Judge questions Crown’s $450m ‘deal’ with AUSTRAC

Australia’s largest casino operator Crown faces significant hardship if it is forced to pay a record-breaking $450m fine upfront, a court has been told, amid concerns of “moral hazard”.

The financial crime watchdog AUSTRAC and Crown jointly filed in the Federal Court that the casino operator should pay a $450m penalty for 546 breaches of obligations under financial law.

The fee is the largest fine given to a casino globally and relates to failings at Crown’s Melbourne and Perth casinos to stop potential international money laundering and terrorism financing.

During the first day of a two-day hearing at the NSW Federal Court on Monday, Judge Michael Lee called into question plans for Crown to pay only $125m upfront, with the rest on a payment plan.

Crown’s lawyer Philip Crutchfield urged Justice Lee not to consider overturning the agreement, telling the court the casino giant would not have entered into it if the plan was not available.

“We have a deal here, and I have to adhere to the terms of the settlement,” he said. “We wouldn‘t have agreed to pay it if it wasn’t for the payment plan, and AUSTRAC know that.

“If Your Honour pulls on that thread, it pulls a part the foundation stone for that agreement. There is no reason why Your Honour should do that where it has been agreed upon.”

An affidavit provided to the court by Crown’s chief financial officer Alan McGregor outlined the “severe financial hardship” the casino giant would be placed under if it had to pay the $450m upfront.

The court was told the fine, which was reduced to $405m under the plan, amounted to more than 23 per cent of Crown’s annual revenue, and it had only $140m in cash.

Should Crown have to pay the fine within the typical 28 days, Mr McGregor submitted that Crown would have to enter into negotiations with debt companies – the outcome of which was unknown.

Those findings, which were not cross-examined by AUSTRAC, were the subject of scrutiny by Justice Lee, who told the court he could adjourn the case so they could be independently investigated.

“The discipline of cross-examination – of testing evidence – is an important part of the common law process,” Justice Lee said. “It seems, no one wants this bloke (Mr McGregor) cross-examined.”

The affidavit also shed further light on Crown’s financial struggles, with Mr McGregor revealing that Crown had lost almost $400m last financial year followings its 2022 purchase by equity giant Blackstone.

During the heated court hearing – described by Mr Crutcfield as a “cauldron” – Justice Lee also hit out at AUSTRAC, which he said could have been pragmatic in making the deal.

“This is a regulator who has never litigated anything in a contested hearing,” he said.

“If regulators never bring cases to a hearing, or never advocate for different situations following a lengthy negotiation, then a sophisticated contravener will know the court will generally have to accept the proposed penalty, even if it was disposed to accept something higher.

“That gives rise to a moral hazard because the contravener knows the regulator can hold out because they know the regulator will not bring matters to court.”

Justice Lee told the court the “suppressed premise” of his objections to actioning the deal were that the reduced fee Crown would pay under the plan fell out of the “permissible range”.

He said a third party investigator or amicus could review Crown’s financial status and Mr McGregor’s affidavit and come to the same conclusion or decided it did not face hardships.

He adjourned the case until 3.30pm on Tuesday, at which time he will determine if the matter is to be adjourned for an independent regulator to review Crown’s finances.

It was also proposed prior to the noon adjournment that Crown could be allowed to approach AUSTRAC to make more speedy payments if their financial situation changed.

The move comes after a lengthy two-day hearing during which the conduct of both Crown and its former leadership and AUSTRAC have been brought into focus.

There were no accusations from AUSTRAC that Crown’s now-ousted leadership had deliberately skirted its obligations despite certain operations aimed at increasing turnover.

The court was told the casino giant had suffered since the offending, which lasted until March 2020, as well as being impacted by Covid.

Crown’s operations had also come under increased scrutiny, with its Melbourne casino slapped with $220m in fines last year on top of issues at its new Sydney site at Barangaroo.

The fines relate to failures by Crown’s former leadership to implement and oversee effective monitoring despite issues being raised from within the company, and by police, on multiple occasions.

As part of the settlement, Crown admitted that it breached laws by failing to assess the risks it faced and implemented a transaction monitoring program appropriate for the size of its business.

At least 60 high-risk customers were highlighted by AUSTRAC, 43 of whom were junket operators – many classified as “politically influenced people” whose combined turnover was $69bn.

At least 40 had been identified as being suspicious by either Crown Melbourne or Crown Perth, while 38 were involved in the transfer of large sums of money totalling about $450m.

Of particular focus during Monday’s proceedings were the now-defunct junket programs, during which independent operators such as Macau-based Sun City ran cash desks and gambling rooms in Crown.

The court was told the rooms were regularly the subject of internal issues relating to concerning behaviour as well as police investigations, with cash “colourfully” moved in paper bags, suitcases, and shoeboxes.

The junket programs were halted in March 2020 after the programs were restricted or outlawed by regulators in Western Australia and Victoria, while they remain legal in NSW.

According to a fact sheet agreed upon by Crown: “The contraventions are significant in number but too numerous to quantify. The maximum penalty for each contravention ranges from $18m to $22.2m.”