James Packer evidence: ‘Incredibly upset’ over Crown culture failings’
James Packer admits to some blame in Crown failings, says he would have taken action if he had known of risk to staff in China.
On the second day of James Packer’s evidence to the Crown casino inquiry, a monosyllabic Mr Packer has denied knowing anything about the sovereign risk of running a gambling operation in China but admitted some blame for Crown failings.
Mr Packer was questioned about the arrests of 19 staff in China in 2016 and his knowledge of any risk to them.
Commissioner Patricia Bergin asked him the extent to which Crown’s drive for profits led to the arrests and whether Mr Packer would have taken action to ensure their safety if he was aware of the risk.
“Am I to presume that if you were informed of the matters to which Mr Bell has taken you … you would have secured the safety of your staff?,” she asked.
“Absolutely Madame Commissioner,” Mr Packer said before launching into an uncharacteristic soliloquy.
“I would have taken a conservative approach with the best advice we could get – and I would have spoken to Mr Rankin, who was China expert, um, but there is no way we would – the VIP businesses is not a huge part of profitability of the overall business, as I know you understand that Commissioner,” he said.
“To put ourselves at risk on so many fronts for 7 per cent of our profit – I know that was a number that was used last week … just makes no sense.
“We tried as an organisation to build a very good culture. We were named employer of the year by the aus government three times between 2010 and 2014, I believe.
“I’ve always said there are four stakeholders in the business: there are government and regulators, there’s staff, there’s customers and community and there’s shareholders.
“If you do a good job on the first three of those stakeholders hopefully the shareholders come out OK as well.
“But this was not the culture of the company I was trying to build … and this was not the culture I believe existed to a significant extent.
“And for that I am incredibly upset.”
Commissioner Bergin then again asked if he would have taken action had he specific knowledge about the risk of Crown’s staff in China.
“Certainly if there was a risk of people being arrested and going to jail, absolutely,” Mr Packer said.
Commissioner Bergin asked Mr Packer whether it is possible Mr Packer was “kept in the dark” about the sovereign risk in China because staff felt they had to “please” Mr Packer.
Mr Packer denied this, saying he was often displeased in news relating to company budgets, and that he wanted to hear about all aspects of the business.
“I believe, Madam Commissioner, I always wanted bad news,” he said.
Ms Bergin then proceeded to ask about whether Mr Rankin knew about these risks, and why he didn’t share his knowledge with Mr Packer.
Mr Packer said he asked Mr Rankin to do “due diligence” regarding the risks in China shortly after the arrests of Korean casino staff.
“It was his job’
This afternoon, Mr Bell has asked Mr Packer whether requests made of Crown CFO Ken Barton to supply him with financial forecasts was so Mr Packer could construe a potential sale price for his Crown Shares to Lawrence Ho.
Mr Packer denied this, saying:
“I think I was over the numbers better than Mr Barton was.”
“Why did you ask for a financial forecast that he believed in?” Mr Bell replied.
“Because it was his job.”
Commissioner Patricia Bergin interjected, asking why it was Mr Barton’s job as CFO of Crown to provide the figures to a shareholder on demand.
Mr Packer said that at that time, Crown was in the middle of an annual budgeting process.
Mr Bell then moved to read email discussions between Mr Packer and Michael Johnston over alternatives to Mr Packer selling 19.9 per cent of Crown to Melco.
Asking why Mr Johnston wanted to explore alternatives, Mr Packer said: “Because he thought $13 was too low a price.”
Earlier, Reading from emails between Mr Packer and Lawrence Ho, Mr Bell asked what Mr Ho meant when he said he would discuss certain issues while attending a Belt and Road forum in Beijing.
“I discussed with Mr Ho whether he could get a sense of the Macau regulator authority’s opinion on Crown,” Mr Packer said.
Mr Bell asked when Mr Packer first discussed the purchase of Crown resort shares by Mr Ho.
Mr Packer said it occurred on the 23 of April 2018.
“The substance of that conversation was Lawrence briefly touched on a full merger between Melco and Crown. It quickly got to the position where that didn’t suit him and it really didn’t suit me.
“Lawrence was interested in doing something with the Crown if we could make it work. He believed in the assets.
“At that point Mr Ho — or Lawrence and myself delegated the conservations to our respective CEOs,” he said.
Emails after Packer resigned as Chair
Emails appear to show Mr Packer giving instructions to members of Crown’s executive team after he resigned as Chair and as a board member.
In one email, Mr Packer tells Crown CFO Ken Barton: “Make sure for your own sake we achieve the FY20 plan.”
He then forwarded the email to other Crown executives and said: “Sorry Ken, I mean everyone.”
Mr Bell asked Mr Packer whether he was threatening the executives.
“No, I was saying I expected them to hit their budgets,” Mr Packer said.
“I was frustrated because I had been saying for a good part of the previous financial year that people were being too optimistic.”
