Crown Resorts faces $100m fine over illegal Chinese transactions

Crown Resorts is facing another blockbuster fine, which could derail its $8.9bn takeover and a $3.3bn payday for major shareholder James Packer.

The latest fine threatens to derail Blackstone’s $8.9bn takeover of Crown, which contains an exit clause if any fine or liability tops $750m. Picture: Bloomberg

Crown Resorts is facing a fine of up to $100m from the Victorian gaming regulator over the use of Union Pay cards to illegally transfer funds from China.

The blockbuster fine is on top of separate action from the financial crimes regulator, Austrac, which alleged Crown broke money laundering laws more than 500 times – attracting a penalty of up to $22.2m per breach.

The move threatens to derail US private equity giant Blackstone’s $8.9bn takeover of Crown, which contains an exit clause if any fine or liability tops $750m.

If the Blackstone deal fails, it will not only stop Crown’s major shareholder James Packer from receiving a $3.3bn payday from his 37 per cent stake, but likely trigger a share price fall for Crown and a refinancing of the company’s debt and $89m break fee.

The Victorian Gambling and Casino Control Commission launched disciplinary proceedings after the state’s royal commission into the group found that it devised a “China Union Pay process” to allow patrons to illegally transfer cash from mainland China, evading authorities in Beijing.

Rival Star Entertainment has been accused of similar conduct, with the NSW Bell inquiry hearing that the company disguised almost $1bn in gambling transactions as hotel charges.

Gambling is illegal in China and Union Pay (CUP) cards cannot be used for that purpose. Furthermore, individuals in China can only exchange $US50,000 worth of currency a year.

Meanwhile, section 68 of the Casino Control Act bans Crown from using debit or credit cards to obtain gambling chips. This aims both to avoid gambling derived from criminal funds, and to support responsible gambling and minimise harm.

“The decision to authorise and oversee the CUP process was clearly not in the best interests

of Crown Melbourne. On the contrary, it was plainly against its interests for, having breached

section 68, Crown Melbourne was at risk of being caught and subjected to disciplinary action,” Commissioner Ray Finkelstein said in his report.

The process involved the Crown Towers hotel issuing a room charge bill to the patron, “falsely asserting that the hotel had provided services to the person”. The patron would pay the bill, using their China Union Pay card, and be given a voucher acknowledging receipt of funds. This allowed the patron, accompanied by a Crown VIP host, to take the voucher to the casino and exchange it for cash or chips.

The Victorian gaming regulator can slap Crown with a range of actions, including a fine of up to $100m, varying its casino licence, censuring the company and directing it to take rectification steps

Victorian Gambling and Casino Control Commission (VGCCC) chair Fran Thorn said: “As a first step, we are acting on the Royal Commission’s findings that Crown’s China Union Pay process breached important Victorian regulatory obligations, was illegal and constituted serious misconduct.

“The VGCCC will make a further announcement once it has considered Crown’s response to the VGCCC’s notice and determined the appropriate disciplinary action to take. There will also be further disciplinary proceedings arising from other matters highlighted in the Royal Commission.”

In its independent export report on Blackstone’s takeover of Crown, Grant Samuel said if Crown’s liabilities, including regulatory fines, total $680m – or $1 a share – that would bring Crown’s value to as low as $11.52 a share. This compares with Blackstone’s offer of $13.10 a share.

“If contingent liabilities totalled $680m, the scheme consideration would be demonstrably fair,” Grant Samuel said.

“In the absence of the scheme or a similar transaction, it is likely that, under current market conditions, Crown shares would trade at prices well below $13.10.”

In the takeover scheme booklet, released last week, Crown attempted to provide investors with some guidance about what the Austrac fine – which is subject to Federal Court action – could total.

The company noted previous penalties from the regulator of $45m against Tabcorp in 2017, $700m against Commonwealth Bank in 2018 and the record $1.3bn slapped on Westpac in 2020.

“In determining the appropriate penalties against Crown Melbourne and/or Crown Perth, the Federal Court would be required to have regard to all relevant matters, including among other things the nature and extent of the contraventions and any loss and damage suffered as a result, the efforts Crown has made to date to address potential gaps in its systems and processes, as well as the financial position of Crown Melbourne and Crown Perth,” Crown said in the scheme booklet.

“Until there is greater certainty as to some of the relevant matters, Crown considers that it is not possible to reliably estimate the amount that Crown Melbourne and Crown Perth may ultimately be required to pay”.