Crown Resorts Victorian royal commission: Casino ‘unsuitable’ but keeps licence under conditions

Crown Resorts is on its way to reclaiming full control of its three Australian properties after Victoria gave it two years to prove itself suitable.

The royal commissioner did not make findings of unsuitability in relation to any of Crown’s current directors or executives.

Crown Resorts is on its way to reclaiming full control of its three Australian properties after a Victorian Royal Commission gave it two years to prove it can become a suitable operator of its Melbourne casino.

It will operate under a monitor who will have some of the widest intervention powers seen in corporate Australia

The final report of the Andrews Government’s royal commission into Crown said the James Packer-backed company was unsuitable to operate its flagship Southbank resort due to conduct that “was variously illegal, dishonest, unethical and exploitative”.

But the commissioner’s head, former Federal Court judge Raymond Finkelstein, concluded an outright scrapping of Crown’s licence “could cause considerable harm to the Victorian economy ” and recommended a “special manager” be appointed to oversee Crown’s operations until 2023.

Elsewhere, Mr Finkelstein proposed a measure to force Mr Packer to sell down his 37 per cent stake in Crown to less than 5 per cent by September 2024 representing a $2.4bn sale.

The findings of the eight-month probe has eased significant pressure on Crown, allowing it to hold on to its most profitable asset for the next two years while it fights to reclaim control of its Sydney casino licence, which was temporarily revoked by NSW earlier this year over similar corporate governance and money laundering concerns.

It also means Crown will be able to argue at a separate royal commission into its Perth Casino in Western Australia that there is some confidence in its new executive team and board that was formed amid the fallout of the NSW inquiry.

Mr Finkelstein said Victoria would benefit from Crown succeeding in its reform efforts.

“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,” Mr Finkelstein said in his report.

“The program is likely to succeed. If it does, that will be to the benefit of Victoria.”

Raymond Finkelstein of Victoria’s royal commission into Crown Resorts has recommended Crown’s reform efforts be supervised by a ‘special manager’. Picture: David Crosling

The findings sent Crown’s shares flying up by 8.7 per cent to close at $10.50.

Crown’s new CEO Steve McCann said Mr Finkelstein’s report “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 underway 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.”

Despite the positive investor reaction, Mr Finkelstein warned “the road forward will not be easy,” recommending the “Special Manager” have a number of extraordinary powers.

They include the ability to direct Crown Melbourne’s board to take or refrain from “particular actions,” oversee the affairs of Crown Melbourne, carry out independent investigations, and report its findings to the state gaming regulator.

On Tuesday Victorian Minister for Consumer Affairs, Gaming and Liquor Recommendation Melissa Horne named anti-corruption crusader Stephen O’Bryan QC to the role of “Special Manager,” with the government introducing legislation to bring the position into effect.

Ms Horne said the legislation would also enact nine of Mr Finkelstein’s 33 recommendations – going mainly to the establishment of the Special Manager – with the remaining recommendations supported “in principle” and to be addressed “early next year.”

The legislation will also go “above and beyond” Mr Finkelstein’s report, Ms Horne said, by removing previsions that stop the government from making changes to Crown’s regulatory arrangements without having to pay compensation.

It will also lift the maximum penalty for breaches of the state’s Casino Control Act from $1m to $100m, ban junkets, and establish a new stand-alone gaming regulator.

Patrons at Crown will also be required to carry cards that monitor spending as well as winnings and losses.

Although Mr Packer was not a witness at the commission, Mr Finkelstein his evidence at the Bergin Inquiry proved he exerted a “harmful” influence through his private company, Consolidated Press Holdings, and its nominee directors.

“The size of the CPH holding of Crown, coupled with the ubiquitous and powerful influence of Mr Packer, led to the creation of a team of loyal directors and senior managers … even after his resignation as chairman of the board and as a director,” Mr Finkelstein said.

“The damage caused to Crown Melbourne’s reputation will not be repaired until CPH is removed from its position of dominance.”

Mr Packer will appear as a witness at WA’s royal commission on Friday.

It is also recommended that a casino operator’s board be required to be composed of a majority of independent directors,

Other major shareholders like US private equity giant Blackstone and listed investment trust Perpetual will not be forced to sell their 9.99 per cent and 9 per cent stakes in Crown, according to Mr Finkelstein’s recommendations.

But any minor or new shareholder seeking to build a stake above 5 per cent will need to receive approval from Victoria’s new gaming regulator.

Excluding Blackstone, which made a more than $8bn bid for Crown earlier in the year, the approval could frustrate any future potential takeover tilts from potential suitors – especially from rival The Star Entertainment Group, which has now fallen under its own cloud of regulatory scrutiny.

Mr Finkelstein did not make findings of unsuitability in relation to any of Crown’s current directors or executives.

Even former Crown Resorts executive chairman Helen Coonan and Crown Melbourne CEO Xavier Walsh also managed to escape unscathed, despite counsel assisting recommending Mr Finkelstein ban them from being professional associates of Crown Melbourne.

This was due to the revelations that Crown had short-changed the Victorian government by potentially as much as $272m in gaming tax revenue since 2012 by illegally deducting the cost of some loyalty benefits like free food and hotel rooms from poker machine revenue.

Crown has since calculated the extent of the underpayment to be $37m and has paid the Victorian government $61m in tax and interest, but could be on the hook for more as the state gaming regulator reviews the issue.

Mr Finkelstein declined to make findings against Ms Coonan or Mr Walsh, or any other member of Crown’s board or executive team.

But he said the tax underpayment highlighted Crown’s “disregard for the law.”

Helen Coonan fronts the Victorian Royal Commission.

Another scandal that engulfed the commission was the revelation that Crown transacted more than $160m in gaming chip transactions through an illegal “China Union Pay Process” popular with high-rolling gamblers from mainland China.

It involved casino patrons using a terminal at the Crown Towers hotel reception in Melbourne to pay for gaming chips using Chinese cards, with the transaction charged to a real or fake hotel invoice under a miscellaneous category.

Despite key legal officers being aware of the practice’s illegality as far back as 2012, Crown’s current management only became aware of it after an employee raised it at a company training day.

In his report, Mr Finkelstein said “there is a strong case to be made that parties involved in the CUP process have contravened section 184 of the Corporations Act” and “it is still possible that action will be taken as regulatory investigations are currently underway.”

Mr Finkelstein also made recommending sweeping changes to how much time and money punters could spend on gaming machines and tables at the Melbourne casino, enforced by mandatory cards for patrons that track activity.

He said this would help rectify instances of gambling harm at the casino, with the commission hearing tales of multi-day gambling binges and loan sharking on the casino floor.

“Perhaps the most damning discovery by the Commission is the manner in which Crown Melbourne deals with the many vulnerable people who have a gambling problem,” he said.