BEE trusts amount to 'fronting'
The commission that monitors compliance with empowerment legislation says the vast majority of transactions involving broad-based BEE trusts are not compliant with the law as the trusts are not genuine and effective black ownership.
According to a Business Day report, the Black Economic Empowerment Commission, set up in the Department of Trade & Industry in 2017, has written to dozens of companies informing them of the need to rectify their ownership structures and undergo re-verification of their BEE status or face investigation for fronting.
Its function is to monitor and record empowerment transactions with a value of more than R25m. It also has the responsibility to ensure that all transactions that are still running are compliant with the Broad-based Economic Empowerment Act, even if they were concluded prior to the commission’s establishment.
Among the trusts that could possibly be affected, says the report, are those that form part of the most successful and oldest BEE vehicles such as Kagiso Trust, Wiphold Investment Trust, the Sactwu Investment Trust, the Royal Bafokeng Nation Trust, and the Batho Batho Trust, which owns 47.5% of Thebe Investment Corporation.
BEE commissioner Zodwa Ntuli said the commission had written to a large number of entities to inform them that their ownership structures constituted fronting.
‘We have drilled down into broad-based schemes and most of them are not compliant. The trusts have beneficiaries who might get some money or a bursary, but that is not ownership; it is fronting,’ Ntuli said.
She said to qualify as black ownership the beneficiaries must meet the ownership test, which includes: that they are clearly identifiable and able to exercise voting rights; the beneficiaries receive the same economic benefits as all other shareholders; and at the end of the day they become the unencumbered owners of the shares in which they are invested.
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