For decades, Puerto Rico has struggled with a mounting debt crisis of epic proportions. The dire fiscal situation, stagnant economy and record unemployment has forced many Puerto Ricans to leave their communities and move to the mainland. This humanitarian crisis has been compounded by Hurricane Maria, and it is estimated that more than 50,000 Puerto Ricans have relocated to Florida following the devastating storm.
Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in 2016 to help Puerto Rico address its financial crisis. PROMESA established a Financial Oversight Board and a process to help Puerto Rico restructure its crippling debt. But, while the law helped Puerto Rico take the first steps towards economic stability, it was missing key provisions to prevent conflicts of interest from playing a role in the debt restructuring process, leaving Puerto Rico at a disadvantage in bankruptcy proceedings compared to other parts of the United States.
It appears that at least one of the firms contracted by Puerto Rico’s federally appointed Oversight Board to advise on the island’s debt restructuring has just the kinds of conflicts of interest that PROMESA fails to prevent.
McKinsey & Company is a global consulting giant that has recently come under fire for failing to disclose its dual roles in three bankruptcy cases across the country. In one case, the U.S. Department of Justice openly criticized McKinsey for its lack of transparency surrounding financial relationships that could pose significant conflicts of interest in bankruptcy proceedings.
In the case of Puerto Rico, McKinsey is advising the Oversight Board on how much to pay to creditors while failing to disclose that its investment unit is one of those creditors — holding at least $20 million in Puerto Rican bonds. The plan recently announced by the Oversight Board pays bondholders like McKinsey an amount more generous than the norm, prioritizing their debts over the claims of other creditors. McKinsey’s dual role in the Puerto Rico bankruptcy proceedings erodes public trust in the process and endangers Puerto Rico’s path to stability.
McKinsey has made a habit of refusing to disclose conflicts of interest in its bankruptcy dealings and, Given the dire situation in Puerto Rico, American taxpayers cannot afford to take the chance that the firm is operating with its own best interest in mind, rather than that of Puerto Rico. Congress must take action to restore confidence in the process by closing the gaping loophole left by PROMESA.
At the end of 2018, a bipartisan bill known as the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA) was introduced in Congress to address PROMESA’s shortcomings. PRRADA will strengthen requirements for disclosures and investigating potential conflicts of interest during the bankruptcy process in Puerto Rico, bringing Puerto Rican bankruptcy requirements up to par with that of the rest of the country. Florida’s congressional delegation should be among the leaders ensuring PRRADA becomes law as soon as possible – protecting American taxpayers, especially Puerto Ricans, from being taken advantage of by New York-based consultants.
The South Florida Hispanic Chamber of Commerce, founded 25 years ago, serves as a voice for minority-owned businesses and is proud to offer workshops and programs to help Hispanic communities grow. As the president and CEO, I consider it a privilege to work alongside so many Puerto Rican business owners and friends who deserve to be reassured that everyone involved in Puerto Rico’s restructuring is involved for the betterment of the island and not their own personal enrichment.
Puerto Rico’s connections to our state run deep, and with a number of newly elected officials representing Florida at the local, state and federal levels, it is the perfect time for all to come together in their support of this common-sense measure to protect the people of Puerto Rico as they work to stabilize their economy.
Liliam M. López is a co-founder of the South Florida Hispanic Chamber of Commerce in 1994 and the South Florida Hispanic Chamber of Commerce Foundation serving as President/CEO of both organizations.