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Article: Crown Casino AML Breaches

Friday 30 October 2020

Since the Channel 9 News report late last year exposing Crown Casino’s alleged financial crime through their junket operators, questions have been asked about the gaming giant’s licence in Victoria and now in New South Wales. 

In an Australian Financial Review (AFR) article by John Kehoe and James Thompson, Crown overlooked suspicious reports: Austrac, the Australian Transaction Reports and Analysis Centre (AUSTRAC) CEO, Nicole Rose, stated that, “It is not acceptable for the entities to simply report and not to manage the risks.”

Rose added that effective management comes from finding patterns in the suspicious matter reports submitted to the financial intelligence agency (FIU).

Apart from mainstream reporting in the daily news cycle, however, what are the tangible links regulators - and by extension law enforcement - actually act upon when it comes to the reporting of breaches of the Anti-Money Laundering and counter terrorism financing legislation (AML/CTF)?
The GRC Professional caught up with Andrew Ham, Executive Legal Counsel, Risk and Compliance at Lawyers on Demand, who suggested all that is really known at this point is that AUSTRAC has indicated their dissatisfaction with compliance controls when it comes to entities meeting their regulatory obligations. 

According to Ham, however, while the casino’s dealings with junket operators who may have links to organised crime is risky, it does not constitute a direct breach of the AML/CTF. 

“As long as the risk is recognised and addressed, the customers they get as result must also be designated high risk,” Ham explained. “The second thing about having high-risk customers is that they must be managed properly - a bit like the suspicious matter reports that came to light in the US.”

This was in reference to the incident earlier this year, where 2100 suspicious activity reports (SARs) were leaked to Buzzfeed from the US FIU, FinCEN. 

Ham continued that high-risk customers themselves were not an issue per se, so long as the entity did not explicitly become a part of the offence. 

“There is a line to be drawn there,” he added, “and I am probably not explaining it very articulately.”

However, Ham agrees with AUSTRAC’s CEO in that it is not enough simply to report it as a way of passing off responsibility. 

“The issue I think Austrac is investigating regarding Crown’s ongoing due diligence on high-risk customers is that they [Crown] knew it was not up to snuff.  But we do not, as far as I know, have enough detail on that.”

Ham added that this specifically related to high-risk customers and politically-exposed persons (PEP), some of whom were likely to have been brought in by Crown’s junket operators. 
Under the AML/CTF Act as it relates to ongoing customer due diligence, it states that:
             (1)  A reporting entity must:
                     (a)  monitor the reporting entity’s customers in relation to the provision by the reporting entity of designated services at or through a permanent establishment of the reporting entity in Australia, with a view to:
                              (i)  identifying; and
                             (ii)  mitigating; and
                            (iii)  managing;
                            the risk the reporting entity may reasonably face that the provision by the reporting entity of a designated service at or through a permanent establishment of the reporting entity in Australia might (whether inadvertently or otherwise) involve or facilitate:
                            (iv)  money laundering; or
                             (v)  financing of terrorism; and
                     (b)  do so in accordance with the AML/CTF Rules.
This issue Crown faces is the same as that faced by banks in the past, and that is the question of conflict of interest and whether or not high-risk customers who require enhanced due diligence are actually good for business.

“It’s really magnified here,” Ham said, “because in this instance, Crown has been accused [in mainstream media] of targeting money laundering and facilitating the proceeds of crime.”
Reputational risk
“There is a reputational issue where you are known by the company that you keep,” Ham went on. “Crown wouldn’t be the only casino in the world that has been sprung with links to organised crime.”

Similar issues relating to reputational impact were demonstrated all too clearly in the case of Westpac’s unfortunate links to child exploitation regarding its own breaches of the AML/CTF. 

If AUSTRAC’s current investigation into Crown’s compliance controls shares hallmarks with its previous prosecutions and settlements, it certainly highlights the reality that regulators do not operate in a vacuum. 

In an AFR article by Hannah Wootton and James Thompson, Ex-Crown chairman may face ASIC prosecution, it was noted that Counsel Assisting, Scott Aspinall, recommended to Liquor & Gaming NSW that the former Crown Resorts Chairman, Rob Rankin, should be tried under section 180 of the Corporations Act:

Care and diligence--directors and other officers
             (1)  A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
                     (a)  were a director or officer of a corporation in the corporation's circumstances; and
                     (b)  occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
Note:          This subsection is a civil penalty provision 
Business judgment rule
             (2)  A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
                     (a)  make the judgment in good faith for a proper purpose; and
                     (b)  do not have a material personal interest in the subject matter of the judgment; and
                     (c)  inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
                     (d)  rationally believe that the judgment is in the best interests of the corporation.
The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
Note:          This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)--it does not operate in relation to duties under any other provision of this Act or under any other laws.

Licences over SMRs
Ham suggested Crown’s case draws similarities to that of Tabcorp, which had to pay $45 million in penalties for failures in their own reporting requirements to the regulator. It is likely, Ham believes, that Crown may have been so focused on the requirements around maintaining their gambling licences that they paid little attention to their reporting requirements under the AML/CTF Act.

“The relative concerns of the gambling inquiry have exposed a whole raft of fundamental governance issues and AML compliance issues as well,” Ham said.

So, are there lessons to be learned from AUSTRAC’s renewed effort to reach out to pubs and clubs to help them understand their compliance obligations?

“That is an attribute of the industry and something it has in common with the remittance industry in the sense that the structure of the players is vastly different,” Ham said. “On the one hand, you have the Crowns of the world with these large, centralised and complex corporations that have all the resources in the world to comply and to target high-risk customers. And then you have pubs and clubs. Their main business isn’t gambling, but on the side, they’ve got pokies in the corner and they’ve got to worry about not just the gambling regulator for that licence, but they’ve also got to worry about their AML obligations. And the issue there is that they are not set up for that.”

For Ham, it’s fairly straight-cut. “Unfortunately, when you operate a highly-regulated side hustle, what you also get is classic compliance risk.”