The Broad-Based Black Economic Empowerment (BBBEE) Commission said it may reopen a probe into the case of six white Dimension Data executives, whom the high court said had constructed a secret R1.4bn deal to buy an office park, while pretending it was being sold to Black women.
This is a new twist in the case, following the court ruling on Monday that these businessmen, led by former Didata CEO Jeremy Ord, concocted a “brazen and dishonest” illegal scheme, while hiding that they – and no Black investors – were behind the empowerment deal.
Didata is owned by one of Japan’s largest companies, the telecommunications firm NTT. In 2019, NTT said it would sell The Campus, a 75,000m2 office park, to a “consortium of Black women”. But while the fund which bought The Campus fell under the Black-run fund manager Identity Partners, the beneficial owners of that property were really Ord and his five allies.
Judge Denise Fisher said these executives had gone out of their way to hide their involvement in the deal, adding that it was “of grave concern that these White captains of industry have subverted the empowerment legislation for their own benefit”.
Tshediso Matona, the head of the BBBEE Commission, tells Currency that this week’s ruling shows how seriously the courts are now taking fronting cases. “The Didata judgment is an important test case for Black empowerment fronting, and it says to those involved in concocting sophisticated fronting schemes that they will be held accountable in the courts,” he says.
A complaint about the Didata deal was lodged at the commission in 2022, but did not proceed “on the basis of the information” it had at the time.
But Matona says it is now possible that the commission will reopen the case, given this week’s ruling. “We will need to consider the decision reached in the high court in determining a way forward on the matter.”
The Identity Property Fund is run by Sonya De Bruyn, an influential businesswoman who is a director of banking group RMB and Remgro.
De Bruyn told Currency this week that she had approached the commission after she found out that her company had been used by Ord’s group to hide their involvement in The Campus purchase.
“The identities of the former Dimension Data executives were kept secret from us despite our due diligence processes and what the court records as our repeated attempts to get this information,” she said.
The court judgment, she said, vindicated her view that Identity Partners had been “misled and taken advantage of”.
Yet in their argument to the court, the six executives argued that it didn’t matter who the investors were in the fund, as NTT achieved its empowerment objectives, since Didata’s empowerment status jumped two levels.
They denied that they had misled anything, as the proposal did not require that the new fund itself “would be owned 51% by Black people, but rather entailed that the fund would be managed by a fund manager that was, among other requirements, 51% owned by Black people”. The fact that those six executives were involved had “no bearing on the broad-based BEE rating”, they said.
But De Bruyn told Currency that this sort of deal is “anathema to the spirit and intention of transforming of our economy through empowerment and setting right the commercial terrain in South Africa”.
As a result, she said, Identity Partners exited The Campus transaction as soon as it found out the truth.
Missing the red flags
The high court ruling is already ricocheting through the corporate landscape, focusing attention on how none of the regulators managed to detect this apparent case of fronting.
Fisher, in her ruling, said this was a “cautionary tale for those who apply and regulate the BEE infrastructure”, which puts at centre stage the “functionality of the Black economic empowerment legislation and system which is crucial to the economic transformation of South Africa to an inclusive and sustainable constitutional democracy which seeks to afford redress”.
Matona says “initially, nothing seemed untoward” about The Campus deal, which is why regulators like the commission raised no red flags at the time. “It was only when Identity Partners came back and said to us, ‘We think we’ve been taken for a ride,’ that we began to look at this as a potential case of fronting,” he says.
The commission has been investigating a complaint in this case for some months, but has yet to make a decision. “Obviously though, we will need to consider the decision reached in the high court in our investigation,” he says.
Whether this case leads to prosecution under the BBBEE Act has yet to be seen. While BEE fronting, and the efforts taken to hide it, often overlap with fraud, the legislation carries a sentence of 10 years’ imprisonment.
Still, Matona says it remains a concern that South Africa has not yet seen any convictions and jail terms for fronting under the act.
“We have referred a number of cases to the National Prosecuting Authority, but it is disappointing that we’ve had no successful prosecutions yet under this act. Hopefully, the greater focus on these sorts of cases in the public domain will ensure law enforcement acts,” he says.
Last month, in something of a watershed for this legislation, six directors of a company called NJM – Heat Treatment & NDE Services were arrested and charged with fronting under the BBBEE Act, as well as fraud, theft and money-laundering over tenders worth R400m which they had submitted to power utility Eskom and petrochemical firm Sasol in 2017.
Again, this only came to light after one of NJM’s former directors took the company to court, rather than through proactive surveillance by the BBBEE commission.
Asief Mohamed, the chief investment officer of Aeon Investment Management, says these practices are rife in the corporate sector.
“We see this often in the fund management sector, where a private equity fund structure will be set up under the so-called management of a Black-owned fund manager. But when you dig deeper, you find that the Black-owned firm is simply being paid a fee for ‘managing it’, and they have no economic interest in the fund itself, who holds the equity in the fund manager,” he says.
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