GOP lawmakers seek investigation of consulting firm over its work in China

[October 19, 2024]  WASHINGTON (AP) — A group of Republican lawmakers is demanding a federal investigation into the U.S. consulting firm McKinsey over its work with the Chinese government and state-owned enterprises, even as the company reportedly is revamping its China business to reduce risks.

A letter — signed by Rep. John Moolenaar of Michigan, Sen. Marco Rubio of Florida and Sen. Joni Ernst of Iowa — asks the Justice Department to investigate whether McKinsey's $480 million contracts with the Defense Department comply with federal law when the consulting firm also advised China's national and provincial governments and state-controlled businesses. The three accuse McKinsey of misrepresenting its relationship with the Chinese government.

“McKinsey's activities pose a serious risk to U.S. national security and may have failed to meet McKinsey's obligations under federal law,” according to the letter dated Thursday.

McKinsey declined to comment on the letter but has in the past defended its practices in China. It has said it follows the “most rigorous and comprehensive client service policy in our industry."

The consultancy also has said it does not work for the ruling Chinese Communist Party or the central government but mainly with multinationals and private Chinese businesses.

The lawmakers' scrutiny over McKinsey's dealings with Beijing comes as the U.S. and China are becoming increasingly competitive, prompting American politicians to reexamine business ties to ensure Beijing and its military would not get stronger with U.S. help. Beijing also has grown wary of American companies.

The Biden administration has imposed export controls to block China's access to advanced computer chips and limited U.S. investments in China in areas such as microelectronics, quantum information technologies and artificial intelligence. Last month, a Republican congressional report raised red flags that partnerships between American and Chinese universities could aid Beijing in developing critical technology for military advances.

Sen. Joni Ernst, R-Iowa, talks after a policy luncheon on Capitol Hill, Sept. 24, 2024, in Washington. (AP Photo/Mariam Zuhaib, File)

U.S. companies, which have built experience in China over the past several decades, now are readjusting to the new geopolitical reality. The Wall Street Journal this week reported that McKinsey has cut back on government-linked clients in China and reduced the workforce there by nearly 500 people, or about a third.

The letter by Republican lawmakers accused McKinsey of helping China “rapidly develop its military and economy” through its consulting services. It said McKinsey failed to disclose its work with the Chinese government while acquiring U.S. defense contracts, which amounted to more than $480 million since 2008 and granted McKinsey “access to classified or otherwise sensitive national security data.”

Bob Sternfels, McKinsey's global managing partner, told the Senate Homeland Security Committee's subcommittee on investigations in February that “we've never worked for the Chinese Communist Party or the central government in China, to the best of my knowledge.”

The letter asserted that McKinsey may have misrepresented its relationship with the Chinese government, citing public information and documents.

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