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Days after being dropped from the Suffolk Downs partnership seeking to build a $1 billion resort casino at the Boston racetrack, Caesars Entertainment Corp. revealed Monday that the federal government is investigating the owner of its namesake Las Vegas hotel as part of a crackdown on money laundering in the gambling industry.
The casino company said in an SEC filing that Desert Palace Inc. is under investigation by the Financial Crimes Enforcement Network of the U.S. Department of the Treasury for alleged violations of the Bank Secrecy Act. A federal grand jury investigation is also being conducted.
Desert Palace owns and operates Caesars Palace.
Suffolk Downs dropped Caesars from the Boston project after Massachusetts investigators found that another of the company's business partners, Gansevoort Hotel Group, had alleged ties to organized crime.
The move came just weeks ahead of a Nov. 5 referendum on the Suffolk Downs proposal. Caesars subsequently ended the relationship with Gansevoort, which was involved in developing a luxury resort on the Las Vegas Strip.
Suffolk Downs is competing for the Greater Boston casino license with a partnership led by Foxwoods Resort Casino, which has proposed a $1 billion project in Milford, and Wynn Resorts, which would build a casino on the Mystic River waterfront in Everett.
After gambling regulators briefed Suffolk Downs on their investigation into the proposal, racetrack executive Chip Tuttle wrote to Caesars, asking that it withdraw from their joint application.
Caesars said it agreed to walk away from the proposal but criticized the Massachusetts Gaming Commission for setting what it described as unreasonable standards for prospective developers.
"The commission is attempting to set standards of suitability that are arbitrary, unreasonable and inconsistent with those that exist in every other gaming jurisdiction," spokesman Stephen Cohen said.
The commission's investigation into the Suffolk Downs proposal and the role of Caesars, one of the gambling industry's largest companies, has not been made public.
But Suffolk Downs is confident that the track, which straddles the East Boston neighborhood and the town of Revere, will still be deemed suitable for licensing, Tuttle said in a statement.
The state's 2011 gambling law allows for a resort casino in eastern Massachusetts. The Suffolk Downs proposal with Caesars called for a casino, two hotels, restaurants and horse racing on the 163-acre site near Logan Airport.
The track announced a deal in late August with the city of Boston on details of the proposal. It called for $33.4 million in upfront payments and estimated $52 million in annual revenue going to the city if the casino is built. The agreement also promised at least 2,500 construction jobs and 4,000 permanent jobs. A deal also was reached with Revere that would provide an estimated $15 million in annual revenue to the city.
Such agreements with host cities are required by the gambling law and must then be approved by local voters before developers can seek licenses from the gambling commission.