Mr Packer said his remarks could have just been him being “dramatic.”
Mr Bell asked Mr Packer whether he thought it was in the best interests of Crown Resorts that his requests be followed.
Mr Packer agreed.
“I thought it was the best interest of Crown Resorts to have conservative budgets and keep costs under control,” Mr Packer said.
Packer questioned on remuneration
After returning from a brief adjournment, counsel assisting Adam Bell asked Mr Packer whether it is true that three Crown executives knew about the questioning of an employee by Chinese police in Wuhan but did not inform him about it.
“I’m sure,” Mr Packer said.
Mr Bell then asked Mr Packer if he could have forgotten whether he had been told or not. On Tuesday, Mr Packer told the inquiry that he takes “strong medication” that impacts his memory.
Mr Packer said: “No, I would have emailed Mr Cragie and Mr Rankin in the first instance and said what’s happening, or ask for an explanation.”
Mr Bell then changed tack to question Mr Packer on his remuneration in 2016, which according to documents filed was $11.5m that year.
He also mentioned a proposal to appoint Mr Packer as head of global strategy for the company.
Mr Packer said he could not recall if he was aware of this in December and January of 2015-16 as he was particularly unwell at that time.
Discussing a board meeting that occurred in March of 2016, Mr Bell, mentioned that an item for discussion involved the firm Hellman and Friedman process update.
He asked Mr Packer if there was a proposed takeover of Crown Resorts by Hellman and Friedman.
“I don’t know if I would use the word takeover – they were looking at a financial restriction and a capital injection,” Mr Packer said.
“I can’t remember if it was a full privatisation or if it was the privatisation of the Australian assets.”
On Tuesday Mr Packer answered questions about a confidential email thread that involved a “Z co.” interested in a takeover of Crown.
Mr Packer admitted to “shameful” behaviour directed at a Mr X from Z Co within the emails, pinning his behaviour on bipolar disorder.
Mr Bell asked whether at the time, Mr Packer’s private company Consolidated Press Holdings did not agree to a service agreement with Mr Packer given the agreement with Hellmen and Freedman.
CPH didn’t want to agree with the service agreement with you at this time given the current process agreement with Hellman and Friedman.
Packer questioned on Melco links, Stanley Ho
Mr Packer was also questioned about Crown’s venture with the Ho family outfit, Melco, and what he knew about the late gambling magnate Stanley Ho.
Through a series of questions, casino inquiry counsel assisting Mr Bell attempted to establish the extent of Mr Packer’s knowledge regarding Mr Ho’s interests in Melco, which in April sold its stake in Crown.
After being presented with transcripts of old interviews with the Victorian gambling regulator in 2006, Mr Packer said he was aware that Mr Ho held a 10 per cent interest in Melco through various trusts and investment vehicles.
Last year Crown announced a plan to sell half his stake in Crown to Melco resorts, a controversial decision as Melco’s boss, Lawrence Ho, is the son of Stanley Ho – a man black-listed from controlling gaming interests in NSW due to his alleged links to organised crime.
The younger Mr Ho and James Packer previously ran a joint venture in Macau through Melco.
Mr Packer’s attention was called to a Melco annual report from 2006 which outlines the share ownership of Melco international.
The report showed that Stanley Ho was the beneficiary of more than $100m Melco convertible notes through a private company called Great Respect that could be converted upon the completion of the City of Dreams casino-hotel in Macau.
Mr Bell asked if Mr Packer was aware of this, to which Mr Packer responded in the affirmative.
Mr Bell then asked about Mr Packer’s knowledge of Crown’s regulatory arrangement with the NSW Independent Gaming and Liquor Authority.
Within the arrangement with the NSW Independent Gaming and Liquor authority was a clause requiring Crown to monitor and report any interests in Crown that may be acquired by Stanely Ho.
Mr Packer said he did not have detailed knowledge of the arrangement with the NSW authority.
Commissioner Patricia Bergin interjected to adjourn the proceedings until 2.30pm.
‘My executives let me down’
Counsel assisting Adam Bell began today’s questions by asking Mr Packer if a company executive has “an important role to play in setting the culture of the organisation” as well as “setting business ethics and values”.
Mr Packer responded in the affirmative.
Mr Bell then proceeded to quiz Mr Packer over his personal knowledge of the risk of Crown staff being arrested in China leading up to the arrest of 19 staff.
Mr Bell asked if Mr Packer knew if former CEO Rowen Craigie’s operating understanding of the risk in China was based around “two precise questions of Chinese law being determined in favour of Crown Resorts interpretation.”
“No, he didn’t,” Mr Packer replied.
Mr Bell has continued to attempt to establish Mr Packer’s knowledge of the sovereign risk of operating a gambling operation in China.
When asked if he himself read the relevant laws, Mr Packer said: “I’m not a lawyer, Mr Bell, so I didn’t.”
