Home Civilian based defense McKinsey & Co. worked with a Russian arms manufacturer as it advised the Pentagon

McKinsey & Co. worked with a Russian arms manufacturer as it advised the Pentagon

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Russia has fired more than 2,000 missiles at Ukraine since its invasion in February. The engines for many of these missiles were made by a huge state-owned company called Rostec, and that company’s executives have hired global consulting giant McKinsey & Co. in recent years for advice.

At the same time, McKinsey was advising the Russian defense conglomerate, but not on work directly involving weapons, the company was performing sensitive national security contracts for the Department of Defense and the US intelligence community, according to an NBC News investigation. .

McKinsey has come under scrutiny in Congress for its work with state-owned companies in China, with lawmakers questioning whether the company should be awarded national security-related contracts given its extensive presence in China. . McKinsey is also accused of ignoring potential conflicts of interest when advising both opioid manufacturers and opioid regulators at the US Food and Drug Administration.

By doing consulting work with a company like Rostec, McKinsey has placed itself in a potentially risky position, given its work with the US government, according to Scott Blacklin, former head of the American Chamber of Commerce in Russia and chairman of the consulting firm Blacklin et Associés.

“It’s really hard to understand how an American consulting firm…would want to be involved in sensitive areas of the Russian defense, intelligence, or science establishment. And when you talk about Rostec, you’re talking about all these mixtures,” Blackline said.

Sen. Maggie Hassan, DN.H., told NBC News that McKinsey has displayed a “pattern of behavior” in its overseas and Washington boards that has raised “serious concerns about conflicts of interest”.

“Whether it’s the drug addiction crisis or working for state-owned companies in places like Russia and China, I’m deeply concerned about McKinsey’s choices and the fact that the U.S. government continues to contract with McKinsey despite these potential conflicts,” the senator said. mentioned.

But the firm, which is headquartered in New York, says it does not view its recent work in Russia as posing a conflict with its advice for the Pentagon and other federal agencies. When asked by NBC News, a spokesperson for the company, Neil Grace, said McKinsey had strict rules and firewalls to protect against conflicts of interest, and that its overseas work was separate from his work in Washington.

“As we have previously stated, McKinsey complies with all applicable US contract laws, including those relating to conflicts of interest,” Grace said. “When we serve the U.S. government, we do so through a separate legal entity with separate operating structures and separate information technology where appropriate.”

Regarding McKinsey’s advice to Rostec, Grace said, “Our previous work for Rostec’s subsidiaries has not been on weapons systems. This work has been on fundamental business and operational topics of the type on which we regularly advise our customers all over the world”.

“For example, our work for a subsidiary involved buses used in mass transit systems,” Grace said. “It would not be fair or accurate to describe this work as benefiting the Russian military.”

McKinsey also provided global helicopter market research and advice on a commercial aircraft engine project, he said.

To examine McKinsey’s potential conflicts of interest, NBC News reviewed federal contract documents, court filings, company statements and Russian media reports, and interviewed experts, lawmakers and officials. former civil servants.

Federal laws require companies to disclose any potential conflict of interest and show how they plan to resolve the potential conflict. In four federal contracts obtained by NBC News, for the Department of Defense, Navy and Customs and Border Protection, McKinsey did not identify any potential conflicts of interest due to its work with state-owned companies in Russia.

U.S. authorities have not charged McKinsey with violating federal contract laws related to his work in Russia or China, and there are no allegations that McKinsey harmed U.S. national security because of of his work with governments hostile to the United States.

In its work related to opioids, McKinsey faces accusations that its employees may have shared inside information gleaned from FDA regulators with pharmaceutical companies. McKinsey denies these allegations and denies any wrongdoing.

In the case of his advice in Russia and Washington, it is unclear whether McKinsey staff shared information between the accounts and there is no evidence that this happened.

About a week after Russia launched its invasion of Ukraine on Feb. 24, McKinsey and the two other consultancies that make up the industry’s so-called Big Three, Bain and the Boston Consulting Group (BCG), declared that they were withdrawing from Russia and suspending commercial operations. But McKinsey and the other two consultancies chose not to step down in 2014, when Russian forces invaded Ukraine and seized Crimea. The international reaction at the time was not as severe and there was no corporate exodus.

McKinsey had promoted his work to 21 of the nation’s top 30 companies. And according to a 2020 bankruptcy court filing and documents filed this week in Puerto Rico’s bankruptcy proceedings, the company has done consulting work for Russia’s largest bank, SberBank, VTB Bank and state energy companies Gazprom and Rosneft, all of which are closely linked to the Kremlin. . (The value and duration of McKinsey’s consulting work for these companies was not disclosed.)

McKinsey isn’t the only management consulting or accounting firm to have worked with state-owned companies and other large corporations in Russia.

But the company’s work with one of Russia’s most powerful and politically connected players in the Russian defense industry seems to set the company apart.

Rostec is a massive defense conglomerate that dominates Russia’s military-industrial complex. It oversees hundreds of companies and manufactures a range of weapons and military hardware. The company’s subsidiaries produce military attack helicopters currently operating in Ukraine, engines for the deadly cruise missiles currently raining down on Ukraine and Russian naval frigates, as well as electronic warfare systems and vision goggles nocturnal.

In the aftermath of Russia’s capture and annexation of Ukraine’s Crimean peninsula in 2014, the company’s subsidiaries have sought to build power plants in Crimea and take over defense manufacturers to cement regional ties. with Russia, according to the British government. McKinsey’s ties to Rostec date back to at least 2010, according to several reports in Russian media. In 2015, they were hired to implement a “large-scale reform” at Russian Helicopters, a subsidiary of Rostec which manufactures a range of civilian and military helicopters.

Rostec’s CEO is Sergei Chemezov, a strong supporter of Russian President Vladimir Putin who served as a KGB officer with him in Dresden during the Soviet era. Spain recently seized a $153 million superyacht linked to Chemezov, Reuters reported.

Rostec has “unlimited public funds and the ability to capture whatever it wants in the Russian landscape,” Blacklin said. “It’s a bit like the Pentagon and the CIA deciding to partner with Raytheon, Lockheed and Cisco Systems.”

Rostec did not respond to a request for comment.

Russian state-owned companies are tightly controlled by the Kremlin and are regularly plundered by government officials, according to Bill Browder, an outspoken critic of Putin who once ran Russia’s largest foreign investment fund.