Probe into Puerto Rico board seeks transparency from vendors

SAN JUAN, Puerto Rico — A federal control board overseeing Puerto Rico's finances announced on Monday that it would require more transparency from its vendors following an independent investigation into allegations of conflict of interest.

The probe focused on McKinsey & Company, a consulting firm that both owns Puerto Rico bonds and advises the U.S. territory on its finances. The report stated that its affiliate, MIO Partners, held and controlled a direct investment in Puerto Rico debt while the firm was contracted by the board. It also held such investments though third party funds.

"These investments could be perceived as conflict," the report stated.

However, investigators said they found no evidence that consultants knew about these investments or did anything differently as a result of them. In addition, they said that MIO did not have access to the firm's consulting work or alter its investment strategy.

McKinsey released a statement saying it fully complied with all legal requirements.

"No McKinsey consultant knew of any financial interest that could have influenced his or her work or had any ability to direct any investment of MIO or its third-party managers," it stated.

The board said it would follow the report's recommendations, including that vendors disclose affiliate relationships.

"Trading in Puerto Rico public debt is particularly problematic, as it gives rise to the appearance of conflict: Will investments influence advice, and vice versa, will advice influence investments?" the report stated.

The announcement comes just days after a federal appeals court in Boston ruled that the board's seven voting members were illegally appointed in violation of the U.S. constitution. The ruling means U.S. President Donald Trump and the U.S. Senate have three months to validate the appointments or select new members.

However, none of the board's actions have been invalidated since the court said that would further delay "a historic debt restructuring process that was already turned upside down once before by the ravage of the hurricanes that affected Puerto Rico in September (2017)." The appeals court also stated that the bankruptcy cases finalized by the board will remain in place.

Puerto Rico is mired in a 12-year recession and trying to restructure a portion of its more than $70 billion public debt load.