Crown Resorts Limited And AUSTRAC: Federal Court Of Australia Accepts Historic Penalty (With Reservations)

On 11 July 2023 the Federal Court of Australia ordered Crown Perth and Crown Melbourne (together, Crown) to pay a $450 million penalty to the Commonwealth of Australia over two years.  The penalty is in respect of Crown’s admitted breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), over a period of six years.

This decision followed an agreement made by Crown and AUSTRAC on 30 May 2023, explored in the Lavan article Crown Resorts Limited and AUSTRAC: An Analysis Of A Potentially Historic Penalty.

Federal Court Judgment

Preliminary observations

At the outset, Justice Michael Lee made what he termed “a few important preliminary observations” in respect of the agreement reached between Crown and AUSTRAC, namely:

1.  There was a real public interest in regulatory proceedings being conducted with far more alacrity, and with more Court oversight, as having the proposed orders or agreements negotiated and workshopped occasioned very considerable delay.

"Case management hearings are not directions hearings. The Court’s role is not to affix wearily a rubber stamp to agreed directions which reflect the stately progress of the litigation. Rather, they are a means by which the Court seeks to understand the nature of the issues, and manage the proceedings consistently with the overarching purpose.”

2.  AUSTRAC did not identify any case where it had litigated a contested hearing or advocated for orders different to those proposed by the contravener on a final hearing.  As such, his Honour commented that where a regulatory body always reaches an agreement, “it risks being perceived as a soft touch”.  His Honour further identified the danger that a sophisticated contravener may approach negotiations on the basis that it can “hold out to secure what they perceive to be the lowest possible permissible figure confident that the regulator will not take them on.”

3.  Agreements of this type are often justified on the basis that they save costs, including for the regulator.  Here, however, the orders provided for Crown to pay AUSTRAC’s costs of $3.4 million and it was far from self-evident that had the case had been contested, including as to penalty, it could not have been heard more quickly and at a comparable cost to AUSTRAC.

4.  The agreement reached between AUSTRAC and Crown as to the penalty of $450 million without interest and on deferred terms was on the basis that “[Crown] can’t afford to pay more than what we’ve agreed.” However, aspects of the evidence going to the financial position of Crown were scant, either unsupported by business records or not addressed. His Honour considered that, with the benefit of hindsight, it may have been prudent for the Court to appoint a contradictor¹ to review the agreement, in circumstances where the evidence given by Crown was not tested by cross-examination.

5.  Although not presently relevant to this case, as his Honour had previously noted, where agreement is reached as to how compensation is to be paid, this can often have the practical effect of presenting the Court with a fait accompli.  This is because so many costs have been expended and so much work done that it is difficult for the Court to put in place a different approach.²

6.  The press release, which had been foreshadowed to the Court and was appropriate and accurate as far as it went, did not indicate that the proposed penalty was subject to a payment plan over two years:

• $125 million within 28 days of the date of the order;
• $125 million within one year of the date of the order; and
• $200 million within two years of the date of the order.

Interest was ordered to be paid only in the event of non-compliance with any of the timeframes.  Consequently, the net present value of the proposed penalty today (at the usual and default post-judgment interest rate, assuming no discount) was approximately $405 million, rather than $450 million.  His Honour noted that this had led to unintentional confusion when comparisons had been made between this proposed penalty and other penal orders.

Further, although the penalty proposed by the parties was accepted by Justice Lee, his Honour considered there had been “extraordinary delay” in the matter; indeed, that:

“… the Congress of Vienna had taken less time to agree upon the future of Europe following the defeat of the First French Empire than the time the parties had already spent in attempting to agree upon the facts.”

Decision

The above matters notwithstanding, his Honour acknowledged that the thoroughness of joint submissions and the statement of agreed facts and admissions and the assistance of counsel during the hearing on 10 and 11 July 2023 had allowed him to proceed immediately to the delivery of judgment on 11 July 2023.

Justice Lee found that Crown’s “contraventions were systemic, longstanding and egregious; permeating every designated service provided by Crown." 

He held that Crown contravened the AML/CTF Act on each occasion they commenced to provide a designated service to a customer (from 1 March 2016 to 1 March 2022) in circumstances where their standard and/or joint AML/CTF programmes did not have the primary purpose of identifying, mitigating and managing the risk that the provision of such designated services might involve or facilitate money laundering or terrorism financing (ML/TF).

Further, during this period and in contravention of the AML/CTF Act, Crown Melbourne failed to monitor 380 customers in relation to the provision of designated services with a view to identifying, mitigating and managing the money laundering risks that it reasonably faced; while Crown Perth failed to monitor 166 customers in a similar manner.

