McKinsey's $650M Settlement with DOJ: A Watershed Moment in Corporate Liability for Consulting Firms

McKinsey & Company's $650 million settlement with the Department of Justice regarding its work with Purdue Pharma represents a pivotal shift in corporate liability doctrine. Additionally, a former McKinsey senior partner currently residing in Bangkok who worked on Purdue matters has been charged with obstruction of justice.

This case establishes unprecedented precedents for consulting firm liability and professional services accountability in the context of client misconduct.

Some legal precedents set include:-

• First successful criminal prosecution of a consulting firm for client advice
• Establishes that advisory services can constitute a conspiracy to aid and abet misbranding
• Creates a framework for prosecuting professional service firms under controlled substances laws

While significant, the $650 million settlement amount may ultimately prove less important than the precedents established regarding consulting firm liability, document retention requirements, and the definition of criminal conspiracy in the context of professional services.

This case will likely influence future corporate behaviour, regulatory oversight, and professional service firm operations.

SPEED READ

1. McKinsey & Company agreed to a $650 million settlement with the U.S. Department of Justice (DOJ) to resolve criminal and civil investigations into its consulting work for Purdue Pharma, the manufacturer of OxyContin
2. This settlement is significant because it marks the first time a management consulting firm has been held criminally responsible for advice contributing to a client’s criminal activities.
3. The investigation revealed that McKinsey advised Purdue on strategies to increase OxyContin sales despite knowing the risks and dangers associated with the opioid.
4. The settlement includes a deferred prosecution agreement, requiring McKinsey to cease work related to controlled substances and implement new compliance measures.
5. This case is a watershed moment in corporate liability because it sets a precedent for holding consulting firms accountable for their role in clients’ illegal activities.
6. This precedent extends beyond the opioid crisis, fundamentally redefining the scope of professional liability for consulting firms:

1. Consulting firms can no longer claim immunity from their clients' illegal activities if they knowingly provided advice that facilitated misconduct
2. The boundary between advisory services and active participation in criminal enterprise has been redefined
3. Professional service firms must now consider potential criminal liability in addition to civil liability

ELEMENTS OF FAILURE

McKinsey's E2E program for Purdue Pharma demonstrated how consulting advice could cross the line into a criminal conspiracy.

Specific elements that proved problematic:
- Recommendations to "turbocharge" OxyContin sales by targeting high-volume prescribers
- Development of strategies to maximise opioid prescriptions during an acknowledged public health crisis
- Creation of detailed marketing plans that allegedly circumvented FDA restrictions
- Failure to adequately consider or address known risks of abuse and diversion
Document Destruction and Obstruction - essential implications:
- Pre-emptive document deletion in anticipation of potential investigation constitutes obstruction
- Internal communications about document destruction can serve as evidence of criminal intent
- The timing of document destruction relative to public investigations becomes legally significant
- Professional service firms must maintain robust document retention policies
SOURCE:

(1) Justice Department Announces Resolution of Criminal and Civil .... https://www.justice.gov/opa/pr/justice-department-announces-resolution-criminal-and-civil-investigations-mckinsey-companys.

(2) McKinsey & Company to Pay $650M to Resolve Federal Probe ... - Newsweek. https://www.newsweek.com/mckinsey-company-pay-650m-resolve-federal-probe-opioids-work-2000473.

(3) Why McKinsey’s $650m settlement marks a turning point in the opioid. https://business-news-today.com/why-mckinseys-650m-settlement-marks-a-turning-point-in-the-opioid-epidemic/.