Horse racing industry not equipped to tackle money laundering, organised crime expert says

Horse racing provides the perfect cover for money laundering and more needs to be done to crack down on it, ex-AFP officer says

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The Australian horse racing industry provides fertile ground for money laundering, with the limited regulatory remit of racing authorities potentially making it more difficult for the practice to be effectively policed, an expert on organised crime has warned.

Nick McTaggart was Australia’s most senior operational officer investigating money laundering until he retired in 2016. He now runs a consultancy advising corporations on identifying financial crime.

He said racing offered the perfect environment for money laundering because it attracts the rich and involves big sums, which means proceeds from crime don’t stand out.

“The movement of money can be laundering money from proceeds of crime or it could be people who just love the punt,” he said. “It makes it harder to tell what’s going on.”

Money laundering is the process of “cleaning” money that comes from criminal activities, such as drug dealing, so that it looks like it has come from a legitimate source.

Another major reason for money laundering can be to help move money between jurisdictions.

“The Chinese government [has a] restriction on moving capital out of [the] country – $50,000 – so even normal businesses structure their payments,” said McTaggart. “Any mechanism that can get money out of China will be jumped on.”

In the past, casinos were a favoured means of laundering money because winnings came with a receipt and were not taxable. But with casinos under much closer scrutiny after several inquiries in the last three years, other methods are being sought. These include real estate, cash businesses and investment in racehorses.

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Those involved in selling thoroughbreds and syndicators selling shares in racehorses are not subject to the anti-money laundering requirements that apply to banks, stockbrokers and casinos, which are required to know who they are dealing with and report transactions over $10,000.

Austrac confirmed to Guardian Australia that while corporate bookmakers and on-course bookmakers are subject to anti-money laundering rules, Austrac’s regulation does not cover broader ownership, purchase and selling of thoroughbred horses.

Rule 36A of the Australian “Rules of Racing” say that Racing Australia, state racing authorities or the stewards “may restrict any person from holding an ownership or lease interest in a horse if, in their opinion, the person is not a fit and proper person to own or lease a horse”.

The rule makes reference to being convicted of an indictable offence, or a horse welfare offence or being a bankrupt – but says fitness and propriety is not limited to this.

McTaggart said he had concerns about how much checking was actually being done by the racing authorities to help ensure that the industry and investment in thoroughbreds was not being used to hide the source of funds.

He said the stewards were responsible for administering the fit and proper test that applies to racing, but they also had other duties including ensuring integrity in racing.

“There are only a handful of stewards and 300 races a week. It’s a matter of capacity,” he said. “This sort of activity is not open, it’s not apparent so the chances of finding it is low.”

McTaggart told the ABC in 2021 that racing regulators like Racing NSW are powerless to stop some criminals: “It’s not within Racing NSW’s bailiwick or charter to be doing background checks on the individuals involved in horse racing, unless they have a suspicion that these individuals are actually doing something by way of illegal activity with a horse or fixing races or issues like that.”

“So, their ability to be able to scrutinise activity is fairly limited in its terms.”

‘Transparency is a big problem’

Spending on thoroughbreds has more than tripled in a decade.

In January 2023, horse enthusiasts splurged $230.16m at the Magic Millions yearling sale, compared with $69.19m in 2013. Gross sales at Inglis’s premier event, the Easter yearling sale, have risen from $84m in 2013 to a peak of $153.08m in 2022. This represents only a portion of the investment in horses, as there are many other sales during the year.

McTaggart said: “You could make a confident assumption that it’s getting bigger by way of money and it’s lucrative like any other form of money laundering. This is just another avenue.”

Because of its specialised nature, using horses as a form of money laundering would take some expertise. He said it’s likely those criminals who are attracted to it are also doing it partly as a leisure activity, using some of their proceeds of crime.

“If someone buys a horse [with illicit funds] at the yearling sales for $2m… then that horse might never race,” said McTaggart. “It can be used for breeding or on-sold or perhaps it does race and you can make money. But it’s hard to assess peoples’ motivations [for the investment].

“Horse racing is also a good way of minimising tax because you don’t know what are the legitimate expenses. I mean, how much is the horse going to eat?” he said.

Syndication of horses – dividing ownership into shares – also makes it difficult to track ownership and act on suspected money laundering.

Horse ownership records are held by Racing Australia, require that a person be nominated as an owner and that other shareholders be identified.

The Australian Securities and Investments Commission (Asic), which would generally supervise the offering of financial instruments like shares in horses, has delegated the responsibility to the racing authorities.

But often shares in syndicates are held by further syndicates or trusts or companies, which can further obscure which individuals ultimately benefit.

“Transparency is a big problem,” said one horse breeder.

