Chapter 14

Overseas operations

Introduction

1. A significant number of patrons who gamble at the Melbourne Casino are citizens of countries in Asia. Their custom makes a large contribution to Crown Melbourne’s profits. In the period 2015 to 2020, Crown Melbourne’s reported turnover from VIP program play was $220.8 billion.¹ A substantial proportion of that amount comprised turnover from Asian patrons.²
2. To attract custom from Asia, Crown Melbourne established a VIP International business unit. The function of this unit was to market Crown’s casinos to overseas gamblers.
3. VIP International had offices in mainland China, Macau, Malaysia, Singapore, Indonesia, Thailand, Vietnam, Taiwan and New Zealand.³ Its marketing activities were conducted from these offices. The staff were local residents.
4. There was, however, a serious problem with these activities. Since the 1990s, Crown Melbourne knew that gambling or the promotion of gambling was illegal in China, Indonesia, Malaysia, Taiwan and Singapore. It had received advice to that effect from several law firms, including Baker & McKenzie and Jones Day, as well as from lawyers who practised in the various countries.⁴

Legal advice

5. Ms Jan Williamson is an in-house lawyer at Crown Melbourne. One of her areas of responsibility was VIP International.⁵ Ms Williamson said that she was only concerned with the ‘HR side’ of VIP International.⁶ In fact, her role involved much more than that. On several occasions since 2002, Ms Williamson obtained advice from overseas law firms regarding the lawfulness of gambling in the Asian countries from which Crown Melbourne drew its custom.⁷
6. Crown Melbourne also knew that, in at least some of those jurisdictions, it was illegal to promote gambling in overseas casinos. Once again, it was Ms Williamson who had obtained advice to that effect.⁸
7. The fact that gambling and its promotion were unlawful in a number of Asian countries did not deter VIP International from luring Asian gamblers to the Melbourne Casino.
8. That practice was interrupted in October 2016 with the arrest of the 19 China-based Crown employees, who were charged under Article 303 of the Criminal Law of the People’s Republic of China (Criminal Law) with procuring of Chinese citizens to gamble at Crown’s casinos in Australia.⁹
9. Crown Resorts, following the arrests, requested its Melbourne solicitors, MinterEllison (Mr Richard Murphy), to provide advice regarding the lawfulness of its overseas operations.¹⁰ For the purposes of that advice, Crown Melbourne provided MinterEllison with a summary of the advice it had previously received about gambling laws in Asian countries, as at February 2017. Ms Williamson prepared the summary.¹¹
10. The Hong Kong summary is a useful example of the previous advice. It summarised advice from MinterEllison’s Hong Kong office, noting that while there was no specific legal restriction explicitly prohibiting the marketing or promotion of overseas casinos, casinos were illegal in Hong Kong and by implication the promotion of foreign casinos may be illegal.¹²
11. The advice distinguished between different types of promotion. There was ‘above the line’ advertising, being advertising that goes to the general population, and ‘below the line’ advertising, which involves marketing towards a smaller specific group. In relation to ‘above the line’ advertising, the advice noted that there was no prohibition on the marketing or promotion of overseas casinos, but advised against high-profile campaigns.¹³
12. As to ‘below the line’ advertising, the advice was more circumspect:

    There is no specific legal restriction which explicitly provides that the promotion of overseas casinos in Hong Kong is illegal but by implication it is argued that such promotion is illegal.

    Further, in light of the geo-political factors caution is to be exercised when promoting Crown Resorts and the main focus should be on non-gaming elements.¹⁴

13. Mr Murphy informed Crown Melbourne that MinterEllison had reviewed ‘the legal opinions obtained by Crown [Melbourne] as to what is permissible under local law in Macau, Hong Kong, Taiwan, Thailand, Indonesia, Singapore, Malaysia and Vietnam (and for completeness the UK and New Zealand)’. Mr Murphy added that this advice would be the foundation for determining what future activities, if any, Crown staff may engage in in those jurisdictions.¹⁵
14. Mr Murphy recorded his understanding that Crown staff were not engaged ‘for the time being’ in any marketing activities outside Australia. No doubt the marketing activities had stopped because of the China arrests.¹⁶

