The problem is that the hotel then reports the fake stay as nights credits for someone who never showed up. That's fraudulent, but the hotel selling a room at a cheap nonrefundable rate and taking the money from someone who no shows would seen to be OK if the hotel isn't selling the same room multiple times (before the no show occurs) and if the contract doesn't specify a minimum room rate for the applicable category of guest (not crew, not friends and family, etc.).

Now if the hotel is aware that this is happening and continues to give special rates to the same entity, it could also be a conspiracy to commit fraud, but IANAL.