As is the blogger's wont, we love to create improbable scenarios that cover as many possible fronting incidences.
South Africa loves racism, the anc loves racism the most because it gives them license to hide behind their own incompetence and malfeasance. Almost every case that I'm aware of that the BEE Commission has investigated has dealt with black shareholders being diddled. And this is why they've lost at least four high court cases because they were so hellbent on proving racism that they got eaten at the courts. They are missing out on a number of easy convictions because they don't expand their capabilities to include other forms of fronting.
The definition of fronting is very broad
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.
And when it's discovered
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 dtic. Intentional misrepresentation by measured entities may constitute fraudulent practices, public officials and verification agencies are to report such cases to the dtic.
At its core fronting is fraud and must be investigated as fraud.
It's not just the authorities that take an interest, it's the press too. They love a good story
A SCENARIO (EXTREMELY UNLIKELY BUT MAKES FOR GREAT PRESS)
We have a company called TROTTER (not pinched from Only Fools and Horses), who turns over about R3bn. I think for these purposes we'll make the fronting allegation about four years old, you'll see why it can't be current. TROTTER goes off to BALANCING BELINDA (BB) verification agency and asks them to measure their 2020/21 financial year. TROTTER operates in a competitive environment and as such needs to be at least a level 4, but they want to be a level 2 so they go for 2 levels of YES (0utsourced to a third party to manage).
The verification is completed and they come out at about 82 points, a level 4 which they needed because the scorecard before this one is also a level 4 in order to benefit from YES. But there's a problem (this is why this just can't be true) the certificate that was issued by BB is based on the 2013 codes and doesn't consider bolshie's 2019 amendments. Nevertheless TROTTER canters on towards the YES. For some reason they cancel the YES programme during the verification (after 8 months). They still expect the YES though. BB notices this problem and gives them no YES. TROTTER unfortunately trades for a year on level 4 BEE certificate, knowing full well that the wrong codes were used.
A year later TROTTER does it all over again and they get their level 2 with YES.
LET'S LOOK AT A FEW OF THE ISSUES
- The certificate is in fact invalid, it never was valid. TROTTER traded with it nevertheless. I don't think it matters that they knew, they should have known. BB should have known and if there was a consultant then the consultant should have known.
- It's difficult to figure out what the score would have been if they had used the 2019 codes (skills and procurement). You can take the information and put it into the new scorecard but that's not an accurate reflection. Being on the cusp of a level 4 they could actually have been a level 5, or worse a level 6 because they didn't meet the sub-minimum for either skills or procurement.
- The subsequent certificate is in jeopardy because the VA should have seen from the prior BEE certificate that the certificate that they based the YES on was fake. They might get away with saying that we'll use the certificate from two years back. But they remain some form of an accessory. This might impact all certificates that came after that. I would investigate, five years of fronting. That's even better press.
AND THEN
Someone picks up on this and feels that they need to expose TROTTER's fronting. This is what I would do
- Lay a charge of fraud at your local police station. It's going to sit in a file until it ends up at an investigating office and this may take months, maybe years. Fraud never prescribes, you have plenty of time (best ask a lawyer first)
- Take your charge of fraud and the evidence and both certificates to SANAS. Ask them to withdraw the certificates because the first one is fake and the second one should have known the first one was fake. SANAS can get a little bit aggressive about these things. It's not unlikely that they will suspend BB and the subsequent VA if there was a second one involved.
- Send those two withdrawn certificates to the BEE Commission. It's going back a bit but get them to put it up.
- Lodge a complaint of fronting with the BEE Commission. Attach the evidence and proof of laying the charge. I would speak to them directly and tell them that you've got something that they might actually win.
- Because this is anti-competitive why not approach the Competition Commission.
- If there's a problem with the YES, you might want to speak to YES themselves.
- And then tell the presidency if it's YES related. This is a presidential initiative (good luck here but maybe you'll find someone to talk to)
- I wouldn't bother with the dtic. I have no faith in them, they'll probably hear about it after the case is concluded
This is extreme but it's the beginning. At some stage the press will hear about it. I sometimes think that certain publications have access to the BEE Commission because I've seen some complaints making it into the press. I certainly think that journalists speak to the police, they'll hear about it somehow. The business press would like to know about this. The awful and unread koerant from Cape Town will probably write something that says "Dr I'mbeyondhelp Slaphappy condemns this white monopoly capital abuse of transformation laws and how he is the doyenne of everything empowerment related, specifically when he's under attack – which is always."
Here is why it's important to an incompetent government (the anc part) to win a BEE case. Stephen Grootes is correct in his oped.
BEE has generally been broadly accepted across society. Now this may be changing. The main reason for this is that its biggest supporter, the ANC, is losing support so quickly.
The anc part of the GNU needs a victory to show that it is serious about empowerment and the curtailment of white collar crime. The NPA has had a poor conviction rate. A case like this is not complicated, it will be properly defended with the side choosing mpofu as its counsel guaranteed to lose. It will go on for a long time. And every time it goes to court the press will be there. TROTTER will be attracting the wrong attention.
The BEE Commission might also get round to winning something. They may even get a conviction under the BEE Act. This is before the fraud charge is heard. The consequences are dire if successful (there's this thing inside me that still doesn't have faith in the BEE Commission – but maybe they'll get something right)
A natural or juristic person convicted of fronting practice(s) in terms of the B-BBEE Act may be liable to a fine of up to 10% annual turnover or a maximum prison of ten (10) years. Further, any natural or juristic person convicted of an offence in terms of the B-BBEE Act may not for a period of 10 years from date of conviction, conducting business with any organ of the state or public entity and will be registered in a register of the tender defaulters with the National Treasury.
TROTTER is a large organisation turning over R3bn, the fine could be as much as R300m. Add on the fraud conviction and its consequences, more money and the extreme reputational damage inflicted upon TROTTER and y ou have a very wounded TROTTER. Not so much a trotter but now a slow walker.
THIS IS EXTREME
But it does highlight the potential consequences of a fake BEE certificate. I don't know what's worse, the fine or the press.
I'VE NEVER DONE THIS BEFORE BUT IF YOU HAVE ANY OTHER IDEAS. SEND ME A MESSAGE AND I'LL ADD IT TO THE BLOG