Congress took a major step yesterday toward enacting bipartisan legislation that would require McKinsey & Co. and other firms and professionals steering Puerto Rico through bankruptcy to disclose potential conflicts of interest, WSJ Pro Bankruptcy reported. A Senate committee with jurisdiction over Puerto Rico passed a bill to require lawyers, accountants, consultants and other professionals hired by Puerto Rico to disclose connections they have with the U.S. territory, its creditors or others employed to work on the debt restructuring. A companion version of the disclosure bill unanimously passed the House in February. Prior versions of the legislation had stalled in the same Senate committee. Lawmakers first proposed imposing the disclosure rules for Puerto Rico’s advisers in 2019 following media reports about potential conflicts of interest involving consulting giant McKinsey, a top adviser to the oversight board supervising Puerto Rico’s finances. McKinsey has also worked as an adviser in large corporate bankruptcy cases. The New York Times in 2018 reported McKinsey owned at least $20 million in Puerto Rico public debt through an investment affiliate while advising the oversight board. A Wall Street Journal investigation found McKinsey routinely disclosed far fewer names and descriptions of connections than other advisers working on corporate bankruptcies and that its investment unit held undisclosed financial stakes that gave it a direct interest in the outcome of bankruptcy cases it worked on. Following the press reports, the oversight board hired a law firm to investigate potential conflicts involving McKinsey, concluding in a 2019 report that it had mitigated potential conflicts because it “effectively walled off” its consulting business from its investment unit. The new disclosure requirements passed by the Senate Energy and Natural Resources Committee mirror rules that are already imposed on advisers working on corporate bankruptcies. Advisers hired by a bankrupt company are required to publicly disclose connections they have to the debtor, creditors or other parties so that a judge, the U.S. Justice Department or others involved in a chapter 11 case can ensure advice they give isn’t tainted by a potential financial conflict.