Loss and Damage Suffered

His Honour observed that significant loss and damage had been caused by Crown’s conduct and that the contraventions caused significant harm. The harm included:

• the Australian community and financial system being exposed to the systemic risk of ML/TF over six years;
• Crown’s banking partners and other financial institutions being exposed to downstream ML/TF risks, as Crown’s customers’ money flowed through bank accounts;
• higher ML/TF risks compared to businesses that were compliant;
• inadequate controls, and reduced transparency, in relation to international payment flows;
• undermining the ability of AUSTRAC and law enforcement agencies to trace money to its source, resulting in the loss of opportunity to detect and disrupt possible suspicious and unlawful activity and to recover proceeds of crime, including with respect to predicate crimes such as drug trafficking; and
• reduced transparency resulting from Crown’s conduct thereby undermining the reputation, integrity and security of Australian and global payments systems.     

Penalty

When considering the appropriate penalty, his Honour commented that his decision to accept the agreement was made with some hesitation. 

The parties had jointly submitted that the proposed penalty was an appropriate penalty and would achieve the twin objectives of specific and general deterrence, having regard to the nature and seriousness of the contravening conduct engaged in by Crown.

His Honour accepted that there was an important public policy involved in promoting predictability of outcomes in civil penalty proceedings, and also considerable scope for the parties to agree upon the appropriate remedy and for the Court to be persuaded it was an appropriate remedy.

Further, if the proposed penalty falls within the permissible or acceptable range, the Court would not depart from the submitted figure “merely because it might otherwise have been disposed to select some other figure” if the submitted figure is within the permissible range.³

However, the mere fact that the Court is dealing with an agreed penalty does not detract from the Court’s discretion in this respect.  The Court’s focus remains on whether the penalty falls within the appropriate range to achieve specific and general deterrence.

His Honour referred to several general principles when determining an appropriate penalty, including:

• the need for a reasonable relationship between the theoretical maximum and the final penalty imposed;
• the Court needing to ensure the penalty is not such as to be regarded as an acceptable cost of doing business;
• the relevance of principles commonly used in criminal sentencing, being:
  • the “one transaction” principle: where conduct engaged in by an offender can be fairly characterised as a single act or course of conduct, the sentences imposed should reflect that fact and avoid double punishment;
  • the “totality” principle: requiring the Court to consider the entirety of the offending and determine the most appropriate sentence for all the offences taken together; and
  • that parity and justice are equal factors in determining the appropriate penalty, however, as each case turns on its facts, a review of penalties imposed in past cases is of limited utility.

His Honour accepted that since 2020, Crown had plainly taken remediation measures to improve its ability to identify, mitigate and manage the ML/TF risk posed by the designated services it provides.  These measures included the complete reconstitution of the Crown boards and senior management. He further accepted that there had been no previous findings against Crown and that the Parliaments of both Victoria and Western Australia had passed legislation ensuring that any future material contraventions by Crown would imperil its ability to continue to operate a casino business in the respective States.  However, his Honour considered that whether there was “real contrition” at a corporate level and insight would only be evident from future conduct.

Ultimately, his Honour found that the following agreed penalties proposed by Crown and AUSTRAC was within the appropriate range, albeit at the lower end, for each of the courses of conduct adopted by Crown Melbourne and Crown Perth, and was within a range that would achieve specific and general deterrence:

• Failure to adopt and maintain a compliant AML/CTF programme (where the number of contraventions cannot reasonably be estimated): $200 million (Crown Melbourne) and $100 million (Crown Perth)
• Ongoing due diligence failures (546 contraventions in total): $100 million (Crown Melbourne) and $50 million (Crown Perth).

His Honour further accepted that the deferred payment of penalty was not unreasonable based on Crown’s evidence as to its financial position.  However, as the financial position of Crown had not been tested, the agreement was varied by the Court as follows:

• Crown was ordered to provide AUSTRAC its financial year 2023 and 2024 audited financial statements, within 14 days of issue, together with an affidavit from Crown’s chief financial officer stating whether Crown can finalise payment of the penalty and, if not, why.   
• AUSTRAC has liberty to apply for a variation of the orders if it considered that Crown’s financial position was in fact such that repayment of the balance of the judgment debt ought not to continue to be deferred.

Lavan Comment

The Crown and AUSTRAC matter highlights the critical importance of appropriately assessing money laundering or terrorism financing risks that your organisation may face.

Organisations operating in environments at high risk of money laundering need to establish appropriate frameworks for approval and oversight by board members and senior management.

If you face an investigation or enforcement action by AUSTRAC, Lavan’s Corporate Crime & Investigations Team is able to assist.  Please contact Partner, Cinzia Donald, and Special Counsel, Stephanie Tan to discuss the matter.

¹That is, a person seeking to represent the interests of particular parties whose interests would not otherwise be represented; and to do so in a manner that assists the Court.

²Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69; (2020) 142 ACSR 277 (at 335 [252] per Lee J).

³Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (at 504 [47] per French CJ, Kiefel, Bell, Nettle and Gordon JJ).