The report of the Victorian Royal Commission into the Casino Operator (Crown Melbourne) and Licence was tabled in the Victorian Parliament earlier today (the Report). The Report, delivered by the Hon Ray Finkelstein AO QC, as Commissioner of the Royal Commission (the Commissioner), found that Crown Melbourne is unsuitable to hold its Victorian casino licence and that Crown Resorts Limited (Crown Resorts) is not a suitable associate of Crown Melbourne.
The Report comes after eight weeks of public hearings before the Commissioner which heard evidence relating to allegations that Crown had facilitated money laundering through its Melbourne casino, had not implemented sufficient responsible gambling services and had arrangements with junket operators with links to organised crime.
Background
On 19 November 1993, Crown Melbourne was granted a licence in Victoria to operate the Melbourne Casino (Licence). Crown Melbourne is a wholly-owned subsidiary of Crown Resorts. Crown Resorts also wholly owns Crown Sydney Gaming Pty Ltd (Crown Sydney) and Burswood Limited (Crown Perth), who hold casino licences in New South Wales and Western Australia respectively.
In mid-2019, media allegations arose regarding unlawful and/or improper conduct by Crown, including allegations of money laundering and links to organised crime in respect of Crown’s Melbourne and Perth casinos.
In response, the NSW Independent Liquor and Gaming Authority initiated an inquiry that was conducted by the Hon. Patricia Bergin SC for the NSW Independent Liquor and Gaming Authority (Bergin Inquiry). On 1 February 2021, the Bergin Inquiry concluded that Crown Sydney was not a suitable person to continue to hold the Restricted Gaming Licence and that Crown Resorts was not a suitable person to be a close associate of Crown Sydney.1
The Bergin Inquiry also found, among other things, that Crown Resorts facilitated money laundering, disregarded the welfare of its China-based staff and entered into or continued commercial relationships with junket operators who had links to organised crime groups.
Some aspects of Crown’s casino business considered by the Bergin Inquiry related to the business conducted at the Melbourne casino operated by Crown Melbourne, while others related to the business conducted at the Perth casino operated by Crown Perth.
In February 2021, the Royal Commission into Crown Melbourne was convened to inquire into and report on the operations of Crown Melbourne and respond to the findings of the Bergin Inquiry. Under the Terms of Reference,2 the Commissioner was required to review and make recommendations in relation to:
- whether Crown Melbourne is a suitable person to continue to hold the Licence;
- whether Crown Melbourne is complying with all applicable laws;
- whether Crown Melbourne is complying with relevant contract documents;
- whether it is in the public interest for Crown Melbourne to continue to hold the Licence;
- what action (if any) would be required for Crown Melbourne to become a suitable person, or for it to be in the public interest for Crown Melbourne to hold the Licence;
- whether Crown Resorts is a suitable associate of Crown Melbourne and, if so, what would be required for Crown Resorts to become a suitable associate;
- whether any other existing associates of Crown Melbourne are not suitable and, if so, what action would be required for those persons to become suitable associates;
- whether the Commission considers that any changes to Victorian legislation and/or Crown Melbourne contract documents are necessary in order for the State of Victoria to address the findings and implement the recommendations of the Royal Commission; and
- any other matters necessary to satisfactorily resolve the matters listed above.
The Commissioner was permitted to make any recommendations that it considered to be appropriate having regard to the most practical, effective and efficient way to address the matters arising out of the inquiry and the financial impact of the recommendations on the State of Victoria.
At the time the Royal Commission was established, the Victorian Premier also announced that work had commenced to establish an independent casino regulator, and that the Minister for Consumer Affairs, Gaming and Liquor Regulation had commissioned a review in relation to structural and governance arrangements of this regulator. This regulatory review was conducted in parallel with the Royal Commission.3 The NSW Government has also recently committed to establishing a new independent casino regulator.
