Australia’s largest casino operator is facing multiple regulatory challenges over its links to money laundering and organised crime, primarily due to its lax controls over junket operators.
The concerns over Crown Resorts’ compliance and governance controls have highlighted the money laundering and terrorism financing (ML/TF) risks associated with junket operators, which have well-established links to Triads and other organised crime groups.
The Financial Action Task Force (FATF) standard setter, which is based in Paris, has been warning about the risks associated with junkets for more than a decade. Despite the high-risk profile, many countries, including Australia, exclude junket operators as reporting entities under their AML/CTF regimes.
Last Wednesday, the Australian Securities Exchange (ASX)-listed Crown received another major regulatory blow in its campaign open a flagship gaming venue in Sydney.
The New South Wales inquiry into Crown Resorts heard during closing remarks that the company was “unsuitable to hold a casino licence”. The inquiry had earlier heard extensive evidence of money laundering and ties to organised criminals, including through junket operators.
The assertions came in the closing statement from Adam Bell, the lawyer running an inquiry into whether Crown should be allowed to operate a 75-floor casino tower on the Sydney waterfront. Crown has spent A$2.2 billion ($1.6 billion) building the resort, which it plans to open next month.
“The evidence … demonstrates that the licensee is not a suitable person to continue to give effect to the licence,” Bell told the inquiry.
The latest regulatory blow comes just two weeks after the Australian Transaction Reports and Analysis Centre (AUSTRAC) said it has begun a formal enforcement investigation into Crown over its AML/CTF controls, including continuing customer due diligence.
Crowning glory
The NSW Independent Liquor and Gaming Authority (ILGA) established the Crown inquiry in August 2019 under section 143 of the Casino Control Act 1992 (NSW). It has been working closely with AUSTRAC, the Australian AML/CTF regulator, since the inquiry’s inception.
AUSTRAC regulates the Crown group as a reporting entity under the AML/CTF Act 2006.
Nicole Rose, AUSTRAC chief executive, said the links to money laundering that were aired in the inquiry were “alarming allegations”. She said junkets were a posed a high risk under the AML/CTF regime as they were not directly regulated by AUSTRAC.
The agency released guidance in 2017, released under a Freedom of Information request, that said Australian casinos were “broadly aware of and comply with their AML/CTF obligations regarding casino junkets.”
Following the revelations from the NSW inquiry, however, the regulator has distanced itself from this guidance.
AUSTRAC was in the process of reviewing the gambling sector along with the risks that junkets posed, Rose said. The government has funded AUSTRAC to produce a junket tour operator (JTO) risk assessment project, which has been undertaken over the past year.
“There are issues in the [2017] document that we actually no longer agree with. We’ve moved on, which is why we are doing a new risk assessment, because there’s a greater understanding of the risks involved,” Rose said.
“It’s an extremely complex and detailed area, and the risk assessment is due, we hope, in the next month or so.”
Gaming: a growth industry
In the last four years AUSTRAC has conducted 12 compliance assessments in the gambling sector — four of those have been with Crown Melbourne. The AUSTRAC official said there had been a “strong growth in the junket market and that they are a high risk, regarding money laundering and proceeds of crime investigations.”
AUSTRAC began a targeted compliance assessment on Crown in September 2019 following a “range of compliance assessments that we’ve done in the past couple of years.”
In recent weeks this supervision work has been handed over to the agency’s feared enforcement division, which has just wrapped up an A$1.3 billion litigation with Westpac Banking Group.
This was the result of a “year of intense work”, Rose said.
“We informed Crown in the last couple of weeks that that has now been forwarded to the enforcement team because we have some serious concerns, and junkets are certainly one of those concerns,” she said.
Tick-box approach
Crown may have been complying with legislation in a “tick-box” manner and, in doing so, may have misled the regulator about its controls, Rose said. Given the limits of AUSTRAC’s powers to demand evidence, she said the agency relied heavily on honest and accurate self-disclosure from reporting entities.
“With all of the high-risk entities — and casinos certainly are high-risk entities — we undertake regular compliance activities, which is why we’ve done 12 in the last four years. This involves our compliance officers going in and looking at individual areas of risk in the AML/CTF legislation guidelines,” she said.
“We need to have the evidence of breaches. We’re not an investigative agency.”
Crown Melbourne is one of the country’s largest reporters to AUSTRAC. In 2019, the company’s flagship property submitted just under 50,000 reports, which were 43% of all reported transactions to AUSTRAC from the Australian casino sector.
The bulk of those reports, however, were threshold transaction reports (TTRs). The more valuable reports, from an intelligence perspective, are suspicious matter reports (SMRs), which made up only a small slice of that number.
Rose said the allegations aired in the NSW inquiry had raised serious concerns about the level of money laundering at Crown’s properties, especially through junket operators.
Financial crime firewall
Junket operators can act as a firewall between casinos and their high-risk clients, including politically exposed persons (PEPs). Under the Australian AML/CTF regime, casinos do not have to identify customers directly if the relationship is via a junket, which is technically the casino’s client.
Banks have also struggled to identify the ultimate beneficiary of funds moving through casino accounts, as the junkets act as an intermediary and mask the identity of the end customer.
Rose said AUSTRAC had sent a message to reporting entities in recent years that simply reporting to AUSTRAC was not the end of their responsibilities. All reporting entities needed to take a nuanced approach to ongoing due diligence with their high-risk customers, she said. This was also one of the key findings in the recent Federal Court judgment against Westpac.
“It is not acceptable for reporting entities to simply report and not to manage the risk. There is an expectation in the legislation that they will have a very good understanding of the risk, they will look at their own patterns in SMRs and reports and they will manage that risk accordingly,” Rose said.
“Those reports are put onto AUSTRAC intelligence systems within 24 hours, and they’re available to nearly 6,000 law enforcement officials around the country who access those reports as required for law enforcement investigations.”
Looking ahead
In future, Rose said the enforcement unit’s work on Crown “may take some time” to resolve. It is not clear yet what enforcement tools AUSTRAC will use, or if it will even take formal action against Crown. Sources said it was still possible Crown may be able to work with the regulator to resolve the issues, as National Australia Bank (NAB) is doing.
“These [enforcement] matters can take up to two years. They’re incredibly complex,” Rose said.
“I think what people don’t understand is that we don’t have access to entities’ information. We require them to report to us, which is what we use to help them manage that risk. When we go into an enforcement action, we then have to request that information from them … it is a lengthy and complex process.”
The AUSTRAC risk assessment is expected to look at whether junkets should be included directly as reporting entities under the AML/CTF Act.
“Junkets are often offshore, and they’re managed offshore. We don’t have the reach into them that we would like, and it’s certainly something that we are looking at … we’re talking to the [Home Affairs] department about it, and they’re very aware,” Rose said.
“We simply don’t have the visibility of where the money is coming from and who’s involved.”
This report was written by Nathan Lynch, member of the Thomson Reuters Regulatory Intelligence team. Additional reporting by Wayne Cole, Reuters.
