The D.C. government, which earlier this year took a major step toward ending its ties to firms doing business in racially segregated South Africa, last week used an investment house linked to South Africa's largest corporation to issue $150 million worth of short-term notes.
Salomon Bros. Inc., a New York-based firm, served as the chief underwriter of the District's one-year notes, which were marketed to bolster the city's cash flow until 1985 tax revenues are collected.
Anglo American, the largest and most influential corporation in South Africa, owns Minerals and Resources Corp. of Bermuda, which in turn is a major stockholder of Phibro-Salomon Inc., a publicly held international investment banking firm that controls Salomon Bros.
D.C. City Council member John Ray (D-At-Large) said yesterday in an interview that the city's use of Salomon Bros. "violated the spirit, if not the letter," of a District law that took effect in March prohibiting the city from investing in banks and corporations that do business in South Africa.
The legislation, which was signed by Mayor Marion Barry, required the city -- including the D.C. employes' retirement board -- to withdraw investments from banks or other financial institutions or companies that operate in South Africa or make investment loans there.
However, the law does not prohibit the city from contracting with or buying products from those companies.
"Here's a company that's going to handle $150 million worth of city bonds and they D.C. officials didn't take the South African connection into consideration," said Ray, the chief sponsor of the law. "It certainly does violate the spirit of the law."
Yesterday, Ray unveiled a proposal to strengthen the law by penalizing companies with ties to South Africa when they bid on D.C. contracts. Under the proposal, the city would assign demerits to contract bidders that do business in South Africa or Namibia either directly or through subsidiaries.
"We must send as strong a message as we can to the South African government that we cannot, and will not, support apartheid," Ray said.
Ray said he originally intended to wait until January to introduce the measure, but was prompted to announce it now in the wake of the South African government's raids on 30,000 homes in black townships this week.
Kenneth S. Zinn, associate director of the Washington Office on Africa, a private group that monitors South African issues, criticized the D.C. government's use of Salomon Bros.
"We would say to the city government to reconsider using Salomon Bros. because of their connection to South Africa," Zinn said.
Alphonse G. Hill, deputy mayor for finance, defended the city's use of Salomon Bros. as permissible under the law, but acknowledged that the legislation may need some fine-tuning to clarify some gray areas.
"Looking at the face of it, one might say the spirit, or intent in using Salomon Bros. , is on the borderline, but I don't think we're there on this one," Hill said.
"We're not interested in violating the letter or intent of the law. Salomon Bros., as far as we know, are doing no business in South Africa," Hill said.
He also noted that stock in Phibro-Salomon is traded on the New York Stock Exchange. "Anyone can buy shares," he said. "This D.C. legislation doesn't control who buys and sells stock in a publicly held company.
Hill said that Salomon Bros. is big and experienced and has worked with the District for the past three years in devising a strategy for entering the private financial markets. Salomon Bros. and the other underwriters stand to earn about $75,000 for handling the issue, Hill said.
A spokesman for Salomon Bros. in New York said that "there's no direct relationship" between the firm and Anglo American.
"Salomon Bros. does not have any interest in South Africa," the spokesman said. "They never sold any securities there and never raised any money there."
According to a report prepared for the American Committee on Africa, Anglo American is a "dominant influence" in the economy of southern Africa and in 1980 became the largest foreign investor in the United States.
Anglo American and De Beers Consolidated Mines together exercise control over a group of subsidiary and affiliated companies that are among the world's largest producers of gold, diamonds and platinum, the report said.
Anglo American, through a complicated series of transactions, acquired a major interest in Salomon Bros., one of the largest private investment banking firms in the United States, in 1981.
According to an August 1983 filing with the Securities and Exchange Commission, Minerals and Resources Corp., an Anglo American holding, owns more than 31 million shares of stock in Phibro-Salomon Inc., or 22 percent of the total shares. MINORCO at the time was the largest single investor in Phibro-Salomon, according to an industry analyst.