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FINRA Fines Morgan Stanley $10 Million for AML Program and Supervisory Failures

Posted on December 26, 2018 at 7:20 PM
FINRA fined Morgan Stanley Smith Barney LLC $10 million for anti-money laundering (AML) program and supervisory failures that spanned a period of more than five years. FINRA found that Morgan Stanley???s AML program failed to meet the requirements of the Bank Secrecy Act because of three shortcomings: 1) Morgan Stanley???s automated AML surveillance system did not receive critical data from several systems, undermining the firm???s surveillance of tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk. 2) Morgan Stanley failed to devote sufficient resources to review alerts generated by its automated AML surveillance system, and consequently Morgan Stanley analysts often closed alerts without sufficiently conducting and/or documenting their investigations of potentially suspicious wire transfers. 3) Morgan Stanley???s AML Department did not reasonably monitor customers??? deposits and trades in penny stock for potentially suspicious activity, despite the fact that its customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million during that time period. FINRA also found that Morgan Stanley failed to establish and maintain a supervisory system reasonably designed to comply with Section 5 of the Securities Act of 1933, which generally prohibits the offer or sale of unregistered securities. These failures were attributable to their divided responsibility for vetting its customers??? deposits and sales of penny stock among its branch management and two home office departments without reasonable coordination among them. Instead, the firm primarily relied on its customers??? representations that the penny stock they sought to deposit was not restricted from sale, and the representations of issuers??? counsel that the customers??? sales complied with an exemption from the registration requirements. As a result, Morgan Stanley failed to reasonably evaluate the customers??? penny stock transactions for "red flags" indicative of potential Section 5 violations. Moreover, FINRA found that Morgan Stanley failed to implement its policies, procedures, and controls to ensure that it conducted risk-based reviews on a periodic basis of the correspondent accounts it maintained for certain foreign financial institutions. In determining the appropriate monetary sanction, FINRA considered extraordinary corrective measures Morgan Stanley took to expand and enhance its AML-related programs, including that it devoted substantial resources to increase its staffing, improve its automated transaction monitoring system, and revise its policies and procedures. In settling this matter, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA???s findings. Read More: Release https://www.finra.org/newsroom/2018/finra-fines-morgan-stanley-10-million-aml-program-and-supervisory-failures Action https://www.finra.org/sites/default/files/Morgan_Stanley_AWC_122618.pdf

Categories: AML and Sanctions