CIC Brief October 1976

BANKING ON APARTHEID

Over the last decade, church invest­ who bear the brunt of South Mrican op­ This represented an effort to assist the ors have been actively concerned about pression - the black majority. Yet, it is government of South Africa to overcome investment in South Africa by US. cor­ clear that foreign investment has not serious economic and financial problems. porations and banks. As South Africa has lessened the oppression of blacks in Thus, EABC was providing a vote of con­ dramatically escalated· its international South Africa. In fact, the system of apar­ fidence in South Mrica and its policies borrowing in recent years, the role of theid has grown and developed concomit­ with cash. banks has become increasingly important. ant with the growth of foreign investment Prior to disclosure of the Frankfurt This "CIC Brief" examines the history of and loans. If anything, Western business documents, U.S. churches, along with US. lending to South Africa and the im­ presence has served only to strengthen other interested groups and individuals, pact ofnew loans by US. banks. Lists of the white minority regime in South participated in an action campaign against banks making loans are included, along Mrica. ten U.S. banks that had provided loans of with excerpts of recent congressional $40 million to the South African govern­ hearings on the issue. ment. The campaign began in the late This "CIC Brief" was written by The Role of U.S. Banks -A Brief 1960s and involved letters of protest, Judy Claude, researcher-corporate re­ History delegations to the banks, questions and sponsibility with National Ministries of resolutions at shareholders' meetings, the American Baptist Churches. The single most important sector in withdrawal of funds, picketing, leaflets, foreign investment since 1964 has been and demonstrations. In November 1969, private long-term investment on a direct the loans were closed, largely as a result Since World War II South Mrica's basis. In particular, this refers to bank of the action campaign. economy has witnessed a high rate of loans. Loans have been attracted by the growth aided primarily by foreign invest­ relatively high local interest rate. New Loans ment and loans. Foreign investment and South Mrica obtains most of its loans have played a major role in the de­ capital from the European money mar­ velopment of South Africa's industrial kets. Many subsidiaries of U.S. banks op­ Since the beginning of 1976, South base, trade, and infrastructure. Yet, at the erate in the European market or invest in Mrica has borrowed extensively on the same time that this growth has been oc­ a European bank. An illustration of the international market. South Africa bor­ curring, the oppression of the black ma­ latter is the participation of U.S. banks in rowed $518 million on the Euro-Market jority by the white minority has become Standard Bank, England. At one time, in 1975, making it one of the top ten increasingly systematic. Chase Manhattan Bank had and First borrowers in the world. But through July Though this institutionalization of Pennsylvania currently has monies in­ of this year South Mrica had already bor­ black oppression - apartheid - has been vested in Standard. Thus First Pennsyl­ rowed $460 million and appears to be condemned throughout the world, it has vania is not directly involved with the surpassing its 1975 record. only been in the last ten years that mem­ South African government, but it is in­ Most of these loans have come from bers of the public in the Western world volved in indirect loans. In the United U.S.-based banks or their subsidiaries. have realized that their own national States, First Pennsylvania's policy is to Participants in these loans and the re­ economies have prospered through the avoid participation in loans to South cipients are: exploitation of black people in South Africa. ITEM I lists the U.S. banks known First National City Bank, Chase Africa. Western business people have in­ to have loaned monies to the South Manhattan, Manufacturers Hanover, vested money in the South Mrican econ­ Mrican government and/or its corpora­ Morgan Guaranty Trust, and Bar­ omy, obtained high returns, and bene­ fum. _ clays International Limited. $200 fitted from the system of apartheid which In mid-1973, ICCR published "The million five-year loan to ESCOM, guarantees a cheap, controlled pool of Frankfurt Documents: Secret Bank Loans the Electricity Supply Commission black labor. to the South Mrican Government." This of South Africa. Arguments have been presented by publication revealed that the European­ corporate interests in particular and other American Banking Corporation (EABC) First National City Bank, Chase persons that investment in South Mrica is had raised money from banks in the Manhattan, Manufacturers Hanover, "for the good." Many argue that an em­ United States, Canada, and Europe to Barclays and the German banks. bargo in loans or corporate investment is provide secret loans to the South African $138 million. Richard's Bay titani­ not in the best interests of those persons government and its agencies since 1970. um mining and smelting project.