Proposed operating model

15. On 3 March 2017, MinterEllison provided to Crown Resorts a ‘Draft—proposed operating model for VIP business’.¹⁷ The draft proposal described the legal position in the Asian countries where Crown conducted its marketing. It included the ‘do’s’ and ‘don’ts’ for staff visiting Asian countries and the ‘“do’s” and “don’ts” for “road shows”, functions, events and the like in Asian countries’.¹⁸
16. The draft proposal advised that Crown should establish a regional hub in Hong Kong ‘because the legal environment is relatively amenable’.¹⁹ The proposal recommended, on the basis of the risks in other countries, that the Crown offices in each of those countries should be closed and the staff relocated to Hong Kong. The staff could then travel from Hong Kong to the various Asian countries where Crown previously had offices, to continue their work.
17. The draft proposal described the law relating to gambling in each country.²⁰ It is helpful to set that out here, as it will make plain precisely what Crown Melbourne understood the position to be.
18. Regarding Macau, the legal position was that ‘the promotion and operation of local casinos by licensed operators is permitted. All other gaming activities and promotion are implicitly prohibited’.²¹
19. For Singapore, the position was that ‘[o]rganising, promoting or advertising … of gaming in foreign casinos is likely to constitute a criminal offence’.²²
20. For the remaining countries, Thailand, Malaysia, Indonesia, Vietnam and Taiwan, the advice was that ‘[o]rganising, promoting or advertising in [that country] of gaming in foreign casinos is an offence’.²³
21. The draft proposal then described the ‘“do’s” and “don’ts” for “low key” visits by staff to Asian countries’. The ‘do’s’ included:
    • keep meetings as small and low-key as is practicable, with no more than five invitees per meeting
    • discuss Crown’s non-gaming facilities and non-gaming events
    • if a customer wants to discuss any aspect of gaming, inform the customer that is not the purpose of the visit and say ‘someone will follow up by telephone (calling from Australia or HK)’
    • take only a ‘sanitised’ mobile device
    • take only approved collateral that ‘promotes Crown’s resorts, non-gaming facilities and non-gaming events, but does not mention … gambling activities’.²⁴
22. The ‘don’ts’ included:
    • meet with more than five customers at a time without prior approval of Crown’s compliance officer
    • discuss any aspect of gaming (terms, credit, debt collection, and so on)
    • take any electronic device other than a Crown-approved ‘sanitised’ mobile device
    • use public wi-fi for email or other electronic communications
    • dock any external storage device to the Crown mobile device.²⁵
23. Mr Murphy provided advice along these lines to the Crown Resorts board on 27 April 2017.²⁶
24. As a result, the Crown Resorts board decided to restructure its VIP operating model. It closed its offices throughout Asia and established a regional hub in Hong Kong. Crown staff then travelled from Hong Kong to the Asian countries, where offices had previously existed, to carry out their work.²⁷
25. There is also advice provided by MinterEllison to Crown, which is contained in a document entitled ‘DRAFT—Proposed operating model’.²⁸ This is a most troubling document. It provides advice about the activities that Crown staff based in Australia or London might undertake and comments on the appropriateness of those activities. It provides similar advice to that given to staff based in Hong Kong who were to carry out their work in the Asian countries.
26. The troubling aspect of this draft proposed operating model is that it is not confined to advising on the lawfulness of particular activities. It also describes the ‘[r]isk mitigation’ for each activity and rates the risk out of 10.²⁹
27. To appreciate the true nature of this advice, two examples concerning Hong Kong-based staff activity in Macau are reproduced here:

    Activity	Risk mitigation	Risk (/10)	Comments
    Promotion of resorts and events (not gaming) eg circulation of gaming-free version of Crystal magazine and advertising golf tournaments at Capital	Govt. / regulator relations strategy	2	Residual risk is that such promotion comes to be regarded as, in truth, promotion of gaming. Risk seems relatively low because foreign casinos have been doing it for a long time with no issues, and Crown staff in Macau were not targeted when mainland PRC [China] staff were detained.
    Gaming related activities including promotion, negotiating terms of play (including front money or credit terms) and collecting debts	Without any …	8	Whilst promotion of gaming in foreign casinos is not expressly prohibited—local legal advice is that it is implicitly prohibited. Moreover there are instances of persons (generally mainland PRC [Chinese] nationals) disappearing from Macau and turning up in detention in mainland PRC [China].

    Source: Exhibit RC0295 Draft—Proposed operating model, n.d., 4.

28. Precisely the same information is provided for the other Asian countries. The only difference is in the risk rating. For example, the risk rating for the ‘[p]romotion of resorts and events (not-gaming)’ in Hong Kong is 1/10, for Singapore it is 3–4/10, for Thailand it is 3–4/10 and for Malaysia it is 3–4/10.³⁰
29. This is a very useful guide if Crown was interested in having its staff engage in illegal conduct in those countries. It enabled Crown to assess the chance of its staff being charged with a serious offence. It could then decide whether it was prepared to run the risk of its staff being caught.
30. The guide might also be construed as an encouragement to carry out prohibited conduct—that is, it may go beyond the lawyer’s role of giving advice. On the other hand, some might (likely incorrectly) take the view that, because the role of a lawyer is not restricted to giving advice, risk rating is not out of order.³¹

