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Australian financial transactions regulator AUSTRAC is prosecuting a leading club owner and slot machine operator over “serious and systemic” violations of anti-money laundering and counter-terrorism financing (AML/CTF) laws.

AUSTRAC launched civil penalty proceedings against Mount Pritchard District and Community Club (Mounties Group), the owner of eight venues housing around 1,400 machines in New South Wales (NSW) state, according to an AUSTRAC statement on Wednesday (July 30).

It is the first prosecution of a major club owner over slot machine compliance failures that “left it open to criminal exploitation”, and follows an eight-year review of Mounties Group operations and an enforcement investigation launched in February 2024.

The prosecution also marks a new front in AUSTRAC litigation against the Australian gambling industry’s once untouchable pubs-and-clubs sector, the major outlet for the nation’s massive, world-beating slot machine segment.

It coincides with an investigation into casino operator The Star Entertainment Group over "innumerable" AML/CTF breaches and other alleged compliance failures, and follows AUSTRAC’s punishment of casino operator Crown Resorts with a A$450m ($290m) fine in mid-2023 over similar breaches, as well as a hefty fine for rival SkyCity Entertainment Group. AUSTRAC is also prosecuting Entain’s Australian arm over alleged AML breaches as part of a wider probe into corporate bookmaking.

“AUSTRAC’s decision to initiate civil penalty proceedings followed a targeted supervisory campaign in the clubs sector,” CEO Brendan Thomas told 91����ԭ�� GamblingCompliance on Thursday.

“This campaign uncovered serious and systemic non-compliance by Mounties, including alleged failures in risk-management, customer due diligence and transaction monitoring.”

Lachlan Gepp, special counsel at Sydney-based law firm Addisons, told 91����ԭ�� that the action against Mounties is “the most significant regulatory enforcement action against the pubs and clubs sector in living memory and represents a seismic shift in compliance around gaming machines in Australia".

“In all likelihood, the litigation will result in Mounties paying a civil penalty in the tens of millions of dollars,” he said.

Gepp said the AUSTRAC action has placed the gambling machine industry on notice.

“The idea that a pub or club can simply plug in a gaming machine and drive gaming revenue is over; they must take their anti-money laundering obligations seriously or risk serious enforcement by AUSTRAC.

“This is a particularly big issue in NSW given the prevalence of gaming machines in the state. The litigation follows other broader harm minimisation objectives being advanced by state governments across Australia such as cashless gaming.”

The AUSTRAC statement alleges that Mounties Group’s AML/CTF programme lacks an adequate risk assessment procedure, risk awareness training for staff, and “appropriate risk-based systems and controls” for transaction monitoring and enhanced customer due diligence.

The allegations also state that the AML/CTF programme was not adequately maintained or independently reviewed, and that Mounties failed to monitor certain customers or properly manage money laundering risk associated with them.

“Like many other AUSTRAC reporting entities, Mounties outsources aspects of its AML/CTF program [to third party provider Betsafe], but what it can’t outsource is its AML/CTF obligations,” Thomas said in the AUSTRAC statement.

“Relying on third-party providers doesn’t absolve a business of its obligations under the AML/CTF Act.

“If a reporting entity outsources key parts of its programme to a service that is not fit for purpose – especially without proper oversight or resourcing – they run a real risk of non-compliance.”

The AUSTRAC prosecution is the culmination of not only its own investigative work, but arguably also that of Project Islington, a NSW Crime Commission inquiry in 2022 that estimated several billion dollars out of the segment’s annual turnover of A$95bn is laundered.

The Crime Commission’s report said a mandatory cashless gaming system should be implemented to minimise money laundering, including player identification, a maximum daily cash load of A$1,000 and “one-to-one links between player cards and a bank account”, among numerous other recommendations.

However, a change in government in NSW seriously weakened the reform drive, with the industry and government officials entering a period of policy limbo amid inconclusive cashless trials in a small number of venues.

AUSTRAC said in Wednesday’s statement that court filings on the Mounties case will be released at a later date.