A recent Wall Street Journal investigation has revealed potentially troubling practices within Morgan Stanley’s wealth management division.
Leaked documents indicate that a significant portion of the bank’s high-net-worth clients have been flagged for potential money laundering risks, raising questions about the institution’s due diligence processes and the broader issue of illicit financial activity among the ultra-wealthy.
Internal documents expose potential money laundering risks
A 2023 internal document reviewed by the Journal revealed that a staggering 24% of Morgan Stanley’s international wealth management accounts, representing over 46,500 clients, were designated as high-risk for money laundering.
The document itself reportedly acknowledged “weak” anti-money-laundering controls due to “longstanding issues globally” with enhanced due diligence procedures.
While this raises concerns about Morgan Stanley’s internal practices, the sheer volume of flagged accounts also suggests a potentially systemic problem of the ultra-rich exploiting loopholes in the financial system.
Morgan Stanley has not yet responded to Fortune’s request for comment.
The shadowy world of money laundering
Money laundering, the process of concealing the origins of illegally obtained funds, is a pervasive issue in the global economy.
The United Nations estimates that up to $2 trillion is laundered annually, representing a staggering 2% to 5% of global GDP.
Uncovering the true extent of these illicit activities is challenging, but recent investigations have shed some light on the methods employed.
A 2020 Senate report, for example, revealed how Russian oligarchs circumvented sanctions by channeling millions of dollars into high-value art.
Similarly, a report by Chainalysis highlighted the increasing use of cryptocurrency for money laundering purposes.
A surge in suspicious activity, especially in Europe
Money laundering activities have seen a significant surge, particularly in Europe. Data from Moody’s indicates a 25% increase between 2018 and 2023, exceeding the global average by 8%.
The UK appears to be the epicenter of this activity, followed by Italy and Russia.
Keith Berry, a general manager at Moody’s Analytics, noted a “concerning link” between human trafficking and money laundering, pointing to the rise in modern slavery as a related issue.
“This is an expanding environment that is always looking for vulnerabilities in the financial system, on weekends, holidays, and every day when legitimate staff are not online to protect their organization,” Berry warned.
TD Bank’s billion-dollar money laundering case
Morgan Stanley is not the only financial institution facing scrutiny for alleged failures in preventing money laundering.
In October, TD Bank pleaded guilty to money laundering charges, admitting to being used by Chinese crime groups and drug traffickers to launder proceeds from US fentanyl sales, according to the Wall Street Journal.
The case resulted in a $3 billion penalty for TD Bank, making it the largest bank to date to plead guilty to such charges.
This case serves as a stark reminder of the potential consequences for institutions that fail to effectively combat money laundering.
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