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McKinsey Partner’s Arrest Spotlights White-Collar Crime
The elite US consulting firm of McKinsey & Company, long known for its prudence and caution, must have been low on anybody’s suspect list of those likely to be involved in financial crime. Even the suspect himself was shocked when federal officers arrived at his California home recently to arrest him on charges of conspiracy and securities fraud. As The Financial Times reported on October 22, Anil Kumar fainted and had to be briefly hospitalised. Court documents reveal that he has been accused of passing inside information to Raj Rajaratnam, head of the Galleon Group, arrested in New York last week on insider trading charges.
Shocks like this come out of a clear blue sky. As McKinsey’s worldwide managing director, Dominic Barton, has said, “This issue is completely virgin territory for us. We have very clear policies that you do not invest in clients or situations even where it is legal.”
There are, however, protective measures that firms can take. Experienced professional teams of experts exist that can apply sophisticated investigatory methods and state-of-the-art technology to warn top management of possible fraud. Tell-tale signs are often buried in patterns of contact and in other areas where no one else would think to look. Expert financial analysis, coupled with computer forensic work, for example, can usually provide you with a running image of what’s actually going on inside your company, much as infra-red night-vision goggles allow you to “see in the dark”. Without any support of this nature, you’re basically flying blind. Far better to be pro-active and not sorry.
As the Times points out, news of Kumar’s arrest stunned both McKinsey and the broader management consulting industry, which is valued above all in executive suites throughout the world for discreet counsel on matters often central to corporate strategy. Unlike law firms, top consulting companies have not previously been hit by investment trading scandals.
Ironically, the arrest of Kumar – who is widely respected in the Indian-American business world and beyond – comes hot on the tail of the Galleon case, which is seen as a significant win for the US Attorney for the southern district of New York. The latter has long been the Justice Department’s senior officer on the white-collar crime beat. But during the financial crisis, questions were asked about whether the office was living up to its responsibilities. Galleon represents something of a comeback to such critics. The charges filed last week against Rajaratnam and five others amount to the biggest insider-trading case involving a hedge fund. And, of course, another win still fresh in everyone’s memory is the Bernard Madoff case.
Preet Bharara, who took over as chief of the Attorney’s office ten weeks ago, says the Galleon case should be a “wake-up call to Wall Street”. He could well have said “to the global financial and corporate world as a whole”. The use of court-authorised wire taps in the Galleon case underscores the escalation of law enforcement efforts against financial crime in the United States. Wire taps are traditionally used to investigate mobs and drug gangs.
But wherever your firm is operating, don’t wait until a deviant staff member pushes you out into the limelight. Thinking you know all you need to know about your company can be dangerous. A professional team can tip you off to something that’s even worse: what you don’t know you don’t know but urgently need to.
