-party to conduct most core functions normally conducted by enterprises similar to it;
An enterprise cannot operate independently without a third-party, because of contractual obligations or the lack of technical or operational competence;
The enterprise displays evidence of circumvention or attempted circumvention;
An enterprise buys goods or services at a significantly different rate than the market from a related person or shareholder;
An enterprise obtains loans, not linked to the good faith share purchases or enterprise development initiatives, from a related person at an excessive rate; and
An enterprise shares all premises and infrastructure with a related person, or with a shareholder with no B-BBEE status or a third-party operating in the same industry where the cost of such premises and infrastructure is disproportionate to market-related costs.

 

Procedure for reporting of Fronting :

The following diagram depicts the procedure for reporting Fronting practices:

fronting

The below section is an extraction of the amended BEE Act of 2013. To view the complete act, click here.

 

‘fronting practice’ means a transaction, arrangement or other act or

conduct that directly or indirectly undermines or frustrates the achievement

of the objectives of this Act or the implementation of any of the

provisions of this Act, including but not limited to practices in

connection with a B-BBEE initiative—

(a) in terms of which black persons who are appointed to an enterprise

are discouraged or inhibited from substantially participating in the

core activities of that enterprise;

(b) in terms of which the economic benefits received as a result of the

broad-based black economic empowerment status of an enterprise

do not flow to black people in the ratio specified in the relevant legal

documentation;

(c) involving the conclusion of a legal relationship with a black person

for the purpose of that enterprise achieving a certain level of

broad-based black economic empowerment compliance without

granting that black person the economic benefits that would

reasonably be expected to be associated with the status or position

held by that black person; or

(d) involving the conclusion of an agreement with another enterprise in

order to achieve or enhance broad-based black economic empowerment

status in circumstances in which—

(i) there are significant limitations, whether implicit or explicit,

on the identity of suppliers, service providers, clients or

customers;

(ii) the maintenance of business operations is reasonably considered

to be improbable, having regard to the resources

available;

(iii) the terms and conditions were not negotiated at arm’s length

and on a fair and reasonable basis;

 

‘knowing’, ‘knowingly’ or ‘knows’, when used with respect to a

person, and in relation to a particular matter, means that the person

either—

(a) had actual knowledge of that matter; or

(b) was in a position in which the person reasonably ought to have—

(i) had actual knowledge;

(ii) investigated the matter to an extent that would have provided

the person with actual knowledge; or

(iii) taken other measures which, if taken, would reasonably be

expected to have provided the person with actual knowledge of

the matter

http://www.gov.za/sites/www.gov.za/files/37271_Act46of2013.pdf