How high rollers allegedly churned $70b through Crown’s casinos
From anti-money-laundering and counter-terrorism financing provisions, AUSTRAC’s list of claims could potentially amount to more than $1 billion in penalties.
As Melbourne emerged from its sixth lockdown last October, its hospitality and entertainment industry shook off the cobwebs and got back to business.
The James Packer-backed casino giant Crown Resorts – the jewel of Melbourne CBD’s social scene, with its sprawling Southbank premises – was no exception.
According to financial crimes watchdog AUSTRAC, however, this business was still enabling patrons to potentially break the law.
AUSTRAC is taking Crown to the federal court over 500 claims of breaches. Joe Armao
In an 863-page statement of claim filed in the Federal Court on Tuesday, the regulator hit Crown with allegations of more than 500 breaches of anti-money laundering and counter-terrorism financing provisions, “innumerable” other breaches, and claims that could amount to more than $1 billion in penalties.
Beyond throwing its acquisition by Blackstoneinto doubt – the private equity firm’s takeover proposal includes a clause allowing it to drop the offer if Crown is hit with penalties over $750 million – the case for the first time shows a comprehensive account of how Crown is alleged to have facilitated billions of dollars of laundered money.
From accepting cash stored in shoeboxes and plastic bags to maintaining relationships with customers suspected of being involved in sex slavery or narcotics dealing, the watchdog alleges that Crown’s management and executives “failed” to stop money laundering at every turn.
Admissions and evidence of poor money-laundering practices at Crown have been aired at several government inquiries and royal commissions for two years now.
But with AUSTRAC’s signature scrutiny of bank transactions, the statement of claim in its Federal Court case against Crown reveals just how the wrongdoing is alleged to have occurred.
Some of the misconduct is also said to have occurred during and after the Victorian and West Australian royal commissions kicked off, casting doubt on the company’s claims that it is on the path to reform.
One Crown patron, said to be known to management as a money-laundering risk linked to sex slavery and human trafficking, was still doing business with Crown even after the Victorian royal commission found the casino giant unfit to run its casino.
The person, known as “customer 3” was a patron of Crown Melbourne as late as November 12 last year, two weeks after the Victorian royal commission handed down its findings on October 26, according to the claim.
In AUSTRAC’s statement of claim, the financial crime regulator revealed management was “at all times aware” of the money-laundering risk posed by “customer 3” – who had attended Crown for seven years as a high-roller “junket” tour operator.
In addition to money laundering, 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.”
AUSTRAC also alleges Crown management failed to assess the risk of 60 ‘high-risk’ VIPs who bet ‘in excess of $70 billion’ since March 2016.
AUSTRAC also alleges Crown management failed to assess the risk of 60 “high-risk” VIPs who bet “in excess of $70 billion” since March 2016, continuing to “provide designated services to these customers, without carrying out appropriate risk-based ongoing due diligence, including enhanced customer due diligence”.
Another junket operator, known as Customer 15, allegedly churned $7.6 billion through Crown Melbourne from March 2016 to May 2018, and $860 million through the Perth site. They clocked combined losses of just $38 million.
Crown Melbourne then ran risk intelligence searches on key players in their junket in June 2016, with alarming results.
“In respect of one key player, a search returned that he was an alleged leading member of a criminal syndicate who allegedly managed and operated the syndicate’s narcotics distribution, karaoke, nightclub and pirated DVD businesses,” the statement of claim read.
“The key player was reportedly wanted by a foreign law-enforcement agency. Open-source information, which does not appear to have come to Crown Melbourne’s attention, further allege the key player’s involvement in prostitution.”
There were also “red flags reflective of higher ML/TF risks” raised at multiple stages during Customer 15’s dealings at Crown from March 1, 2016, onwards, including a junket representative depositing $500,000 cash in their Perth deposit account, all of which was in banknotes of denominations less than $100 and which included counterfeit notes.
Despite this, AUSTRAC alleged that Crown’s leadership failed to act “on each occasion” that it considered whether to continue the company’s involvement with Customer 15.
It also maintained this attitude as recently as four months ago.
Risk appetite
As part of Crown’s 2021 remediation program, the company reviewed its processes around Customer 15 but took “no due diligence steps” to review some “significant” transfers they made.
“None of these steps were proportionate to the ML/TF risks reasonably posed by Customer 15 on and from 1 March 2016,” the statement of claim said.