A CIC Brief appears in each edition of The Corportlte Examiner, a monthly newsletter on corporate social responsibility. Each CIC Brief highlights a particular social area - foreign investment, environment, military contracting, consumerism, or policies affecting minorities and women - and focuses on one or more corporations. It also provides information about action options and resources for issues studied. Copies ofthe CIC Brief may be obtained from the Corporate Information Center, Room 566, 475 Riverside Dr., New York, N. Y. 10027. Telephone: 212 870-2295. Price: 1-10 copies, $.60 each; 11-19 copies, $.40 each; 2049 copies, $.35 each; 50 or more copies, $.15 each. (£) 1976 Corporate.Jnfbrmation Center, a unit ofthe Interfaith Center on Corporate Responsibility, a sponsored related movement ofthe National Council ofChurches.

3A Corporation (IDe), a parastatal of the South African government. The 12-bank IT EM loan put together by Citibank for IDC en­ sures IDe the ability to bring in overseas Banks Known to Have Loaned Monies to the South African investment expertise and technology. Government and/or its Corporations

Bank of America, San Francisco * Central National Bank, Chicago Chase Manhattan Bank - Xhosa Development Corporation ­ * City National Bank of Detroit Transkei First Israel Bank and Trust, New York * First National Bank of Louisville First National City Bank Hill Samuel of London is thought * First Pennsylvania Bank, Philadelphia to be the manager of a recent loan to the Manufacturers Hanover Trust Transkei. According to the South African * Maryland National Bank * Merchants National Bank and Trust Co., Indianapolis Digest, the loan was viewed as important Morgan Guaranty Bank in the strategy to obtain recognition of Republic National Bank of Dallas United Virginia Bank the Transkei. Citibank was approached to * Wachovia Bank and Trust, Winston-Salem participate in the loan but refused. * Wells Fargo Bank (N.A.) Transkei is a Bantustan, a Homeland, one of the series of areas developed for blacks * Banks that have publicly stated they will not lend money to South Africa in the future. For only. Though South African whites con­ example, Maryland National said in 1974 it "does not believe in or support apartheid, will not stitute less than 20 percent of the popula­ participate in loans to the government of South Africa, and will divest such loans presently on our books." tion, they control 87 percent of the land. Transkei's projected "independence" in - u.s. Banks Participating in Loans to Chile. (A consortium of 15 international banks partici­ October is the first concrete attempt by pated in a $125 million three-year term loan to the Central Bank of Chile in 1976.) white South Africa to obtaiIi internation­ Bank of America Manufacturers Hanover Trust al recognition and approval for its apar­ Chase Manhattan First National City (Citibank) Morgan Guaranty Bank theid system. Loans to the Bantustans at this tim~ can only serve to legitimize this system.

