Morgan Stanley (NYSE:MS) has come under the regulatory radar for its hiring practices in China. Sources familiar with the matter told Reuters that the Justice Department is probing the matter. The Securities and Exchange Commission recently sent letters to Morgan Stanley (NYSE:MS) and Citigroup Inc (NYSE:C), according to the Wall Street Journal. SEC requested the two companies to provide information about their hiring in China. Regulators are investigating into whether the banks hired politically connected people in China with the intent of winning business from state-owned companies.
Scrutiny into Morgan Stanley quite surprising
In August, JPMorgan Chase & Co. (NYSE:JPM) reported that the SEC and Justice Department have initiated civil and criminal investigations over its hiring practices in Asia's largest economy. Regulators alleged that the Jamie Dimon-led bank's Hong Kong office recruited descendants of politically powerful heads of state-run companies to fetch underwriting business. JPMorgan Chase & Co. (NYSE:JPM) said it is fully cooperating in the investigations. The SEC and the Justice Department are working closely on the matter.
Sources said that the SEC sent a letter to Morgan Stanley (NYSE:MS) requesting the information. It passed along the information about Morgan Stanley (NYSE:MS)'s hiring practices to the Justice Department. The DoJ hasn't directly contacted the bank. Scrutiny into Morgan Stanley (NYSE:MS) is a bit surprising. Regulators including the Justice Department have consistently praised its compliance program to curb corruption. Authorities have used Morgan Stanley (NYSE:MS) as an example while encouraging other banks to prevent corruption.
Did Morgan Stanley violate Foreign Corrupt Practices Act?
Scrutiny into the banks' hiring practices has sent shivers across the global banking community. Over the past few years, it has become a ritual for investment banks to hire politically-connected people. The practice is more common in China because of the role of Communist Party in the country's business activities.
Regulators are examining whether the banks violated the Foreign Corrupt Practices Act while hiring in China. The Act prohibits U.S. companies from doing special favors or bribing foreign government officials in an attempt to gain business.
Morgan Stanley (NYSE:MS) shares were up 0.19% to $31.45 at 10:01 AM EST.