Another junket operator, known as Customer 16, was allowed to take over his deceased brother’s junket operations despite Crown Perth and Crown Melbourne both forming “suspicions” about the latter.
The late brother had run 489-plus junkets across the two casinos from 1995-2017, churning over about $7 billion combined.
But Crown still allowed Customer 16 to run junkets at its Melbourne and Perth sites from 2017, despite knowing he was involved in running his brother’s business.
The statement of claim slammed the casinos for failing to consider whether his funds were legitimate, if there was a lawful purpose behind his transactions, whether to process his “large and high risk” payments, or if their relationship was within their anti-money-laundering risk appetite.
AUSTRAC’s allegations are not the first time that Crown’s attitude to reform has been exposed, especially after the findings of the royal commission.
A lawyer representing James Packer’s holding company told the WA royal commission last month that it would be “wholly inappropriate” to require the billionaire to sell down his stake in Crown Resorts, despite Packer previously throwing his support behind such a proposal if it meant the company could retain its casino licences.
‘Banking partners exposed to risks’
The Victorian royal commission last year recommended Packer sell down his share in Crown to less than 5 per cent – an offload worth about $2.4 billion – if it wanted to keep its lucrative Southbank licence.
The former Crown chairman said he supported the recommendation at the time, as the company implemented sweeping board and executive changes in the face of damning findings from NSW, Victorian and WA inquiries that it facilitated money laundering, bullied regulators, underpaid gambling taxes and broke responsible gambling rules.
But Noel Hutley, SC, appearing for Packer’s company Consolidated Press Holdings, told the Perth-based inquiry that this recommendation was “wholly inappropriate” and “some form of punishment for Crown”.
He also admitted that Packer’s original response to the recommendation that he would not oppose a shareholding cap was made in “the context” of the billionaire not wanting to “debate” the Victorian recommendations when they were first made.
AUSTRAC’s claim does not seek penalties against Mr Packer personally.
AUSTRAC was also brutal in its assessment of the consequences of Crown allegedly enabling money laundering.
The casinos exposed their banking partners to money-laundering risks, AUSTRAC said, as well as “the Australian and global community and financial system … to systemic ML/TF risks over many years”.
It said it is “likely” that Crown Melbourne and Crown Perth were also at risk of being exploited by organised crime themselves.
The “non-transparent movement of money and deficiencies in … records” also compromised the ability of authorities to trace dirty money to its source.
“This inhibits law enforcement investigations, prosecutions and the recovery of proceeds of crime,” AUSTRAC said.
It added that “where money can be moved quickly and across borders, it can be even more difficult to trace and recover” and Crown’s alleged non-compliance “compounded” these difficulties.
But for Crown, which was slammed by Victorian royal commissioner Ray Finkelstein for its “profit-first” culture, there was a silver lining.
AUSTRAC notes that the “scale of the expenditure” Crown is spending on its current AML overhaul shows the volume of savings they made by their non-compliance in past years.
It also said Crown Melbourne made over $1 billion in junket revenue from July 2015 to June 2020, with the total turnover from its VIP program in that time hitting $220.8 billion.
Add to that the savings they made from “avoiding expending funds that should have been invested in compliance including on IT, staffing and the development of AML/CTF controls”, and it is unsurprising that Crown was “a highly profitable business” during the period of alleged wrongdoing.
Whether the penalty ultimately handed down by the Federal Court should AUSTRAC win its case – analysts estimate it may reach $400 million – takes that into account remains to be seen.
The casino giant insists it has turned a corner with new management now installed at the company following a clean-out of the boardroom and executive layer after the NSW, Victorian and WA inquiries.
Crown did not comment directly on the AUSTRAC charges but says the company has overhauled its anti-money-laundering systems, pointing to a program of work including assessing risky patrons, installing software to detect unusual transactions, and monitoring cash deposits in Crown’s bank accounts.
Experts slam ASIC’s failure to prosecute Crown Resort execs
ASIC’s decision to let 10 former Crown Resorts directors and senior executives off the hook for possible breaches of corporate laws while running the James Packer-backed company contributes to a “long-term narrative” of minimal individual accountability, governance experts warn.
ASIC will not charge former Crown directors with breach of their duties. Joe Armao
The Australian Securities and Investments Commission told about 10 former Crown Resorts executives and directors they will not face charges for breaching director and officer duties on Tuesday, despite royal commissions and government inquiries lambasting their involvement in the casino giant’s misconduct.
