By Erika Petersen-Holmes, BEE Specialist & Partner Coporate & Commercial Department
The DTI has named Ms Zodwa Ntuli as the first appointed acting Commissioner of the newly created BEE Commission. Ms Ntuli was previously the deputy director of the Consumer & Corporate Regulation Division of the DTI and has served on the boards of the National Credit Regulator and National Lotteries Board previously.
In terms of the Broad-Based Black Economic Empowerment (“BEE”) Act, the BEE Commission is tasked with, among other things:
- overseeing, supervising and promoting adherence with the BEE Act in the interests of the public;
- investigating any matter concerning BEE, including summoning people to appear before it to answer questions and to produce any relevant document;
- maintaining a registry of major BEE transactions.
In a speech published on DTI’s website this week, Ms Zodwa stated that:
“Our review has revealed that the monitoring of transformation was not conducted diligently. We therefore must ensure that the Commission closes this gap. B-BBEE cannot continue to be applied in pockets, haphazardly and when people feel like it. We must be able to constantly measure the economic value of BEE transactions and verify whether they are measurable against the National Development Plan imperative of reducing poverty, unemployment and inequality. With this Act as revised now we will be able to zoom in on company reports and interrogate spending patterns to determine whether they are advancing transformation in real and sustainable terms.”
In her statements, Ms Zodwa seems to have overlooked the fact that BEE transformation is not an obligation placed on companies in the private sector, but rather one of the criteria to be used by organs of state when a measuring companies competing for tenders, licences, etc. There is no obligation on any private entity to “apply BEE” or “comply” with the BEE Act. Companies are free to do nothing about BEE if they so choose and face any financial consequences. There are of course other statutory obligations pertaining to transformation, such as those in the Employment Equity Act, which companies must comply with.
Ms Zodwa went on to say:
“Fronting as a practice started off on a small scale and continued unabated to the point that it became sort of a norm. Fronting has now become so complex and sophisticated, and made part and parcel of many BEE deals as if it is a legitimate practice. The Commission will focus on eradicating this practice, but more importantly it will focus on putting measures in place to prevent such practice going forward. B-BBEE deals, including those broad-based empowerment schemes will be scrutinized regularly, and monitored to detect this fraudulent practice. Fronting undermines transformation and is unacceptable.”
These statements reflect a growing trend of objection against “broad-based schemes”, with the Black Business Chamber and others citing these as fronting vehicles. It seems that the description of BEE as “broad-based” in the BEE legislation is being over-looked.
Any entity convicted of an offence in term of the BEE Act is subject to a fine of up to 10% of a company’s annual turnover.
We will keep you advised of any further developments in this area of law which is growing in complexity.
For more information contact Erika Petersen-Holmes +27 (0)31 575 7410