bee fronting penalties

y = document.frmCalc.txtTerm.value; //years

document.frmCalc.txtBaktex.value = ""; 53 of 2003, the stated objective of which, is to: âpromote the achievement of the constitutional right to equality, increase broad-based and effective participation of black people in the economyâ¦promote a higher growth rate, increased employment and more equitable income distributionâ¦and establish a national policy on broad-bâ¦ In closing, businesses seeking to achieve B-BBEE compliance must ensure compliance with the B-BBEE Amendment Act and do so in a manner which does not amount to fronting. document.frmCalc.txtRepay.value = ""; }

This changed when the Act was amended and made these practices a punishable offence. document.frmCalc.txtAmt.focus() Broad-Based Black Economic Empowerment (“. For example, if the black employee appointed to a senior position knows that he/she does not have the required skill for the position, or if he/she acquires a certain shareholding yet does not receive the economic benefit allied with same, steps must be taken to report the matter the B-BBEE Commission. if (MustUpdate == 1) { }

Most likely the Commission will find some of the companies named not guilty of any offense, but there will be some that have taken shorts cuts, or attempted to circumvent the codes and may be prosecuted.

function CalculateAll() { document.frmCalc.txtEmail.value = ""; for (i = j; i >= 0; i--) allegation of fronting. The Preferential Procurement Regulations under the Preferential Procurement Policy Framework Act provide guidance on the tender process including with regard to subcontracting arrangements. else {

v = remComma(document.frmCalc.txtPurch.value); //purchase price

int_perc = i / 100; var int_perc = 0; } Copyright Schindlers Attorneys | Use of this website is subject to our, Electronic Document Generation Fee (vatable), In addition to the costs indicated, buyers should also make provision for additional. The B-BBEE Commission does not have the authority to impose a penalty or other criminal sanctions as this is strictly dealt with through a court of law. The Courtâs finding makes it easier for a fronting practice as defined in the B-BBEE Act to be prosecuted. However, the true participation of black people in the South Africâ¦ Major B-BBEE transactions – definition and documentary requirements, B-BBEE Code Series information for Generic Enterprises, B-BBEE and the Draft Legal Sector Code – update – March to May 2021, Equity equivalent investments for B-BBEE – Guidelines – article 2 of 2, Policy objectives of B-BBEE and Transformation. Courts are given the discretion to limit this prohibition to only those. alert("Please enter a bond amount.") }

var month_term = 0;

} Why BEE fronting is a bad idea â and wonât be tolerated any longer. Penalties are up to ten years imprisonment, and a hefty fine of ten percent of turnover, or both. document.frmCalc.txtBdocfee.value = addComma(Bdocfee); document.frmCalc.txtTexam.value = addComma(exam); return TheNum; The Leniency Programme is a compliance mechanism that encourages reporting of all major B-BBEE transactions prior to the promulgation of the amended B-BBEE Act, as well as promote adherence to the B-BBEE Act. Of possible interest to the reader is a 2017 High Court case involving the Passenger Rail Agency of South Africa (PRASA) and Swifambo Rail Agency Proprietary Limited. var Evaultfee = 390; Any person convicted of an offence in terms of the BEE Act may be liable to a fine or a maximum prison sentence of bc = GetBondCost(v); document.frmCalc.txtBtariff.value = "";

function GetVat(Amt) { “a transaction, arrangement or other act or conduct that directly or indirectly undermines the achievement of the objectives of the Act or the implementation of any of the provisions of this Act.”, The definition provides a list of fronting practices which include, but are not limited to, “black persons, who are appointed to an enterprise, are discouraged or inhibited from substantially participating in the core activities of that enterprise”, “the conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of B-BBEE 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.”, In summary, businesses that front pretend to be more compliant with B-BBEE policies than they actually are. Fronting practices come in many forms and shapes, with companies getting more creative about ways to skirt the system. txfd = x; In addition, the B-BBEE Commission has mentioned how a conviction can come with reputational damage as a company or individual can be sued and taken to court for the recovery of a payment made on the back of fronting. document.frmCalc.txtBtariff.value = addComma(bc); According to the Act, individuals that had actual knowledge or who were in a position where they ought to have had actual knowledge of a fronting practice can face criminal sanctions, which include a fine and/or up to 10 yearsâ imprisonment. var l = numVar.length;

var AmtBondC3 = 650; }

âFronting penalties should include imprisonment of both shareholders and directors.' "); }

