Morgan Stanley and Interactive Brokers face US federal scrutiny over Venezuela probe

Morgan Stanley and Interactive Brokers are facing scrutiny from US authorities for having managed the accounts of a Venezuelan businessman accused of money laundering state-owned funds, according to a report from the Wall Street Journal.

The two brokerage houses allegedly managed ‘large-sum accounts’ for Luis Mariano Rodriguez Cabello, a Venezuelan national who is being investigated by international authorities for hiding more than $2bn in the US for his cousin and former Venezuelan oil minister Rafael Ramirez, according to the publication’s article published on Wednesday which cited both people familiar with the matter and government documents.

Both the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC) are looking to understand how Rodriguez’s accounts had been greenlit by the firm’s compliance divisions despite having raised red flags associated with potential money laundering activities, according to the WSJ.

Both Morgan Stanley and Interactive Brokers haven’t been accused of any wrongdoing by US authorities and Rodriguez’s account at Morgan Stanley was closed in 2017.

While Rodriguez and Ramirez also haven’t been accused of any wrongdoing in the US, they were both accused of laundering more than $2bn in funds received through fraudulent insurance contracts with Venezuelan state-owned oil company Petroleos de Venezuela (PDVSA) by authorities in Andorra in 2012.

Andorran prosecutors alleged that the two, alongside a group of accomplices, had stored the ill-gotten money in Banca Privada D’Andorra.

A court was able to freeze the funds at the private bank, though more than $200m was released at which point it was transferred to Rodriguez’s Morgan Stanley account, according to the WSJ which cited a November 2016 Treasury Department intelligence report.

The US wirehouse, which had received 15 wire transfers from Rodriguez between 2014 and 2015, raised a number of red flags with financial regulators and eventually closed the account, at which point it was transferred to a now-defunct brokerage firm Capital Guardian Wealth Management.

The firm had its brokerage registration terminated in 2017 while its investment advisory business operating under the same name had its registration similarly tossed out the next year.

However, the firm had enlisted Interactive Brokers to help manage Rodriguez’s corporate account and US authorities are also now investigating Capital Guardian’s former owners and its ‘successor firm’ Avenir Private Advisors, according to the WSJ.

In August of last year, Interactive Brokers was fined a total of $38m by the Financial Industry Regulatory Authority (Finra), the Commodities Futures and Trading Commission (CFTC) and the SEC over anti-money laundering and reporting violations.

The group is one of the largest international broker-dealers and has a slew of fund platforms available to investors around the world.