A government probe into possible deficiencies in Morgan Stanley's anti-money-laundering efforts amounts to "extraordinarily serious allegations" that may further tarnish the bank's image, according to one securities attorney.
Morgan Stanley’s wealth management arm—one of the most profitable divisions in the bank—is being investigated by multiple regulators, including the Treasury Department, for lax vetting of foreign and U.S. clients who posed potential money laundering threats dating back to at least 2020, according to a report in the Wall Street Journal yesterday.
The firm is being probed for potentially lax controls for onboarding of clients who posed a risk of money laundering, including deficiencies regarding the verification of client identities, according to the report, which said the Securities and Exchange Commission, the Office of the Comptroller of the Currency and several Treasury Department divisions are investigating.
Additionally, the Federal Reserve has warned Morgan Stanley that supervisory action against the bank may be pending.
A securities attorney said the allegations are serious, and add to the firm's checkered regulatory history.
“It’s just another black eye for Morgan Stanley. They have a regulatory history a mile long and this is pretty much the tip of the iceberg. These are extraordinarily serious allegations. ... Morgan Stanley has real troubles,” securities attorney Andrew Stoltmann of Stoltmann Law Offices said.
Regulators have communicated specific concerns to the bank regarding deficient money laundering procedures and controls for at least four years, the Wall Street Journal report said.
Beginning in 2020 and continuing in 2021 and 2022, the Fed shared concerns with the bank and reprimanded leadership for not doing a better job of vetting wealth clients, particularly foreign nationals for AML risk, but the items flagged by the regulator had still not been addressed in 2022, the Wall Street Journal said.
Morgan Stanley did not immediately respond to a request for comment.