Tag: fronting

Hitachi case exposes fronting by ANC

South Africa has been fingered in the alleged “improper payments” originating from contracts that the ANC’s investment arm, Chancellor House, for work at the Medupi and Kusile power stations.

As a signatory of the OECD Convention which is aimed at combatting fraud in international business transactions by foreign officials [OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions], South Africa’s failure to do so, has been exposed at the highest levels.

It appears however that the ANC has also transgressed their own Broad Based Black Economic Empowerment Act by making use of “fronting” to take money for awarding lucrative contracts to Hitachi.

These observations have been made by the American investment watchdog, the Securities and Exchange Commission (SEC) which described Chancellor House Holdings as a “front” through which the ANC could make money from the contracts with the Japanese group Hitachi in South Africa.

The OECD meanwhile released a damming report at the end of last year about South Africa’s unwillingness to act against international bribery and corruption and the finger is pointed directly at the ANC government.

The title of the report is: ‘Phase 3 Report on Implementing the OECD Anti-Bribery Convention in South-Africa’. The subheading reads: ‘Lack of enforcement jeopardises South Africa’s fight against foreign bribery; OECD concerned that political an economic considerations may be an influence’.

On page 9 of the report of 87 pages, it is stated, amongst others, (under the caption of Bribery of Foreign Public Officials):

‘Corruption remains a serious problem in South Africa. The country has experienced a number of high profile domestic corruption scandals, and corruption allegations have been linked to the highest levels in government.’

Also: ‘Corruption in public procurement tenders has been a particularly serious problem…’. It mentions that the Head of the Special Investigative Unit (SIU) had already reported to Parliament in 2011 about the fact that between R25 and R30 billion – approximately 20% of the country’s total annual procurement budget had been lost due to ‘corruption, incompetence and negligence’.

New bill will punish whites for ‘passive black shareholders’

Rob Davies
Rob Davies

The gazetted Broad Based Black Economic Empowerment (BBBEE) Amendment Bill will put in place strict measures to tackle fronting, Trade and Industry Minister Rob Davies said on Tuesday.

“What we are doing is defining it much more closely in the bill so that there is a specific statutory offence of fronting,” Davies told reporters in Pretoria.

Fronting is when companies pretend to be compliant with the act by placing blacks in positions that would make them seem as if they either own the company, or are at a level to make decisions in the company.

“Now that would be a fraud because you are trying to do that because you want to get a regulatory benefit, or present yourself as something that you are not, and that is fraud.”

Davies was speaking after a presidential BBBEE advisory meeting which reviewed the progress of the act and the codes of good practice.

He said a commissioner would be assigned to solely focus on fronting. The commissioner would receive and investigate cases of fronting, correct the situation and, in extreme cases, he would have the authority to prosecute those involved.

“The problem is we haven’t got provisions in place to catch fronting… ordinary law enforcement officers don’t have the capacity to go and investigate transactions of that nature to see where fronting is taking place.”

Currently those found guilty of the practise can be charged with fraud and face imprisonment.

“So we are introducing a BEE commissioner who will be charged with looking into the matter,” he said.

Davies said the objective was to provide ways to measure the degree to which an individual was involved in empowerment.

Council sub-committee chairman Sandile Zungu said they were focusing on fronting because it infringed on human dignity.

“If we are to build a society based on justice then fronting has no place in our society.”

Zungu said the practice had reached the stage of “aggressive fronting”.

The minister said the amendments to the bill would ensure black economic empowerment contributed to the creation of real entrepreneurs in South Africa.

“It opens up new opportunities for black business people who are active players in the economy, and are not passive shareholders in somebody else’s business.”

– SAPA