Evidence shows Packer holds all the cards as Crown Resorts fights to retain Sydney casino licence

It will be the most important afternoon in James Packer’s 22-year association with Crown Resorts when the billionaire fronts the NSW independent Liquor and Gaming Authority’s inquiry.

There appears to be a massive disconnect between the Crown board and its management on a range of issues. Artwork by Greg Sommer

It will be the most important afternoon in James Packer’s 22-year association with Crown Resorts.

When the billionaire fronts the NSW independent Liquor and Gaming Authority’s inquiry into Crown at 2pm on Tuesday — reportedly from what has been his home during the COVID-19 pandemic, his super yacht known as “IJE” — it is not only his personal reputation that will be on the line.

Given the sharpening focus on Packer’s control of Crown over the past week by the inquiry commissioner, former NSW Supreme Court Judge Patricia Bergin, Packer’s position as a fit and proper person to be a shareholder in the licensee of Crown’s Sydney casino is sure to be an issue at the forefront of her mind.

So too will be whether the current Crown board of directors, led by chairman Helen Coonan, are capable of carrying out their fiduciary duties on the board of the Sydney licensee company after a spate of damning evidence presented to the inquiry about Crown’s governance failures.

This has highlighted the massive disconnect between the Crown board and its management on a range of issues that go to the very heart of the company’s risk management structures.

The final findings and recommendations of Bergin could see restrictions placed on Crown‘s licence — at considerable cost to the taxpayer, under the terms of the company’s current agreement with the NSW government — or see it revoked entirely.

The doomsday scenario for Packer could see him forced to sell his shareholding in Crown, or at least become a strictly passive investor as a condition of the company retaining its Sydney licence.

The biggest issue of concern that has arisen for Packer over the past fortnight is the evidence showing the level of control he has exercised over Crown, both directly and through the executives of his private company Consolidated Press Holdings and former chairman John Alexander, despite having no board or executive roles.

And there are the alleged conflicts of interest that have come with that power, which Bergin asserts may not necessarily have been in the best interests of Crown and its shareholders.

CPH retains a 37 per cent interest in Crown. Since he left the Crown board in March 2018 and the boards of his private companies later that year, Packer has been provided with confidential information by Crown executives and directors about the casino company’s financial affairs under a special confidential controlling-shareholder protocol approved by the Crown board.

CPH also has a separate services agreement with Crown, under which its executives are paid for providing services to Crown.

“We have assisted Crown with a variety of issues over the years that have been very valuable to Crown. Both agreements have benefited Crown,’’ CPH finance director Michael Johnston told the inquiry this week, echoing the previous glowing comments of Crown’s chief executive Ken Barton about Packer’s contribution to Crown.

John Alexander and Barry Felstead in 2018. Picture: Colin Murty The Australian

While such structures are no surprise in a company with a controlling shareholder, what has concerned Bergin is what Packer has been told and what he has asked for under the protocol.

Asked on Friday if the protocol allowed Packer to instruct him, Alexander replied: “No I don’t accept that … James is always very strong in his views but it rarely led to direct action in terms of personnel doing certain things.”

It was also revealed Alexander had mentioned in an email to Packer in 2018 that he had been told not to “upset Barry and Ken” — in reference to Crown’s Australian resorts boss Barry Felstead and Mr Barton — by Michael Johnston.

It prompted a bemused Bergin to ask why Johnston would be making such a request.

In another email Packer told Alexander that he was “over being Captain Goodguy to everyone” and that Alexander had his “blessing to go hard” on cost cutting.

Pushed again by Bergin on whether it highlighted the extent of control Packer had over Crown, Alexander replied: “No, I don’t believe so. There was an exchange like this but it was not happening on a regular basis,’’ he said, noting he made only two trips to Packer’s home in Aspen to see the billionaire that year, describing one as “a bit of a bonding session”.

He said Packer was being provided with the information “not just because he was the largest shareholder but because of what he had brought to Crown over the years”.

Bergin’s concern with the control Packer has over Crown extended to the number of hats his executives have worn in his public company.

Her greatest concern was with Johnston — also a Crown director — who she asserted was so often “down with the management”, creating major complications for Crown’s governance.

Johnston even acknowledged the challenge of his many hats in his evidence.

“I never had a risk appetite that was inconsistent with the one I would have had as a director. (But) I understand it is less than a perfect scenario to be putting,’’ Johnston said when questioned about his role over a number of years of first advising on Crown’s VIP junket strategy in China, then reviewing the strategy after the shock arrest of Crown’s staff in China, and now being one of the final arbiters to approve new junket relationships.

“I think that I was able to provide valuable services to Crown in the consulting role (from CPH). With the benefit of hindsight going toward some of the roles — such as the VIP role — I think I probably wouldn’t repeat that. There is a management structure that would better facilitate that,” Johnston said.

Johnston is now on six committees at Crown, including the all-important risk committee that he recently joined, which Bergin asserted was over the top.

“On a go forward basis I will certainly do less,’’ he agreed.

He also agreed with Bergin’s suggestion that having a formal register of conflicts could be a “fruitful way” of making his and the roles of other CPH executives working with Crown clearer.

This conflict was most emphasised in CPH’s sale of a 19.9 per cent shareholding in Crown last May to Hong Kong billionaire Lawrence Ho’s Melco Resorts group, which led to the establishment of the ILGA inquiry.