A separate Royal Commission has also been convened in Western Australia to inquire and report on the suitability of Crown Perth to continue to hold its WA licence. The WA Royal Commission is examining the Western Australian regulatory framework, including any conflicts of interest held by officers involved in casino regulation, and any matters that might enhance the WA regulator’s future capability and effectiveness. The WA Royal Commission is due to deliver its final report by 4 March 2022.4
Suitability of Crown Melbourne
In the Report, the Commissioner made findings that Crown Melbourne was not a suitable person to continue to hold the Licence and that Crown Resorts was not a suitable associate of Crown Melbourne. Specifically, the Commissioner found that Crown Melbourne had engaged in conduct that was “illegal, dishonest, unethical and exploitative” and that the scale of wrongdoing was so widespread and egregious that “[n]o other finding was open.”
Similar to the approach of the Bergin Inquiry in NSW, the Commissioner did not recommend an outright cancellation of the Licence, but noted in the Report that several changes would be required for Crown Melbourne, and its associates, to demonstrate suitability. In particular, it was recommended that a “Special Manager” be appointed for two years to oversee Crown Melbourne’s operations while it undertakes a comprehensive reform agenda in order to seek to achieve suitability.5
Under draft legislation introduced in Victorian Parliament following release of the Report, the Licence will be automatically cancelled at the end of the two-year oversight period unless Crown Melbourne is able to demonstrate suitability.
Recommendations
The Commissioner made a total of 33 recommendations. A summary of the full recommendations is set out in the Schedule.
The recommendations of the Commissioner were broken up into eight distinct categories, being recommendations designed to:
- strengthen the information-gathering powers of the Victorian regulator and to create the office of a “Special Manager” to oversee the operations of casino operators;
- deal with problem gambling, such as the introduction of a compulsory pre-commitment system; and
- reduce the incidence of money laundering in a casino, including the introduction of measures designed to address junkets, carded and cashless play, customer identification and enhanced cooperation with law enforcement agencies;
- impose obligations on casino operators to cooperate with the Victorian regulator and prohibit operators from giving false or misleading information to the regulator;
- limit the ownership of shares in a casino operator to prevent outside influence and to secure the independence of the board and senior management of the casino operator;
- broaden the functions and powers of regulatory inspectors to ensure that there is appropriate supervision of conduct on the casino floor and to assist in the detection of criminal activity;
- assist a manager appointed to operate a casino on the cancellation or suspension of a casino licence; and
- address a variety of other subjects such as:
- the consequences of non-payment of casino tax;
- clarification of the definition of “associate”;
- reduce the liability of the State of Victoria to pay damages for actions taken in consequence of a casino operator’s conduct; and
- increase the maximum monetary penalties available under Victorian casino legislation.
The Victorian Government has accepted all of the Commissioner’s findings, and draft legislation has been introduced today to implement certain priority recommendations of Commissioner, including the establishment of the Special Manager (and details of the powers and responsibilities of the Special Manager) and a prohibition on dealings between casino operators and junkets. Further legislation to implement the remaining recommendations is planned for next year.
The Victorian Government has indicated its intention to go further than the recommendations of the Report in a number of areas. In particular, the proposed legislation will:
- completely remove (rather than amend) the restrictive provisions which prohibit the Victorian Government from making changes to Crown Melbourne’s regulatory arrangements without paying compensation;
- provide that Crown Melbourne’s licence will be automatically cancelled at the end of the period of the Special Manager oversight unless the regulator is satisfied that Crown Melbourne is suitable to continue operating the Melbourne casino; and
- increase the maximum possible penalty under the Casino Control Act 1991 (Vic) from $1 million to $100 million.
It has been proposed that Mr Stephen O’Bryan QC, Victoria’s first Independent Broad-based Anti-Corruption Commissioner, be appointed as the Special Manager. The draft legislation also seeks to establish the Victorian Gambling and Casino Control Commission, a new regulator with dedicated focus on the regulation of casinos.
Way Forward and Key Takeaways
The draft legislation introduced today will now be considered by the Victorian parliament, who will be responsible for implementing the recommendations of the Commissioner.
Although the Report focused on the regulation of land-based casinos only, the extent of the impact of the recommendations of the Commissioner on other forms of gambling is less clear. However, it is also expected that the outcome of the Report will have an impact on the operations of Crown in other jurisdictions, as well as the conduct of other casino operators throughout Australia.
