Good morning. Morgan Stanley’s wealth-management arm is being scrutinized by the Federal Reserve, which is looking into whether the bank has sufficient controls in place to prevent rich foreign customers from laundering money.

The Fed has been probing how Morgan Stanley vets foreigners and the origins of their money before taking them on as customers, according to people familiar with the matter. What started out as a routine review a few years ago escalated after regulators found the bank’s due diligence on clients and anti-money-laundering efforts lacking.

• What the Fed found: In 2020, the Fed found that the bank lacked risk-management controls for vetting foreign wealth-management clients, the people said. It gave a list to Morgan Stanley of the problems that needed to be fixed. When the regulator returned in 2021, many items on that list remained unfixed. The same occurred when the Fed returned last year.
   
• The clean-up: The Fed has privately reprimanded the bank for not making all the changes it has required, and the head of Morgan Stanley’s wealth-management business, Andy Saperstein, has been meeting with the Fed to address how he and his team are going to clean up the problems it has found.
   
• A critical source of revenue: Rich foreigners are a relatively small, but important, source of new inflows for Morgan Stanley’s wealth-management business, which oversees a total of about $5 trillion in assets for clients. During the past roughly five years, Morgan Stanley ramped up recruiting of financial advisers who specialize in catering to offshore clients, many in Latin America. While most rich Americans have a financial adviser or wealth-management firm, many in Latin America don’t—or at least don’t have one that is U.S.-based.

Citigroup fined for discriminating against Armenian Americans.

Citigroup was fined more than $25 million for discriminating against Armenian Americans and blocking them from getting credit cards.

The bank’s employees gave heightened scrutiny and rejected applicants with last names ending in -ian or -yan, with a special emphasis on Glendale, Calif., which is known as “Little Armenia,” the Consumer Financial Protection Bureau said Wednesday.

Some employees were told not to discuss the practice in email and referred to applicants as “Armenian bad guys” or the “Southern California Armenian Mafia,” the CFPB said. The discrimination took place between 2015 and 2021.

SEC’s Uyeda calls for potential do-over of climate rule.

The Securities and Exchange Commission should consider scrapping its climate disclosure rule and start over with a new proposal, Commissioner Mark Uyeda, a Republican, said at a recent conference. The rule, which would require publicly traded companies to begin reporting on climate-related risks and emissions related to their operations, is expected to be published in its final form soon.

Uyeda said the SEC should “seriously consider” returning to the proposal phase if its final rule differs significantly from its 2022 proposal, which could lead to a better rule.

“The Commission should do everything possible to not promulgate a rule that is costly and ineffective,” Uyeda said, adding that problems with the rule could lead to its being found “arbitrary and capricious” under the Administrative Procedure Act, a federal law that can be used to invalidate agency rules.

—Richard Vanderford

U.K. hits Russian gold, oil sectors with new sanctions package.

The U.K. government has sanctioned 29 entities and individuals operating in and supporting Russia’s gold and oil sectors, in an effort to cut off revenue streams funding its war in Ukraine.

Entities sanctioned Wednesday include Nord Gold and Highland Gold Mining, two of the largest producers of Russian gold, and Paloma Precious DMCC, a United Arab Emirates-based network the U.K. said has channeled more than $300 million in gold revenue to Russia.

• A company run by former New York Stock Exchange President Tom Farley is among three suitors vying to buy the remnants of FTX, as the auction for the collapsed cryptocurrency exchange founded by Sam Bankman-Fried reaches its final stages.
   
• The European Union recommended Wednesday that the bloc begin membership talks with Ukraine soon, boosting President Volodymyr Zelensky, who has made EU accession a central goal. At the heart of European concerns about Ukraine—echoed by Washington—is whether the country can overhaul its governance and political culture to rein in the power of big tycoons and eradicate endemic corruption that has impeded economic growth and social cohesion. To open the way for EU accession talks, the bloc set Ukraine seven reform tests.
   
• For more than a year, Qatar quietly hosted talks between senior U.S. and Venezuelan officials that led to a breakthrough last month when Washington lifted sanctions on Venezuela’s crippled energy industry. Now the tiny Arab state, and a Qatari conglomerate, are trying to cash in.
   
