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South Africa Approves Law to Stop Black Empowerment ‘Fronting’

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June 20 (Bloomberg) -- South African legislators approved new laws that say companies should be fined at least 10 percent of sales for deliberately misrepresenting the measures they have undertaken to promote black economic empowerment.

The Broad-Based Black Economic Empowerment Bill passed by the National Assembly in Cape Town today makes it an offense for entities to misrepresent their empowerment status, which the government takes into account when awarding contracts or licenses.

The laws are designed to encourage companies to hire and promote more black staff and procure more goods and services from black-owned companies to address racial inequalities that stem from apartheid rule, which ended in 1994.

“There is a significant challenge of fronting in the economy,” Trade and Industry Minister Rob Davies told reporters in Cape Town today. “You put somebody in some position so that you can pretend that the enterprise is something other than what it is in terms of being black-empowered. It is a form of fraud” that needs to be stamped out.

The amendment bill also provides for the establishment of a new commission to oversee compliance with empowerment laws and investigate complaints about violations.

White South Africans account for just 9 percent of the population yet control more than 90 percent of the value of shares on the Johannesburg stock exchange, according to government data. Whites occupied 73 percent of top business management posts, the Employment Equity Commission said in an April 20 report.

“Black empowerment remains a necessary political and social imperative,” Davies said. “There is a requirement that we redress the disadvantage that people had in the past.”

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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