The Crown Resorts Ltd (ASX: CWN) share price is under a cloud as Western Australia launches a Royal Commission.
The Crown share price fell 1% to $9.86 during lunch time trade. This happened as the S&P/ASX 200 Index (Index:^AXJO) shed a similar amount.
What's interesting is that Crown's share price is holding up better than its rival, the Star Entertainment Group Ltd (ASX: SGR) share price. The Star Entertainment share price lost 1.1% to $3.63 at the time of writing.
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Double trouble for Crown share price
The WA government appointed two retired judges and an auditor-general to look at whether Crown should lose its casino license in the state, reported the Australian Financial Review.
This means management will have to face two Royal Commissions as Victoria announced its own last month.
However unlike Melbourne, WA's Royal Commission will also look at the state's Gaming and Wagering Commission. The state's watchdog has been accused of being too close to Crown.
Similar allegations were levelled at the Victorian government, but Daniel Andrews is sweeping that under the carpet.
Royal Commission upgrade
WA initially wanted to hold an inquiry, but Racing and Gaming Minister, Paul Papalia, said the government decided to upgrade the inquiry to a full royal commission to provide extra legal protection to witnesses.
This is the first Royal Commission held by the McGowan government, which is facing a state election next week.
The Royal Commission will cost WA taxpayers around $5 million and will be led by Neville Owen. His fellow commissioners are former Supreme Court judge Lindy Jenkins and former West Australian auditor general Colin Murphy, reported the AFR.
Taking the crown for money laundering
At least Crown has a lot of practice with Royal Commissions. It was put through the wringer by New South Wales, which found that Crown enabled and facilitated money laundering for around five years.
Crown used two bank accounts for its illegal operations at its casinos in Perth and Melbourne. Hundreds of millions of dollars were believed to have passed through the two accounts each year.
The damning findings prompted WA to ban Crown from organising gambling junkets in the state while its inquiry is running.
Foolish takeaway
The new legal challenge in WA isn't unexpected and could explain the Crown share price reaction.
Investors may also believe that even if Crown is found guilty (which is a likely outcome, in my view), that it will still be able to retain its licenses as long as more heads roll and major shareholder, James Packer, sells off his stake in the company.
