AUSTRAC begins its probe

It hasn’t been the best few months for the giants of the Australian casino industry. It began when James Packer’s Crown Resorts lost its Sydney license earlier this year, and now The Star Entertainment is under investigation for suspected breaches of due diligence.

several potential non-compliance cases involving multiple laws

In a Monday statement, The Star revealed that it is the subject of an Australian Transaction Reports and Analysis Center (AUSTRAC) investigation. The regulatory body has identified several potential non-compliance cases involving multiple laws, including the Australian Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

In response to the probe, The Star said it “takes anti-money laundering obligations very seriously” and intends to “fully co-operate with AUSTRAC” by providing any information and documentation.

The probe comes as part of a compliance clamp-down on the Australian casino sector, with three operators currently under investigation by AUSTRAC.

Casinos under the magnifying glass

In an editorial published in The Australian on Monday, AUSTRAC CEO Nicole Rose confirmed that the body is currently completing “significant compliance work” in the casino sector. She described casinos as “at risk of criminal misuse due to the products and services they offer.”

As reported by Reuters, the regulator is currently investigating multiple casinos as part of this compliance work. In addition to The Star Entertainment, AUSTRAC is also looking into possible breaches at the one Australian casino of New Zealand-based operator Sky City Entertainment Group.

expanded its investigation to Crown’s Perth city resort on Monday

Meanwhile, Crown Resorts is currently facing investigations from royal commissions in two other states after losing its Sydney license in February. In light of these issues, AUSTRAC began a money laundering probe into the casino giant in October of last year. The body expanded this investigation to Crown’s Perth city resort on Monday.

The three casino operators have confirmed that AUSTRAC has raised concerns with their management of high risk customers and politically exposed persons. In company filings, the operators all said they intend to cooperate with the probes.

Implications for The Star’s Crown bid

A New South Wales inquiry cited Crown’s management as one of the main reasons for the loss of its Sydney license earlier this year. As a result, the operator has received multiple offers from parties hoping to buy out business mogul James Packer’s shares, including The Star Entertainment.

However, the ongoing AUSTRAC investigation could have implications for The Star’s AU$9bn (US$6.9bn) buyout bid. Nathan Bell, portfolio manager of Intelligent Investor, a company with shares in Crown, has warned of regulator objection to the takeover if the probe confirms The Star’s failings.

Blackstone upped its initial bid to AU$8.36bn (US$6.58bn)

This could open the door to the other companies interested in Crown, including Blackstone Group and Oaktree Management. Blackstone upped its initial bid to AU$8.36bn (US$6.58bn) last month, while Oaktree has offered up to AU$3bn (US$2.32bn) to help the company buy back Packer’s shares.

That said, if The Star makes it out of the AUSTRAC investigation without a blemish to its name, Bell believes regulators could favor the Australian-based company, saying: “Regulators would rather Crown was kept in Australian hands.”