The R50 Million B-BBEE Question

The R50 million B-BBEE question is: If an EME were to get a formal B-BBEE certificate, instead of a sworn affidavit, would it be acceptable?

The Amended B-BBEE Codes states that “An EME is only required to obtain a sworn affidavit…” and “a QSE is only required to obtain a sworn affidavit” if 51% or more black owned. Majority white owned QSE must be verified according to Government Gazette

It Is important to note that ALL EMEs are exempt from B-BBEE verification and implementation. Previously they were only exempt from implementation, but still had to get verified.

The intention is to save small businesses from the costs of getting a verified certificate. The DTI minister Rob Davies once mentioned that cost savings were up to R40 000.00.

The word “only” in the codes could be interpreted to imply that nothing more is necessary, i.e. a certificate. Some people see it referring to “solely”, i.e. no other method such as a verified certificate is acceptable.

In August 2016, the BEE Commission put out a practice guide stating that “an EME is merely required to issue a sworn affidavit”. “Merely” implies that nothing more is required, but a certificate is not absolutely wrong to supply. However, the same practice guide states that no BEE professional will be allowed to issue EME certificates.

The result has been that all SANAS verification agencies no longer accept BEE certificates unless they are accompanied by a sworn affidavit for EMEs and black owned QSEs.

However, 2 other points must to be highlighted:

  1. An affidavit is an important document. A person who makes an untruthful statement in an affidavit is guilty of perjury and can be prosecuted. A simple certificate that turns out to be untrue is an offense in terms of the B-BBEE Amendment Act. It is probably easier to prosecute perjury, than the violation of the B-BBEE Act.
  2. Key principle of 2.6 of the BEE Amended Codes states: “Any representation made by an Entity about its B-BBEE compliance must be supported by suitable evidence or documentation. A Measured Entity that does not provide evidence or documentation supporting any initiative must not receive any recognition for that initiative.”. This clearly implies that any BEE certificate or sworn affidavit must have supporting evidence, or at least supporting evidence should be available when requested. In the context of an EME or QSE, the entity may need a letter from their accountant confirming the turnover and black ownership levels, or any other acceptable evidence.

So, if your company is given an EME/QSE certificate, the entity should also supply you with an EME/QSE affidavit. They should know that the certificate is not required and is not acceptable on its own. If an EME issues a sworn affidavit be aware that if it is not true they are guilty of perjury – even if they are unaware of the specific rules. Accepting and using an invalid affidavit for preferential procurement is also a problem. The codes require accuracy and correct information. Verification agencies routinely reject certificates and affidavits that they view as incorrect, costing valuable procurement points and exposure to fronting risks.

It is important to know the rules before signing a sworn affidavit. The rules are complex, but this does not absolve a company from getting it right because as with all law statutes “ignorance is not an excuse”.

Some of the questions to be asked are:

  1. Which sector do you fall into? Thresholds differ depending on the sector code applicable. For example, a PR company in the MAC sector has a turnover threshold of R5m for EMEs. Using the wrong sector code is an offence.
  2. What is your true black ownership? If you used the modified flow through principle to reach 51% black ownership, the BEE Commission has issued a practice guide stating that the modified flow through principle MAY NOT be used to gain enhanced recognition status.
  3. In any event 51% black owned has its own specific definition – 51% voting rights, 51% economic interest AND all the points for Net Value.

Ignorance of these rules and signing an incorrect sworn affidavit will not only disqualify the affidavit but could also result in prosecution.

happy wheels

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