} else { var AmtTXfer2 = 1300; After evaluating the complaint, the Commission made a final finding of fronting wherein specific recommendations were made to Risc Technology. We are working on resolving the issue and will notify you once we are back up and running again. There are essentially two categories of fronting offenders; those who actively front and those who were a part of a fronting scheme and should have reported it. var AmtBondC4 = 325;

Ignorance of the facts is not an excuse under the Amendment Act and alleging that you âdidnât know what was going onâ will unlikely help you to escape a charge, especially if there were indicators of fronting that you should have been aware of. }

document.frmCalc.txtBvat.value = addComma(bvat); var month_term = 0;

In addition, it has widened the pool of people who can be found for (i = j; i >= 0; i--) }

thenumber = thenumber + numVar.charAt(i - 1); var amt = 0; The Constitution of the Republic of South Africa, 1996 (“The Constitution”) places a duty on our law-makers to put in place measures, legislative and otherwise, to achieve equality. } tot3 = CalculateRepayments(1);

In addition, the B-BBEE Commission has mentioned how a conviction can come with reputational damage as a company or individual can be sued and taken to court for the recovery of a payment made on the back of fronting. The Commission received a grievance from the companies’ former employee who stated that she was formerly employed as a receptionist but that she left the company after learning that she had been listed as a 33% shareholder, without her approval or knowledge, and without receiving any dividends in respect of her shareholding. if (numVar.charAt(i - 1) != " ") var monthly_int_rate = 0; Amendments to the broad-based BEE legislation include penalties â¦ var thefraction = "";

numVar = ""

function UpdateRepayment() {

function GetTxferCost(Amt) { document.frmCalc.txtRepay.value = addComma(RoundNumbers(r)); thenumber = thenumber + numVar.charAt(i - 1); if (remComma(document.frmCalc.txtAmt.value) == 0) {

function remComma(TheNum) { ”) on an urgent basis to interdict the Commission from implementing its findings and recommendations made in its report. alert("Please enter a bond amount.") The B-BBEE Amendment Act 46 of 2013 (“the Amendment Act”) introduced certain mechanisms, as will be discussed below, in order strictly monitor these practices. Ignorance of the facts is not an excuse under the Amendment Act and alleging that you “didn’t know what was going on” will unlikely help you to escape a charge, especially if there were indicators of fronting that you should have been aware of. document.frmCalc.txtTtotal2.value = ""; j = thenumber.length; if (! } document.frmCalc.txtAmt.value = "";

function addCommaEx(TheNum) { The Commission clearly states the penalties The Commission clearly states the penalties applicable if there is ever a court case â up to 10 years in jail, and 10% penalty of annual revenue. tot3 = CalculateRepayments(1);

}

var tot1 = 0; }

with (document.frmCalc) { var tot1 = 0; commaNumber = commaNumber + thenumber.charAt(i);

