Austrac fine could derail bid for Crown: company accused of 500 legal breaches

James Packer’s Crown Resorts faces a blockbuster fine from the ­financial crimes watchdog, in a move that threatens its $8.9bn takeover from Blackstone.

Austrac CEO Nicole Rose says Crown Resorts has ‘failed to carry out appropriate ongoing customer due diligence including on some very high risk customers’. Picture: Gary Ramage / NCA NewsWire

James Packer’s Crown Resorts faces a blockbuster fine from the ­financial crimes watchdog, in a move that threatens to derail its $8.9bn takeover from US private equity giant Blackstone.

Austrac has launched legal action against Crown, accusing the group of more than 500 breaches of anti-money laundering and counter-terrorism financing laws.

In a statement of claim totalling 863 pages, damning revelations included Crown dealing with patrons involved in sex slavery – one as late as November last year, a month after Victoria’s royal commission found the company no longer suitable to hold a licence for its flagship Melbourne casino.

Austrac also alleged Crown let its high-roller customers carry “large amounts of cash” on its private jets across the world with “no controls” over the handling of the money, and turned over more than $8bn in what was known as the “Chinatown junket” despite management being aware of the risks of money laundering.

Each breach could attract a fine of up to $22.2m, although it is expected to take into account the company’s market size.

For Blackstone to trigger its exit clause from the Crown deal, the company needs to be fined at least $750m. This penalty would put it in the same territory as Westpac and Commonwealth Bank, which Austrac fined $1.3bn and $700m respectively over anti-money laundering breaches.

Blackstone declined to comment, but it is well aware of the Austrac action, with Crown flagging possible penalties in its annual report and half-year results last month. However, the company has not made a provision for the fine in its accounts, meaning any penalty will come directly from its bottom line.

Analysts have accounted for this risk in Blackstone’s takeover of Crown, but estimates vary. Macquarie has estimated the penalty at $250m, while E&P expects it to be lower at $189.6m, or 5 per cent of Crown’s market capitalisation.

Austrac takes into account the ability for a company to pay and the severity of the breaches.

Crown Resort shares eased 0.1 per cent on Tuesday to $12.37, well below Blackstone’s revised bid of $13.10 a share.

Austrac chief executive Nicole Rose said the regulator had taken “strong action” to “achieve enduring change and ensure that Crown will fully meet their obligations to protect themselves and Australia’s financial system from criminal activity”. “Austrac’s investigation identified poor governance, risk management and failures to have and maintain a compliant (anti-money laundering and counter-terrorism financing) program detailing how Crown would identify, mitigate and manage the risk of their products and services being misused for money laundering or terrorism financing,” Ms Rose said.

“They also failed to carry out appropriate ongoing customer due diligence including on some very high risk customers.

“This led to widespread and serious noncompliance over a number of years.”

It comes as Crown finally achieved a win, with the NSW gaming regulator set to grant Crown a conditional licence to finally open its gaming floor at its $2.2bn casino in Barangaroo.

Austrac has yet to quantify the penalty it is seeking against Crown. Since Austrac began its investigation, former Crown chair Helen Coonan and chief executive Ken Barton have resigned, replaced respectively by Ziggy Switkowski and former Lendlease boss Steve McCann.

“Crown is taking steps towards improving its systems, processes and resourcing, however there is further work to do and Austrac will continue to work closely with Crown to address ongoing compliance concerns,” Ms Rose said.

Its statement of claim revealed Crown continued to provide services with a person known as “customer 3”, the “ultimate beneficial owner of the Meg-Star junket” until November 12 last year.

As well as management being aware of the money laundering risk, Austrac said “multiple individuals associated with customer 3 and the Meg-Star junket were likely to be involved in serious criminal activity, including a junket representative allegedly linked to human trafficking and sex slavery.

“Customer 3 has been a customer of Crown Melbourne from December 9, 2014, to November 12, 2021. Crown Melbourne and Crown Perth were unable to monitor the ML/TF risks posed by customer 3’s transactions appropriately because they did not make and keep appropriate records of designated services provided to junket operators and players.”

In a statement Crown acknowledged its past failings: “Crown previously disclosed in its 2021 annual report and its 2022 half-year results that it considered that Austrac’s investigation was very likely to result in civil penalty proceedings being commenced against Crown Melbourne and Crown Perth.

“Crown has developed a comprehensive remediation plan which is intended to position Crown as a leader in the industry in its approach to governance, compliance, responsible gaming and the management of financial crime risk.”

“The plan is underpinned by an uplifted organisational culture. Crown recognises the importance of complying with its financial crime obligations and has overhauled its approach to managing financial crime risk.”

Crown said it had improved controls to prevent and detect money laundering through its bank accounts and enhanced controls and reduced limits relating to cash deposits at its casinos.

It has also completed a forensic audit of patron bank accounts. The Bergin inquiry found laundering using innocent people’s accounts to shuffle illicit funds – had been detected at Crown.