It is already fraud - industry
August 19, 2010

By Donwald Pressly - Business Report

Fronting - using token black people as directors of companies to mask white companies wanting to win tenders - should be criminalised and treated "as a punishable offence", Department of Trade and Industry's (dti) officials heard yesterday

Nomonde Mesatywa, the chief director of the dti's black economic empowerment (BEE) unit, said therelatively new BEE Advisory Council was considering the criminalising of fronting.

Mesatywa reported that a co-operation agreement had been forged with the Special Investigating Unit to probe fronting "and make recommendations for possible prosecution".

Three years ago, Mesatywa told Parliament that legislation was soft on fronting transgressors. She said at the time that the dti sought strong powers to prosecute offending white businesses which fronted themselves with black people.

National African Federated Chamber of Commerce and Industry president Lawrence Mavundla said yesterday it would "be great" if legislation was passed to proscribe fronting. "There have been cases where the garden boy and the kitchen lady find themselves unknowingly as directors of companies" to act as fronts for white business.

EconoBEE chief executive Keith Levenstein said yesterday that he was a little wary of another law being passed because it could already duplicate common law, which recognised fronting as fraud.

He said one of the problems was that government tenders only took into account the requirements of the preferential procurement framework legislation and most tendering companies were not asked to provide Broad-based Black Economic Empowerment Act scorecards.

Black Management Forum deputy president Tembakazi Mnyaka said the issue of fines was an important matter as they needed to be a deterrent.

She questioned whether the dti had the capacity to implement any new legislation regarding fronting. "Implementation is what is lagging behind."

Andile Tlhoaele, the chief executive of Inforcomm, a BEE verification agency, said the state had to treat fronting in the same way it treated corruption. He said fronting caused untold misery to companies that should have won the tenders in the first place.

Tlhoaele is the former chairman of the Association of BEE Verification Agencies.

"It is bad in that it compromises the underlying legislation. Both (the fronting company and the beneficiary) should be punished in the same way. Find the first one and make an example of them to deter the others," he said.

Acting dti deputy director-general Sipho Zikode acknowledged that the setting up of the BEE Advisory Council - six years after the Broad-based Black Economic Empowerment Act was promulgated - had been slow. He hoped that it could now get down to some hard work.

The advisory council had set up four sub-committees, including one which dealt with instruments to promote broad-based BEE, including examining existing legislation verification procedures, sector charters and fronting.

The other committees will look at ownership and management control; enterprise development including procurement and access to finance; and skills development and employment equity issues. - Additional reporting by Mzwandile Jacks