Barry Felstead admits China risk failures at James Packer-based Crown Resorts

Crown’s Australian boss tells a public inquiry how he failed to properly alert the board to dangers faced by its Chinese staff.

Barry Felstead at Melbourne's Crown Casino.

The Australian boss of the James Packer-backed Crown Resorts has admitted he failed to properly alert the risk committee of the company’s board of directors about the dangers faced by Crown’s China-based staff, following a Chinese government crackdown in 2015 on foreign casinos marketing to its citizens.

Under examination at a public inquiry on Monday reviewing the events leading up to the spectacular arrest of Crown’s staff in China in October 2016, the casino giant’s Australian Resorts chief executive Barry Felstead was repeatedly questioned about his knowledge of warnings by the company’s former China strategy architect, then president of international marketing Michael Chen, about the crackdown.

On one occasion Mr Chen warned Mr Felstead and a number of senior Crown executives in an email about the concerns being expressed by Crown’s staff on the ground about their safety, 18 months before 19 employees were jailed.

One of those arrested was Crown’s Melbourne-based Group executive manager VIP, Jason O’Connor.

Gambling is illegal in mainland China and the Beijing government at the time was cracking down on foreign casino operators looking to lure its mainland citizens offshore to gamble.

Serious warning

Acknowledging it was a “serious warning” from Mr Chen, Mr Felstead said he had consistently relied on legal advice that the activities of the Crown staff in China complied with the law.

“I was of the view the risks were being managed adequately in China,’’ Mr Felstead told the inquiry.

But under questioning from inquiry head, former NSW Supreme Court judge Patricia Bergin, he acknowledged he failed to have the issue added to Crown’s risk register for the international VIP business, which only identified risks associated with currency, real estate development and international travel.

The risk register is reviewed by the risk management committee of the Crown board.

“Should it have been on the register? I acknowledge that could have been very helpful. I was managing this on the ground. (But) from a compliance perspective I should have put it on the register,’’ Mr Felstead said.

He added that he could not recall whether or not he discussed the warning with then Crown chief executive Rowen Craigie, who is set to appear before the inquiry this week.

But Mr Felstead then added that the risks identified by Mr Chen were “common knowledge” at senior levels of Crown.

“People in Crown in senior management would have been aware of this. Many other people got this information as well,’’ he said.

The inquiry also heard that in response to another of Mr Chen’s warnings in 2015, Mr Felstead responded in an email: “That is another good challenge for your subordinates.”

Asked about the response, Mr Felstead told the inquiry: “That was poor wording from me, I acknowledge that.”

The inquiry was also told about a proposal by Mr Chen in 2015 for Crown to apply for Hong Kong and Singapore work permits for all of its Chinese staff who did not hold foreign passports.

Gambling giant

The rationale was that it would allow them to evade the local authorities by saying they were working out of an overseas location and on business travel in China.

But Mr Felstead said he was unaware of the plan.

“I don’t recall this proposal by Mr Chen,’’ he said describing it as “very odd” and counter to Crown’s ethics, policies and practices.

Crown has previously denied any of its staff breached Chinese laws before they were arrested for alleged gambling crimes and it has refuted any suggestion it had knowingly exposed its staff to the risk of detention.

The gambling giant is still facing a class action in relation to the Chinese arrests, which saw share price to dive almost 14 per cent, wiping more than $1.3bn from the company‘s market value.

Crown’s staff in China were employed by an entity known as Crown Resorts PTE Ltd, of which Mr Felstead was a director. But he said it held no meetings and that he was unaware of the bank accounts it operated.

He also said he “forbade” the opening of a Crown office in China.

The inquiry was told Mr Felstead had travelled to China in May, August and early October 2016 for so-called “roadshows” with VIP customers.

But he said he did not speak to “in any great depth” to the VIP sales staff in China during his visits.

“Most of my interactions in China was meeting customers,’’ he said, noting the staff’s concerns about their safety and the legality of their work was relayed to him by Mr Chen.