Washington - McKinsey & Company - which designs the Oversight Board's strategy - has continued its lobbying efforts in Congress on Representative Nydia Velázquez´s bill, which would apply robust disclosure requirements to PROMESA Title III proceedings to avoid conflicts of interest, such as those that newspapers reported about McKinsey´s involvement in Puerto Rico´s debt restructuring process.
Between September 2018 and June 2019, McKinsey spent $1.7 million lobbying efforts on a measure that the Board has endorsed.
Recently, on August 6, Greenburg-Traurig registered in Congress to lobby for McKinsey.
As of June, Bracewell reported to Congress income and expenses totaling $1.11 million as part of its lobbying efforts for McKinsey on PROMESA and the federal bankruptcy law. Allston & Bird reported income and expenses totaling $570,000.
When Greenburg-Traurig registered to lobby for McKinsey -replacing Allston & Bird– the company reported another $30,000 in income and expenses.
McKinsey insisted that they are not seeking to slow down or soften the bill, which is also pending in the Senate. According to a McKinsey´s spokesperson, the company supports “transparency in the review of potential conflicts, which is exactly the purpose of the bill,” and added that they “are committed to ensure that this legislation works in practice."
In May, the Board seemed surprised that McKinsey would carry out independent lobbying for that legislation. However, the entity suggested it is not against the company seeking to influence Velázquez's bill, which has been incorporated into the draft bill by the House Natural Resources Committee chairman, Democrat Raúl Grijalva.
The Board reaffirmed its support for Velázquez's legislation and insisted that it is not involved in McKinsey's lobbying. Edward Zayas, spokesman for the Board said that the entity trusts the quality of McKinsey´s consulting work.
Since December 2017, the Board spent $1.7 million in lobbying efforts on issues such as the implementation of PROMESA, "economic development," Medicaid, the federal Children's Health Insurance Program (CHIP), disaster assistance and the Puerto Rican government's "liquidity needs."
A McKinsey spokesman insisted that its lobbying began in response to pressure from Jay Alix, "a competitor" they point at for spreading in Congress "false information" about the company. Jay Alix spent nearly $1.6 million on lobbying since the summer of 2018 in favor of addressing the gaps in PROMESA to avoid potential conflicts of interest and Velázquez's bill.
McKinsey has been under public scrutiny after The New York Times revealed that one of its subsidiaries, Mio Partners, owned bonds issued by PuertoRico while it was advising the Board on restructuring the island's debt.
Velázquez’s bill requires attorneys, accountants, consultants, and other professionals employed by the Oversight Board to submit verified disclosures of their connections with the debtor, creditors, or persons employed by the Oversight Board, prior to being compensated under PROMESA. Under Velázquez´s bill, the U.S. Trustee would also review the disclosures submitted.
A study the Board commissioned to Luskin Stern found that McKinsey made the required disclosures to the entity and that there was no exchange of information with its subsidiary Mio. But Luskin Stern's study recognized that such investments can be problematic, as they give “rise to the appearance of conflict.”
According to McKinsey, the report concluded that “McKinsey’s policies, procedures, and practices ensured and continue to ensure that McKinsey’s consulting work and MIO’s investment management work were and are separate and that there is no information sharing between them.”
Last week, eight senators and five representatives - led by Senator Bernie Sanders and Puerto Rican Congresswoman Alexandria Ocasio Cortez – demanded to hold the Board accountable and to explain austerity measures and potential conflicts of interest.
In their letter to the Board, they said that McKinsey "has received more than $50 million in advisory fees ... and is also a holder part of Puerto Rican debt," in what they described as "blatant disregard for conflict-of-interest-norms."
"One of the main recommendations in the “Luskin Report” was that vendors should disclose affiliate relationships and found that trading in Puerto Rico public debt is particularly problematic, as it gives rise to the appearance of conflict. This is exactly what the PRRADA bill requires vendors to do," said Congresswoman Velázquez when she defended her bill before the Judiciary Committee in June.