[Marxism] ‘Exhibit A’: How McKinsey Got Entangled in a Bribery Case
lnp3 at panix.com
Mon Dec 31 15:05:55 MST 2018
(Entangled is the operative word here. Let me preface this article with
a summary that might help you understand its geopolitical implications.
Boeing was desperate to get its hands on titanium for a new jumbo jet.
So it hired McKinsey to come up with a strategy that involved bribery,
something that this august firm considered a "traditional" way of doing
business in India where the titanium mines would be located. To line up
the partners and investors for this enterprise, Boeing connected with
Dmytro Firtash, a Ukrainian oligarch with close ties to Yanukovych and
Putin. When Firtash was going to be extradited to Austria where he faced
charges for sundry criminal activities, Boeing used its considerable
clout to keep him in the USA. Guess who Firtash's lawyer was. None other
than Lanny Davis, who was Clinton's top fixer. For a more lurid account
of the Firtash story, check out the Rolling Stone article titled
"Michael Cohen, Lanny Davis and the Russian Mafia" at
NY Times, Dec. 31, 2018
‘Exhibit A’: How McKinsey Got Entangled in a Bribery Case
By Walt Bogdanich and Michael Forsythe
VIENNA — Boeing was in a tight spot. Just as it was preparing to roll
out its innovative 787 Dreamliner — the plane that was supposed to lead
the aircraft manufacturer into the future — a shortage of strong but
lightweight titanium parts threatened production.
With titanium prices rising and delivery dates looming, Boeing knew it
needed help, so in 2006 it did what many companies do when faced with
vexing problems: It turned to McKinsey & Company, the consulting firm
with the golden pedigree, purveyor of “best practices” advice to
businesses and governments around the world.
Boeing asked McKinsey to evaluate a proposal, potentially worth $500
million annually, to mine titanium in India through a foreign
partnership financed by an influential Ukrainian oligarch.
McKinsey says it advised Boeing of the risks of working with the
oligarch and recommended “character due diligence.” Attached to its
evaluation was a single PowerPoint slide in which McKinsey described
what it said was the potential partner’s strategy for winning mining
permits. It included bribing Indian officials.
The partner’s plan, McKinsey noted, was to “respect traditional
bureaucratic process including use of bribes.” McKinsey also wrote that
the partner had identified eight “key Indian officials” — named in the
PowerPoint slide — whose influence was needed for the deal to go
through. Nowhere in the slide did McKinsey advise that such a scheme
would be illegal or unwise.
McKinsey declined to provide The New York Times with its full report or
any evidence that it had objected to the paying of bribes. But the
consultancy denied recommending “bribery or other illegal acts.” For his
part, the Ukrainian oligarch, Dmitry V. Firtash, denies that he paid or
recommended bribes, or had any dealings with McKinsey or knowledge of
The story of McKinsey’s role in the episode has remained hidden from
public view for 12 years. Even today the firm’s ultimate recommendation
and how its client, Boeing, responded remain something of a mystery,
cloaked in the secrecy of grand jury proceedings. But McKinsey’s
reference to illegal acts has thrust the firm into a tangled
international battle over the extradition of Mr. Firtash, who has been
charged in the United States with bribing Indian officials in
anticipation of getting titanium for Boeing.
Should he be brought to trial, McKinsey, and the document it produced,
stand to play a major role in the outcome — a well of potential
embarrassment that underscores the risks that McKinsey and other
American consulting firms face as they, and clients like Boeing, do
business in countries where ethical standards and practices diverge from
those at home.
McKinsey initially refused to confirm that the report even existed. But
after learning that The Times had obtained a copy, the firm issued a
statement acknowledging that McKinsey employees had indeed written it.
Neither McKinsey nor Boeing agreed to an interview.
This account is based on an examination of public and confidential
records, as well as interviews in the United States and Europe.
When Boeing went looking for titanium in 2006, it tentatively agreed to
buy the metal through a company controlled by Mr. Firtash, who had made
billions of dollars brokering gas sales to Ukraine from Russia and
former Soviet republics.
The deal did not end well.
