Morgan Stanley‘s wealth-management division is under investigation by multiple government agencies due to its weak anti-money-laundering controls and improperly vetting international clients.
Internal documents revealed instances where the bank failed to conduct proper background checks on high-risk individuals, including clients with questionable wealth sources or ties to criminal activities, according to a Wall Street Journal investigation.
In one case, a self-proclaimed princess with $5 billion in assets was allowed to open accounts without staffers practicing a due diligence review or ever meeting her in person, while another case involved a yearslong client who had ties to al Qaeda bombings, the WSJ reported.
Once Morgan Stanley‘s global financial crimes unit discovered the discrepancies, law enforcement was alerted, but by then the supposed princess was able to withdraw tens of thousands of dollars from ATMs in Pakistan.
She was also allegedly approved for a low interest rate loan of $100 million, which she claimed was for derivatives trading but it was never paid out, according to the Journal.
International clients: An engine for growth with heightened risks
Despite these issues, Morgan Stanley‘s international wealth management business grew rapidly and oversees $6 trillion in assets.
“For Morgan Stanley, the international business is a blessing and a curse,” an unnamed former longtime executive said to the Wall Street Journal. “It’s a growth business but the risk is enormous, and they have grown too fast.”
The newspaper reported the bank’s push for speed in onboarding clients led to significant lapses in risk assessments with an internal risk team discovering that 60 percent of international accounts that financial advisers were trying to open had errors.
The company attracted international clients, in regions known for its financial corruption and drug trafficking such as Latin America including Venezuela and Russia, raising concerns about potential money laundering.
The U.S. government relies on advisers like the staff at Morgan Stanley to help detect and curb money laundering.
Advisers are required to verify clients’ identities, run background checks and determine the source of their wealth.
The WSJ says a lack of Morgan Stanley staffers who speak Spanish caused protocol to be bypassed in vetting clients throughout Latin America.
Morgan Stanley is facing probes to determine if it has sufficient anti-money laundering procedures from the Office of the Comptroller of the Currency, Federal Reserve, the Justice Department, Securities and Exchange Commission and the Financial Crimes Enforcement Network.
The firm says it is taking measures to overhaul its risk management systems, according to the Wall Street Journal.
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