Further advice

31. On 6 July 2018, Mr Murphy emailed Mr Joshua Preston (then Chief Legal Officer of Crown) to pass on additional information he had received from Hakluyt, an international strategic advisory firm.³² The Hakluyt information also dealt with how Crown’s marketing activities might safely be conducted in Asian countries, despite the promotion of gambling being unlawful.
32. With regard to Macau, Hakluyt said ‘careful marketing is possible’. In his email, Mr Murphy said that ‘by careful marketing’ Hakluyt means ‘marketing of Integrated Resorts and visitor services, not mentioning gambling’.³³ The text of what Hakluyt actually reported was a little different. This is what Hakluyt wrote:

    Private VIP marketing restricted to Macau remains relatively low risk … In Macau, provided it is done judiciously, VIP marketing can be relatively low risk ... and a marketing office would not invite undue attention … Any public marketing in Macau should avoid mentioning casinos or gaming and focus instead on IR [integrated resorts] and visitor services.³⁴

33. In relation to Singapore, Mr Murphy wrote that ‘Hakluyt considers the operational risks in Singapore to be generally lower than Macau’. The text from Hakluyt read:

    Open marketing of casino operations is strictly forbidden and, in the words of a former Resorts World Sentosa executive, ‘just isn’t worth it’ … However, it is clear that overseas operators are able to market their services without undue attention from the authorities provided a number of conditions are met. In particular, as with other jurisdictions, it is important to be seen to promote IRs [integrated resorts] in any public marketing with no mention of gambling.³⁵

34. In relation to Malaysia, Mr Murphy summarised Hakluyt’s assessment as ‘relatively low risk for low key marketing’. Hakluyt’s Report read:

    Integrated Resorts a well-established back door for casino marketing

    There are ways around this though. According to a former executive at Genting: ‘Marketing in Malaysia can be done—but it must be done discreetly, due to the sensitivities of its primarily Muslim population. Conservative politicians must never be in a position to complain of obvious promotions from foreign casinos’.³⁶

Action taken by Crown

35. It is important to mention two steps that were taken by Crown in relation to its South-East Asian operations. The first step was its treatment of commissions or bonuses. Until late 2017, the marketing staff received a bonus or commission. The bonus was calculated by reference to the turnover at Australian casinos by patrons who staff procured to attend.³⁷ The payment of commission was subsequently discontinued.³⁸
36. The second step was to prepare written VIP Operating Procedures to regulate the conduct of the marketing staff. The procedures contained ‘main points to remember’. The ‘main points’ included that staff members should ‘only discuss Crown’s resorts and facilities (non-Gaming) whilst travelling’.³⁹
37. The VIP Operating Procedures also set out in broad terms what was permissible in Asia. Staff were told they could meet patrons for coffee, lunch or dinner (with the proviso that meetings be kept small and low-key) and discuss Crown’s non-gaming facilities and patrons’ travel preferences.⁴⁰
38. The VIP Operating Procedures stated that discussions about any aspect of gaming (including terms, credit and debt collection), or making travel, visa or accommodation arrangements for a customer, were prohibited.⁴¹
39. While the VIP Operating Procedures did not deal with New Zealand, Ms Williamson said there were similar procedures in place in that country as it also prohibited the promotion of foreign casinos.⁴²

Reopening of Malaysian and Singaporean offices

40. The Malaysian and Singaporean markets were lucrative. Crown thought it likely that if offices in those jurisdictions could be reopened, substantial additional revenue would accrue.
41. Accordingly, in October 2018, the Crown Resorts board met to consider whether to re-engage local staff in Malaysia and Singapore ‘to hold’ non-gaming-related meetings with local customers.⁴³
42. Mr Murphy attended the meeting. He relayed advice received from Hakluyt that local staff operating in Malaysia and Singapore would be at ‘low risk’ of enforcement action, provided they were careful not to approach customers who had a faith-based objection to gaming.⁴⁴
43. In February 2019, Mr Barry Felstead (then CEO of Crown Resorts) made a presentation to the Crown Resorts RMC about reopening offices in Singapore and Malaysia. The minutes of the meeting record that Mr Felstead advised the Committee that, based on legal advice, returning to operate in Singapore and Malaysia was ‘low risk’ and that Crown would be at a ‘competitive disadvantage’ if it did not establish a physical presence in those countries.⁴⁵
44. Mr Felstead, with the assistance of Mr Murphy, prepared a memorandum for the RMC concerning the reopening of the Malaysian office. The memorandum recorded:

    The current control framework in place has been effective since the change in the VIP Operational Model and is focused on ensuring compliance and minimising the risk of Crown’s processes being viewed by local law enforcement or even the general public as inadequate, and risking the safety and freedom of staff, as well as Crown’s reputation.⁴⁶

45. The memorandum also referred to the financial contribution of the Malaysian market to Crown Resorts, being $5.4 billion in the 2018 financial year. It included the number of gaming programs Malaysian nationals had been involved in over the previous 18 months.⁴⁷
46. The memorandum concluded:

