Federal Court approves Crown paying its $450m Austrac fine in instalments

The Federal Court has approved Crown’s deal with the corporate regulator, which CEO Ciaran Carruthers hopes will ‘bring to an end the historical failures’ at the gaming group.

The Federal Court has approved Crown’s instalment plan deal with Austrac for its $450m fine from Austrac over breaches of anti-money laundering laws, bringing to an end years of legal action by regulators against the casino giant.

Crown has also been ordered to pay Austrac’s costs of some $3.4m for the action against it which was launched in March 2022.

But, in delivering his judgment approving one of the largest penalties ever ordered against a casino globally, Justice Lee questioned whether there was any “real contrition” about the group’s past wrongdoing by the new management of the group, which was bought by private equity group Blackstone in June last year.

He also warned that regulators such as Austrac should not be seen as “soft touches” in making deals with companies on penalties, assuming they would not be contested in the court which was being asked to approve their agreed penalties.

The record penalty was levied on Crown for breaches of anti-money laundering laws at its casinos in Melbourne and Perth from 2016 until March 2022, including the use of junkets to bring in high rollers of questionable repute into the casinos.

Crown Melbourne was found to have contravened anti money laundering laws on 380 occasions between March 2016 and March 2022 while Crown Perth was found to have contravened the laws on 166 occasions between March 2016 and March 2022.

In his ruling Justice Lee said he agreed with the two year instalment payment plan on the basis that Austrac reviewed Crown’s financial position at the end of the 2023 and 2024 financial years to see if it was capable of repaying the fine earlier.

Crown Resorts chief executive Ciaran Carruthers said the Federal Court judgment brought “to an end the historical anti money laundering failures at Crown.”

“Under new ownership and leadership, we have introduced sweeping reforms as part of our Future Crown transformation program and invested tens of millions to bolster financial crime compliance and embed global best practice for the gaming sector,” he said.

“There is no place for money laundering or terrorism financing at Crown or in our communities.”

The Austrac deal follows $215m in fines from the Victorian Gambling and Casino Control Commission over wrong doing unearthed in the Victorian royal commission into activities at its Melbourne casino.

Crown is keen to see the court approval of the deal reached in May with Austrac as a line in the sand, allowing its new management to run the company free of the cloud of ongoing actions by regulators for behaviour under the previous management.

Austrac acting chief executive, Peter Soros, said the court approval of the deal sent a “strong message to Crown, casinos and the gaming industry generally to take their anti-money laundering obligations seriously.”

He said Austrac had taken its action because of the “serious nature” of Crown’s breaches of anti-money laundering laws over several years.

This had included continuing a business relationship with a major casino junket operator until 2021, despite being aware that the operator was connected to organised crime.

He said Crown had failed to appropriately monitor billions of dollars in transactions, including international payment flows, which “impacted its ability to identify and disrupt possible suspicious activity and report suspicious matters to Austrac and law enforcement.”

From March 2016 to December 2018 there were at least 75 suspicious ‘incidents’ involving some $23m in cash in a private gaming room which one gaming operator was given access to.

But Mr Soros said Austrac had taken into account the “substantial and ongoing efforts” undertaken by Crown’s new management in addressing its failings, in setting the $450m penalty.

He said the $450m fine “serves as a clear warning to anyone who provides casino or gaming services in Australia that they must have strong anti-money laundering compliance systems and processes that meet their obligations to protect the Australian community and their businesses from serious financial crime.”

Attorney-General Mark Dreyfus congratulated the financial crimes regulator on its investigation into Crown, saying the casino group failed to properly monitor billions of dollars in transactions despite its legal obligations, which made it impossible to identify, disrupt and report suspicious activity to authorities.

He said casinos were at “serious risk” of exploitation from criminals and Crown had allowed high-risk activity to go undetected or unaddressed for many years.

“This order sends the clearest possible signal to the gambling and casino sectors that they must be vigilant to the risk of money laundering and terrorism financing and ensure they stop these criminals from using their services to launder the proceeds of their crimes,” Mr Dreyfus said.

“Businesses who fail to meet their obligations and systematically breach the law should know that Austrac will take whatever action is necessary to ensure they comply.”

Speaking at the end of a two-day hearing on the proposed penalty deal, Justice Lee said the penalty was “fixed at a level which will not only inflict a sting on the (Crown) but set an example for other would be contraveners in the gambling industry.”

But, in a shot across the bow of its current management, he said while Crown had negotiated the deal with Austrac over the penalty, he did “not agree that it is accurate to say that there has been any real contrition (by Crown) as that concept is properly understood.”

“Contrition means far more than accepting the reality of a stiff penalty when one is caught and getting rid of those who were primarily responsible.”

“Whether there is any real contrition at a corporate level and insight will only be evident from future conduct,” he said.

He said he had agreed to approve the penalty deal “not without some hesitation.”

During the hearing he raised questions about the severity of the deal, pointing out that the two year payment deal represented a present day value of $405m.

Under the deal agreed with Austrac, Crown is to pay $125m upfront, another $125m in a year’s time and another $200m in two year’s time with no interest payable.

Before his verdict, Justice Lee had raised the question of whether he should appoint a third party to test Crown’s claim that it would face severe financial hardship if it was forced to pay the fine immediately, instead of under the two year instalment payments plan agreed with Austrac.

He complained that there had been no independent verification in the court of Crown’s argument that it would be placed under severe financial pressure if it were forced to pay the $450m immediately despite Crown’s ongoing financial losses.

He said Crown’s arguments about the impact of paying to pay the $450m upfront on its financial position had not been the subject of any cross examination by the court.

In his judgment Justice Lee sent a “note of caution” that “if a regulatory body approached litigation on the basis that it will not run to a contested hearing and always reached an agreement, its risks being perceived as a soft touch.”

He said if this was the approach, there was a danger that the company being prosecuted could hold out for the lowest permissible penalty, confident that the regulator would not take them on in court.

He said it was important to test claims by companies arguing against their financial capacity to pay big fines, drawing parallels with a comment by former US President Ronald Reagan about Soviet President, Mikhail Gorbachev, about the importance of having to “trust and verify.”

Crown’s counsel, Philip Crutchfield KC, urged the court to allow the settlement as it was proposed “and not have the matter sent to a referee.”

He said the casino group had been subject to “huge losses” over the past two to three years.

He said he rejected suggestions that it was not sufficiently large as to be a deterrent against further breaches of anti-money laundering laws.

“We are not talking about $20m here, we are talking about $450m.”

“It is a very, very large sum of money.”

“On any construction, a fine of $450m is going to constitute a very severe sting to Crown.”

He said Crown only had $140m in cash as of the end of March this year, and did not have the funds available to pay a $450m fine at the moment.

“It could only be done by negotiations with its debt and equity providers,” he said.

He said the proposed fine of $450m represented 23.6 per cent of Crown’s revenue over the past three years.

This was in contrast to previous fines levied against Westpac which represented only 3.47 per cent of revenues and the Commonwealth Bank which represented 1.56 per cent of revenues over equivalent time periods.

“Is this penalty within the appropriate range? I would submit yes,” he said.

He said Austrac was a “sophisticated regulator” which had “extracted huge fines for breaches of regulations.”

He said Crown had gone through a process of negotiations with Austrac over the fine.

“We didn’t want to pay the $450m,” he said.

Justice Lee said he was concerned that there might be a “moral hazard” if companies which reached deals with Austrac knowing that they would not be challenged in court.

He said there could be “an incentive” for companies to “hold out for the lowest possible settlement” knowing that it might not be challenged in court.

“The discipline of cross examination and testing of evidence is an important part of the process,” he said.