Australia's financial watchdog has launched a money laundering investigation against the country's biggest gambling company.

In a statement to the Australian Securities Exchange (ASX), Tabcorp confirmed they were subject to a compliance assessment from AUSTRAC over several "serious concerns".

These include doubts over its ability to prevent illegal activity on the platform, including money laundering and financing of terrorism.

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Tabcorp said the initial investigation would focus on the company's compliance with rules and regulations, and insisted the investigation was at an early stage.

"AUSTRAC has also advised that all potential outcomes remain open, including the possibility that no further enforcement action will be taken," the statement said.

However, despite no assertion of guilt, the company's share price took a battering, dropping nearly 23 per cent when the markets opened at 10am.

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"Tabcorp takes its anti-money laundering and counter-terrorism financing obligations very seriously," Chairman Brett Chenoweth said, adding the company was fully cooperating with the investigation.

Managing Director and CEO Gillon McLachlan, formerly head of the AFL, said his goal was to lead a company that falls within the law.

"I am committed to leading a compliant and safe company that understands its risk obligations," he said.

"Uplifting our risk capability has been an ongoing part of the Company's transformation and we will work constructively with AUSTRAC through this process."

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