In an attempt to curb fronting and abuse of the fictitious value accruing to Black people in BEE ownership transactions, the BEECommission has issues a non-binding Practice Guide which states that only the “Flow-through Principle” and not the Modified Flow Through Principlewould apply to EMEs and QSEs.
Under the Ownership element of the BEE Scorecard, the flow-through principle traces ownership measurement through the chain of ownership to a natural black person (and not a Black owned company). The modified flow-through principle allows for the participation of non-Black participants at one tier of ownership.
The enhanced recognition status that is referred to means the automatic qualification of 51% black-owned QSE’s or EME’s to a level 2 status and the automatic qualification of 100% black-owned QSE’s or EME’s to a level 1 status. Although the Practice Guide is non-binding, it certainly shows how the Commissioner will deal with fronting practices involving such QSE’s and EME’s.
NPI Governance Consulting CEO, Israel Noko, warns companies that have already structured their BEE Ownership deals around the modified flow through principle to relook at their deals as full points that were achieved before might not be. “Should a company (either a QSE or EME) claim to be a Level 2 or 1, an allegation of fronting could be made against that particular company.” Fronting is a criminaloffence and there will be little tolerance in such instances, particular is bidding for a public tender or license.
For more information, contact Thato Malebane, Marketing & Communications Manager on
Tel: 011 259 4018