Puerto Rico bankruptcies need more transparency
Puerto Rico is near and dear to the hearts of Floridians. Many of us have friends and family on or from the island and even a shared heritage with the people of Puerto Rico.
The lack of transparency and financial disclosures in the Puerto Rico bankruptcy process have been a continual problem on the island. Riddled with conflicts of interest, the process has been unsettling for many of us with a personal stake in Puerto Rico.
Thankfully, Congress is finally taking action to correct a long-exploited loophole in the PROMESA law that allows companies consulting on the Puerto Rican bankruptcy to forgo disclosures traditionally required in bankruptcy proceedings.
Legislation advancing through Congress, the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA), is designed to create transparency in the Puerto Rican bankruptcy process and bring disclosure requirements on the island up to par with that of the rest of the country. The bill was recently voted favorably out of the House Judiciary Committee and is on its way to facing a vote before the full House of Representatives.
One firm that inspired the PRRADA legislation, McKinsey & Co., has been under immense scrutiny over the direct financial interests they hold in the Puerto Rican bankruptcy to which they are key advisors. The New York Times and other major outlets have reported on the matter and outside firms have been asked to investigate the concerns, with results finding McKinsey’s undisclosed investments as “problematic.”
The bankruptcy process is not the only time McKinsey has engaged in conflicted behavior in Puerto Rico. In a recent committee hearing, Rep. Nadia Velazquez called out McKinsey for its double dealing in a Puerto Rico municipal energy project with the Puerto Rico Electric Power Authority (PREPA). While consulting on the project, McKinsey recommended a company for the contract in which its own client, Softbank, has a financial stake.
This is part of a pattern. Earlier this year, McKinsey was forced by the Department of Justice to repay $15 million in fees to remedy its inadequate disclosures in bankruptcy cases and the New York Times and Wall Street Journal have reported that McKinsey’s bankruptcy practice is under federal criminal investigation.
It’s worth noting that McKinsey, in addition to its dealings in Puerto Rico, also has its fingerprints all over federal and statewide coronavirus responses, including in Florida. From the Orlando Airport Authority to Miami Dade County, millions of tax dollars are paying for consulting strategies and recommendations that may not have the best interests of our state at heart.
As reported in ProPublica, local leaders and news organizations in South Florida have criticized McKinsey’s involvement in the Miami-Dade reopening plans — alluding to their hollow tactics with a high price tag. Former Miami Mayor Xavier Suarez succinctly criticized McKinsey’s services saying, “It just strikes me as a colossal waste of money.”
Consulting companies, paid for by taxpayer dollars, have an obligation to serve the communities they are hired to advise — not their own financial interests. As the 2020 election nears, we need to ensure that those leading us through these tumultuous times are fighting for the best interests for our state and for that of our brethren in Puerto Rico.
I urge Florida officials to voice their support for PRRADA and help ensure that it becomes law. The stakes are too high. We can’t afford to get this wrong.