Mr Bell asked if Rowen Craigie ever told Mr Packer that it was his view that it was risky for the legality of Crown’s operations in China to rely upon a technical construction of Chinese law.”
“No, he certainly didn’t.”
Mr Bell then asked if Mr Packer turned his mind to the potential risk of Crown staff in China being detained at any point in 2015 while he was Chairman.
Mr Packer said: “Yes, I asked Mr Craigie and (former Crown chair Robert) Rankin to be on top of the issue … I regarded Mr Rankin as an expert in China and an expert in compliance – and I considered Mr Rankin to be an expert in compliance at that time.”
Mr Bell repeated the question several times, with Mr Packer eventually conceding that he did not consider the issue sufficiently.
“I think it would be fair to say in 2015 I thought China was a different place than it turned out to be,” he said.
“I believe Mr Rankin and Mr Craigie let me down.”
‘Staff fears should have been elevated’
Mr Bell then tabled evidence showing that Crown Staff operating in China were scared of being arbitrarily detained prior to their arrest.
He asked Mr Packer if he should have been aware of this.
“It should have been elevated to the board,” Mr Packer said.
Mr Bell, submitting an email to former CEO Mr Barry Felstead that showed he was aware of the staff’s concerns, asked whether attention to this issue should have been brought to people more senior than he.
“I agree,” Mr Packer said.
Mr Bell then changed his line of questioning to inquire as to whether Mr Packer was aware of the Chinese government’s attention to crack down on companies luring Chinese citizens overseas for the purposes of gambling in February of 2015.
“I can’t recall,” Mr Packer said.
‘Team let the side down’
Mr Bell asked Mr Packer whether the Chinese government’s announcement in February 2015 that they would crack down on gambling junkets represented an “obvious escalation of risk to the safety of the staff in China.”
Mr Packer responded in the affirmative before being shown various gaming industry reports on the issue to see if he remembered reading them at the time.
“I can’t recall,” said Mr Packer before denying that Mr Barry Felstead and Mr Ishan Ratnam both informed him of the issue.
“I can’t recall when it became obvious and I do remember clearly, was at the time of the Korean arrests, which I think was in March 2015,” Mr Packer said, referring to the 2015 arrest of 13 casino managers by Korean police in an attempt to crack down on gambling junkets.
Mr Bell then proceeded to ask whether the failure of Crown to appreciate the implications of the announcement amounted to a lacklustre risk management process.
“Do you agree that the failure to ensure that the crackdown on foreign casinos announced by the Chinese authorities in 2015 was drawn to the full board of Crown resorts … demonstrates a failure in the risk management of Crown Resorts at the time?” Mr Bell asked.
“Yes I do,” Mr Packer said.
“I believe Mr Rankin and Mr Cragie let the side down.”
Plans for false claims of business trips
Mr Bell asked Mr Packer if he knew Crown’s man in China Michael Chen was planning to source Singapore or Hong Kong work visas for Crown’s Chinese staff so they could “falsely” tell the Chinese authorities that they were working in China on a business trip.
Mr Packer said he was not aware of this and agreed with Mr Bell’s subsequent statement that the situation amounted to a failure of ethics, and that it should not have occurred.
Mr Bell then read an email from Michael Chen to an external Chinese lawyer Kenneth Zhou about whether Crown should pull its people out of China and stop any executive from visiting the country in the wake of the gambling crackdown.
Mr Packer said he was not aware of the exchange.
Mr Bell then read advice from Mr Zhou to Mr Chen saying that executives should refrain from visiting mainland China and that an option for the regular staff could be moving them to an offshore location.
Mr Packer said he was not aware that this information was given and agreed with Mr Bell’s statement that executives should have known of it.
“I think it should have been elevated to the CEO and from the CEO to the board,” he said, agreeing with Mr Bell’s assortment that it amounted to a failure of the risk management process.
However, Mr Packer then levied the blame on Rowen Cragie.
“I believed Mr Cragie should have been on top of this information and should have brought it to the risk management committee, to the board to myself. I don’t know how he could not have been aware of this if he was doing his job,” Mr Packer said.
‘I was sick at the time’
During his first appearance yesterday Mr Packer faced a sporadic series of questions from Counsel Assisting Adam Bell concerning his relationship with Israeli Prime Minister Benjamin Netanyahu, his plans to privatise Crown Resorts in 2015 and his association with an Israeli named Arnon Milchan.
But most notable was an exchange surrounding a series of emails between Mr Packer and a “Mr X” from a company named “Z Co” who were to be involved in the failed privatisation deal.
The exact contents of the email were kept confidential – but it is clear that Mr Packer made comments towards “Mr X” he now considers “shameful” which he attributes to his bipolar condition.
It is the first time Mr Packer named his specific ailment.
Commissioner Patricia Bergin could recommend the government cancel Crown Resorts’ NSW gaming licence, placing the billion-dollar Barangaroo Casino/hotel development in turmoil.
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