Crown accused of various misdeeds

Under the protection of parliamentary privilege, Federal MP Andrew Wilkie yesterday aired various allegations involving activities at Crown's Melbourne casino. Amongst other things, three former Crown employees have allegedly inappropriately manipulated pokies and deliberately skirted Australia's anti-money laundering laws.

If true, these are serious allegations that Federal and State authorities should be investigating.

Yet Andrew Wilkie is a long-time pokie critic who has set up a website ‘to expose the dirty secrets of the poker machine industry'.

Moreover, the former Crown employees elected to have their appearances blurred and voices altered, supposedly because they fear for their safety. These aren't the days of mob-controlled Las Vegas or Atlantic City and so there could be other reasons for their preference in remaining anonymous. (For what it's worth, industry sources suggest the allegations could be related to an ongoing industrial dispute. The timing appears convenient if that's the case. Crown Melbourne is currently undergoing the five-yearly review of its licence by the Victorian regulator, while the company's AGM is only a week away.)

Crown has rightly encouraged Wilkie to provide any evidence to the authorities as soon as possible. We note that casinos are generally licensed and regulated by State authorities rather than the Federal government.

Corporate governance still lacking?

However, the arrest and conviction of Crown's employees in China raises obvious doubts over the company's corporate governance.

Moreover, regulators are notorious for getting too close to those they regulate (‘regulatory capture', in the jargon) and, by their nature, casinos are obvious targets for those who want to launder ill-gotten gains.

Of all the allegations, potentially the most serious is that Crown avoided Australia's money-laundering laws. If so, the individuals in question could be charged and the company subjected to a fine.

But while the size of any fine is difficult to estimate without knowing the number of alleged infractions, if any, it's unlikely to threaten Crown's viability. For reference, the largest fine to date for breaching Australia's anti-money laundering laws is a $45m fine imposed on Tabcorp (although Commonwealth Bank could well beat that record).

All in all, with Crown shares now hovering just below our Buy price, we're close to upgrading. However, as is our normal practice, we'll wait until there's a bit of clear space before upgrading. HOLD.

Note: The Intelligent Investor Equity Growth and Equity Income portfolios own shares in Crown Resorts. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.

Disclosure: The author owns shares in Crown Resorts.