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Crown Resorts has dodged a bullet after a Royal Commission into misconduct at its Melbourne casino opted against licence cancellation, but a government appointee will control the casino's operations for two years and enforce profound reform.
Publicly released on Tuesday, the three-volume commission report has spared Crown a devastating loss of licence for its Crown Melbourne flagship.
But commissioner Ray Finkelstein’s finding of unsuitability and his extensive recommendations for compliance and reform will leave Crown and its customers tightly leashed to a state government “special manager” and a new gaming regulator.
Details are set to be confirmed by the Casino and Gambling Legislation Amendment Bill 2021, which creates the Crown-focused Victorian Gambling and Casino Control Commission and was to be introduced later on Tuesday.
Finkelstein’s licence decision was a close-run affair, with wider economic considerations and the purging of Crown’s board barely overcoming years of “disgraceful” conduct — a “catalogue of wrongdoing” that was “variously illegal, dishonest, unethical and exploitative”, even “callous”.
“Although Crown Melbourne rightly deserves criticism for its past misconduct, and no one connected with the organisation is entitled to much sympathy, what tipped the balance against the cancellation of its licence was that Crown Melbourne has, at great financial cost, embarked on a significant reform program led by people of good will and skill,” he wrote.
“The program is likely to succeed. If it does, that will be to the benefit of Victoria.”
The “special manager”, who a government statement on Tuesday announced as barrister and former anti-corruption commissioner Stephen O’Bryan, will oversee Crown Melbourne operations for two years.
In what the government calls an “unprecedented step in Australian corporate oversight”, O’Bryan will be able to veto board decisions and direct it to act or desist on any matter, and his team will have access to all company documents and processes throughout the two-year probationary period, the statement said.
A board member refusal to comply with special manager instructions should constitute an offence, the commission report said.
The government supports the recommendation that if Crown Melbourne does not regain licence suitability after two years, the regulator will be required to cancel its licence after considering the special manager’s report. If the regulator cannot reach a decision, the licence will still be cancelled.
The government said it would also adopt tougher measures than in Finkelstein’s report in some respects, including abolishing financial compensation for Crown in the event of regulatory change, and increasing the maximum penalty for breaches of the Casino Control Act from A$1m to A$100m ($75m), ten times more than the commission’s recommendation.
The government said it will also codify a ban on junket operations at the casino and require a single patron bank account to combat money laundering problems that have plagued Crown.
It added that a “second tranche of legislation” will be introduced in 2022 to apply the commission’s remaining recommendations after further analysis and consultation.
Splitting the recommendations over two legislative sessions is in part necessary because of the scale of reform required of Crown.
The future regulator would be empowered to veto future changes in ownership for holders of more than 5 percent of company shares.
But in a validation of the New South Wales state Bergin Report’s finding that leading shareholder James Packer exercised improper influence over the board via his Consolidated Press Holdings (CPH) stake, CPH will be required to divest all but 5 percent of its holding by September 2024.
The Crown board would also be required to have a majority of independent directors.
Casino inspectors would enjoy new powers allowing them to freely access Crown property and data and probe money laundering, loansharking and drug sales, as well as impose exclusion orders on customers.
The impact on the customer would be just as profound if the government implements most or all of the Royal Commission’s recommendations.
In view of Crown’s failure to protect vulnerable gamblers, Finkelstein said carded play and data retention should be made compulsory, and that cashless play be mandatory for all transactions above A$1,000.
He stated that Crown should introduce mandatory daily, weekly and monthly pre-commitment settings for electronic gaming machines, as well as regulated and automated gaming time and loss limits.
The report recommends no more than 12 hours of gambling per 24-hour period, no more than 36 hours per week and minimum 15-minute breaks every three hours.
In a potentially critical development for the industry, Finkelstein also backs regulatory scrutiny of earning capacity and the cost of living in calculating custom-made loss parameters for individuals — a concept known as “affordability” in some countries.
The recommendations followed the report’s lacerating summary of Crown misconduct presented to the commission, including Crown executives doing “nothing to protect their staff” in China ahead of being arrested in 2016 and then convicted for gambling solicitation, despite being warned by Chinese officials of a crackdown.
Worse still, “despite knowing that staff who worked in Indonesia, Malaysia, Taiwan and Singapore were also likely contravening their local laws, Crown let them carry out promotional activities as the chance of them being charged was not significant”, Finkelstein wrote.
“To have done so after the China arrests is nothing short of appalling.”
Crown Melbourne also assisted Chinese VIPs in breaching Chinese currency laws and likely facilitated money laundering, the report said.
Finkelstein noted Crown had paid A$61.5m in back taxes and interest after concealing a tax minimisation plan involving improper tax deductions from the regulator.
Crown also bullied the Victorian gaming regulator, supplying it with false and misleading information and delaying investigations, he wrote.
Investors on Tuesday cheered the retention of the Crown Melbourne licence, lifting Crown Resorts shares 8.7 percent to A$10.50, while rival casino operator The Star Entertainment Group enjoyed a flow-on effect with a 4.3 percent jump to A$3.61.
Crown CEO Steve McCann said in a statement on Tuesday: “Today’s announcement by the Victorian government provides a way forward for the business, our people, customers, partners and shareholders.
“We are working cooperatively and constructively with the regulatory processes that are under way in Victoria, New South Wales and Western Australia, and firmly believe these processes are accelerating our reform program and helping Crown emerge as a stronger and more transparent company.”
Less satisfied was independent federal lawmaker Andrew Wilkie, whose notorious whistleblower video of a large Aldi grocery bag full of cash being deposited in a Crown Melbourne VIP room helped to galvanise political support for the Royal Commission.
“What does Crown actually have to do to lose its licence?” Wilkie said in a statement. “People should be going to jail, not getting what is effectively a two-year good behaviour bond, not after being found to have acted illegally, dishonestly and unethically."
While fallout from the Royal Commission is set to transform casino regulation in Victoria, one gaming law expert doubts that it will have an impact on gambling regulation outside the state.
“The immediate response from the Victorian government will focus on the regulation of casino, as it was in New South Wales [after the Bergin Report]. It’s not in respect of putting in place broader controls in respect of gambling,” Sydney-based Addisons partner Jamie Nettleton told VIXIO on Tuesday.
Nettleton also cautioned that there may be significant differences between the Royal Commission report and legislation responding to it, with numerous matters yet to be debated.
One of these is the proposed granting of indemnity to the Crown special manager for “properly incurred debts” by the company, a scenario that might allow the government and taxpayers to be sued over Crown's actions.
Nettleton said allowing the special manager to overrule what the board decides and then issue particular directions “is completely novel”.
“He’s not likely to be liable; the state may be. This gives rise to new elements of risk. This might be clarified in the legislation,” he said.
