Compliance Program Protects Morgan Stanley in Corruption Probe

By Teresa Anderson

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have declined to prosecute Morgan Stanley under the Foreign Corrupt Practices Act (FCPA) after an employee engaged in a corruption scheme in China. The agencies found that Morgan Stanley’s FCPA compliance program was so robust that the employee had to circumvent numerous internal controls to commit the crime.

The employee, Garth Peterson, was an American citizen working for Morgan Stanley in Singapore convinced Morgan Stanley to sell an interest in a Shanghai real-estate property to a state-owned firm. However this firm was actually a shell company set up by Peterson and his co-conspirators in the Chinese government. Peterson garnered millions of dollars in profit from the swindle.

In investigating the case, the DOJ found that Morgan Stanley maintained significant internal controls designed to prevent such corruption, including monitoring transactions, conducting random audits, and exercising due diligence with new business partners. The policies were updated regularly and employees were trained in FCPA compliance. Records showed that Morgan Stanley trained Peterson on the FCPA seven times during the time frame of the fraud and reminded him of FCPA rules 35 times.

The SEC settled its case with Peterson. Sentencing for the DOJ charges is scheduled for July. Peterson faces up to five years in prison and up to $250,000 in fines.

photo by @jbtaylor/flickr


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