Four days ago, Wynn Resorts said it will forfeit $130 million to the federal government to settle criminal allegations that it conspired with unlicensed money-transmitting businesses worldwide to transfer funds to benefit itself. Tuesday, the casino company launched an $800 million offering in unsecured notes due in 2033.
The announcement follows Wynn reaching a “non-prosecution agreement” with the U.S. Department of Justice to resolve a 10-year-old investigation. Unlicensed money-transfer businesses around the world funneled funds to gamblers at Wynn Las Vegas.
“Big picture, we’re not overly concerned with the announcement, given it signals a resolution of the issue, is a manageable cash outflow, and highlights Wynn’s cooperation,” said Colin Mansfield, director of credit research at CBRE Credit Research in a note to investors. “In addition, similar fines against other casino operators (albeit smaller) have not had long-term impacts on their businesses or credit profiles. For example, in 2013 Venetian Las Vegas entered into a non-prosecution agreement and forfeited $47 million related to ‘receiving money under suspicious circumstances.’”
In its announcement Tuesday, Wynn issued an $800 million aggregate principal amount of 6.25% in senior notes due 2033 in a private offering.
“Wynn Resorts Finance plans to contribute and/or lend a portion of the net proceeds from the offering to its subsidiary. Wynn Las Vegas LLC will use the amounts to redeem in full Wynn Las Vegas and Wynn Las Vegas Capital Corp.’s 5.5% senior notes due 2025, pay fees and expenses related to the redemption, and use the remainder of the net proceeds for general corporate purposes, which may include covering all or a portion of the $130 million forfeiture,” the company announced.
Wynn will offer the notes only to persons reasonably believed to be qualified institutional buyers under the Securities Act or outside the United States to certain persons in reliance on Regulation S under the Securities Act.
“The notes have not been and will not be registered under the Securities Act or under any state securities laws,” the company said. “Therefore, the issuers may not offer or sell the notes within the United States to, or for the account or benefit of, any United States person unless the offer or sale would qualify for a registration exemption from the Securities Act and applicable state securities laws.”
Mansfield said the refinancing isn’t a surprise, given the current capital-markets environment and as the company has been actively collapsing this box.
“At this time, the $880 million Wynn Las Vegas .25% ’27s will remain at the subsidiary level, despite language existing that would allow it to be collapsed into Wynn Finance,” Mansfield said. “The lien cap at the Wynn Las Vegas level will increase to 20% from 15% under the ’27s indenture once the ’25s are redeemed. The ’27s indenture includes the ability for Wynn Finance to assume Wynn Las Vegas’s debt if the Boston property is open and there is no event of default.”
Mansfield said they rate the new Wynn Finance unsecured notes market perform, in line with the rest of the U.S. capital structure.
“We continue to rate Wynn Macau’s capital structure outperform due to relative value and the incremental yield offered compared to the U.S. debt,” Mansfield said.
On Friday, the Associated Press reported that in statements to the media and the SEC, Wynn spokespeople said the forfeiture wasn’t a fine and findings in the decade-long case didn’t amount to money laundering.
U.S. Attorney Tara McGrath in San Diego said the settlement showed that casinos are accountable if they let foreign customers evade U.S. laws. She said $130 million was believed to be the largest forfeiture by a casino “based on admissions of criminal wrongdoing,” according to the Associated Press.
“Casinos, like all businesses, will be held to account when they allow customers to evade U.S. laws for the sake of profit,” McGrath said in a press release issued by the DOJ. “Federal oversight seeks to prevent illegal funds from tainting legitimate businesses, ensuring that casinos offer a clean, thriving, and safe entertainment option.”
Wynn Resorts said it severed ties with all people and businesses involved in what the government characterized as “convoluted transactions” overseas.
“Several former employees facilitated the use of unlicensed money-transmitting businesses, which both violated our internal policies and the law and for which we take responsibility,” the company said in a statement.
As part of a Non-Prosecution Agreement, which allows a company or individual to avoid criminal prosecution in exchange for meeting certain criteria, Wynn Las Vegas admitted that it illegally used unregistered money-transmitting businesses to circumvent the conventional financial system, the DOJ said.