    Management advises that the Malaysia Proposal contains a range of existing and enhanced protocols designed to address and reasonably mitigate the risks, with the residual risk rating being LOW, as support[ed] by MinterEllison, Hakluyt and local Malaysian lawyers.⁴⁸

47. A letter of advice from Mr Murphy was also provided to the RMC. The letter summarised the updated legal advice received from Shearn Delamore, a local Malaysian law firm, and strategic advice from Hakluyt.
48. The summary of the legal advice was:

    …

    3. the law [in Malaysia] is focused on domestic gaming, not foreign casinos;
    4. nevertheless, it is broadly drafted, such that a court could interpret it to apply to offers of hospitality and marketing of integrated resorts where, in reality, the focus is on attracting patrons to gamble;
    5. offering hospitality, entertainment and the like to existing customers is low risk;
    6. approaching prospective customers (unless those prospective customers are known to be significant customers of other foreign casinos) is higher risk;
    7. providing that marketing activities by foreign casinos remain low key and not directed generally at the Muslim community, they are unlikely to be an enforcement priority for local authorities; and
    8. the authorities have ‘bigger fish to fry’ for enforcement resources, including local and online gaming activities.⁴⁹
49. Beneath the heading ‘Risk/reward balance’, Mr Murphy wrote:

    The risk of enforcement of the law (through detention of local staff or prosecution of Crown or its directors) appears low, if:

    1. activities in Malaysia are generally ‘low key’ and do not involve media advertising of Crown;
    2. interactions ‘on the ground’ in Malaysia are non-gaming related and are limited to persons who are existing gaming customers of Crown or who are reliably known to be significant customers of other foreign casinos; and
    3. regular up-dates are sought from local lawyers and Hakluyt (or another suitable government risk advisor) to pick up and evaluate any early warning signs of any change in enforcement policy or any ‘crackdown’ on foreign casinos.⁵⁰

50. Having considered the matter, on 8 May 2019 the Crown Resorts RMC recommended to the board that it reopen its Malaysian office.⁵¹ It had made a similar recommendation regarding the Singapore office in February 2019.⁵² It also resolved that FTI Consulting be retained to provide regular updates about the political and regulatory environment in Malaysia.⁵³
51. Crown staff continued to operate in these Asian countries until all VIP International operations came to an end in early 2021.⁵⁴
52. There is no evidence that describes precisely the activities engaged in by the overseas staff to obtain business for Crown. It is, of course, possible that the staff did observe the ‘do’s’ and ‘don’ts’ that were repeated in substance in the VIP Operating Procedures.
53. There is, however, an air of unreality about the maintenance of a relatively significant workforce (there were approximately 11 staff in Hong Kong and three in New Zealand) simply to wine and dine clients.⁵⁵ It is much more likely, indeed probable, that the staff carried on in the way they had in the past, namely, to entice patrons to gamble at Crown’s Australian casinos.
54. Plainly, Crown was aware of the risk that this might happen. It is precisely the risk that was described in MinterEllison’s ‘DRAFT—Proposed operating model’. No doubt because the risk rating (between 1/10 and 3–4/10, depending on the country) was relatively low, Crown thought it was considered a risk worth taking. In any event, the people facing the real risk were the overseas staff.
55. Discontinuing bonuses and giving written directions to Crown staff regarding what was and was not permitted conduct did not eliminate the risk. The only safe thing to do (that is, safe for the staff) would be to discontinue overseas marketing altogether.
56. In the end, this is what occurred.
57. In December 2020, China’s National People’s Congress Standing Committee passed an amendment to the Criminal Law to make clear that it was illegal for any Chinese citizen to participate in gambling outside China.⁵⁶ The change to the Criminal Law also made clear that anyone who organised a Chinese citizen to gamble outside China committed an offence. That is, as Crown observed in January 2021, the overseas staff were now at greater risk than before if they solicited Chinese citizens to gamble outside China.⁵⁷
58. Not surprisingly, the Crown Resorts board resolved to close the office in Hong Kong. The board also decided to close the Auckland office.⁵⁸

Conclusion

59. The following points emerge from the nature of Crown’s marketing activities in Asia and New Zealand:
    • Crown knew that promoting its casinos was illegal or was likely to be illegal.
    • Crown knew that its staff were only permitted to market its resorts with no mention that a casino was part of the resort.
    • Crown knew there was a risk (albeit a low-rated risk) that the activities of its overseas staff would be regarded, in truth, as the promotion of gaming.
    • Despite knowing of all these things, Crown was prepared to run the risk (more accurately, Crown was prepared to allow its overseas staff to run the risk) of prosecution.
60. It is difficult to imagine more reprehensible conduct on the part of an employer in this day and age.
61. This behaviour also demonstrates that Crown learnt little from the incarceration of its China-based staff in 2016 and 2017. It continued to exhibit disregard for the safety of its employees.