How Morgan Stanley courted dodgy customers to build a wealth-management empire

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Subscribe to enjoy similar stories. Morgan Stanley discovered last year that a yearslong brokerage customer had been convicted in 2005 in a U.S. court—for lying about terrorism investigations—and had links to al Qaeda bombings of U.S.

embassies. The bank informed law enforcement and shut down the accounts. By then, at least tens of thousands of dollars had been withdrawn from ATMs in Pakistan.

It wasn’t a rare oversight. In another case, discussed in internal Morgan Stanley documents reviewed by The Wall Street Journal, a self-proclaimed princess claiming to have more than $5 billion in assets was allowed to engage Morgan Stanley for weeks without the bank carrying out a basic background check or completing the appropriate due-diligence review. She gave multiple unusual stories for the source of her wealth—among other things she claimed to be related to the last king of Romania and to be the owner of a drug company worth billions.

Finally the bank’s global financial crimes unit pushed it to cut ties. One of the financial crimes employees described the messy nature of the case in an internal company chat log: “Fantastic—it’s like the end of a tarantino flick…everyone just murdering everyone." Morgan Stanley’s wealth-management division, which oversees about $6 trillion of assets, represents close to half the firm’s total revenue and has been a crucial source of profits. The Journal has previously reported the Justice Department, Federal Reserve, Securities and Exchange Commission, the Treasury Department’s Financial Crimes Enforcement Network and others are probing the bank’s vetting procedures to determine whether it has sufficient anti-money-laundering controls.