The mining venture never materialized, but Mr. Firtash was indicted on
charges of directing $18.5 million in bribes to Indian officials for
Mr. Firtash was a big catch for the Americans, who saw him as close to
the Russian president, Vladimir V. Putin, capable of leading a wavering
Ukraine away from a Western economic alliance and into the Kremlin’s
camp. In Vienna, where Mr. Firtash was arrested and remains free on a
$174 million cash bond, an extradition judge accused American officials
of using the prosecution in service of its geopolitical interests.
Neither McKinsey nor Boeing was charged in the case, and Boeing has not
been accused of paying bribes. But several employees of the two
companies are believed to have testified before a grand jury. Boeing
continued to pursue the venture even after being advised that its
partner’s plans included paying bribes, records show.
In a recent interview in Vienna, Mr. Firtash said that neither he nor
any of his representatives had any connection to the McKinsey document.
“We never worked with McKinsey,” he said. He said he had been unfairly
singled out by prosecutors because of false media reports tying him to
Mr. Putin, and an unconsummated business deal with Paul Manafort, the
former Trump campaign chairman recently convicted of tax violations
related to his work in Ukraine.
The Hunt for Titanium
For Boeing, the early 2000s were a time to roll the dice. As its chief
competitor, the European consortium Airbus, moved toward bigger planes,
Boeing countered with a design that promised better fuel efficiency and
easier maintenance: the 787 Dreamliner, a lighter, more durable aircraft
with a higher percentage of titanium and composite materials.
As orders flooded in, Boeing executives knew well what was at stake. In
an article about the Dreamliner, The M.I.T. Technology Review quoted a
manager saying, “If we get it wrong, it’s the end.”
Then Boeing hit a crosswind: an industrywide shortage of fasteners — the
seemingly mundane items like nuts, bolts, rivets and washers that
literally hold planes together. Thousands were needed for each aircraft,
and for the lighter Dreamliner, they had to contain more titanium.
Desperate for new supplies, Boeing latched onto a promising lead. A
group of six international businessmen with plentiful financing had
offered to mine and process five million to 12 million pounds of the
metal annually, much of it for sale to Boeing. The group, Bothli Trade
A.G., had already signed a memorandum of understanding for a joint
mining venture with the Indian state of Andhra Pradesh.
Environmental concerns arose, and when a land survey was conducted on
the proposed mining site, residents “reacted violently,” according to
But Boeing faced a more basic question: Should it even be doing business
with this group — largely little-known figures from India, Sri Lanka and
Hungary? The exception was the leader and leading financier, Mr.
Firtash, who had expertise as the owner of titanium processing plants in
This was the business plan that McKinsey was brought in to assess, the
plan that its report described as including the paying of bribes.
Ultimately, the deal fell apart. Boeing found other sources of titanium
and McKinsey continued to advise the company on the supply chain. But
McKinsey’s report on India would remain buried until it came to light
years later in a legal storm.
The Fight to Extradite
In June 2013, a federal grand jury in Chicago secretly indicted Mr.
Firtash and five others, including an Indian official, on bribery
charges. Still, it would be nine months before Mr. Firtash was taken
into custody, where he remained for a little more than a week until a
Russian billionaire, Vasily Anisimov, posted his $174 million bond. Mr.
Anisimov is an associate of Mr. Putin’s friend Arkady Rotenberg.
So began a highly unusual four-year tug of war between two allies — the
United States and Austria. Extradition requests between the United
States and other Western nations are almost never rejected, said Lanny
J. Davis, one of Mr. Firtash’s lawyers and a former special counsel to
President Bill Clinton.
This extradition case would play out differently.
In August 2014, five months after Mr. Firtash’s arrest, a document
unexpectedly arrived via email and Federal Express at the Austrian
Ministry of Justice in Vienna. It would raise profound questions about
the direction of the case.
To American prosecutors, it was known simply as “Exhibit A.” A single
PowerPoint slide, written in 2006 and attached to a much longer
evaluation of the India mining venture, it laid out the alleged bribery
The slide stated that Mr. Firtash’s group, Bothli Trade, “has identified
key Indian officials and has crafted a strategy to gain their
influences.” That strategy included investing in infrastructure and jobs
and respecting the traditional use of bribes. Those key officials were
named, along with their positions. A footnote attributed this
information to Bothli’s business plan and interviews with unidentified
Exhibit A couldn’t have come at a better time for the prosecutors. Their
extradition case appeared to be falling short, dependent largely on
unidentified witnesses, records that purportedly showed bribe money
disguised as legitimate business transactions and meetings between
Boeing officials and members of Mr. Firtash’s group. The Austrian judge
wasn’t buying it.
