In its February 9, 2009 8-K Report, Morgan Stanley disclosed that "it has recently uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act." That employee, Garth Peterson, was Morgan Stanley's top property deal-maker in China until he was terminated in December 2008. Morgan Stanley has also put Sonny Kalsi, its global head of real estate investing, on administrative leave as a result of this recent disclosure. Public reports indicate that the activities in question are related to Morgan Stanley's real estate practice in China, which invests in real estate with various state-owned entities. Some Chinese officials involved in certain property market transactions have been arrested on corruption-related charges, including Shanghai's former mayor Chen Liangyu, who was arrested in 2006 for corruption that was partly related to property deals.
The disclosure and investigation highlight the fact that even large, multinational companies are carefully evaluating their FCPA liability and taking swift action to investigate and remediate the problem when any issues like this arise. The Morgan Stanley situation also illustrates two areas of increased enforcement for the DOJ: individuals and the financial services industry. The DOJ continues to pursue prosecutions of individuals, like Messrs. Peterson and Kalsi, who are involved in possible FCPA violations. The DOJ is also actively pursuing the financial services industry, as evidenced by recent comments from the Fraud Section's Deputy Chief, Mark F. Mendelsohn, suggesting that the financial services industry's conduct could "pose risks" under the FCPA and that the industry "will be in focus" going forward.
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Morgan Stanley's February 2009 8-K Report can be found here