In particular, the Report confirmed that, in the view of the Commissioner, 5% is an appropriate probity threshold, and that this threshold should be applied to new shareholders and to Consolidated Press Holdings (CPH) as an existing shareholder of Crown Resorts. Significantly, the Commissioner recommended that the interest of the Packer-controlled CPH be reduced from 37 per cent to less than 5 per cent with effect from September 2024, meaning that neither James Packer nor CPH will be an associate of Crown Melbourne after their undertakings to the NSW Independent Liquor and Gaming Authority have expired.6
Given that both the NSW and Victorian government have committed to establishing an independent casino regulator in their respective jurisdictions, it is clear that the regulation of casinos will be a key subject of legislative reform in the near future.
It is clear that the casino sector as a whole will be subject to a higher level of regulatory scrutiny. The results of the Victorian Royal Commission and the Bergin Inquiry suggest that, at the very least, casinos in Victoria and New South Wales will be subject to much stricter and more prescriptive regulatory requirements.
The NSW regulator has recently announced that public hearings will be carried out early next year as part of a review of The Star casino, which will consider how effectively The Star has complied with its statutory obligations and whether it remains suitable to hold a casino licence in NSW.7 In addition, the Federal financial crimes regulator AUSTRAC is also currently investigating a number of major Australian casino operators in relation to potential non-compliance with anti-money laundering laws, such as Crown Perth, The Star Sydney and SkyCity Adelaide.
Given that there have now been two separate regulatory inquiries which have been damning of Crown, the manner in which Crown’s business is conducted in the future (and casino businesses in Australia generally) is likely to be significantly altered.
Schedule
Recommendations
| In relation to the powers of the Victorian regulator: |
|---|
| The Casino Control Act 1991 (Vic) (CCA) be amended to grant the Victorian regulator additional powers (for example, the power to compel any person to attend an examination or to direct a casino operator to comply with any recommendations made as a result of a regulatory investigation) (Recommendation 20) |
| The CCA be amended to enable the Victorian regulator to appoint a Special Manager to oversee the affairs of Crown Melbourne (Recommendation 21) |
| The Minister direct the Victorian regulator to appoint a Special Manager to Crown Melbourne for a period of two years (Recommendation 22) |
| The CCA be amended to defer the next investigation under the CCA for at least three years (provided that the regulator does not cancel Crown Melbourne’s licence following the receipt of a report from the Special Manager) (Recommendation 23) |
| In relation to the appointment of a manager to operate a casino on the cancellation or suspension of a casino licence: |
|---|
| The CCA be amended to grant additional functions and powers to the manager of a casino operator who is appointed following cancellation or suspension of a casino licence (Recommendation 24) |
| The CCA be amended to prohibit any third party from enforcing any security interest or taking possession of any property retained by the manager without approval from the Victorian regulator (Recommendation 25) |
| In relation to the functions and powers of inspectors: |
|---|
| The CCA be amended to add additional functions to regulatory inspectors (Recommendation 17) |
| The CCA be amended to give inspectors the power to have free and unfettered access to all parts of the casino (including surveillance equipment, books and records) and that any interference with an inspectors’ performance of their functions be made a strict liability offence the contravention of which will carry a significant penalty (Recommendation 18) |
| In relation to the obligation of casino operators to cooperate with the Victorian regulator: |
|---|
| The CCA be amended to oblige a casino operator to cooperate with the regulator and to notify the regulator of a material breach, or a likely material breach, of any prescribed legislation, regulations or agreements (Recommendation 19) |
| In relation to the structure of the casino operator: |
|---|
| The CCA be amended to place further limits on shareholding in Crown Melbourne, in particular that no person shall have or acquire a 5% or more interest in Crown Melbourne without regulatory approval (Recommendation 28) |
| The CCA be amended to impose an obligation that a casino operator must have a majority of its board as independent directors, including independent of any ultimate or intermediate holding company (Recommendation 29) |
| The CCA be amended to prohibit the board of a casino operator from delegating any of its functions to any person or body of persons other than a subcommittee of the board or an individual director, and to require casinos operators to appoint a full-time CEO, CFO, COO and heads of Gaming, Surveillance, International and Domestic VIP Business and Compliance who are independent from the board and officers of the casino operator (Recommendation 30) |
