Crown Resorts could face $100m fine over illegal Chinese fund transfers

After giving Crown Resorts' (ASX: CWN) Melbourne casino a measly $1 million fine over junket conduct last year, Victoria's gambling regulator has launched disciplinary proceedings against the company with much more serious penalties at its disposal.

The Victorian Gambling and Casino Control Commission (VGCCC) has commenced the proceedings in relation to to the Royal Commission’s findings concerning the "China Union Pay" (CUP) process, whereby high-rollers paid for room charges in exchange for a voucher that could be used at Crown Melbourne to acquire cash or gambling chips.

It was a methodology that evaded restrictions from China on its citizens transferring sums greater than $50,000 per year out of the country.

"The Chinese currency restrictions were well known to Crown Melbourne executives. The CUP process was devised to enable the illegal transfer of funds from China," according to the Royal Commission report.

While a $1 million fine was the maximum that the VGCCC's predecessor was able to issue over Crown's junket operations, legislative amendments have since been made to give the commission more power.

Actions the commission could take include imposing a fine of up to $100 million, varying the casino licence, and/or censuring Crown and directing it to take rectification steps. If a $100 million fine were given, it would represent 4.6 per cent of Crown Melbourne's pre-COVID revenue and 17 per cent of pre-COVID earnings.

"I welcome the legislative amendments which impose stronger regulatory obligations on Crown and provide the VGCCC with greater enforcement powers," says VGCCC chair Fran Thorn.

"These powers are needed to deter Crown from engaging in the conduct that was revealed during the Royal Commission.

"As a first step, we are acting on the Royal Commission’s findings that Crown’s China Union Pay process breached important Victorian regulatory obligations, was illegal and constituted serious misconduct."

The VGCCC will make a further announcement once it has considered Crown’s response to the Commission's notice and determined the appropriate disciplinary action to take. There will also be further disciplinary proceedings arising from other matters highlighted in the Royal Commission.

In an ASX announcement, Crown acknowledged it had received legal advice on 7 June 2021 that the China UnionPay process which ceased in November 2016 contravened section 68 of the Casino Control Act 1991 (Vic), and it had notified the predecessor of the VGCCC and the Victorian Royal Commission of that matter.

"Crown is responding to information requests from the VGCCC and will fully cooperate with the VGCCC on this and any other matters arising from the Victorian Royal Commission Report," Crown stated.

"Crown’s priority remains the delivery of its reform and remediation program to ensure Crown delivers a safe and responsible gaming environment."

The Victorian Royal Commission into the Casino Operator and Licence (RCCOL) followed the NSW Bergin Inquiry into Crown's operations in Sydney ahead of a planned opening of the group's Barangaroo casino which has been delayed as far as gambling is concerned.

Meanwhile, the Perth Casino Royal Commission (PCRC) recently found Crown's WA business was "not suitable" to hold a gaming licence, although the casino will continue to operate as a series of reforms are rolled out.

An independent inquiry currently underway in NSW has heard allegations a rival casino operator, The Star Entertainment Group (ASX: SGR), registered around $900 million worth of gambling transactions as hotel expenses.