• Ivanka Trump said in sworn testimony Wednesday that she had a foggy recollection of her role in negotiating hundreds of millions of dollars in loans at the center of the New York fraud case against her father and his business empire.
   
• The Securities and Futures Commission of Hong Kong wants to tighten rules governing what banks and brokers can say to investors when discussing potential transactions, including bond and share sales. The move is an attempt to level the playing field among investors, by making sure that the largest have fewer chances to trade on sensitive information.
   
• Google’s antitrust trial in Washington, D.C., has provided a stage for Microsoft to air long-simmering grievances about the search giant’s market dominance. It also has opened a window into the events that led to a straining of relations between the two companies, a dynamic that has grown increasingly tense during the boom in artificial intelligence.

China and Russia claim moral high ground on Palestinian deaths.

The bloody war in Gaza is providing America’s main geopolitical rivals China and Russia with a valuable opportunity to garner support around the world, enabling the two repressive autocracies to harness a wave of sympathy for the Palestinians and position themselves as champions of humanitarian values and peace.

While both Moscow and Beijing maintained close relations with Israel for decades—Prime Minister Benjamin Netanyahu even used billboards of himself with Russian President Vladimir Putin during last year’s election—the two powers have pointedly declined to criticize Hamas for the Oct. 7 attack on southern Israel that triggered the war.

Meanwhile, the U.S. on Wednesday called for limits on Israel’s control over Gaza after its war with Hamas, sending a public message to Israeli officials about expectations for an expansive Palestinian role there.

• Palestinians Flee Northern Gaza as Israel Tightens Siege
• Gaza Tensions Undercut Ukraine’s Peace Summit Hopes

• World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change. Now they are stepping up production of oil, gas and coal, which will have the opposite effect.
   
• A Federal Reserve official said the central bank will need to pay close attention to the effects of higher longer-term bond yields to make sure they don’t slow the economy more than expected over the coming year.
   
• America’s long streak of population growth is expected to come to an end. Census Bureau projections released Thursday show that, under the most likely scenario, the U.S. will stop growing by 2080 and shrink slightly by 2100.
   
• On short notice, China's fleets in the South China Sea can move rapidly—even hundreds of miles from its own shores—to swarm and obstruct opposing ships. The Wall Street Journal breaks down a recent encounter to show how Beijing uses its overwhelming numbers against rivals.
   
• An unusual cluster of cancer cases among Chinese researchers affiliated with one of the country’s top oncology laboratories has attracted a wave of public attention, leading to new questions around lab safety.

Meta to require campaigns to disclose AI-altered political ads.

Meta Platforms on Wednesday announced that it will require advertisers to disclose when they run political ads with media that has been digitally altered by artificial intelligence or other software ahead of the U.S. presidential election in 2024.

The Facebook parent company said the new policy will go into effect at the start of the new year. Political advertisers will have to disclose when an ad contains an image, video or audio that was digitally created or altered significantly.

• Cloud Software Group, which owns enterprise-software brand Citrix, is ceasing business transactions in China, becoming the latest U.S. company to pull back from China.
   
• Unions representing Las Vegas Strip workers struck a tentative deal with Caesars Entertainment, one of three casino companies working to avert a strike that could start on Friday if more agreements aren’t reached.
   
• Kohl’s said Michael Bender will become its next board chair after its current leader, Peter Boneparth, retires from the company at the end of his current term in May.
   
• Jack Cooper Transport, a specialized operator that hauls automobiles for carmakers, plans to submit a bid backed by $1 billion in financing and support from the Teamsters union and some U.S. lawmakers that would halt the liquidation of trucking giant Yellow and seek to resurrect the shuttered business, according to people familiar with the matter.

Follow us on X at @WSJRisk. Follow Risk & Compliance editor David Smagalla @DSmagalla_DJ and reporters Mengqi Sun @_MengqiSun, Dylan Tokar @dgtokar and Richard Vanderford @VanderfordRich.

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