Morgan Stanley Faces Anti-Money Laundering Investigation in the US... Stock Plummets Over 5%

Reports have emerged that U.S. financial authorities have launched an investigation into whether investment bank (IB) Morgan Stanley has properly complied with anti-money laundering regulations. Morgan Stanley's stock price plummeted by more than 5%.

[Image source=Reuters Yonhap News]

The Wall Street Journal (WSJ) reported on the 11th (local time), citing sources, that the U.S. Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), and the Treasury Department are conducting this investigation.

These agencies are currently examining whether Morgan Stanley's wealth management division has sufficiently conducted identity verification and anti-money laundering monitoring for high-net-worth individuals who pose potential money laundering risks. Earlier, the Federal Reserve (Fed), which has banking supervisory authority, also announced that it is reviewing related measures. WSJ added that part of the investigation is focused on overseas clients.

Last year, the SEC sent Morgan Stanley a list of clients to verify what kind of identity verification procedures they had undergone. The SEC also intensely questioned the relevant wealth management department about why some clients who were blocked from trading at its subsidiary ‘E-Trade’ were still able to trade at Morgan Stanley. The list sent by the SEC included billionaires sanctioned by the UK due to ties with Russia, individuals claiming to reside in the U.S. but whose E-Trade trading accounts were based in the Caribbean and held more money than estimated income based on their occupation.

Some of the clients' names on the list sent by the Financial Crimes Enforcement Network (FinCEN) under the Treasury Department were confirmed to be the same. According to documents confirmed by WSJ, Morgan Stanley also received an administrative subpoena from the Treasury Department’s Office of Foreign Assets Control (OFAC) requesting information on the company’s sanctions policies and procedures.

WSJ evaluated that the Morgan Stanley wealth management division under investigation has played a very important role in the company’s strategy since the global financial crisis. Especially in a situation where IB transactions have contracted, the revenue generated by the wealth management division accounted for nearly half of Morgan Stanley’s total. However, there are signs of slowdown, such as stagnant revenue in the fourth quarter of last year compared to the previous year. Net new assets in the fourth quarter reached $47.5 billion.

Following news of the regulatory investigation, Morgan Stanley’s stock price sharply declined. On the New York Stock Exchange, Morgan Stanley’s stock closed down 5.25% compared to the previous session.

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