The Joe Longo- chaired corporate watchdog did not provide a public statement explaining why it was not pursuing these executives.
It comes as AUSTRAC sued Crown in the Federal Court on Monday for “innumerable” breaches of anti-money laundering rules, alleging that “wholly inadequate oversight” by its board and senior management contributed to the breaches in an 863-page statement of claim.
Helen Bird, a corporate governance expert at Swinburne University, said she was “nonplussed” by ASIC’s decision to drop its investigations into the individuals given the wealth of evidence heard by the inquiries and admissions by some of the directors of poor governance.
“You’ve got to ask yourself, what do you have to do for there to be sufficient evidence for ASIC to feel confident [bringing a case]?” she said.
She acknowledged that public and investor anger at Crown Resorts had dropped since the royal commissions, citing a sense that the company had been punished enough, but said that did not mean directors should be let off the hook.
The fact that ASIC or a court have not made findings against the directors means they are allowed to govern other companies despite the wrongdoing they oversaw at Crown.
Ms Bird said this contributed a culture of minimal accountability for individuals when companies misbehaved.
“This is part of a long-term narrative where the directors of major companies are not pursued ... the stories change, we go from banking to casinos, but we still have the same issue,” she said.
“[Regulators] are dealing with the consequences not with the conduct that occurred … we’ve gone instead ...with what flows on because they’ve breached the law, and that’s been really narrowly defined in terms of money laundering.
“But the root cause of these problems, the specific legal contraventions, is poor risk oversight and risk management or governance by Crown’s management and board, and that’s not answered by these cases.”
Ms Bird said there was “a public interest in making sure companies are well run” both for shareholders and the wider community, as investment decisions by boards have wider economic consequences and superannuation funds invest heavily in listed outfits.
Acknowledging that “no one thing is going to resolve” the issue of poor governance, Ms Bird said greater enforcement would help.
“ASIC should bring more cases and maybe they’ll lose some, but it will still show that they will pursue [compliance with directors’ duties] and boards will be aware of that when they make decisions.”
Elizabeth Sheedy, a Macquarie University professor and expert on executive accountability regimes, said it was “disappointing that ASIC isn’t pursuing the directors”.
Ms Sheedy took aim at the regulator for not making a public statement explaining their actions.
ASIC hasn’t said why they have decided not to pursue them. It leaves you wondering what’s going on.
“On the face of it, these executives and directors have not shown proper care in their director duties.”
The fact “a number of those directors” had left Crown was “kind of like a partial acknowledgement that they have not been effective”, she added.
An ASIC spokesman said while it had closed its investigations into the directors and executives, that did not mean it had made a finding regarding their liability.
“It is important to note a decision not to proceed with a matter is not to make any finding of fact or liability one way or the other,” he said.
“But rather, just that for what might be a variety of reasons – including the availability of admissible evidence and statute limits, considerations of the public interest and enforcement priorities – on balance there was not sufficient merit in pursuing a particular matter.”
Name and shame
In AUSTRAC’s statement of claim, the financial crimes regulator pointedly says the Crown board and executives “failed” – in the face of “known and serious” money laundering and terrorism financing risks – to prevent billions of dollars of high risk money churning through the casino.
But they fall short of naming the board members and executives running Crown Perth and Melbourne at the time, as AUSTRAC’s enforcement action for breaches of obligations are only taken against reporting entities and not individuals officers of reporting entities.
While acknowledging AUSTRAC’s purview, Professor Sheedy said “it would certainly have a greater deterrent effect if individual office holders were named. Those senior managers guard their reputations jealously”.
“Accountability is not just about fines and prison terms it’s very much about shaming, and it would have a greater impact on people’s behaviour if there was the possibility of naming people.
“The more you can name and shame them the more significant impact on the individuals. It makes them sit up and take notice and think, ‘gee, I don’t want to experience that. So I will be more careful and diligent as I go about my work.’”
Evidentiary burden
Ms Bird added that the fact that ASIC could not rely on evidence given in the royal commission by directors likely also played a “critical role” in the decision not to pursue legal action.
Under legal protections against self-incrimination, admissions made by witnesses in royal commission cannot then be used as evidence in court cases, meaning the watchdog would need to gather its own proof that the conduct referred to occurred.
“That’s where I think the real difficulty lies, there’s a huge amount of work to do there,” Ms Bird said.
“It makes the case harder to run, but it’s still important to run it because there’s still a lot of upset investors by what happened at Crown and people affected by it.”