Not only did Palmer get mugged, they're also both banned from taking part in the Games' closing ceremony Monday after failing to return to the Olympic Village in good time.
The country's chef de mission, Kitty Chiller, said the punishment comes after Palmer, McKeon and a number of other athletes left a nightclub in the early hours of the morning.
"McKeon chose to stay the night with swimming friends in the Copa district without informing Team Management," Chiller said in a statement. Palmer "headed to a beach kiosk with a friend and continued drinking."
According to the statement, Palmer told officials that once his friend had left, a man approached him and forced him to withdraw $1,000 cash from a nearby ATM.
He was later found by two businessmen who reported the swimmer was disoriented and had lost his wallet and phone. They phoned the Australian Consulate, who contacted the head of security for the Australian Olympic Team, Greg Nance.
Palmer has chosen not to make a formal complaint to police about the robbery.
"Palmer and McKeon's behavior was unacceptable and they breached disciplinary protocols," said Chiller in the statement.
As well as not taking part in Monday's closing ceremony, Palmer and McKeon are now under curfew and prohibited to leave the Olympic Village between the hours of 8pm and 8am. Swimming team management have also imposed a 2:00am curfew on all team members for the rest of the Games.
Mike Tancred, Director for media and communications for the Australian Committee, told CNN Monday that new security measures had been put in place in light of the incident involving US swimmer Ryan Lochte
Tancred told CNN at the time that the Australian committee had made Rio's beaches off-limits
at night, but not the boulevard at Ipanema and Copacabana.
They had also asked the athletes to travel in groups of three or more.
McKeon won four medals in the pool in Rio — gold in the 4x100m freestyle relay, bronze in the 200m freestyle, silver in the 4x200m freestyle relay, and another silver in the 4x100m medley relay.
Palmer finished fifth in his heat of the 100m breaststroke on day one of the Games.
Both athletes have reportedly apologized.