More federal regulators, including the Securities and Exchange Commission, are looking into how Morgan Stanley vets its wealthy clients and their sources of money, The Wall Street Journal reported on Thursday.
According to the report, regulators are specifically interested in the bank’s wealth-management division and are flagging current and former clients who are “at risk” of laundering money. Regulators are asking Morgan Stanley how they verified those clients and why the firm did business with some of them despite red flags.
One such client includes a Russian-linked billionaire who has been sanctioned by the UK, the Journal reported. Another is an individual who appears to have money atypical for someone with her claimed occupation. The Journal reported that the client also claimed she was based in the US, but her activity on E-Trade, a brokerage firm Morgan Stanley purchased in 2020, indicated she’s located somewhere in the Caribbean.
A spokesperson for Morgan Stanley did not immediately respond to a request for comment.
James Gorman, Morgan Stanley’s executive chairman, told the Journal in January that the firm has been cooperating with regulators and will invest in technology, including artificial intelligence, to better monitor the money that comes into its business.
Multiple federal agencies are involved, sources familiar with the probe told the Journal. They include the SEC, offices from the Treasury Department, and the Federal Reserve. The Journal reported in November that the Fed is investigating the vetting processes of Morgan Stanley’s wealth-management business.
At least one Morgan Stanley executive met with the Federal Reserve last year over the agency’s concerns, Bloomberg reported in November.
According to the Journal, the SEC sent a list of former and current clients of interest to the bank last year. Regulators have asked why Morgan Stanley did business with some of those wealthy clients despite being restricted from E-Trade due to red flags, according to the report.
The Treasury’s Financial Crimes Enforcement Network (FinCEN) also sent Morgan Stanley a list of clients, which has some overlap with the SEC’s list, the Journal reported.
The Treasury’s Office of Foreign Assets Control is also looking into Morgan Stanley’s policies around sanctions, according to a document obtained and viewed by the Journal.
Spokespeople for the SEC, the Treasury Department, and the Treasury’s FinCEN did not respond to requests for comment sent outside business hours.
Despite recent layoffs and a downturn in the firm’s net new assets managed, Morgan Stanley’s wealth-management arm remains a critical part of the bank’s business. Last year, the division, which manages about $1.9 trillion, drove nearly half of the bank’s revenue, according to the bank’s annual report.
The cross-agency scrutiny comes amid greater government interest in how banks verify ultra-wealthy individuals’ backgrounds, especially as government sanctions restrict who can do business in the US.
Last year, the Feds fined Deutsche Bank $186 million for failing to crack down on illicit money flowing through the German bank, Reuters reported.
