Disgraceful, illegal, dishonest, unethical, exploitative, alarming: Read Commissioner’s words

The commission was established to inquire into, and report on, the suitability of Crown Melbourne to hold its casino licence. The precursor was two findings in the Bergin Report:

• Crown Melbourne facilitated millions of dollars to be laundered through a bank account of its subsidiary.
• Crown Melbourne allowed operators with links to organised crime to arrange for junket players to gamble at the casino.

The main focus of the commission’s inquiries was to discover whether the misconduct identified in the Bergin Report was more widespread and, if it was, who was involved and what should be done.

Within a very short time, the commission discovered that for many years Crown Melbourne had engaged in conduct that is, in a word, disgraceful. This is a convenient shorthand for describing conduct that was variously illegal, dishonest, unethical and exploitative.

The catalogue of wrongdoing is alarming, all the more so because it was engaged in by a regulated entity whose privilege to hold a casino licence is dependent upon it being, at all times, a person of good character, honesty and integrity.

It is difficult to grade the seriousness of the misconduct. Some was so callous that it is hard to imagine it could be engaged in by such a well-known corporation whose Melbourne Casino Complex is visited by millions annually.

Many senior executives involved in the misconduct were indifferent to their ethical, moral and sometimes legal obligations. Some were motivated by a drive for profit. Some simply did what they did because they could.

A trigger for the Bergin Inquiry was the arrest in October 2016 of 19 China-based Crown staff, and the subsequent imprisonment of 16 of those staff. The staff had been illegally promoting gambling in Australia to Chinese residents who would gamble large sums.

Crown executives were warned that Chinese officials intended to crack down on this activity. Yet they did nothing to protect their staff.

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.

To have done so after the China arrests is nothing short of appalling.

Crown’s underpayment of casino tax shows a similar disregard of the law. In 2011, Crown Melbourne embarked upon a plan to minimise its casino tax by claiming as a deduction amounts that its internal and external lawyers said were not, or were probably not, deductible items. The plan involved concealing from the regulator the true nature of the deductions for fear of getting caught.

In the end, the plan failed when its existence was exposed by the commission. Already, over $61.5 million in back taxes and interest has been repaid. More is likely due.

Not only was Crown Melbourne content to breach local laws, it also happily assisted its wealthy Chinese patrons to breach the currency laws of their country. Between 2012 and 2016, those patrons transferred up to $160 million from accounts in China to the Crown Towers hotel. Purportedly this was to pay for hotel services, but in reality, it was to spend at the gambling tables. In addition to Crown Melbourne assisting to breach Chinese currency laws, what occurred also contravened local laws and likely allowed money laundering to take place.

Crown Melbourne’s relationship with the regulator provides more evidence of its indifference to acceptable conduct. Over the years, the regulator conducted several investigations into Crown Melbourne’s affairs. Instead of cooperating with those investigations in the manner that is expected of a regulated entity, Crown Melbourne took the opposite tack. It bullied the regulator. It provided it with false or misleading information. It delayed the investigatory process. All in all, it took what steps it could to frustrate the regulator’s investigations.

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. The cost to the community of problem gambling is enormous. It is not only the gambler who suffers. It also affects many other people, and institutions.

Crown Melbourne had for years held itself out as having a world’s best approach to problem gambling. Nothing can be further from the truth. The commission heard many distressing stories from people whose lives were ruined by gambling but whose situation might have been improved if casino staff had carried out their obligations under Crown Melbourne’s gambling code.

The commission looked for reasons to explain why Crown Melbourne acted as it did. Not all the reasons are known. But some stand out.

First, Crown Melbourne’s board failed to carry out one of its prime responsibilities; namely, to ensure that the organisation satisfied its legal and regulatory obligations. Perhaps the board was not told what was going on. The alternative, to adopt an old expression from the railroad industry, is that the board ‘fell asleep at the wheel’.

Second, many senior executives involved in the misconduct were indifferent to their ethical, moral and sometimes legal obligations. Some were motivated by a drive for profit. Some simply did what they did because they could.

Many senior executives involved in the misconduct were indifferent to their ethical, moral and sometimes legal obligations.

Third and regrettably, both internal and external lawyers who knew that Crown Melbourne was wanting to engage in conduct that contravened some laws failed to counsel Crown Melbourne not to go ahead. They would say this is not the function of a lawyer, whose only role is to advise on what the law is. While that might sometimes be a defensible position, it cannot be right when
the client/employer is a regulated entity that must remain of good repute, having regard to its ‘character, honesty and integrity’.

Last, there is the Packer/CPH influence. This was dealt with in great detail by the Hon. Patricia Bergin, AO, SC who found that their influence encouraged Crown to put profit ahead of other motives for action. The Packer/CPH influence was only touched upon during this commission’s inquiries and then largely through the evidence given by Crown’s directors. That evidence
confirmed Ms Bergin, SC’s views.

When these facts came to light, it was inevitable that Crown Melbourne would be found unsuitable to hold its casino licence. No other finding was open. The only difficult question was what should be done in that circumstance.

Deciding what to recommend was a demanding task. It required the weighing up of two almost irreconcilable positions. On one side, there was the overriding need to maintain the integrity of the licensing system. That requires the cancellation of a casino licence held by an unsuitable person.

On the other side, there were two factors: the risk that cancellation of Crown Melbourne’s licence would cause considerable harm to the Victorian economy and innocent third parties; and whether, in a short time, Crown Melbourne could so ‘remake’ itself that it would once again become suitable to hold a casino licence.

In reality there is no correct view. It was simply necessary to make a recommendation knowing that whatever the decision, there will be legitimate criticism from those who would go the other way.

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.

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

Important steps towards reform have been taken. Most significant among them is the appointment of a new board and new and highly motivated senior executives.

Still, the road forward will not be easy. If the recommendations are accepted, Crown Melbourne will not be in control of its own destiny. For the next two years, the ultimate decision-maker at Crown Melbourne will be a special manager. This manager, most likely a firm, will oversee all aspects of the casino’s operations. It will keep a watchful eye on the progress of reform. It will
make sure that all rules and regulations are complied with. It will investigate particular aspects of the casino’s operations.

At the end of the two-year period, the special manager will report what has occurred to the regulator. The regulator will then decide whether it is ‘clearly satisfied’ that Crown Melbourne has returned to suitability. This will be a tough test to satisfy.

The regulator will be tasked to make its decision ‘on the papers’. That is, there will be no further inquiries. The regulator will undertake its task by reference only to the results of the three inquiries into the Crown companies that have been carried out or are presently underway and the reports of the special manager.

If, after taking that material into account, the regulator is not ‘clearly satisfied’ that Crown Melbourne is suitable to hold its casino licence, the licence will be cancelled forthwith.