Today is a watershed moment in the history of gambling regulation in Australia. The Report of the NSW Casino Inquiry1 was tabled in the NSW Parliament this afternoon.
The Report of the NSW Casino Inquiry (the Report) has two distinct sections:
(a) findings relating to the suitability of Crown to operate its casino in NSW; and
(b) recommendations as to the regulation of casinos in NSW.
The Report will now be considered by the NSW Independent Liquor & Gaming Authority (the Authority) and the NSW Government, which will determine the extent to which the recommendations of the Report will be implemented.
In July 2014, the Authority granted a restricted casino licence (the Licence) to a wholly-owned subsidiary2 (the Licensee) of Crown Resorts Limited (Crown Resorts) for the construction and operation of a casino at Barangaroo in Sydney.
In mid-2019, actual and proposed transactions involving Crown Resorts and its related entities and Melco Resorts & Entertainment Limited and its related entities (Melco) became public (the Transactions). There were also media allegations of unlawful and/or improper conduct by Crown. These included allegations of money laundering, links to organised crime and that Crown had knowledge that its personnel were acting in contravention of Chinese law.
In response, the Authority initiated the NSW Casino Inquiry.
On 23 June 2020, the terms of reference for the NSW Casino Inquiry were amended to reflect changes to the nature of the Transactions, including the sale by Melco of its shares in Crown Resorts. Importantly, the amended terms of reference requested that the Honourable Patricia Bergin SC (the Commissioner) inquire into:
(a) the suitability of Crown Resorts and the Licensee and whether the Transactions caused a breach of the Licence or any other regulatory agreement; and
(b) the regulatory framework applicable to casinos in NSW.
In relation to the latter, the Commissioner was asked to make recommendations to enhance the Authority’s future capability as a casino regulator.
Suitability of Crown
In the Report, the Commissioner has found that:
(a) the Licensee is not a suitable person to continue to give effect to the Licence;
(b) Crown Resorts is not a suitable person to be a close associate of the Licensee; and
(c) the Transactions did not constitute a breach of the Licence or any other regulatory agreement.
The Commissioner notes in the Report that the changes required to render the Licensee and Crown suitable persons is a matter for the Authority.
However, the Report suggests several measures which, at a minimum, should be implemented in order for the Licensee and Crown Resorts to demonstrate to the Authority that they are suitable persons. These include a full and wide-ranging audit of Crown Resorts’ accounts, enforceable undertakings along with a remediation action plan and board “renewals” for both Crown Resorts and the Licensee.
In the Report, the Commissioner also makes nineteen (19) recommendations relating generally to the regulation of casinos in NSW.
Notably, the Commissioner recommends that:
(a) an independent and specialist casino regulator, known as the Independent Casino Commission (ICC) be established to assume responsibility for the regulation of casino licensees in NSW; and
(b) the Casino Control Act 1992 (NSW) (the Act) be amended to:
i. require each NSW casino licensee to engage an independent and appropriately qualified compliance auditor (to be approved by the ICC) to report annually on the casino licensee’s compliance with its obligations under all laws and regulations (including both Federal and State gambling laws) and the terms of its licence;
ii. impose an obligation on each NSW casino licensee to report suspicious transactions concurrently to the Australian anti-money laundering regulator and the ICC;
iii. impose an obligation on each NSW casino licensee to monitor customer accounts and perform heightened customer due diligence;
iv. impose an obligation on each NSW casino licensee to require a Declaration of Source of Funds for any cash used in the relevant casino (over an amount to be determined by the ICC);
v. prohibit each NSW casino licensee from engaging with junket operators;
vi. clarify which persons associated with each NSW casino licensee (or an applicant for a casino licence in NSW) will be considered a “close associate” and therefore subject to an investigation as to the suitability of that person to be associated with that licensee (Suitability Investigation);
vii. impose on any person that is subject to a Suitability Investigation (which includes an existing NSW casino licensee or “close associate” of an existing NSW casino licensee) a requirement to prove their suitability by providing evidence of suitability to the ICC;
viii. clarify when regulatory approval will be required in respect of a transaction which involves an interest in a casino licensee (or any holding company of the casino licensee); and
ix. permit the regulator (being the Authority or the ICC) to apply to the relevant Court for an injunction to restrain any person that the regulator considers has not complied with any requirement to:
A. be subject to a Suitability Investigation; or
B. obtain regulatory approval for a transaction involving a NSW casino licensee.
Underlying these recommendations are a considerable number of findings which will be considered closely by the Authority and other regulators.
It is anticipated that the Authority will review and consider the Report at a special meeting to be held on 12 February 2021 and at its regular board meeting on 17 February 2021.
The Authority will then provide a formal response to the Report on:
(a) the findings in the Report relating to the suitability of the Licensee to hold its Licence, as well as the suitability of “close associates” of the Licensee; and
(b) the recommendations set out by the Commissioner in the Report.
If implemented by the Authority, and accepted by the NSW Government, the recommendations in the Report have the potential to reform significantly the manner in which the casino sector is regulated in NSW and Australia.
More broadly, it is also likely to have an impact on the structure of the existing gambling regulatory framework in NSW which is considered in the Report to involve various problematic aspects.
While the recommendations in the Report are focused on the regulation of casinos in NSW (and the role and responsibilities of the NSW casino regulator), the recommendations are likely to be considered closely by gambling regulators in other Australian States and Territories. This is likely to have ramifications for the following:
(a) the approach to regulatory approvals and Suitability Investigations conducted in respect of:
i. existing or proposed gambling licensees (such as bookmakers and gaming machine licensees, amongst others); and
ii. “close associates” of existing or proposed gambling licensees.
It is likely that a more prescriptive approach to regulatory approvals and Suitability Investigations will be required;
(b) the appropriate corporate governance processes to be implemented in respect of gambling licensees – including in respect of matters such as:
i. ethical conduct;
ii. risk management and oversight;
iii. board composition (specifically board independence and board tenure); and
iv. remuneration and incentivisation of directors and senior executives;
(c) future investment by overseas parties in Australian gambling licensees. It is likely that prior approval will be required for the acquisition of a (direct or indirect) material interest (potentially 10%) in a gambling licensee; and
(d) consumer protection and responsible gambling – including the implementation of gambling cards to be used by customers to engage in gambling activity at NSW casinos.
Other regulatory bodies will review the Report with interest, including the Victorian Commission for Gaming and Liquor Regulation, AUSTRAC and the Australian Securities and Investments Commission.
Indeed, there is a real possibility that these, and other, regulatory bodies could further investigate Crown.
1.Report of the Inquiry under section 143 of the Casino Control Act 1992 (NSW), dated 1 February 2021 (Volumes One and Two).
2. Crown Sydney Gaming Pty Limited.
3. Australian Transaction Reports and Analysis Centre (AUSTRAC).
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