Scandals Keep Australian Casino Industry on the Hot Seat

Back-to-back money laundering scandals involving Australia’s biggest gaming operators have lawmakers and analysts questioning monopolies in the states where casinos operate, and the validity of gaming halls everywhere.

Scandals Keep Australian Casino Industry on the Hot Seat

Recent money laundering scandals involving Australia’s two largest casino operators—Crown Resorts and Star Entertainment Group—have given lots of ammunition to opponents of gaming, and led some lawmakers to question whether the country needs casinos at all.

According to the Sydney Morning Herald, recently Star CEO Matt Bekier became “the latest high-profile casino executive to fall on his sword amid revelations around his company’s AML controls and relationship with Asian junkets.” Now New South Wales (NSW) Transport Minister Rob Stokes is asking other policymakers to consider the industry’s future.

Stokes told parliament that revelations about non-compliance and potential criminal activity at the operators’ casinos “should cause us to pose an existential question about the future of casinos in NSW.”

Last February, following the release of the Bergin Report in NSW, regulators deemed Crown Resorts unsuitable to hold a casino license at Crown Sydney, which had not yet opened at the time (the resort’s hotel and other amenities were permitted to operate, but the casino remains dark). The Bergin Report uncovered evidence of money laundering and other serious regulatory breaches at Crown’s other casinos in Melbourne, Victoria, and Perth, Western Australia (WA).

Crown responded to the scandal by cleaning house. Top-to-bottom remediation efforts included the departure of most Crown executives and board members, as well as an agreement by majority shareholder James Packer to reduce his stake from almost 38 percent to 5 percent over several years. While the company was deemed unsuitable in all three states where it does business, it has been permitted to continue operating on a probationary basis. In fact, the NSW Independent Liquor and Gaming Authority (ILGA) may soon reissue the Crown Sydney casino license.

Following the Crown imbroglio, it was Star’s turn, with similar allegations leading to similar inquiries. According to Bloomberg News, the back-so-back scandals have caused “an existential crisis” in Australia’s casino industry, “with allegations of brazen misconduct in courting Chinese gamblers threatening to upend one of the world’s most lucrative gambling markets.”

In the latest revelations, Star allegedly disguised almost AU$1 billion (US$746 million) as hotel expenses, when in fact the money was withdrawn on Chinese bank cards for gambling. One high roller reportedly spent $2.5 million in three days on hotel expenses, and no red flags were raised.

“The Australian casino business is a dreadful example for anyone running a casino anywhere else in the world,” said Charles Livingstone, associate professor at Monash University who specializes in gambling policy reform. “Their revenue sources are, unfortunately, not sustainable. The real problem is casinos became a law unto themselves.”

The Star probe has presented “extremely powerful evidence of organized facilitation of prohibited activities,” said Geoffrey Watson, director at the Centre for Public Integrity and a former counsel assisting the Independent Commission Against Corruption in Sydney. And the cancellation of Star’s Sydney casino license is a “very real possibility,” according to Jefferies Financial Group Inc.

Adam Bell, the lawyer overseeing the Star inquiry, must report to the NSW gaming regulator by the end of August. Star has said it’s cooperating fully with Bell’s inquiry.

In related news, Crown Melbourne is facing fines of up to $100 million for its role in enabling the illegal transfer of funds from China using China UnionPay. One high roller told how he spent $11 million in one day on his CUP card without intervention.

Ben Lee, managing partner of IGamiX Management & Consulting, told Asia Gaming Brief that the two casino operators, which account for 95 percent of the country’s gross gambling revenue, have shown “complete disregard for corporate governance and good management practices.

“When you have one regulator and one target, the regulator becomes the captive of its subject. The government doesn’t want to kill them as it has become reliant on the revenue, so they will bend over backward.”

Lee said the new revelations about Star, on the heels of the Crown crisis, are an “unmitigated disaster” for good corporate governance in Australia.