If American officials wanted to try Mr. Firtash in Chicago, the judge
said, more evidence of criminal conduct was needed, including the names
of cooperating witnesses and what they were expected to say. The
Americans refused, saying that to identify them would put their lives at
risk, since Mr. Firtash was “associated with an upper-echelon member of
the Russian mafia, Semion Mogilevich.” Mr. Firtash adamantly denies
having had any business relationship with Mr. Mogilevich.
That was when prosecutors discovered Exhibit A in Boeing’s files. Rarely
does someone put in writing the need for bribes. Yet now, more than a
year after the indictment, prosecutors had a document that they called
“very clear proof” that Mr. Firtash’s enterprise had advised Boeing “of
the plan to bribe Indian public officials, which was already underway.”
A Vital Piece of Information
The Austrian judge, Christoph Bauer, had more questions.
Why, he wondered, had prosecutors waited so long after the indictment to
arrest Mr. Firtash? He was not hiding, the judge said, adding that
American officials should have known that Mr. Firtash had visited
France, Germany and Switzerland and made a very public appearance when
he ceremoniously opened the London Stock Exchange one day in October 2013.
And then there was the curious timing of the Americans’ pursuit of Mr.
Firtash, which the judge suspected was linked to his influence in
Ukrainian politics, especially his help in electing the president,
Viktor F. Yanukovych, in 2010.
Three years later, Mr. Yanukovych was wavering over whether to sign an
economic agreement with the European Union or to align with Russia. He
also faced re-election.
As soon as it became clear that Mr. Yanukovych, under pressure from
Russia, was reconsidering signing the European Union agreement, the
judge pointed out, an American delegation traveled to Kiev to bring him
Facing the prospect that Mr. Firtash might sway Mr. Yanukovych and use
his connections to help him remain in power, the United States asked
Austria to arrest the oligarch, the judge said.
Indeed, documents show that in the fall of 2013, Austrian authorities
had received an “urgent message” from American prosecutors: Mr. Firtash
was expected in Vienna on Nov. 4. Arrest him.
Then, a few days before the planned arrest, the documents show, came
another urgent message: “As part of a larger strategy, U.S. authorities
have determined we need to pass up this opportunity.” No arrest. No
explanation of the larger strategy.
According to Judge Bauer, though, that was when Mr. Yanukovych appeared
to be rejecting Russia. But when the president turned back toward Russia
five months later, the Americans renewed the request and Mr. Firtash was
taken into custody.
Mr. Yanukovych was ousted in February 2014 amid violent protests. He now
lives in Russia.
To the surprise of American officials, the judge denied extradition on
the grounds that the request was politically motivated, whether or not
Mr. Firtash was “sufficiently suspected” of breaking the law.
The United States appealed, and last year a higher Austrian court
overturned Judge Bauer’s ruling. That decision is now under final review.
But, Mr. Firtash’s lawyers point out, the Americans did not share a
vital piece of information with the Austrian courts: After the
prosecutors spent months insisting that Exhibit A proved that the
oligarch had recommended bribes, it emerged in the United States that
the document had in fact been written by consultants from McKinsey.
In response to questions from The Times, Dan Webb, one of Mr. Firtash’s
lawyers and a former United States attorney in Chicago, said his client
had nothing to do “with the creation or presentation of the PowerPoint
slide proposing bribery and used by U.S. prosecutors to support
extradition of Firtash.” He accused prosecutors of falsely telling
Austrian officials that the slide constituted “clear proof” that Mr.
Firtash was behind the bribery scheme, adding that “U.S. prosecutors
never withdrew their false statement.”
The United States attorney’s office in Chicago did not respond to
messages seeking comment.
While McKinsey declined to provide its full report to The Times, it said
it contained a section “noting unique risks that an association with
Firtash would pose.” The firm said it was cooperating with the Justice
Department and was not the focus of the investigation.
For its part, Boeing said in a statement that it had cooperated with the
Justice Department and was “not accused of any wrongdoing.”
Bridget Hickey contributed reporting, and Susan Beachy contributed research.
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