-ESCOM Koeberg near Cape Town at a cost of R600 million (approximately Implications The Electricity Supply Commission $690,000,000). It is expected that by the is a parastatal of the South African gov­ year 2000, 15 to 25 percent of South ernment whose members are appointed Africa's generating capacity will be The strategic implications of the by the government. ESCOM provides the nuclear stations. loans are two-fold. The loans to ESCOM lowest priced steam-generated electric ESCOM began accepting bids to and IDC assist South Africa in building a power in the world. It operates 21 power build the reactors in April of this year. self-sufficient economy, impervious to ex­ stations and provides 86 percent of the The ability to begin the bidding process ternal pressure. Loans to ESCOM indi­ country's power requirements. had been greatly advanced by the receipt rectly increase South Africa's nuclear ca­ South Africa's demand for power is of the $200 million five-year loan. pacity. Together with the enriched urani­ high and increasing. In order to increase External financing is extremely im­ um supplied by the United States, the energy supplies, ESCOM has projected portant to ESCOM's development plan­ building of nuclear reactors in South capital spending in the 1970s to be over ning. ESCOM is restricted by law to di­ Africa raises the spectre of South Africa's $770 million. This money is being raised verting only a small percentage of its an­ using nuclear weapons to protect its way through issues of stock or debentures and nual revenue (up to 3 percent) into capi­ of life. South Africa has refused to be a foreign loans. tal development. Thus, given the restric­ signatory of the Nuclear Non-Prolifera­ ESCOM's projection of electricity tive nature of this legislation and the tion Treaty, and the possibilities of South capacity by the year 2000 is based on mandate to provide electricity at cost, Africa's using nuclear weapons should not water, uranium, and coal usage. Hydro­ ESCOM has to seek foreign loans to fund be taken lightty. Furthermore, the loan to electric development has been slow be­ capital expenditures. IDC will not fund a project that will pro­ cause of South Africa's scarce water re­ vide more jobs for more blacks. It puts sources. ESCOM's decision to build the lie to Citibank's contention that atomic power stations has been justified - Richards Bay Project economic growth in South Africa creates in such areas as South Africa's coastal re­ pressure for social change and ameliora­ gions because of the lack of coal in those Kennecott Copper Corporation tion of social inequities. In fact, none of areas. ESCOM has two nuclear reactors agreed to enter into a mining and smelt­ the loans mentioned will or can aid in on the drawing boards. These reactors are ing operation near Richards Bay in part­ doing what Citibank says they can. (See to be housed in a nuclear plant at nership with the Industrial Development ITEM III.) 38 South Africa, in spite of its aim of necessary political change. But they wage for all wage-earners and equal self-sufficiency, has become more and can be aided in that task by people pay for equal work is a short­ more heavily dependent on the West for outside who wish to have no part in sighted policy. For outside groups capital and technology. South African South Africa's repressive economic to concentrate on advocating that corporations, the government, and West­ system. The fact that loans to black people should achieve mar­ ern economic interests work together. Far South Africa are not illegal does ginal improvements in their pitiful from exerting leverage for changed poli­ cies, foreign funds are building South not mean that the banks are com­ wages is an essentially reformist Africa's economy so that it will be better pelled to make them. concept which leaves the racism in­ able to resist any external challenges to he rent in apartheid totally un­ apartheid. Furthermore, foreign capital 3. "South Africa is not the only touched. flows into South Africa on terms ever country to which people have polit­ more stringently laid down by white ical objections." One cannot justify South Africa. an immoral act by pointing out that one is also involved in a few others. Conclusion By being involved in international business, banks expose themselves to several ethical decisions. It is ul­ Withdrawal of loans by internation­ Arguments Used by the Banks timately immoral to say that be­ al banks would have a profound effect on cause one is faced with so many South Africa. Right now the loans are ethical decisions, it is best to ignore construed as demonstrating confidence in The banks have used a number of all of them and instead consider South Africa's economic stability and arguments to justify their support for only one's own self-interest. growth. Further, many white South South Africa. Africans believe this to be possible be­ 4. "Reform, not isolation is the cause of their sound internal policy ­ 1. "Banks should not get involved best tactic." To support social ad­ apartheid, the isolation of the races. With­ in politics." This argument repre­ vancement of the black population drawal would simply isolate the supreme sents the crux of the issue. The by insisting on a basic minimum isolationists. banks are deceiving themselves and the public by saying that loan­ granting is nonpolitical. Every ac­ tion and nonaction has political im­ plications. Banks try to persuade the public to believe that business is ethically and politically neutral. IT EM II This is not true. All business deci­ sions are aimed, in the long term, at What You Can Do: Action Suggestions for Individuals benefitting shareholders and man­ and Organizations agement. Yet the lives of many other people are affected, and they are largely ignored in the decision­ The involvement of U.S. banks in South Africa constitutes direct assistance to the apar­ making processes. theid government. This involvement questions the credibility of Secretary of State Kissinger's recent statements in support of majority rule'in southern Africa and in abhorrence of apartheid. Critics maintain that it is easier for banks than corporations to withdraw support from 2. "Banks should not support ef­ South Africa. Corporations with investments in South Africa are hampered by South African forts at economically isolating any law from withdrawing quickly. Banks, on the other hand, may simply cancel the loans. country." The recent history of Shareholders, depositors and others may wish to consider the following steps: Chile under Allende strains the credibility of banks making that 1. writing letters to banks. statement. It is interesting that 2. meeting with bank executives. some of the same banks that are providing loans to South Africa are 3. removing deposits or other accounts such as portfolios and trusts. also providing loans to Chile. (See 4. submitting shareholder resolutions and asking questions at annual meetings. ITEM 1.) Yet, under the Allende government, Chile could not obtain 5. demonstrations. funds from any international bank­ 6. publicity. ing house or organization. Chile was 7. influence on government. (The State Department could be asked to develop a policy, successfully isolated until change similar to present U.S. policy on Namibia, discouraging any further loans to South occurred within the country. Africa, including the Bantustans. Congress should also consider legislation that would It is the task of the people of discourage or prohibit further loans to South Africa.) South Africa to bring about any 3C IT EMili

Excerpts from Congressional Hearings on Bank Loans to South Africa, September 23, 1976

