Regulatory failure, poor risk culture or both? The Crown Casino money laundering investigation
As if the past year wasn’t eventful enough with a global pandemic to respond to, it’s been a problematic period for Crown Casino from a regulatory standpoint. The casino operator has been investigated by the financial crime regulator, AUSTRAC, for alleged breaches of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) laws.
Through the course of its investigation, AUSTRAC identified non-compliance with the laws such as poor customer due diligence, and failure to implement and comply with a sound AML/CTF program. Our prior blog post Regulatory Spotlight: Money Laundering and Terrorism Financing Risks explores this theme as it has played out across the financial services sector and Westpac in particular.
In this blog, we cover the key findings and recommendations from the corresponding Inquiry and the role of risk culture and corporate governance.
Background to the investigation
On 14 August 2019, the NSW Independent Liquor and Gaming Authority launched an Inquiry under section 143 of the Casino Control Act 1992 (NSW). The Inquiry Report was tabled in the NSW Parliament on 9 February 2021.
The Inquiry covered the key allegation that Crown facilitated money laundering or at least turned a blind eye to this illegal activity in:
Its Southbank and Riverbank accounts
The Crown Melbourne casino
The focus of the investigation concerned the management of high risk and politically exposed persons at the Crown Melbourne casino.
Inquiry findings
The Inquiry Report identifies lapses in Crown’s corporate governance practices, with the company facilitating money laundering through accounts linked to its Perth and Melbourne casinos. The company also partnered with junket operators linked to organised crime.
The report reveals that over time, Crown had increased its reliance on junkets to generate revenue from international VIP patrons, failing to appropriately monitor and manage money laundering risks in its casino. Following these findings, Crown was deemed “not suitable” to hold a licence to operate its Barangaroo casino[1] and a long way off from being a suitable licence holder.
The Inquiry also found that decentralised regulation of casinos at the state level has created inconsistencies of which money launderers are able to take advantage. State level regulation was found to no longer be fit for purpose, with national regulation needed to manage conflict between states. States and territory governments oversee gambling businesses that help fund their budgets. Therein lies the conflict between maximising tax revenue from gambling and enforcing regulations prohibiting the criminal activity of money laundering through casinos.
Inquiry recommendations
Key recommendations made in the Inquiry Report include[2]:
Section 4A of the Casino Control Act be amended to include an additional requirement that all licenced casinos prevent any money laundering activities within their casino operations.
A new bespoke authority for casino regulation, the Independent Casino Commission (ICC), be established by separate legislation. The ICC is to act as an independent, dedicated, stand-alone specialist casino regulator with the necessary framework to meet the risks for gaming and casinos. This is expected to create greater transparency and sufficient resources to hold the gambling industry to account.
The ICC should have the powers of a standing Royal Commission comprised of members suitably qualified to address the complexities of casino regulation in the current environment.
The Casino Control Act be amended to require each casino operator to engage an independent appropriately qualified Compliance Auditor approved by the ICC. The Compliance Auditor is to report annually to the ICC on the casino operator’s compliance with its Commonwealth and State regulatory obligations.
An amendment be made to casino operator’s licences to impose an obligation to monitor casino patron accounts and perform increased customer due diligence. Breach of such provisions will be seen as a breach of licence and may incur disciplinary action.
The role of risk culture and corporate governance
The Inquiry Report indicates that many of the problems found with Crown’s handling of money laundering activity are due to
“poor corporate governance, deficient risk management structures and processes and a poor corporate culture.”[3]
Whilst Crown may not have been complicit to money laundering, it’s said that the casino turned a blind eye to the misconduct occurring under its own roof.
Casinos are a high-risk business for money laundering, which gives greater reason to have robust risk management structures and due diligence practices in place. Crown did not perform sufficient due diligence to ensure no links between the junket operators it engaged and organised crime. But this goes beyond due diligence as part of the corporate governance framework. It goes to risk culture.
Commissioner Bergin refers to risk culture as an organisation’s collective mindset towards risk[4]. Crown had an annual Corporate Governance Statement identifying the extent to which it followed best practice recommendations set by the ASX Corporate Governance Council. Crown also had a Code of Conduct in place for its directors and employees, including a specific provision addressing AML/CTF. On paper, the company was committed to compliance with its obligations under the AML/CTF laws and regulations.
However, it seems this wasn’t enough. Crown’s risk culture played a major role in the company’s behaviour. As mentioned in our blog Time To Build Out Your Culture Framework and again by Commissioner Bergin in the Inquiry Report, culture is what people do when they think no-one is watching[5]. It can either drive or discourage misconduct. In Crown’s case, its widespread weak risk culture drove the company to tolerate and even facilitate misconduct.
When it comes to fundamental cultural issues, where there is one problem, other problems tend to be revealed with time. Since the Inquiry into AML/CTF allegations against Crown, the company is now under investigation by the Fair Work Ombudsman for underpaying a number of its workers[6].
Our approach to addressing Crown’s culture and governance weaknesses
Outside the regulatory changes recommended in the Inquiry Report, it would be wise for Crown to increase focus on its culture and governance and complete a full review of current mindsets, frameworks, and practices. We note that in 2020, Crown did amend its Risk Management Strategy to enhance the risk culture section[7]. The question is whether this is enough.
Taking a leaf out of the ‘Financial Services Royal Commission’ book (Recommendation 5.6), proper steps are needed to change the company’s culture and governance, to avoid similar misconduct occurring in the future. These steps include:
Assess its culture and governance
Identify problems with culture and governance
Deal with those problems
Determine whether the changes made have been effective
Risk culture starts at the top. Any changes need to occur at Board level to then cascade throughout the company to discourage engagement in or facilitation of further misconduct.
How we can help
Has the Crown Casino case prompted you to re-focus on your organisation’s culture and governance frameworks? We’re happy to help you through this process. Our core services include organisation-wide independent assessments of governance, accountability, and culture standards and development and implementation of practical and effective governance and culture frameworks.
Hall Advisory is also available to assist you in enhancing your AML/CTF program to better practice standards, conducting a robust independent review of your AML/CTF program, or help setting up a structured process for your ML/TF risk assessments.
Contact us today for a confidential, no-obligation conversation about how Hall Advisory can help you achieve enhanced risk culture, corporate governance and regulatory compliance practices.
References
[1] The Honourable P A Bergin SC, ‘Inquiry under section 143 of the Casino Control Act 1992 (NSW) Volume 2’, State of NSW, p. 566, 1 February 2021, https://www.parliament.nsw.gov.au/tp/files/79129/Volume%202%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf.
[2] The Honourable P A Bergin SC, ‘Inquiry under section 143 of the Casino Control Act 1992 (NSW) Volume 1’, State of NSW, pp. iv to vi, 1 February 2021, https://www.parliament.nsw.gov.au/tp/files/79129/Volume%201%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf.
[3] The Honourable P A Bergin SC, ‘Inquiry under section 143 of the Casino Control Act 1992 (NSW) Volume 2’, p. 568, State of NSW, 1 February 2021. [4] The Honourable P A Bergin SC, ‘Inquiry under section 143 of the Casino Control Act 1992 (NSW) Volume 2’, p. 327, State of NSW, 1 February 2021. [5] As above. [6] Ben Schneiders, ‘Crown under investigation for wage theft’, The Age, 28 February 2021, https://www.theage.com.au/national/victoria/crown-under-investigation-for-wage-theft-20210226-p5763b.html.
[7] The Honourable P A Bergin SC, ‘Inquiry under section 143 of the Casino Control Act 1992 (NSW) Volume 1’, State of NSW, p. 143, 1 February 2021.
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