The unintended consequences of casino rules

From time to time Australians become united behind a particular legislative action, but their enthusiasm creates unexpected consequences which can be damaging and thwart the original aims.

The best recent examples are the excise on cigarettes, the money laundering clamps and the Casino operating regulations which jeopardise the economics of operations of most casinos, including Blackstone’s Crown Melbourne.

Blackstone purchased Crown (including Sydney and Perth) for almost $9bn in 2022 and has since injected further funds.

Cigarette taxes had wide public appeal because of the health consequences of cigarette smoking. But, the taxes went too high and cheap imported cigarettes, retailed by organised crime, have now obtained a significant share of the market.

Australian excise revenue is now falling below expectations and will fall a lot further unless most of the tax proceeds are devoted to trying to stop organised crime and the illegal trade.

Cigarettes have become the Australian equivalent of the 1930s prohibition in the US and, like the US prohibition acts, the cigarette overtaxing has created vast money laundering and income concealment industries.

And, in Australia, money laundering has become a second example of where we were legitimately united in action, but created unintended legal business consequences.

In addition, Australia redirected the laundering of money from cigarettes, vapes and drugs from casinos into more community-dangerous directions.

Badly managed casinos in Melbourne, Sydney and elsewhere showed Australians how these institutions were being used to launder illegally generated local money, plus illegal wealth created overseas. Of course there was also large amounts of legally generated money at the gambling tables.

Australia took to the money laundering at casinos problem with a sledgehammer.

Casinos are now being made less economic while money laundering has simply been sent in different directions. Legitimate businesses are suddenly being impacted.

The new rules place considerable responsibility on banks to detect money laundering via business activities. And, of course, that’s a good thing to do, and banks do not want to be caught accidentally fostering money laundering.

The Star has been facing intense regulatory and earnings pressure due to updated laundering rules. Picture: John Gass

It’s hard to determine the extent of bank over-reaction but I have reports of longstanding customers having genuine legal transactions being blocked before any inquiries are undertaken. Three of our four major banks (and almost certainly the fourth is no different) have undertaken transaction blocking without checking, creating considerable anger and danger to longstanding clients.

Sometimes a signature situation is created when a person dies and the situation is not updated quickly enough. Sometimes bank officials crawl through structures more complex than the normal and find an anomaly. Action takes place before words.

Given customers have been with the bank a long time, a phone call or some other prior contact system would make a lot of sense. But, contact comes after the transaction has been blocked.

When banks block a transaction they can create considerable nervousness among customers and suppliers. Banks are embarking on much greater computer management so the risks of customer victimisation are set to increase unless the regulators and top bank people recognise and manage the side effects of what has been legislated.

I am not in the business of gambling in casinos, but under the rules as they now stand if a person spends too long at the gambling tables or transacts large sums of money the legislation requires they be asked questions about the source of their money, their identity and sometimes other aspects of their life.

People who obtain their money in totally legal ways find this an unpleasant experience which they do not want to repeat. And if their money has come from cigarettes, drugs or other illegal activities either in Australia or overseas they simply do not come to casinos in Australia. Overseas people wanting to launder money have plenty of other countries to go to.

Locals who want to use gambling institutions to make money from drugs or cigarettes in Australia will have no restrictions in clubs or hotels and even some forms of online gambling.

And, given cigarette and vape prices have ballooned the money required to be laundered has boomed.

In each of our major cities there has been considerable investment in casino complexes, and around those complexes are large numbers of restaurants and up-market retail shops. The people who gambled at the casino tables using legitimate money or money which had been obtained illegally also spent large sums in the restaurants and retail stores.

Once you remove those people from the casino complexes the economics of running these vast accommodation, restaurant and retail complexes change dramatically.

James Packer and the Packer family’s exit from Crown (and Nine) look to have been excellently timed. Picture: Jeff Rayner

Some may still proposer, such as at Crown’s Barangaroo waterfront facility. But, with greatly reduced casino revenue and very large facilities many casino-based operations are going to struggle. Some may shut.

But, just as we’ve seen in cigarettes it won’t stop the money laundry activities. They will be merely sent in a different direction

A strange set of coincidences have transformed the Packer empire, which was originally based on print publishing, the Nine television network and casinos.

Print publishing was exited a long time ago. James Packer sold out of Nine at a great price and was forced out of casinos — at, again, what looks like being a great price.

Nine is a public company and the global Blackstone group bought Crown. Both the television operation and the Blackstone group have difficult tasks ahead. The Packer family have exited brilliantly.