” as a person who has actual knowledge of the fronting or who is in a position where he or she ought to have knowledge of it and should have investigated the matter or taken measures which would have exposed the fronting. document.frmCalc.txtAmt3.value = ""; ANALYSIS: B-BBEE and its implications for fronting. After an employee or the general public lay a complaint to the B-BBEE Commission about a potential fronting practice, the Commission will investigate the matter and may then refer same to the National Prosecuting Authority (“NPA”) for prosecution, to the South African Police Service (“SAPS”) for criminal investigation or even to the South African Revenue Services (“SARS”) for examination. Copyright Schindlers Attorneys | Use of this website is subject to our disclaimer | Powered by Schindlers Attorneys. A B-BBEE verification professional, who is an individual in charge of rating the status of a company in terms of their B-BBEE compliance, who becomes aware, or attempts to commit, fronting is liable to a fine and/or imprisonment for a period not exceeding 12 (twelve) months. document.frmCalc.VerifyBox.value = ""; There are essentially two categories of fronting offenders; those who actively front and those who were a part of a fronting scheme and should have reported it. 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. if (v <= 100000) { exam = 35; } if ((v > 100000) && (v <= 200000)) { exam = 75; } if ((v > 200000) && (v <= 300000)) { exam = 465; } if ((v > 300000) && (v <= 600000)) { exam = 580; } if ((v > 600000) && (v <= 800000)) { exam = 815; } if ((v > 800000) && (v <= 1000000)) { exam = 930; } if ((v > 1000000) && (v <= 2000000)) { exam = 1050; } if ((v > 2000000) && (v <= 4000000)) { exam = 1275; } if ((v > 4000000) && (v <= 6000000)) { exam = 1750; } if ((v > 6000000) && (v <= 8000000)) { exam = 2100; } if ((v > 8000000) && (v <= 10000000)) { exam = 2455; } if ((v > 10000000) && (v <= 15000000)) { exam = 2920; } if ((v > 15000000) && (v <= 20000000)) { exam = 3505; } if (v > 20000000) { This changed when the Act was amended, and made these practices a punishable offence. Owing to the fact that such contracts are often the main motive for the fronting, this may be the worst form of punishment. As a result, the Amendment Act covers those individuals who are negligent in their actions, not just intentional, and one has to take reasonable steps to try and ascertain the actual state of affairs if they are in that position. numVar = String(TheNum); return runTotal;

v = remComma(document.frmCalc.txtAmt2.value); //bond amount ”) is a policy aimed at assisting in economic inclusivity and is intended to empower black businesses and individuals by forcing state entities to take preference over same when it comes to the granting of jobs and awarding of tenders. document.frmCalc.txtTtariff.value = addComma(tc); document.frmCalc.txtTpost.value = addComma(Petties); The relationship between Swifambo and Vossloh however amounted to the exploitation of the intended beneficiaries of the B-BBEE Act, namely black people. The High Court dismissed the application in March 2020.

exam = 0; }

i = document.frmCalc.txtInt.value; //interest rate }

It also unveiled a BEE amendment bill intended to prohibit fronting and lay down prison and other penalties for misrepresenting BEE status. }

/********* Deeds Office Fees Apr 2017 ***********/

var tot2 = 0; If the Bill is adopted in its current form, this will be the first time since 1994 that jail terms ” will unlikely help you to escape a charge, especially if there were indicators of fronting that you should have been aware of. } The B-BBEE Commission does not have the authority to impose a penalty or other criminal sanctions as this is strictly dealt with through a court of law. The Amendment Act criminalises fronting and other misrepresentations regarding the BEE status of an enterprise. A “fronting practice” is defined in the Amendment Act as “a transaction, arrangement or other act or conduct that directly or indirectly undermines the achievement of the objectives of the Act or the implementation of any of the provisions of this Act.” The definition provides a list of fronting practices which include, but are not limited to, when “black persons, who are appointed to an enterprise, are discouraged or inhibited from substantially participating in the core activities of that enterprise” and “the conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of B-BBEE 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.”. According to Ms Moipone Kgaboesele, executive manager for investigations and enforcement for the Commission, “the Commission takes every fronting allegation seriously and will not stop pursuing such matters because if true, they undermine the policies and the efforts of government to properly empower black people in this country, and further, it defrauds the tax payers and government because companies that engage in fronting black people and misrepresent their B-BBEE status get benefits that they do not deserve under false pretenses.”.

function CalculateBondFees(MustUpdate) { } alert("Please enter a bond amount.") document.frmCalc.txtBtotal2.value = document.frmCalc.txtBtotal.value; //bond cost breakdown total tot2 = CalculateBondFees(1); document.frmCalc.txtBvat.value = ""; According to the Guidelines on Complex Structures and â¦ document.frmCalc.txtPurch.value = "";

function CalculateMonthlyInstallment() { tc = GetTxferCost(v); whatever BEE activity they wish to implement. j = thenumber.length; The Commission may publish any finding or recommendation which it has made in respect of any investigation it conducted in such manner as it may deem fit. document.frmCalc.txtTvat.value = addComma(tvat); i = document.frmCalc.txtInt.value; //interest rate

if (MustUpdate == 1) { } One must be conscious of the risks they face when engaging in a fronting practice as not only can one face jail time or a hefty fine, but also damage to image and reputation which could negatively affect the ability to attract investments or contracts. In February of 2020, Risc Technology Integration (Pty) Ltd (“Risc Technology”) was issued with a final finding by the Commission in a case alleging fronting and misrepresentation of B-BBEE status. return numVar; }

