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McKinsey & Co. worked with Russian weapons maker even as it advised the Pentagon

Superyacht Valerie, linked to chief of Russian state aerospace and defence conglomerate Rostec Sergei Chemezov, is seen at Barcelona Port in Barcelona city, Spain, March 9, 2022.
Albert Gea | Reuters

Russia has fired more than 2,000 missiles on Ukraine since invading in February. The engines for many of these missiles were manufactured by a massive state-owned enterprise called Rostec, and executives for that company hired the global consulting giant McKinsey & Co. in recent years for advice.

At the same time McKinsey was advising the Russian defense conglomerate, though not on any work directly involving weapons, the firm was carrying out sensitive national security contracts for the Defense Department and the U.S. 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 if the company should be awarded national security-related contracts given its extensive presence in China. McKinsey also faces accusations of ignoring possible conflicts of interest when it advised both opioid manufacturers and officials regulating opioids at the U.S. Food and Drug Administration.

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By carrying out consulting work with a company like Rostec, McKinsey placed itself in a potentially risky position, given its work with the U.S. government, according to Scott Blacklin, a former head of the U.S. Chamber of Commerce in Russia and president of the consultancy Blacklin and Associates.

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

Sen. Maggie Hassan, D-N.H., told NBC News that McKinsey has displayed a “pattern of behavior” in its consulting abroad and in Washington that raised “grave concerns about conflicts of interest.”

“Whether it be the substance misuse crisis or work for state-owned enterprises in places like Russia and China, I am deeply concerned by McKinsey’s choices and by the fact that the U.S. government continues to contract with McKinsey despite those potential conflicts,” the senator said.

But the company, which has its headquarters in New York, says it does not see its recent work in Russia as posing a conflict with its consulting for the Pentagon and other federal agencies. When asked by NBC News, a company spokesperson, Neil Grace, said McKinsey has strict rules and firewalls to safeguard against conflicts of interest, and that its work abroad is walled off from its work in Washington.

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

As for McKinsey’s consulting for Rostec, Grace said, “Our past work for Rostec subsidiaries did not concern weapons systems. This work concerned core commercial and operational topics of the sort that we routinely advise our clients on all over the world.”

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

McKinsey also provided research on the global helicopter market and advice on a project related to an engine for commercial aircraft, he said.

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

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

U.S. authorities have not charged McKinsey with violating federal contracting laws related to its work in Russia or China, and there are no allegations that McKinsey has damaged U.S. national security due to its work with governments hostile to the United States.

In its opioid-related work, McKinsey faces accusations that its employees may have shared inside information gleaned from FDA regulators with drug companies. McKinsey denies those claims and denies any wrongdoing.

In the case of its consulting in Russia and in Washington, it’s unclear if McKinsey staff shared information across accounts and there’s no evidence that happened.

About a week after Russia launched its invasion of Ukraine on Feb. 24, McKinsey and the other two consulting firms that make up the so-called Big Three in the industry, Bain and the Boston Consulting Group (BCG), said they were pulling out of Russia and suspending business operations. But McKinsey and the other two consulting firms chose not to withdraw 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 its work with 21 of the country’s 30 biggest companies. And according to a 2020 bankruptcy court filing and documents filed this week in Puerto Rico’s bankruptcy proceedings, the firm did consulting work for Russia’s largest bank, SberBank, VTB bank and state energy companies Gazprom and Rosneft, all of which are closely tied to the Kremlin. (The value and duration of McKinsey’s consulting work for those firms have not been disclosed.)

McKinsey is not the only management consulting or accounting firm to have worked with state-owned enterprises and other major companies in Russia.

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

Rostec is a massive defense conglomerate that dominates Russia’s military-industrial complex. It oversees hundreds of companies and makes an array of weaponry and military hardware. The company’s subsidiaries produce military attack helicopters now operating in Ukraine, engines for both lethal cruise missiles now raining down on Ukraine and Russian naval frigates, as well as electronic warfare systems and night vision goggles.

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

The CEO of Rostec is Sergei Chemezov, a staunch 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 that was linked to Chemezov, Reuters reported.

Rostec has “unlimited state money and the ability to capture anything it wants in the Russian landscape,” said Blacklin. “It’s kind of like if the Pentagon and the CIA decided to tie up with Raytheon and Lockheed and Cisco Systems.”

Rostec did not respond to a request for comment.

State-owned companies in Russia are under tight control by the Kremlin and are routinely plundered by government officials, according to Bill Browder, an outspoken critic of Putin who once ran the largest foreign investment fund in Russia.

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