City will investigate bank for South African ties; Security Pacific says allegation is 'absolutely incorrect.'

City will investigate bank for South African ties

Security Pacific says allegation is `absolutely incorrect'

Mayor Tom Bradley has directed the City Treasurer to conduct a "thorough investigation" into charges that Security Pacific National Bank has economic ties to South Africa, the Business Journal has learned.

"The City of Los Angeles has a firm policy against doing business with companies that benefit from economic ties with South Africa," Bradley said in an Aug. 17 letter to City Treasurer Robert Williams. "Therefore, it is imperative that a full and thorough investigation of SPNB's relationship with South Africa . . . be conducted by your office."

The Los Angeles-based bank, a subsidiary of Security Pacific Corp., is one of the main banks used by the city, holding "hundreds of millions of dollars" in city funds, and is also a depository for Los Angeles County pension and retirement funds, sources said. In addition, the $94.5 billion (1990 assets) bank is presently seeking a "lucrative contract" to act as a financial adviser to the City of Los Angeles' recycling program.

At issue is Security Pacific's use of so-called American Depository Receipts, financial notes that banks -- acting as middlemen -- issue stock against for investors or brokers who technically own the foreign securities. The Amalgamated Clothing and Textile Workers Union in early August notified 29 California municipalities, including the City of Los Angeles, that Security Pacific was actively buying the depository receipts at the London stock exchange, possibly in violation of anti-apartheid laws. The Washington, D.C.-based union said it had evidence Security Pacific was selling depository receipts for 40 South African gold and diamond companies.

In 1986 the city enacted an anti-apartheid ordinance that generally bans the city from doing business with companies having ties to South Africa. One city source, who spoke on the condition of anonymity, said officials were unsure if the use of the depository receipts were directly outlawed in the South Africa ordinance.

Security Pacific labeled the union charges "absolutely incorrect" but announced it was withdrawing from all depository receipts involving South African companies. The Los Angeles-based bank maintained all depository receipts were issued on stock, owned by U.S. or European brokers before 1986, when the congressional anti-apartheid act was adopted.

"We believe we are doing nothing that is illegal or improper, but we want everyone to be comfortable with our activities," said Russell Freeman, Security Pacific's general counsel. "Our fundamental policy is that we will not make loans or investments in South African nor extend credit for financial transactions where the express purpose is facilitating trade with South Africa."

Freeman said the bank will have divested itself of the depository receipts in the "next few weeks."

Williams confirmed that the Treasurer's office was probing Security Pacific's alleged links to South Africa.