| In relation to money laundering: |
|---|
| The CCA be amended to include new procedures for the verification of the identity of all persons seeking to enter the Melbourne casino (Recommendation 1) |
| Carded play (ie. use of a membership card prior to playing any game) be compulsory for all gaming at the Melbourne casino (Recommendation 2) |
| Crown Melbourne phase out the use of cash at the Melbourne casino, save for gaming transactions of $1,000 or less (Recommendation 3) |
| Crown Melbourne enter into an information-sharing protocol with Victoria Police (Recommendation 4) |
| Crown Melbourne enter into an information-sharing arrangement with the Australian Criminal Intelligence Commission and the Australian Federal Police (Recommendation 5) |
| Crown Melbourne be required to keep and maintain a single account as approved by the regulator at an authorised deposit-taking institution in Victoria for all banking transactions by patrons (Recommendation 6) |
| Crown Melbourne be required to retain all security and surveillance CCTV footage for a period of 12 months (Recommendation 7) |
| The CCA be amended to prohibit a casino operator from dealing with junket tour operators (Recommendation 8) |
| In relation to the responsible service of gambling: |
|---|
| Crown Melbourne be required to ensure that the player card be used to collect certain prescribed data (including buy-in and buy-out times, losses and wins) (Recommendation 9) |
| “YourPlay” (a voluntary pre-commitment scheme) be implemented as a full, mandatory, binding, pre-commitment system for Australian residents gambling on electronic gaming machines at the Melbourne casino (Recommendation 10) |
| A Ministerial Direction be made requiring casino operators to take additional prescribed steps to prevent and minimise harm from gambling (Recommendation 11) |
| A Gambling Data Committee (the Committee) be established made up of three persons (one from the regulator, one from Crown Melbourne and one from the Victorian Responsible Gambling Foundation) (Recommendation 12) |
| The Committee have the power to direct Crown Melbourne and the monitoring licensee for the YourPlay system to provide data that is reasonably required (Recommendation 13) |
| The cost of establishment and operation of the Committee be paid for by the Victorian government, with staff and Secretariat support provided by the Victorian Responsible Gambling Foundation (Recommendation 14) |
| Miscellaneous recommendations: |
|---|
| Crown Melbourne’s contract documents be amended to remove the requirement for the Victorian government or the regulator to obtain Crown Melbourne’s consent before action is taken to cancel or vary the Licence, and that the obligation for the Victorian government to pay compensation for such action also be removed (Recommendation 15) |
| The Taxation Administration Act 1997 (Vic) be amended to cover casino tax payable under Crown Melbourne’s contract documents, as well as any other taxes payable under the CCA (Recommendation 16) |
| Steps be taken to ensure that the area in which Crown Melbourne’s casino operations are conducted and the area that is to be the subject of a sub-lease under Crown’s contract documents are the same (Recommendation 26) |
| There be a thorough review of all penalties available under the CCA, and the maximum penalty for disciplinary action be increased to at least $10 million (Recommendation 27) |
| Legislation be enacted to prohibit any action or claim being brought against the State of Victoria in respect of any loss or damage sustained as a result of the implementation of any recommendations made in the Report, and that no decision to implement any of the recommendations of the Report be subject to administrative challenge (Recommendation 31) |
| The CCA be amended to broaden the definition of “associate” (Recommendation 32) |
| That associates be prohibited from increasing their relevant interest in a casino operator or any intermediate or ultimate holding companies without regulatory approval (Recommendation 33) |
1 For further information regarding the Bergin Inquiry, see our previous publication “Report of the NSW Casino Inquiry – Key Recommendations”.
2 Royal Commission into the Casino Operator and Licence, Terms of Reference.
3 Premier of Victoria, New Regulator to Strengthen Casino Oversight.
4 Western Australian Government, Perth Casino Royal Commission.
5 Victorian Government, Response to the Royal Commission into the Casino Operator and Licence Report.
6 Pursuant to an agreement with the NSW regulator, CPH undertook that it would not enter into any information-sharing arrangements with Crown, initiate any discussions with Crown, other than through public forums, about crown businesses or operations, seek to have its executive or nominee appointed to the Crown board and seek any amendment to the Crown constitution that would affect the management or operation of Crown businesses. Similar undertakings have been offered to the Victorian regulator.
7 Liquor and Gaming NSW, Public hearings to be held as part of The Star Casino’s licence review.