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Regulatory Sanctions

Morgan Stanley Fined $10Mn for AML Violations

December 26, 2018

by Howard Haykin


Morgan Stanley self-reported its deficiencies to FINRA - and FINRA lauded that firm for that and its other "extraordinary steps" in addressing the matter.


While MS's efforts should be commended, one must recognize the benefit of having ample resources from public investors. In that respect, it would be appropriate to question whether FINRA recognizes the 'extraordinary' efforts of smaller member firms that also seek to do the right thing but don't have such ample resources - particularly when FINRA determines sanctions. 



Morgan Stanley Smith Barney agreed to pay a 'nominal' $10 million fine to settle FINRA charges that, over a 5-year period, it failed to meet the Bank Secrecy Act requirements. FINRA took into account MS's "extraordinary efforts" when determining its sanctions, which included the following:


►    Substantial resources were devoted since 2013 to expand and enhance its AML pols and procedures, automated transaction monitoring system (“TMS”), and other AML-related programs.

►    Third-party vendor was retained to review all TMS-generated alerts.

►    New automated scenarios were developed and implemented to surveil penny stock transactions and potential insider trading.

►    Revised pols, procedures, and controls were developed and implemented re: pre-deposit and pre-sale reviews of penny stock.

►    MS self-reported relevant issues to FINRA.



FINRA FINDINGS.    Morgan Stanley’s AML program had failed because of 3 shortcomings.


From January 2011 until at least April 2016 (5 years) … several of the systems used to send and receive wire transfer information suffered from significant flaws. Specifically, those systems failed to transmit certain wire information to the Firm's automated AML surveillance system (Transaction Monitoring System), undermining that system'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.


From January 2011 to December 2013 (3 years) … the Firm failed to devote sufficient resources to review alerts generated by the Firm's automated AML system and, as a result, the Firm's AML analysts often closed alerts without sufficiently conducting and/or documenting their investigations of the potentially suspicious wire transfers that generated the alerts.


From January 2011 to December 2013 (3 years) … the Firm's AML Department failed to reasonably monitor customers' deposits and trades of penny stocks for potential AML issues, including insider trading and market manipulations, despite the fact that the Firm's customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million, in that time period.



[For further details, click on FINRA AWC #2014041196601]