The Subcommittee on African Affairs ofthe Commit­ · ... In terms of size, on the basis of published data, tee on Foreign Relations of the U.S. Senate held hearings Citibank is the 12th ranking bank in South Africa. The top on September 23 to examine U.S. lending to South Africa five banks - Barclays and Standard, which ate -British-con­ and the policies covering services of the Export-Import trolled, the Volkskas, Trust Bank and Nedbank, which are Bank in South Africa. Included below are excerpts from the . publicly held local institutions - account collectively for opening statement by Senator Dick Oark (D-Ia.), and testi­ approximately 87 percent of total bank assets. We account, mony by George J. Votja of Citibank and by Timothy according to the published figures, for about 0.4 percent of Smith ofthe Interfaith Center on Corporate Responsibility. total assets of the banking system and about 1 percent of Mr. Votja acknowledged during the hearing that Gtibank total risk assets. Citibank provides a range of services to had loaned approximately $300 million to South Africa corporate clients, including lucal and foreign acceptance fi­ and that another loan ofseveral hundred million dollars was nancing, term loans, exchange transactions, deposit, pay­ currently under consideration. ment and letters of credit services.... Opening Statement by Sen. Dick Oark. In our experience, banking opportunities exist only where it is possible for us to make a genuine economic .... A question of greater relevance [than whether contribution. Insofar as South Africa is concerned, what we U.S. companies should withdraw], however, may concern do helps to provide jobs for South Africans, including blacks, another aspect of American business involvement in South so~called "coloureds," and Asians as well as whites. Africa - one about which little is known - U.S. lending. Our major contribution is, of course, made indirectly Loans to South Africa by U.S. banks and their branches through the firms we service. We exercise direct control, abroad have increased dramatically in the past year and it is however, over our own employment policies, and during likely that, in the coming months, South Africa's efforts to our 18 years in South Africa we have attempted to do all acquire loans will be even greater than in the past. At least we can to improve the situation of our own non-white em­ in the short term, South Africa has no choice but to seek ployees. At present, we have 215 employees, of whom 46 ever larger loans to cover what has become a serious deficit (21 percent) are non-white. We think our employment poli­ in its balance of payments.... cies are the most advanced in the banking industry.... The extensive lending by U.S. banks has certain impli­ Testimony of Timothy H. Smith, Director, Interfaith Cen­ cations for us in the United States. Certainly it is an import­ ter on Corporate Responsibility. ant aspect of the United States commercial relationship with South Africa. Banks with large loans in South Africa · ..Many ofthe churches related to the Interfaith Cen­ have some interest in its continued economic stability. But ter on Corporate Responsibility are on record through resolu­ its economic well-being may depend in large part on its tions, wmds and actions as opposing bank loans to South ability to respond to growing political and social unrest. Africa. They have indicated this to U.S. banks via letters, per­ Some observers have suggested that American bank interest sonal visits, and through their positions as shareholders.... entitles - in fact requires - that U.S. banks review con­ Hundreds of millions of dollars of U.S. loans and $1.5 cerns about South Africa's stability with representatives of billion in investments create a major American vested inter­ the South African government. At least one U.S. bank has .est in South Africa. As in any major mortgage relationship, already done so and expressed its belief that no further the bank has considerable interest in the financial health medium or long term loans should be made to South Africa and well-being of the person paying the mortgage. You be­ until there is significant change in that country.... come a de facto partner in the project. Certainly U.S. bank­ ing circles would not be happy if racial strife grew even Testimony of George J. Votja, Executive Vice President of more extensive in South Africa and economic chaos re­ Gtibank, in charge ofthe International Banking Group. sulted. They have a vested interest in economic and social .... Inherent in our business philosophy is the deep­ stability. Whether such stability is gained at the price of seated belief that we earn our way as financial irttermedi­ -oppression does" not seem important. ... aries by making a tangible economic and social contribution Foreign loans insure the overall budget is in a strong to the communities we serve. Accordingly, we think our position and the economy is viable. These factors relate presence in South Africa as an agent of economic develop­ directly to the strength of the military and police which are ment benefits all of South Africa's people. determined to preserve white power. I do not feel that it is By contributing to the creation of a pluralistic mar­ an overstatement to say that U.S. bank loans subsidize South ketplace, we think we assist in the development of a more Africa's military capability and thus are a direct resourc­ pluralistic social system. But our ability to influence the ing of machinery for oppression of the black majority. social and political setting in South Africa or in any other · ... Likewise, it is a simplistic smokescreen to pre­ country is limited. We can affect the situation only in de­ tend that loans to the South African government are simply gree. In the strictly political context, there has to be one business and not politics.... While South Africa, for politi­ rule for American multinational corporations wherever they cal reasons, is urgently trying to reach economic self-suffi­ operate. That rule is HANDS OFF! I do not believe that the ciency and thus has established key agencies such as ISCOR Senate Foreign Relations Committee, above all other com­ and ESCOM, loans to these agencies or to government de­ mittees in the United States Congress, would want Citi­ partments such as the Department of Finance are clearly bank, as an American multinational corporation, to impose political in nature. When we recognize that ESCOM is plan­ our political or moral judgments on other sovereign govern­ ning to build two nuclear reactors, the political seriousness ments. of these loans takes on even greater weight.