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B-BBEE compliance options for businesses

What are the options of proving a B-BBEE compliance level for EMEs and certain QSEs?

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Applicable business categories

  • Entities with an annual turnover below R10 million are classified in terms of the B-BBEE Codes as Exempted Micro Enterprises (EMEs). All EMEs are entitled to a level 4 B-BBEE compliance level.
  • Entities with an annual turnover of between R10 and R50 million are classified as Qualifying Small Enterprises (QSEs).

Automatic recognition level

EMEs and QSEs with at least 51% black ownership are entitled to a level 2, while 100% black-owned entities are recognised as level 1.  These entities are automatically rated without having to complete a scorecard and are often collectively referred to as ARL (Automatic Recognition Level) entities.

Options for proving B-BBEE compliance

  • OPTION 1

Only an affidavit as per paragraphs 4.5 and 5.3.3 of the B-BBEE Codes.

  • OPTION 2

An affidavit as per option 1, accompanied by all the documentation in support of the content of the affidavit OR a certificate from an independent competent person, supporting the accuracy of the information contained in the affidavit.  This option (documentation / certificate) is in line with paragraph 2.6 of Statement 000 of the B-BBEE Codes, stating that “any representation made by an entity about its B-BBEE compliance must be supported by suitable evidence or documentation.”

  • OPTION 3

A Verification Certificate is based on the measurement of the scorecard.   In terms of the Verification Manual published in the Government Gazette No. 39378 dated 6 November 2015, such certificates are to be issued only by SANAS-accredited verification agents.  Seventeen different information endorsements must appear on the face of the certificate, such as the unique certificate number, SANAS accreditation symbol, SANAS verification agency name, registration number, etc.

  • OPTION 4

An Ownership Only Certificate issued by a SANAS-accredited verification agent, as per the Verification Manual, reflecting the ownership position without any score, level or recognition.

What are the risks of fronting?

Option 2, i.e. to provide documentation or a BEE Certificate (which is not a Verification Certificate) in support of the content of the affidavit, stems from the risk of fraud and misrepresentation associated with allowing people to claim B-BBEE compliance levels without an independent assessment.  This risk was raised publicly on many occasions by influential institutions, cautioning that affidavits-only will “open the flood gates of fronting” and that “the risk of fronting is heightened with self-regulation”.

On this basis, various big corporates, state-owned enterprises (SOEs), etc. refuse to accept any affidavit without either complete supporting documentation OR assessment of the documentation by an independent person to certify the correctness and accuracy of the information contained in an affidavit.  On 29 August 2016 the B-BBEE Commissioner, by means of Practice Guide 02/2016, expressed the view that only an affidavit is required.  Various legal opinions were obtained indicating that the Commissioner’s assertion was incorrect and not reconcilable with the B-BBEE Codes and the B-BBEE Act of 2003.  The Practice Guide also indicates that it is a non-binding guide as the Commissioner is by law not entitled to issue binding directives in this regard.  The matter regarding supporting documentation or independent assessment/certification is presently the subject of a legal dispute and various B-BBEE professionals have indicated that they would continue to issue certificates (not verification certificates) to combat fraud, misrepresentation and fronting until a court of law has provided finality by means of a declaration order.

A certificate issued under Option 2 would clearly indicate by means of an endorsement on the face of the certificate that it is an independent assessment by a competent person and confirmation of the contents of an affidavit.  These certificates would only have value if accompanied by an affidavit and do not replace an affidavit. It merely supports an affidavit.

What if your B-BBEE certificate is not accepted?

Should any institution refuse to accept the certificate issued under Option 2 in support of the affidavit, they will then be legally compelled to accept the affidavit as is.  A certificate issued in terms of Option 2 cannot be deemed invalid as it does not misrepresent any information and is in all aspects a true reflection of an entity’s B-BBEE status in line with paragraph 2.6 of Statement 000 of the B-BBEE Codes cited above.

Should a client require a certificate issued by a SANAS verification agent, such client can select either Option 3 or Option 4 above, with which we will gladly assist them.

By law, EMEs and QSEs which are at least 51% black owned would be entitled to a level 2 recognition level by merely producing an affidavit.  All other certificates are optional, depending on the requirements of the client and their clients.

Clients whose affidavits are turned down under Option 1 would have to resort to Option 2.  Those who selected Option 2 and whose certificate was turned down are advised to produce the affidavit. If the affidavit is not accepted, such refusal would be contrary to the Codes and reportable to the B-BBEE Commission.  In essence, either an affidavit or a certificate or both are to be accepted.  By law, both cannot be turned down.  This, however, does not negate alternatives under options 3 and 4 above. Bear in mind that for entities that fall under a Sector Code, different rules than the above may apply.

SERR Synergy assist businesses with the issuing of their SANAS accredited B-BBEE certificates together with the development and implementation of B-BBEE strategies.

About the Author: Gideon Gerber is one of the founding directors of SERR Synergy and an admitted High Court attorney with more than 30 years’ experience in Business Structuring & Compliance, Training, Skills Development and Business Compliance in South Africa, the UK and Namibia. He is a regular speaker at various B-BBEE seminars and also writes articles for the Business Day and Landbouweekblad that concerns BEE Matters.