} The Commission clearly states the penalties applicable if there is ever a court case â up to 10 years in jail, and 10% penalty of annual revenue. if (Amt <= 900000) { txfd = 0; } //looks good if ((Amt > 900000) && (Amt <= 1250000)) { x = (Amt - 900000) * (3 / 100); txfd = x; } if ((Amt > 1250000) && (Amt <= 1750000)) { x = 10500; x = x + ((Amt - 1250000) * (6 / 100)); txfd = x; } if ((Amt > 1750000) && (Amt <= 2250000)) { x = 40500; x = x + (Amt - 1750000) * (8 / 100); txfd = x; } if ((Amt > 2250000) && (Amt <= 10000000)) { x = 80500; x = x + (Amt - 2250000) * (11 / 100); txfd = x; } if (Amt > 10000000) {

function addComma(TheNum) { What are the penalties forâ¦. There was no transfer of skills to Swifambo; Vossloh had chosen not to take advantage of the âequity equivalentâ programme whereby multinational firms may earn B-BBEE ownership points by contributing to an approved programme instead of having a B-BBEE shareholder. var commaNumber = ""; numVar = String(TheNum); document.frmCalc.txtAmt2.value = addCommaEx(remComma(document.frmCalc.txtAmt2.value));

/********* Bond Conveyancing Tariff Fee */

The BBBEE Commission made it clear that there will be a particular emphasis on ensuring that the BBBEE ownership element is being adequately and sustainably addressed. if ((i != j) && ((j - i) % 3 == 0)) Please be advised that our internal servers are down. document.frmCalc.txtTdocfee.value = ""; The third component, raised in argument, is the extension of the tender validity period and subsequent conclusion of the contract with the second respondent. if (document.frmCalc.rdg[1].checked) { A practical example would be where a company asserts that a lower-salaried black employee, such as a driver, is a director or holds a senior position in order for the business to appear B-BBEE compliant and secure a tender. alert("Please enter a purchase price.") (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 armâs length and on a fair and reasonable basis. collusion and fronting. } document.frmCalc.txtAmt2.value = addComma(remComma(document.frmCalc.txtAmt2.value)); month_term = 12 * y;

return bond; var tot2 = 0; var runTotal = 0; ; } Companies can face administrative penalties of up to 10% of its annual turnover. } } B-BBEE fronting is prevalent in South Africa and has the ability to hamper economic transformation and undermine the objectives of the Act.

if (MustUpdate == 1) { txfer = txfer + 42000; }

Owing to the fact that such contracts are often the main motive for the fronting, this may be the worst form of punishment. document.frmCalc.txtTevaultfee.value = ""; return RoundNumbers(Amt * (VAT_rate / 100)); Section 13P of the Amendment Act prohibits any person that has been convicted of an offence in terms of the Act from doing business with organs of state for up to 10 (ten) years. The maximum penalty is either 10 years in prison or 10% of â¦ var tvat = 0; Fronting has now been incorporated into the Broad-Based Black Economic Empowerment Amendment Act and is recognised as an offence with prescribed maximum penalties. FIN 24 / Oct 15 2017 06:00 / Lesetja Malope Johannesburg - Businessman Sandile Zungu has warned that big corporates are using community trusts as a sophisticated new way of fronting in BEE deals. Staff Writer 16 August 2017. This is important as before 2013, fronting practices were covered by the common law criminal offence of fraud which requires a misrepresentation in order for a person to be convicted. The Amendment Act creates the offence for anyone who “. x = Math.ceil((Amt - 5000000) / 100000); document.frmCalc.txtBdocfee.value = ""; As a result, the Broad-Based Black Economic Empowerment Act 53 of 2003 (“, ”) was enacted with the aim of remedying the economic and social inequities prevalent in South Africa. The case highlights the importance of ensuring that State and Parastatal tenders are structured in a way which complies with the B-BBEE requirements of the tender and does not amount to a fronting practice. document.frmCalc.txtAmt2.focus()

