what does the casino do with such money after then? Do they convert the money for themselves or they have an authority they pay such money to?
I haven't heard any information or what casino does to the money of their customers that was blocked, but I believe that that the amount in that account that was blocked will be converted to theirs and withdrawn. Because the have access to peoples Casino accounts. I believe that as they can send fund to a casino they can also withdrawal fund from there site.
Including myself I think have not heard any information about what casino does to the funds of their customers that was blocked. Of course if para venture such thing happens, I think the casino have no option than to recover the remaining fund. Because just like as you mentioned I think all the casinos have access to their customers account, so it's possible that they convert it to their account and do whatever thing they like.