US lawmakers take aim at McKinsey over its work in China and for the Pentagon

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Leading Republican lawmakers have called for a US justice department investigation into whether McKinsey violated federal law by failing to disclose potential conflicts of interest between its work in China and for the Pentagon.

In a letter to the US attorney-general Merrick Garland, seen by the Financial Times, the head of the House select committee on the Chinese Communist party and two US senators said McKinsey appeared to have breached government contracting rules and misled Congress.

The demand for an investigation raises the political pressure on the consulting firm, whose extensive work for the US military has been in the crosshairs of Republican lawmakers who argue McKinsey’s simultaneous work in China represents a risk to US national security, something the firm denies.

It also adds to challenges facing the consulting giant that range from the fallout from its work for opioid producer Purdue Pharma, which has led to a criminal investigation by the Department of Justice and hundreds of millions of dollars of legal settlements, to a slowdown in the consulting sector that has left it looking to ease out its least productive staff.

McKinsey has won almost half a billion dollars of business from the US Department of Defense since 2008, according to public disclosures. Procurement laws and the details of specific contracts require it to disclose potential conflicts of interest.

“Based on a review of a subset of DoD documents available to the select committee, it appears that McKinsey failed to disclose any potential conflicts of interest,” according to the letter, which was signed by committee chair John Moolenaar and senators Marco Rubio and Joni Ernst.

The lawmakers said McKinsey’s work for Chinese state-owned enterprises including China Communications Construction Company — which has been blacklisted by the US Department of Commerce for helping Beijing build military bases in the South China Sea — represented at least a potential conflict of interest that should have been disclosed, along with details of how McKinsey mitigated any conflict. They said this was also the case with work for the Chinese central government that McKinsey had revealed in unrelated US legal filings.

“The law requires that McKinsey disclose any potential conflicts so that the United States, through the contracting agency, can determinate whether the mitigation is appropriate,” the three Republicans said in their letter. “McKinsey has no legal right to police itself.”

McKinsey declined to comment. It has previously said that its policies on disclosing organisational conflicts of interest adhere to federal laws.

The lawmakers’ letter also reopens a question over the testimony that McKinsey’s global managing partner Bob Sternfels gave to Congress earlier this year, when he said the firm had never had the Chinese central government as a client.

The letter cited two legal filings by McKinsey in US bankruptcy cases where it worked as an adviser, one in which it listed “CN government — Fed/Prov” as a client and a second, previously unreported, instance when McKinsey said that between 1 per cent and 3 per cent of the revenues of its Shanghai office came from the State-Owned Assets Supervision and Administration Commission, which oversees state-owned enterprises.

The lawmakers asked Garland to launch an investigation into whether McKinsey’s dealings in China represented a threat to national security, whether the failure to disclose potential conflicts of interest broke federal law, and whether Sternfels made misrepresentations to Congress.

They also wrote to the Pentagon asking it to review whether McKinsey should remain eligible to continue work for the US military.

The DoJ declined to comment and the DoD did not immediately respond to a request for comment.

McKinsey has previously said that it stands by Sternfels’ testimony to Congress. It has also been scaling back its work with state-owned enterprises and government agencies in China, to focus on work for multinationals.