The BEE act was amended in January 2014 to give this term more clarity and to introduce specific penalties for those found guilty of fronting, which is another word for fraud. var amt = 0; if (MustUpdate == 1) { The Amendment Act creates the offence for anyone who “knowingly engages” in fronting, and defines “knowingly” as a person who has actual knowledge of the fronting or who is in a position where he or she ought to have knowledge of it and should have investigated the matter or taken measures which would have exposed the fronting. Companies can face administrative penalties of up to 10% of its annual turnover. The company then approached the Gauteng Division of the High Court of South Africa (“. }

document.frmCalc.txtAmt2.value = document.frmCalc.txtAmt.value; //bond amount

(The BEE Bill does not expressly refer to shareholders being punishable in this way, but its penalties apply to âany person' found guilty of var Aktex = 140;

v = remComma(document.frmCalc.txtAmt.value); Those businesses seeking to achieve B-BEE compliance must ensure to comply with the Amendment Act and do so in a manner which does not amount to “fronting”. var VAT_rate = 14 It can, however, make a finding as to whether any B-BBEE practice involves fronting and has wide investigative powers afforded to it. A B-BBEE verification professional, who is an individual in charge of rating the status of a company in terms of their B-BBEE compliance, who becomes aware, or attempts to commit, fronting is liable to a fine and/or imprisonment for a period not exceeding 12 (twelve) months. bvat = GetVat(bc + Petties + Aktex + Bdocfee + Bevaultfee);

}

else { May 1 2015.

if (MustUpdate == 1) { Government bemoans economic impact of fronting. After an employee or the general public lay a complaint to the B-BBEE Commission about a potential fronting practice, the Commission will investigate the matter and may then refer same to the National Prosecuting Authority (“, ) for prosecution, to the South African Police Service (“, ) for criminal investigation or even to the South African Revenue Services (“, A person who appears before the Commission is not obliged to give any information over which is self-incriminating and, if they do, this information will, The Commission may publish any finding or recommendation which it has made in respect of any investigation it conducted in such manner as it may deem fit. document.frmCalc.txtTduty.value = addComma(td); var thenumber = "" A practical example would be where a company asserts that a lower-salaried black employee, such as a driver, is a director or holds a senior position in order for the business to appear B-BBEE compliant and secure a tender. document.frmCalc.txtAmt2.value = "";

, Insolvency, Business Rescue & Restructuring, South Africa has one of the most unequal societies in the world due to its racially segregated past. The PRASA/ Swifambo case related to the award of a tender to Swifambo by PRASA for the supply of locomotives to PRASA. numVar = String(TheNum); document.frmCalc.txtTdocfee.value = addComma(Tdocfee); var Bevaultfee = 390;

for (i = l; i > 0; i--) { The company then approached the Gauteng Division of the High Court of South Africa (“High Court”) on an urgent basis to interdict the Commission from implementing its findings and recommendations made in its report. x = x + (Amt - 10000000) * (13 / 100); // add commas to the top values document.frmCalc.txtTtotal.value = addComma(RoundNumbers(runTotal)); document.frmCalc.txtPurch2.value = ""; }

/********* Deeds Office Fees Apr 2017 ***********/

} Criminal liability may ensue if a party is found guilty of fronting and, as per Section 130(3)(a) of the Amendment Act, an individual who knowingly engages in a fronting practice will be liable to a fine, imprisonment for a period not exceeding 10 (ten) years. var AmtBondC2 = 1300; © 2021.

p = Math.pow((1 + monthly_int_rate), (-1 * month_term)); for (i = j; i < j + 3; i++) { thefraction = thefraction + tvar.charAt(i); } } else { //no period found thefraction = ".00"; } j = numVar.length; for (i = j; i > 0; i--) { The Commission started operating in June 2016, taking complaints and researching cases in order to begin rooting out BBBEE-related corruption. //seller is a vat vendor Fronting is described as a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of B-BBEE Act or the implementation of any of the provisions of B-BBEE Act, including but not limited to practices in connection with a B-BBEE initative: (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. The Commission received a grievance from the companies’ former employee who stated that she was formerly employed as a receptionist but that she left the company after learning that she had been listed as a 33% shareholder, without her approval or knowledge, and without receiving any dividends in respect of her shareholding.

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