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UPDATE 1-UK PR firm Bell Pottinger expelled from association over S.Africa campaign

campaign@ (Adds DA's comments)

LONDON, Sept 5 (Reuters) - Bell Pottinger, one of Britain's best-known PR agencies, has been expelled from the industry's trade association over a campaign judged to have deliberately stoked racial tensions in South Africa.

"There is something rotten at the heart of the company," Francis Ingham, Director General of the Public Relations and Communications Association (PRCA), told Reuters.

The association found that it had backed a campaign that played on still-sensitive race relations, in support of South African President Jacob Zuma and his ruling party.

The expulsion came into effect on Tuesday for a minimum of five years, after which the firm can reapply - the harshest sanction possible.

South Africa's main opposition party, the Democratic Alliance (DA), had complained to the PRCA about the campaign, which portrayed opponents of President Jacob Zuma as agents of "white monopoly capital" and coined slogans referring to "economic apartheid".

Such slogans gained traction in a country where the white minority still wields disproportionate economic power, two decades after the end of apartheid.

Bell Pottinger was being paid 100,000 pounds ($129,000) a month by Oakbay, the holding company of the Indian-born Gupta family, which has been accused of using its closeness to Zuma to win government contracts. Zuma and the Guptas have denied any wrongdoing.

"This ruling is by no means an indication that Bell Pottinger is off the hook just yet," DA spokeswoman Phumzile van Damme said on Tuesday.

"Bell Pottinger must take responsibility for their actions and disclose all information regarding their Oakbay Capital account."

In a statement, Bell Pottinger said it accepted there were lessons to be learned, but disputed "the basis on which the ruling was made". It said it would continue to abide by the PRCA's code of ethics.

Bell Pottinger is no stranger to controversy, with clients including Syrian first lady Asma al-Assad and the Pinochet Foundation, which promotes the legacy of the former Chilean dictator. But this most recent scandal has prompted two clients to drop the company, its CEO to resign and the dismissal or suspension of four members of staff.

REPUTATION

Ingham said the departures of a few people from the firm would change very little following "malpractice on this scale".

"The work in South Africa was a completely reprehensible piece of work I haven't seen work of this nature at any point in the past and I hope never to see it again in the future," he said.

"The view of the PRCA board was that Bell Pottinger's actions were deliberately intended to create exactly the result they did - stirring up racial hatred in a very sensitive area of the world."

While the firm can continue to operate as normal, the ruling is likely to hit perceptions of it in an industry that trades on reputation.

Bell Pottinger had initially appealed against the decision, first taken in August, but its arguments were rejected by the PRCA's board of management.

The firm had previously commissioned an independent report into the matter by law firm Herbert Smith Freehills, which was published on Monday. It found some of the campaign's material was potentially racially divisive and offensive.

In July, the firm's chief executive James Henderson issued an "unequivocal and absolute" apology to anyone affected, fired the lead partner involved in the campaign and suspended another partner and two other employees. On Monday, after reading the independent report into the campaign, Henderson resigned from the firm so it could "fix the problems of the past and move forward".

He said while he had ultimate responsibility for Bell Pottinger, he had been "misled" over the campaign by colleagues. (Additonal reporting by Tiisetso Motsoeneng in Johannesburg; editing by Andrew Roche)