Following on from our previous update in October 2013, regarding the amendments to the Codes of Good Practice on BEE (“the Revised Codes”), which will take effect of 11 October 2014, the President has assented to the Broad-Based Black Economic Empowerment Amendment Act, No. 46 of 2013, which was published in the Government Gazette on 27 January 2014 (“the BEE Amendment Act”). The BEE Amendment Act amends the Broad-Based Black Economic Empowerment Act No. 53 of 2003 (“the BEE Act”).
The BEE Amendment Act will be effective on a date to be determined by the President by proclamation in the Government Gazette and we await publication of such date. There is no indication, at this stage, as to when this date will be.
The BEE Amendment Act has been brought into law in substantially the same format as the BEE Amendment Bill as was approved by Parliament during 2013.
The BEE Amendment Act introduces a number of sweeping changes to the BEE Act. The main thrust of the provisions of the BEE Amendment Act is to establish a framework for the regulation of BEE and its monitoring, and to establish a dedicated regulator to oversee BEE and to ensure that the objectives of the BEE Act are attained and not circumvented.
The amendments can briefly be summarised as follows:
- The Definition of “black people” now accords with the definition as contained in the Revised BEE Codes and continues to refer to the generic term which means Africans, Coloured and Indians provided they are citizens of the Republic of South Africa by birth or descent or who became citizens of the Republic of South Africa by naturalisation before 27 April 1994 or on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation prior to that date.
- A definition of “fronting practice” is now included in the BEE Act, which definition is broadly termed as a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of the BEE Act or the implementation of any provision of the BEE Act. The definition then goes on to list (which list is not exhaustive) a number of practices which would constitute a fronting practice.
- A number of further definitions have been introduced or amended in the BEE Act.
- The objects of the BEE Act have been amended to include a renewed focus on black start-up businesses, small, medium and micro enterprises, co-operatives and black entrepreneurs, with inclusion of those in the informal sector, as well as increasing the effective economic participation of black-owned and managed enterprises and enhancing their access to financial and non-financial support.
- In terms of Section 3 of the BEE Amendment Act, in the event that there is any conflict between the BEE Act and any other law in force immediately prior to the commencement date of the BEE Amendment Act, the BEE Act will prevail if such a conflict specifically relates to a matter dealt with in the BEE Act. It is interesting to note that this provision in the BEE Amendment Act will not be effective on the date to be proclaimed by the President, but rather will only become effective a year thereafter. The ambit of this provision has wide ranging consequences. It pertinently raises the question of whether the Mining Charter conflicts with the BEE Act.
- A further significant change is that previously under the BEE Act organs of state and public entities were only required to take the BEE Codes into account, “as far as reasonably possible”. However, now every organ of state and public entity “must” apply any relevant codes of good practice issued in terms of the BEE Act and the words “take into account and as far as reasonably possible” have been deleted. This now means that it is mandatory for organs of state and public entities to apply codes of good practice when determining qualification criteria for the issuing of licences, concessions and other authorisations in respect of economic activity or developing and implementing a preferential procurement policy. This obligation also extends to determining qualification criteria for the sale of state-owned enterprises, developing criteria for public private partnerships and criteria for awarding incentives, grants and investment schemes in support of BEE.
- It should be noted that the BEE Amendment Act does allow the Minister of Trade and Industry (“the Minister”), after consultation with the relevant organ of state or public entity, to exempt the organ of state or public entity from the aforesaid mandatory requirement and allow a deviation therefrom based on a particular objectively verifiable fact or circumstance applicable to that organ of state or public entity, which necessitates the exemption or deviation, and the Minister must publish the notice of exemption or deviation in the Government Gazette.
- It should be further noted that an enterprise in a sector where a sector code is in place in terms of Section 9 of the BEE Act can only be measured for compliance with BEE in accordance with that sector code and not any other code including the generic codes. Furthermore, enterprises operating in a sector where a sector code exists, must report annually on their compliance with BEE to the sector council which has been established for that sector.
- In terms of the BEE Amendment Act, the Minister may by notice in the Government Gazette permit organs of state or public entities to specify qualification criteria for procurement and other economic activities which exceed those set by the Minister in terms of any code of good practice.
- The BEE Amendment Act also introduces a number of new sections into the BEE Act which can be summarised as follows:
- Any contract or authorisation awarded on account of false information, knowingly furnished in respect of BEE, may be cancelled by the organ of state or public entity.
- A regulator for BEE is established, to be known as the Broad-Based Black Economic Empowerment Commission (“the BEE Commission”). The Commission will be headed up by the commissioner to be appointed by the Minister for a term not to exceed 5 years. The BEE Amendment Act further deals in some detail with the establishment of the Commission and its functions.
- The functions of the BEE Commission include:
- to oversee, supervise and promote adherence to the BEE Act;
- to strengthen and foster collaboration with the public and private sector in order to promote and safeguard the objectives of BEE;
- to receive complaints relating to BEE;
- to investigate, either at its own initiative or in response to complaints received in any matter concerning BEE;
- to maintain a registry of major BEE empowerment transactions above a threshold to be determined by the Minister by notice in the Government Gazette; and
- to receive and analyse such reports as may be prescribed concerning BEE compliance from organs of state, public entities and private sector enterprises.
- All spheres of government, public entities and organs of state must report on their compliance with BEE in their audited financial statements and annual reports required under the Public Finance Management Act of No. 1 of 1999, and all public companies listed on the JSE must provide the BEE Commission, in a prescribed form, a report on their compliance with BEE, annually. There are also certain reporting obligations on sectorial education and training authorities contemplated in the Skills Development Act No. 97 of 1998.
- The BEE Commission has various further powers to establish specialists committees, to co-operate with other investigation units in government, such as the special investigating unit. It also has very broad powers to investigate matters arising from the application of the BEE Act, including any BEE initiative or category of BEE initiatives or making a finding as to whether a BEE initiative constitutes a fronting practice.
- The BEE Commission is further empowered to institute proceedings in any court to restrain any breach of the BEE Act, including a fronting practice or to obtain appropriate remedial relief, and if the Commission is of the view that any matter it has investigated may involve the commission of a criminal offence in terms of the BEE Act or any other law, it must refer the matter to the National Prosecuting Authority or the appropriate division of the South African Police Service.
- There are various offences and penalties in terms of the BEE Amendment Act, the most stringent one being that where any person misrepresents or attempts to misrepresent the BEE status of an enterprise or provide false information to a BEE verification professional in order to secure a particular BEE status or benefit, where such person is convicted, such person will be liable to a fine or imprisonment for a period not exceeding 10 years or both a fine and imprisonment or, if the person convicted is not a natural person, to a fine not exceeding 10% of its annual turnover.
- In addition any person convicted of an offence in terms of this BEE Act may not for a period of 10 years from the date of conviction, contract or transact any business with an organ of state or public entity.
- The BEE Amendment Act further amends the BEE Act to authorise the Minister to make regulations relating to certain actions by the Commission, as well as authorising the Minister to issue guidelines and practice notes relating to the interpretation and application of the BEE Act by notice in the Government Gazette.