Government has been actively campaigning to address the framework for BEE compliance by businesses. In October 2012 the Draft Amended BEE Codes were promulgated for comment, and although these codes raise many questions and contain numerous discrepancies, it stands clear that Government is intent on tightening the requirements for measuring BEE compliance.

At the end of 2012, Government further expanded its intentions by publishing the Broad-Based Black Economic Empowerment Amendment Bill of 2012. This Bill, in the process of being promulgated into legislation by Government, will also have a material impact on businesses in South Africa as it seeks to amend the Broad Based Black Economic Empowerment Act 53 of 2003 in a number of important aspects which businesses cannot ignore.

Promotion of compliance by Government

The Bill requires every organ of state and public entity to take into account and, as far as is reasonably possible, apply any relevant code of good practice issued in terms of the Act. This means that every level of Government must, when doing business with the private sector, ensure that businesses are compliant with the Act.

The Bill further allows Government and other public entities to determine and implement their own transformation policies and implement any transformation policy so determined as if such were a code of good conduct in terms of the Act. Accordingly, should there be any conflict between the relevant Government entity’s transformation policy and a code of good conduct issued in terms of the Act, the policy of the Government entity will be the one that will be applied.

This can create a rather complex playing field for businesses who may be required to navigate not only compliance with the Act and its BEE Codes of Conduct but also the specific transformation policies of individual Government entities, who may impose their own requirements for compliance (eg. as to the percentage of Black ownership etc.), thereby making it very difficult for businesses to comply.

“Clarification” of fronting practices

The Bill also seeks to address the issue of fronting by putting a definition to the practice. Fronting, in short, is defined as any action which directly or indirectly undermines or frustrates the achievement of the objectives of the Act.

This definition of fronting is very wide and includes conduct that even indirectly undermines or frustrates the objective of the Act. It is so wide, that one could interpret this to even include a company that fails to obtain a B-BBEE certificate, or fails to comply with certain elements under the B-BBEE scorecard!

Strengthening the evaluation and monitoring of compliance with the Act

The Bill creates a Broad-Based Black Economic Empowerment Commission (‘Commission’) which will effectively act as an ombudsman for matters relating to the Act. The functions of the Commission will include overseeing general compliance with Act, the making of determinations regarding fronting practices in B-BBEE transactions, receiving and investigating complaints relating to the Act, maintaining a registry of major B-BBEE transactions and promoting the advocacy of B-BBEE initiatives.

The Bill arms the Commission with powers which include the power to appoint a special investigations unit to assist the Commission in respect of investigations into B-BBEE compliance and contraventions.

The establishment of this Commission is in line with the Department of Trade and Industry’s policy of heavily policing the B-BBEE industry in future and businesses will have to ensure that its BEE policies and especially ownership structures are in line with objectives of the Act.

Offences and penalties

The Bill creates and makes provision for a number of offences and associated penalties. It creates an offence for intentional misrepresentation of information for purposes of securing a favourable B-BBEE status, providing false information to a Government entity and failure by a public officer to report any offence in terms of the Act.

The Bill imposes steep penalties on persons found guilty of an offence. A person convicted in terms of the Act could be liable to a fine and/or imprisonment of twelve months or ten years. 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 of the aforesaid offences will be banned from further contracting with any Government entity and will be entered into the register of tender defaulters.

Conclusion

The Bill introduces substantial policing ability and penalties. Businesses are advised to ensure that they obtain advice regarding their BEE practices and that their BEE compliance structures are verified as soon as possible to ensure compliance with the objectives of the Bill before it is promulgated as legislation.

Written by FC Liebenberg, Associate, Phatshoane Henney Attorneys Commercial Department
Email: fc@phinc.co.za