Australia has always had a problem with its gambling industry. In a country where at least 80% of the population gambles at least once a while, escalating gambling addiction was always a major concern. Australians lose an estimated A$ 25 billion ($17 billion US) each year in gambling.
Naturally, the Australian gambling industry is huge, with a total turnover of A$225 billion in 2019. The industry plays a vital role in the local economy, contributing close to 8% of the gvernment revenues.
From an AML perspective, gambling is a high-risk sector thanks to massive cash flows, high liquidity, and often lax compliance. In 2021, the issue has come to the fore in Australia, with multiple Royal Commission inquiries.
In this blog post, we will explore the two major AML incidents in Australian gambling in 2021, and assess their impact on the future of compliance in the industry.
The Crown Melbourne Affair
Crown Resorts Ltd is Australia’s largest gambling enterprise, with a market cap of A$8.7 billion ($6.18 US) in 2018. The group owns the two largest casinos in the land – Crown Melbourne and Crown Perth.
In 2019, whistleblower allegations of extensive money laundering brought regulator scrutiny onto the Melbourne casino. A Royal Commission inquiry by the Government of Victoria unearthed a pattern of illegal, unethical, and exploitative behavior at the casino.
The casino management was found to have actively enabled money laundering by failing to report numerous suspicious transactions. To evade scrutiny, the casino routed an estimated A$160 million ($110 million US) through its hotel reception over four years.
Chinese high rollers were the beneficiaries of this practice. The casino has courted controversy in the past for flying in Chinese gamblers via junket tours operators, many of whom have deep ties to organized crime.
The Fallout of the Royal Commission Inquiry
The inquiry revealed a “litany of failings” by the casino management in their AML procedures. They were severe enough to warrant the revoking of the Crown Casino gambling license. Such a move would have wiped out 65% of the earnings of the Crown Resorts group in one stroke.
But even more significantly, it would have a major negative impact on the local economy, affecting other businesses and risking the livelihood of thousands. In short, the Crown Melbourne Casino was deemed to be too big to shut down.
So, the Commission recommended the next best option – place the Casino under two-year probation, with a government-appointed manager in charge. The manager would have near unlimited powers to supervise the casino and oversee its attempts to improve the AML procedures.
Even more significantly, the inquiry report also prompted the state government to raise the stakes for future AML violators. The maximum penalty for violations was A$1 million – it has now been raised to A$100 million.
Pub Slots and Money Laundering
In another evolving story, the state of New South Wales is poised to launch another Royal Commission inquiry to investigate possible money laundering through slot machines. Nicknamed “pokies,” these gambling machines are a common sight in Australia.
With over 187,000 slot machines, Australia accounts for over 17% of the world’s slot machines. The vast majority of these are located outside casinos, in non-gaming venues like pubs and hotels. New South Wales alone has over 95,500 machines, of which 94000 operate outside casinos.
But shockingly, the New South Wales (NSW) gambling regulators don’t have any powers over the enterprises that host these gambling machines, as they are not designated as gambling venues. Due to lack of adequate oversight, very few of these venues file Suspicious Transaction Reports (STRs).
This gives criminal gangs free rein to use pokies for money laundering. The NSW gambling regulator estimated the scale of the problem at A$1 billion – the possible figure being laundered annually through gambling machines in the state.
Potential Impact of an Enquiry on Pub Slots
The call for a Royal Commission inquiry into the state of pub slots in NSW was made in December 2021. Should the government accede to this request in 2022, multiple changes can be expected for the sector.
Chief among them would be increased regulatory oversight over non-gambling venues hosting slot machines. They could face heightened scrutiny, with stricter compliance and reporting requirements.
Apart from extending the powers of the Independent Liquor and Gaming Authority (ILGA), the government could also consider other measures to prevent easy access to money laundering through slot machines.
One potential option is to switch from cash-based wagering to digital wagering. Under the current system, criminals can bring bags of cash and launder them at the machines by depositing and withdrawing the money instantly.
This would be much harder with digital payments. Switch to cashless slot machines would significantly reduce their utility to money launderers.
The current state of the Australian industry shows how criminal organizations can exploit loopholes even in markets where gambling is fully regulated. Lack of adequate oversight is often the main cause. However, State governments are taking positive action.
In the case of Crown Casino, the scale of the problem was so severe and complex, the Victoria government was forced to indirectly seize control of the casino. Decisive action in a similar vein is also required in New South Wales, where there is a significant void in current AML regulations.
In general, a risk-based approach is an optimal solution to AML compliance for regular enterprises and professionals. But in the casino/gambling sector, the risk of money laundering is so high that increased scrutiny and stricter enforcement maybe the only way forward.