“For example, Wynn Las Vegas regularly contracted with third-party independent agents acting as unlicensed money transmitting businesses to recruit foreign gamblers to WLV,” the DOJ said. “For the gamblers to repay debts to WLV or have funds available to gamble at WLV, the independent agents transferred the gamblers’ funds through companies, bank accounts, and other third-party nominees in Latin America and elsewhere, and ultimately into a WLV-controlled bank account in the Southern District of California.”
Funds deposited into the WLV-controlled account were transferred into the WLV cage. WLV employees, with the knowledge of their supervisors and working with the independent agents, eventually credited the WLV account of each individual patron, the DOJ said. The convoluted transactions enabled foreign gamblers at WLV to evade foreign and U.S. laws governing monetary transfer and reporting.
In one example, Juan Carlos Palermo, while acting as an independent agent for WLV, operated and controlled multiple unlicensed money-transmitting businesses in the U.S. and abroad that conducted more than 200 transfers with bank accounts controlled by WLV or associated entities. These transactions, on behalf of more than 50 foreign casino patrons, exceeded $17.7 million, the DOJ said.
“WLV also facilitated the unlicensed transfer of money through ‘human head’ or ‘human hat’ gambling, known in Mandarin as ‘人头’ or ren tou, the DOJ said. “In this scheme, a person known as a ‘human head’ purchased chips at WLV and gambled at WLV as a proxy for another nearby person who, in some instances, because of federal Bank Secrecy Act or Anti-Money Laundering laws, was unable or unwilling to conduct financial transactions or gamble under their own identity. The true patron, however, would direct the human head’s gaming. WLV knowingly allowed this form of gambling without scrutinizing the true patron’s funds and without reporting the suspicious activity.”
In another example, WLV facilitated the unlicensed transfer of money to and from China through a method known as qian chen or “flying money.” A money processor, acting as an unlicensed money-transmitting business, collected U.S. cash from third parties in the United States and delivered it to a WLV patron who could not otherwise access cash in the U.S. The patron then electronically transfered the equivalent value of foreign currency from the patron’s foreign bank account to a foreign bank account designated by the money processor. The WLV patron paid the money processor a percentage of the value transferred, the DOJ said.
“Like human head gambling, WLV knowingly allowed this form of gambling without scrutinizing the source of funds and without reporting the suspicious activity,” the DOJ said.
WLV also facilitated the international transfer of money and conducted other financial transactions for WLV patrons whose activity should have triggered the filing of Suspicious Activity Reports. For example, in 2018, WLV facilitated financial transactions worth approximately $1.4 million for an individual who two years earlier had been publicly linked to proxy gambling and a year before that, while in the company of the president of marketing of a WLV international affiliate, was denied entry to the United States because of suspected associations with a criminal organization.
In another instance, WLV allowed and didn’t report transactions involving millions of dollars by an individual who, according to publicly available information, had spent six years in prison in China for conducting unauthorized international monetary transactions and violations of other financial laws.
“Of the many unique authorities Homeland Security Investigations is able to enforce, understand, and investigate complex financial crimes that lead to holding criminals accountable for their actions is one that HSI does best,” said Christopher Davis, acting special agent in charge for HSI San Diego. “The success of this investigation is in part due to our partner agencies’ cooperation and dedication to seeing these long-term investigations through to bring justice to these companies and protect American financial institutions.”
Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, according to the IRS.
“Deliberately avoiding Bank Secrecy Act requirements is a form of money laundering. IRS Criminal Investigation is committed to following the money and enforcing these laws, wherever it leads” said Carissa Messick, special agent in charge for IRS-CI in Las Vegas.
“Law enforcement put their collective authorities together to ensure the integrity of our financial systems and that they are not circumvented,” said DEA Special Agent in Charge Brian Clark.
As part of this investigation, 15 other defendants previously admitted money laundering, unlicensed money transmitting, or other crimes, with associated criminal penalties of over $7.5 million, the DOJ reported.