Both Johnston and CPH chief executive Guy Jalland signed off on providing guidance on Crown’s financial forecasts to Melco before the share sale was announced, which was informed by information urgently demanded from Ken Barton by Packer.

They also informed Melco of the estimated cost of building the Sydney casino, pricing information on the sales of luxury apartments sales in the complex and Crown’s view on a class-action lawsuit launched following the arrest of its staff in China in 2016.

Both Johnston and Jalland — who is also a Crown director — denied the disclosures were market-sensitive because the forecasts were close to market consensus and the other information was no secret.

Each episode given in evidence has highlighted the blurred lines between Packer, CPH and Crown. Picture: AFP

Johnston also denied it involved insider trading, saying he sent the information to Melco only to avoid a perception that CPH had traded with insider information that Melco did not have.

But the episode again highlighted the blurred lines between Packer, CPH and Crown.

Bergin also appeared stunned by the denials of both Johnston and Jalland that they had any obligation to inform Crown about the CPH deal with Melco to ensure it would not be in breach of the terms of the Sydney licence.

This followed the presentation to the inquiry of publicly available information in Melco International’s annual reports about its association through its corporate structure with Stanley Ho, who had alleged links to organised crime before his passing earlier this year.

Melco International is Melco Resorts’ controlling shareholder and Crown is barred from dealing with any companies linked to Stanley Ho as a condition of its licence agreement for Sydney casino.

On Thursday it was revealed another CPH-nominee to the Crown board, Perth businessman John Poynton, was told by Mr Packer about the Melco deal hours before it was formally signed but Poynton said he felt no obligation to tell his fellow Crown directors and suggested it was up to other CPH executives to do so.

To the further bemusement of Bergin, Johnston, Jalland and Poynton all said they believed Stanley Ho had no interest or involvement in Melco when CPH sold the first 9.9 per cent tranche of shares to the Hong Kong company. The sale of the second tranche was abandoned earlier this year due to the COVID-19 pandemic.

The influence of Packer over his executives was also highlighted by the revelation the billionaire had texted Johnston in May last year with the words “It’s my life and I’m going to overrule you” a week before the Melco share sale.

Johnston had been considering other options for the sale, including a sale of the stake to Crown’s controversial Hong Kong junket partner Suncity or a full takeover of Crown by Melco.

“By that point in time he was thinking he preferred the Melco transaction. This was a gentle way of him intimating that to me,’’ Johnston told the inquiry. Johnston also revealed Packer was still a director of the ultimate parent of the CPH Group, Consolidated Press International Holdings, so had the final say in the deal.

“If I decided to resist what he wanted to do, that obviously is a difficult decision,’’ Johnston said.

“Ultimately if he wished to resist me, he could remove me from office and put somebody else in place.”

Lawrence Ho and James Packer. Picture: Supplied

Another point of irritation for Bergin was Guy Jalland’s assertion on Wednesday that he had yet to see any concrete evidence justifying the casino company ceasing to do business with Suncity, noting it was still licensed to conduct business in NSW, Queensland and Macau.

His comments came despite Crown receiving two reports earlier this month that listed numerous concerns about the company and its chairman, Alvin Chau. Chau was blocked from entering Australia last year due to his suspected links to organised crime and money laundering and Crown received reports in 2016 warning that the US government considered him to be involved in organised crime and that he appeared to be a former member of the “14K Triad” in Macau.

The inquiry has also heard Crown discovered $5.6m in cash stored in a cupboard in Sun­city’s private gaming room at Crown Melbourne. The room was closed in August last year.

Crown has now suspended dealing with controversial junket operators until June next year.

Crown’s chief executive Ken Barton has also claimed the company under new independent chairman Helen Coonan — who took over from John Alexander in January — is undertaking an enhanced audit of its anti-money laundering processes and separating its AML function from operations and other compliance functions.

Crown is also hiring a new head of financial crimes and compliance executive and bank accounts that accept patron deposits will now only be in the accounts of its Melbourne and Perth properties.

The later change followed damning evidence presented to the inquiry of apparent money laundering through two Crown shelf companies named Southbank and Riverbank Investments, which have now been closed.

This evidence is sure to attract the attention of the Australian Transaction Reports and Analysis Centre, which recently issued a record $1.3bn fine to Westpac.

Two Crown executives at the centre of the company’s previous governance failures — Australian Resorts chief executive Barry Felstead and the group’s chief legal officer Joshua Preston — are also set to have their roles made redundant, subject to board approval.

Instead Barton wants the operational executives of each of the group’s casinos in Melbourne, Sydney and Perth reporting directly to him in future.

All of this reform has been welcomed by Bergin, but she still is still gravely concerned Crown is pushing ahead with opening its Sydney casino on December 14 without proof that its new AML policies and structures are tried and tested.

As she suggested strongly on Friday, the changes may not be enough to right the wrongs of the past.

“To say that the company is on a ‘journey of improvement’ is heartening to some but I don’t know what it means. I really am at a loss at the moment to understand what it means,’’ she said.

The task is now with Packer to prove he and his executives can properly manage their conflicts to protect Crown shareholders and that he remains fit and proper to remain the biggest shareholder in the company that holds the Sydney licence.

Crown’s independent directors, who will also give evidence next week, must also demonstrate they deserve to be on the board of the company that holds that licence.

Patrica Bergin and the NSW government could yet turn a dream long held by the late Kerry Packer and now his son, to have a casino in the city of their births, into a long and painful nightmare.