The Commission for Racial Equality is considering launching a formal investigation into racism and racial discrimination by major firms in the City.
The commission believes there is mounting evidence that many City firms have failed to promote or hire ethnic minorities, and may be guilty of direct and indirect discrimination.
In one of the most embarrassing public relations disasters yet faced by the City, the CRE could focus its investigations on four or five named companies as part of its general inquiry into the Square Mile's practices.
The year-long investigation will use legally enforceable powers given to the CRE to investigate racial discrimination under two Race Relations Acts. Its lawyers will examine each firm's ethnic profile, their recruitment and promotion policies, and cases of alleged discrimination against black and Asian employees.
It is not known whether the CRE has compiled a list of specific companies, but the commission's move follows a recent series of high-profile complaints of racism and anti-Semitism against major firms.
The cases have included an out-of-court settlement by the broker Tullett & Tokyo Liberty, which paid out more than £100,000 to a Jewish employee, Laurent Weinberger, who was told to dress up as a Nazi officer as a "penalty".
Mr Weinberger, whose grandmother died at Auschwitz, claimed he had endured months of anti-Semitic abuse.
At an employment tribunal in London last week, Merrill Lynch began defending itself against allegations of racial discrimination by a Pakistani-born banker, Anan Aziz Ahmed, whom it had fired in November 2000.
Late last year, Credit Suisse First Boston was taken to an employment tribunal by a Pakistani-born junior trader, Phillip Karam, who claimed he had been the focus of "systematic" racial discrimination and abuse by senior executives. His case was settled out of court for £200,000.
And Deutsche Bank is being taken to an employment tribunal, accused of racial discrimination by a Sikh former employee, Gurinder Grewal. He says he was sacked in May last year after complaining about executives who called him a "Paki".
In 1999, senior Japanese executives at the London offices of Tokyo Mitsubishi International were accused of racially discriminating against an Indian-born financier, Suresh Anisetti, who claimed he was excluded, humiliated and underpaid by his employers.
The Square Mile investigation is among several formal investigations being considered by the CRE into the private sector, which could include the building trade or other industries, and into public institutions such as the National Health Service.
Gurbux Singh, the CRE's chairman, has warned that the commission is planning to stage a formal investigation every year as part of a revamp of the commission's activities.
The CRE could launch its City investigation later this year, after publishing the findings of its current formal inquiry into racism and racial violence in the Prison Service in April.Reuse content