Trusts are the black hole of black economic empowerment (BEE). They have become the most preferred way of ensuring that the benefits of BEE deals are shared with as many black people as possible, but they can be opaque structures where there is very little transparency.
Broad-based empowerment came about because of pressure from the government on BEE deal makers to sprinkle money made from these deals among the poorest of the poor.
The argument for broad-based BEE is that the poor run the risk of being cut off from the benefits of socioeconomic transformation as the better educated and those with strong political connections use their positions in society to grab a disproportionate share of the BEE programme.
South Africa is not unique in this. Research globally shows that the well-off are always first in the line to benefit from government-sponsored programmes.
How these trusts are governed and increasing the transparency of how they work is important because they are created to enable the BEE deal makers to gain access to deals, which if they turn out well, translate into millions, if not billions, of rand benefits.
To get those deals, BEE deal makers promise to share some of the riches with thousands of other less fortunate black people. At present, however, there is no mechanism for verifying that the BEE deal makers do actually spread the riches around the black neighbourhood.
Once a BEE deal is done, the parties have no obligation to disclose how much money went into the trust, how it was spent and who the beneficiaries were. This lack of disclosure leaves scope for abuse.
There are two recent examples of trusts relating to BEE deals going awry. In June this year, Miningmx.com, a mining news website, reported that youth groups owning 17.5 percent of Eyesizwe Mining were expressing unhappiness with the Kumba empowerment deal.
The deal, which created South Africa's biggest black-controlled mining company, involved the splitting of Kumba into two companies, one that owns all the iron ore mines, and the other that owns coal mines, base metals and industrial minerals.
Eyesizwe sold its coal mining assets as part of the second company, which has been renamed Exxaro.
Bongani Biyela, the spokesperson for the youth groups, told Miningmx that the groups wanted the structure in which Eyesizwe Mining participated in Exxaro changed.
The groups also called for the dissolution of the two trusts that were created for the benefit of the youth.
Disbanding the two trusts would have been a betrayal of the promise that Eyesizwe founders made when the company was formed in the early 1990s to share the financial rewards of its BEE deal with Anglo American and BHP Billiton with the young people of South Africa.
The other more publicised example of the weaknesses in the governance of trusts relates to the Umkhonto we Sizwe Military Veterans' Association (MKMVA), which established two trusts for the benefit of former members of Umkhonto we Sizwe.
These trusts owned shares in an investment company that failed to explain satisfactorily how much money it had made from its investments and how it had spent it. It's clear that in this case, MKMVA trustees failed to do their duty.
Trusts are registered by the master of the high court in terms of the Trust Property Control Act. To be registered a trust must file a trust deed, which governs its working, with the master's office. While the trust deed and the names of the trustees are public information, everything else about the trust and its workings is not.
This is because trusts are treated as private companies, which means that they do not have to make public their financial accounts. Even the master's office does not have access to the financial statements of a trust. Only trustees and the beneficiaries do.
The master's office can only call for financial accounts, or ask the trustees to account for their administration of the financial affairs of the trust, at the request of beneficiaries, who must show justifiable course why the master must accede to their request.
The other weakness with trusts is that they are easy to unwind, a fact that can make it relatively easy for the crooked BEE deal makers to loot trusts.
The lack of stricter governance is not the only problem with BEE-related trusts.
The other is that most trusts have loosely defined beneficiaries, such as the youth, women, and other groups that are dispersed nationally, which makes it difficult to keep track of how well the trusts have kept true to their mandate.
It can be as difficult as peering into a black hole. Or trying to see a pitch black man's face in a very dark place.