Hosken Consolidated Investments (HCI) has for more than a year been battling the department of trade, industry & competition over R117m the department is withholding from a subsidiary-owned company amid allegations of misrepresentation of its broad-based black economic empowerment (B-BBEE) status.
The impasse has led to HCI’s B-BBEE credentials being scrutinised, with the B-BBEE Commission declining to confirm its status last year, saying the company did not meet the necessary requirements.
HCI’s B-BBEE status came under the spotlight after Moonlighting Films — a subsidiary of HCI’s eMedia Holdings — was declined R117m in payments by the department’s film & television incentives scheme unit in 2020 for not being B-BBEE compliant.
Moonlighting has been involved in the production of several international blockbusters, including Invictus, starring Morgan Freeman; Blood Diamond, starring Leonardo DiCaprio; and Safe House, starring Denzel Washington and Ryan Reynolds.
The commission is now investigating Moonlighting for alleged misrepresentation and fronting after it claimed black-empowered status based on HCI’s empowerment record.
HCI, which is listed on the JSE Securities Exchange and led by CEO Johnny Copelyn, has for years said it is “a black empowerment investment holding company” because its majority shareholder is the South African Clothing and Textile Workers Union (Sactwu).
But the B-BBEE Commission disagreed, as is evident in several letters between the parties which the Sunday Times has seen.
The commission, after perusing HCI’s credentials, said there was no black ownership of HCI through Sactwu because the trade union’s members are not shareholders or owners and the only benefits that accrue to them are bursaries, health programmes and non-ownership programmes such as funeral and retirement funding.
Both HCI and Sactwu have dismissed the allegation, insisting the arrangement constitutes empowerment because 99% of the union’s members are black — and dividends averaging R50m a year have been deployed in their best interest.
Sactwu general secretary Andre Kriel said: “It is absurd that Sactwu is not a black-empowered collective enterprise. The key is whether members actually do benefit in real terms and are not just used as a front. We believe that in our case members do benefit directly in real terms.”
However, HCI and Sactwu agreed to implement the commission’s recommendation that its constitution be amended and it establishes a broad-based ownership scheme (BBOS) to comply with requirements.
HCI, backed with union money, has enjoyed successful investments in casinos and media, including e.tv and news channel eNCA. However, Copelyn — a former Sactwu general secretary — has been criticised for being a white person who has amassed wealth on the back of black empowerment while union members only benefited through bursaries and socioeconomic schemes instead of ownership shares. In 2016, Copelyn was reported to be worth just under R1bn.
There are divisions within the department because of pressure to pay the R117m
Trade, industry & competition minister Ebrahim Patel succeeded Copelyn as Sactwu general secretary.
In 2014, Patel and another HCI executive and former union office bearer, Yunis Shaik, were mentioned in the court papers of former HCI executive and current shareholder Marcel Golding for alleged editorial interference in e.tv news broadcasts.
The Sunday Times understands that there are divisions within the department because of pressure to pay the R117m, despite internal advice and an independent legal opinion from the state attorney to await the outcome of the commission’s investigation before making the payment.
In order to be recognised as an empowerment entity through ownership, companies must meet three requirements, the commission said this week:
- that empowerment partners are active decisionmakers;
- that dividends flow from the company to shareholders; and
- that shares are transferred to shareholders. In the case of collective enterprises such as trusts, co-operatives and labour unions, there must be evidence that every member is a direct shareholder and receives dividends in cash.
However, there is confusion over a practice note Patel issued last May that infers that in the case of collective enterprises, ownership need not vest in individuals and that in-kind allocation of dividends such as bursary schemes and death benefits are recognised.
Shaik told the Sunday Times the department has undertaken to pay Moonlighting Films and that its director-general repudiated the complaint laid with the commission by an official in the film & television incentives scheme unit.
“That complaint does not refer to or concern HCI at all,” said Shaik.
However, the commission did not confirm that the complaint had been withdrawn. Spokesperson Mofihli Teleki hinted that the investigation was still under way, and would not “discuss the details of investigations with the media” until the outcome was published.
The department failed to respond to detailed questions about the dispute and Shaik’s claims that it has now agreed to pay. Paying the money pending the commission’s investigation would constitute irregular expenditure by the department.
In an attempt to help Moonlighting access the R117m, HCI approached the commission early last year and produced its credentials to back up the company’s claim of black ownership.
Correspondence between Shaik and the commission shows the commission was not convinced.
“Sactwu’s constitution ... also confirms that the union does not facilitate ownership by black people as envisaged in the B-BBEE Act ...Therefore the absence of black ownership based on the shareholding in Sactwu means that HCI can also not claim black ownership based on the shareholding of Sactwu,” said the commission’s senior manager for compliance, Lindiwe Madonsela, in a letter to Shaik in June last year.
The disputed R117m is part of a government scheme to grow SA’s film industry
— Sactwu general secretary Andre Kriel
The letter followed a meeting in March last year to try to convince the commission to confirm the company’s compliance status, and to secure the release of department funds for Moonlighting.
Documents HCI submitted did not convince the regulator.
Despite its protest against the commission’s views and insistence that it was B-BBEE compliant, HCI in a letter in August last year told the commission Sactwu was now adopting a broad-based ownership scheme and amending its constitution.
Kriel said the union leadership took the decision to avoid “endless debates of interpretation, the consequence of which is that the real beneficiaries (poor, black workers who are mainly women) suffer while the issues are not resolved”.
He also said Sactwu believes the commission’s “new view” could negatively affect other unions with investment interests.
“Our view remains the same: labour unions with a mainly black membership base can never be construed not to be black economic collective enterprises ... In fact, they are probably among the most clearly verifiable broad-based black collective enterprises anywhere in the country,” Kriel said.
The disputed R117m is part of a government scheme to grow SA’s film industry.
The tug of war began in October 2020 when the film and television incentives scheme unit declined a claim by Moonlighting for R15.8m — for the production of Hollywood movie Bulletproof 2, which was shot in SA with Moonlighting’s participation — because the company did not meet B-BBEE requirements.
After this, the unit examined Moonlighting’s other claims totalling R117m. Moonlighting’s directors — Lou-Anndree John, Antonio Lee and the recently resigned Genevieve Hofmeyr — appealed the decision but were turned down.
Moonlighting was conditionally approved for the incentive based on it stating it was a B-BBEE level 2 company with 75% black ownership through eMedia Holdings subsidiary Silverline Three Sixty.
According to the department’s qualification criteria, a film company needs at least level 3 and 4 B-BBEE status and to procure a 20% minimum of goods and services from entities that are 51% black-owned.
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