See No Evil, Hear No Evil, Finance No Evil

Doing business with criminals can be very profitable. According to a Wall Street Journal article on November 27, 2024, Morgan Stanley did just that. Wealth management represents almost half of the firm’s total revenues. Apparently, many of these clients were thieves, money launderers, and terrorists.

When I was a correspondent banker in Canada I had to go through all kinds of hoops even for existing customers. For instance, one of the directors of an Algerian bank had the same name as someone on the terrorism list. Because so many people had that same name in Algeria, our risk management people wanted me to prove he wasn’t a terrorist. I went in circles with them for weeks.

Morgan Stanley didn’t have that problem They wooed clients from such high risk countries as  Russia and Venezuela. Banks are required by law to do background checks on all their clients. Like who they are, where they got their money, and if they have any association with crime. Someone from the bank is also supposed to meet them in person. Apparently Morgan Stanley sometimes didn’t even do a Google search. Their risk team found errors on 60% of the documentation for international accounts that advisors were trying to open. An internal document in 2023 showed that 24% of its international wealth management accounts were very high risk for money laundering.

And who were these clients? One was investigated for terrorism in 2005 and lied about it. Another Canadian prospect claimed to have been born a Romanian princess and to be worth $5 billion. She was approved in four days without anyone even meeting her. Then there was the client from Venezuela. Since 2021 the Justice Dept. of the SEC has been investigating whether he helped a Venezuelan government official launder money through the bank.

Is Morgan Stanley trying fix this profitable revenue source? They presented a fix-it plan in 2022 to the Fed. The bank is still working through it.