It is also hard for authorities to seize horses where they have been found to have been bought with the proceeds of crime, particularly when the horse has been syndicated into shares.

The director of forensic services at Vincents accountants in Brisbane, Ian McKinnon, believes that syndication of racehorses in Australia is likely being used by some to launder the proceeds of crime and hide wealth.

“Horse racing syndicates allow horse enthusiasts to invest in expensive horses with a view to generating massive returns either from prize money or the horse’s reproductive capacity,” he said. “Horse syndication is largely unregulated and is recognised particularly in the USA to be used by Mexican drug cartels to launder drug monies.”

McTaggart said the law has now been changed to allow crime authorities to take an order over the share of an asset and to leave it in place, rather than seizing it with all the attendant problems.

The chief executive of Racing Victoria, Andrew Jones, said that as a general proposition, monitoring money laundering and the proceeds of crime was the responsibility of Austrac and the police in the first instance.

“That said, if Racing Victoria’s Integrity Department or Stewards become aware or receive evidence of any criminal or illegal activity, including convictions relating to money laundering, they will investigate and act accordingly under the Rules [of Racing]”.

“We are happy to (and routinely do) investigate matters and/or people where there is a clear case to do so,” he said.

“It is clearly open to government to extend Austrac’s remit to thoroughbred sales should it see fit.”

Racing NSW declined to comment.

Racing Australia’s chief executive, Paul Eriksson, denied that the thoroughbred industry was a significant haven for illegal funds and declined to answer more detailed questions about the measures the industry took to ensure integrity.

The chief executive of Thoroughbred Breeders Australia, Tom Reilly, said: “Racing authorities across Australia now have visibility over who owns a thoroughbred from the moment they are born to the time they leave the industry. These regulators also have the power and responsibility to ensure that all owners are fit and proper persons and we strongly encourage them to use this authority.”

From feted racing identity to convicted criminal

One of the most famous cases of alleged money laundering in racing is Damion Flower.

Flower, an owner of champion racehorses and former baggage handler, is currently serving 28 years in prison for his role in importing 225kg of cocaine, after pleading guilty in 2022 to one count of importing a commercial quantity of prohibited drugs between June 2016 and May 2019 and one count of dealing with the proceeds of crime equal to or greater than $100,000.

Flower had initially been banned by stewards in 2013 from working in the thoroughbred industry as a stablehand, because of questions about his character. He had a declared history of violence and was bankrupt at the time.

But as his wealth exponentially grew and he became a major investor in thoroughbreds, Flower was feted in racing circles, to the extent that by 2017 RacingNSW signed him up as an investor – he paid $1.8m for the right to race a horse in the inaugural the Everest race, NSW’s answer to the Melbourne Cup.

Between 2013 and 2019 Flower spent $30m on horses at the Magic Millions. Some of these horses were syndicated – divided into shares and then legitimately sold – to some of the big names in racing, including radio shock jock Alan Jones, rugby league commentator, Phil ‘Gus’ Gould and adman John Singleton. There is no suggestion any of his co-owners, including these men, were aware of his criminal activities.

Snitzel, possibly his best horse, made millions through winnings and later breeding fees, with estimates that, all up, Flower had earned $200m from his equine investments.

But in May 2019 Flower was arrested. As fast as he had risen, he disappeared from the track. Reportedly, Racing NSW initially banned him from all stables and racecourses in the state and froze in a trust his share of any prize money won by his horses pending the outcome of criminal charges.

Later, after the conviction in 2021 and an inquiry by Racing NSW which found him guilty of misconduct, he was banned from racing for 17 years. According to reports he was also fined $100,000 and banned from owning or part owning, but not breeding, thoroughbred racehorses.

Racing NSW declined to comment to Guardian Australia, but has previously rejected criticism that the horse racing industry takes a disinterested approach to where money comes from. A spokesperson told the ABC in 2021 it has a “rigorous licensing process”, receives intelligence from law enforcement agencies and had previously refused to register owners who had alleged links to organised crime figures such as motorcycle gangs.

He said Racing NSW ran “probity checks” on Flower because of “some rumour and innuendo” in 2017 but accepted his application for The Everest slot because he “had a clean criminal record with the NSW Police”.

“Racing NSW, when assessing a person’s fitness and propriety, does so in accordance with all principles of natural justice and procedural fairness,” he said.

The NSW Crime Commission seized millions of dollars worth of property, horses and cash from Flower as a result of the arrest.

The Daily Telegraph recently reported that Flower has retained an interest in Snitzel even though he is in jail.

Arrowfield stud, where Snitzel now resides, charges $247,000 to breed the stallion and Flower still owns a 10% share via his company. There is no suggestion of wrongdoing by Arrowfield stud.

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