If you have ever been directly or indirectly involved in the ownership or operation of a gambling enterprise, you may have been asked to submit to a probity investigation conducted by a gambling regulator or licensing authority.
What is probity?
Probity is broadly defined as a standard of ethical and moral behaviour which concludes that a person or company complies with appropriate principles of “integrity, uprightness and honesty”.
Probity investigations relating to gambling operations are usually conducted by a regulatory body to determine if a person or organisation is “fit and proper” to be involved in the provision of gambling services to a sector of the public. These investigations go beyond an assessment of legal compliance: instead, probity is concerned with determining that your actions are suitably governed by what you ought to do, not only what is lawful, commercially acceptable or expedient.
In the Australian regulatory environment, there is a high level of public awareness, media attention and concern about probity and integrity issues in the gambling industry.
When and why?
Authorities that conduct probity investigations in relation to gambling activities include government agencies, liquor and gaming regulators, licensing authorities and, in some cases, racing and sporting bodies.
- A regulatory body may conduct a probity investigation, for example:
- before issuing a licence to conduct a gambling operation;
- prior to the acquisition by an individual or a company of a direct or indirect interest (or the increase in an existing interest) in a gambling operation;
- prior to the appointment of a director or key manager by a company which conducts a gambling operation, or a related company of an entity which conducts a gambling operation;
- on an ongoing basis (e.g. once every 5 years), or otherwise at any time at their complete discretion.
For government regulators, conducting probity on gambling operators is key to ensuring that the public is protected, when participating in gambling activities, from financial crime, for example, fraud, money laundering and counter terrorism financing activities. Probity is also important to ensure objectivity and consistency in accordance with legislative or other criteria, particularly in relation to a public tender process. In the Australian context, the disclosure requirements that apply in the gambling industry are more onerous than those imposed by any other authority, including ASIC and the ASX.
What is involved?
Ordinarily, a regulatory body conducting a probity investigation will ask for information relating to a company or an individual associated with the operation or management of the gambling operation. This information may include:
- contact details;
- identification documents;
- related and associated companies;
- statement of assets and liabilities;
- licences, certificates and memberships;
- arrests, detentions or litigation;
- a history of involvement in the gambling industry;
- any past probity investigations conducted by regulatory bodies;
- bankruptcy information;
- tax information;
- written references;
- criminal history; and/or
- the source of their wealth/funds.
It may be necessary for the information to be provided to go back a number of years.
It is important to note that probity is a weighted process. Disclosing information that is likely to discredit you or your company does not necessarily mean that the relevant regulatory body will come to the conclusion that you are not fit and proper to be associated or connected with a gambling operation. As indicated below, omission is often worse.
Instead, investigators are generally concerned with the mechanisms in place to recognise, identify and mitigate the risk that a company or its personnel might be involved in inappropriate behaviour. For this reason, organisations should show that they are setting and implementing measures at an organisational level to manage these risks.
However, regulatory agencies have broad discretion and their decisions are often not capable of appeal. For this reason, it is important to fully cooperate with any regulatory body that requests information for the purpose of conducting a suitability investigation.
What can go wrong?
Impediments to a successful probity investigation can arise where fulsome disclosure of relevant information is affected by:
- incomplete or incorrect facts;
- contradictory information;
- fear that full and frank disclosure will jeopardise a finding of suitability; and/or
- time and resource pressures.
For these reasons, certain applicants have, in some cases, failed or refused to meet the requirements of a regulatory body, which has resulted in a negative finding of suitability to be associated or connected with a gambling operation.
Omission of material matters may have serious consequences; indeed, a failure to satisfactorily disclose information to a regulatory body may give rise to:
- implications for your existing gambling licence;
- a direction by a regulatory body to dismiss an employee or remove a person from a position of authority;
- “blacklisting” a person from being associated or connected with a gambling operation; and
- in serious cases, criminal liability.
Probity investigations may also be difficult for venture capital and private equity investors that have a relevant interest in an Australian gambling enterprise, particularly if they have little to do with the day to day operation of the business.
How we can help
Addisons has relationships with many State and Federal Government regulators developed over the course of many years of providing advice and assistance to companies and individuals undergoing probity.
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