In the context of local content, “fronting” is a case where nationals may be listed as shareholders, executives, or management, without real participation in the strategic decision-making process of foreign companies. They may even have lower salaries than their expatriate peers.
With Guyana’s Local Content legislation just being a mere seven months old, fronting has been one of the key trends being uncovered by the Local Content Secretariat.
Confirming this was Natural Resources Minister, Vickram Bharrat who stressed that all applications for Local Content Certificates are passing through a vigorous filtration system. He said the process is sure to expose anyone who tries to trick the system.
“It is a worrying trend and we have been uncovering more cases of it but that is why the work of the Secretariat is critical especially for vetting the applications before it,” Mr. Bharrat said.
The Local Content Secretariat’s legal team reviews all applications to ensure they are in line with the legislation.
“Importantly, they ensure there is sufficient evidence of what is being submitted by each company regarding majority ownership,” he pointed out.
He was keen to remind that foreign entities must show that it is not just 51% ownership by Guyanese but also 75% of managerial staff must be Guyanese and 90% of the complement of staff must be local too. With regard to ownership, he said companies have to show evidence of share purchase, adding that the records at the Guyana Revenue Authority (GRA), the tax and customs regulator, would have to support this.
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“All of this must be proven to prevent economic rent or fronting of Guyanese and it is becoming a thing now. On paper, it shows 51% shares but no substantive documents to back it up such as how much was paid, what is the source of funds, does it correspond with tax records etc. We examine all these things. You can’t just come and say I have a document showing I am a 51% owner,” expressed the minister.
The official warned that even as companies have up to year-end to get their proverbial house in order, there are clear penalties in the Local Content legislation which can be imposed on anyone who tries to circumvent the requirements.
It should be noted that fronting is also an offense under the law, which outlines that any contractor, sub-contractor or licensee who submits or causes to be submitted, any record or any other information knowing, or ought reasonably to have known, that the submission is false or misleading, commits an offence and is liable on summary conviction to a fine of GY$10M.
The law also states that a contractor, sub-contractor, or licensee who carries out petroleum operations without the minimum local content requirements commits an offence and is liable on summary conviction to a fine of GY$50M.
There is also a GY$10M fine if a contractor, sub-contractor or licensee fails to satisfy the prescribed local content requirement of an approved local content plan.
