Why James Packer’s Crown Resorts should worry about Austrac sting
Will another blockbuster case by the financial crimes regulator be enough to derail the $8.9bn Blackstone bid?
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
Cuckoo smurfing; plastic bags stuffed with cash; high-rollers with shadowy links and major blind spots in tracking money through a casino.
Crown Resorts should be very worried about the scale of a penalty it faces in securing any settlement with the financial crimes regulator.
Austrac’s legal action against Crown has all the signs and velocity of the landmark anti-money laundering cases taken against the nation’s two biggest banks which resulted in a combined $2bn worth of fines.
And Austrac is not holding back in an 863-page legal filing packed with details of a casino operator allegedly doing its best to look the other way to keep the gaming dollars flowing.
It showed the stakes were high with $70bn worth of turnover among risky customers over several years in Melbourne and Perth, representing $1.1bn of gaming wins for Crown.
The Austrac action comes as Crown is deep in play with an agreed $8.9bn takeover from US funds giant Blackstone deal signed and waiting for shareholder approval.
Filed as a civil action in the Federal Court, it is unlikely to ever get to trial with a settlement likely. The systemic nature of the allegations means Austrac will be after a significant fine. It is asking for unspecified damages although just taken at face value the sum of breaches amount to more than $1bn in fines. While any penalty is yet to be determined, the regulator will take into account the ability for the $8bn-plus Crown to pay.
The key for Crown is if any settlement exceeds $750m this could represent a “material adverse change” that could trigger a rethink of the key terms of Blackstone’s bid.
Blackstone is reviewing the legal action and what it means for its bid. While it is unlikely to walk away caution has already crept into the market with Crown’s shares on Monday ending at $12.37, a discount to the $13.10 cash offer price.
Blackstone which is advised by law firm Clayton Utz went into the Crown bid with its eyes wide open, taking a calculated risk around the significant regulatory storm that was about to hit. Crown issued three public disclosures around a formal Austrac investigation that was underway from October 2020 with each announcement ratcheting up the intensity.
And in last year’s annual report Crown provided a further update adding that Austrac was “very likely to commence civil penalty proceedings”.
“If it does so, it is likely that Crown Melbourne and Crown Perth will be required to pay significant civil penalties,” Crown said in its annual report. However, given it wasn’t a live legal case, it didn’t set aside any funds to cover the potential fine.
Austrac boss Nicole Rose has already pegged her reputation as Australia’s most powerful corporate enforcer with record fines secured against Commonwealth Bank and Westpac. CBA settled for $700m in 2018 and Westpac $1.3bn two years ago but the hit was bigger than just cash.
In both cases the fallout was wide with a massive management clean-out and years of rebuilding needed. In Westpac’s case it was enough to send it spinning off its strategic axis as it still reels from the fallout.
However Crown has already gone through its implosion stage following damning evidence that emerged through three state-based royal commissions.
Crown’s board and top management have already been cleaned out and after being buffeted by two years of Covid lockdowns, the casino is a shadow of its former self.
It has banned junkets which is the soft underbelly of casino controls and said it has toughened its security.
Crown’s major shareholder James Packer has removed himself from the running of the business and agreed to sell out of his $3.2bn stake.
‘Customer 1’
For its part the allegations raised by Austrac are broad and damning. It doesn’t single out any management names but focuses on 447 unnamed customers which Austrac alleges the casino operator failed to monitor to identify, mitigate and manage money laundering and possible terrorism financing risks. There were 60 customers that Austrac considers as “high risk”.
Austrac alleges Crown ignored clear red flags and warning signs and let hundreds of suspicious customers gamble at the casino. Surprisingly the alleged activity continued right up until June 2020 just as state regulators were circling.
The money laundering allegations against specific customers are serious, including specific warnings made to senior Crown management in 2017 that “Customer 1” was a former member of an organised crime syndicate, an associate of criminals and linked to the receipt of $81m stolen from an unnamed central bank. A year earlier the Bangladesh central bank had been the victim of a high-profile sting where hundreds of millions of dollars were stolen.
Court filings allege “Customer 1” who was also a junket operator was given access to Crown’s private jets to fly around the world to pick up gamers and the jets were also used to carry bags of cash. Crown exchanged at least $661,900 in $50 notes or $100 notes on behalf of Customer 1 on one occasion and the customer was repeatedly allowed to cash in gaming chips without betting, Austrac claims. Crown said it is reviewing the legal action.
Other allegations include repeated warnings about “Customer 3” another junket operator with concerns about money laundering and alleged links to “serious criminal activity”, human trafficking, prostitution and sex slavery.
Crown even conducted its own background searches on this customer and allow them continue to gamble before closing out their account as late as November 2021.
“At no point, as a result of these searches, did Crown Melbourne or Crown Perth appropriately consider the ... risks of the source of Customer 3’s wealth/funds or whether an ongoing business relationship with Customer 3 was within its risk appetite,” Austrac said in its filing.
The legal action highlights Austrac’s emergence as a de facto national casino regulator, with state-based regulators only finding their teeth long after the alleged wrongdoing had been exposed.
Austrac has a separate investigation underway into Star Entertainment’s Sydney casino for “serious non-compliance” of customer due diligence. It also has an investigation ongoing into Adelaide’s SkyCity casino.
johnstone@theaustralian.com.au
Office orders spark new war in the workplace
The work from home era is drawing to a close for many businesses, including Amazon and Tabcorp, but others are really just getting started, saying flexibility makes staff healthier.
Carbon credit price at year high as tighter rules canvassed
The price of Australian Carbon Credit Units is at a year high as consultation opens on new rules which would demand more information about carbon farming projects.