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Date:
October 2021

Chapter 16

The powers of the regulator

The powers of the regulator

Introduction

  1. The investigation undertaken by this Commission has exposed areas in the scheme of regulatory oversight of casino operators and casino operations that require reform.
  2. Some reforms are needed to prevent the type of conduct engaged in by Crown Melbourne from happening again. Other reforms are required to deal with circumstances that were not anticipated when the regulatory scheme was first enacted.
  3. This chapter will deal with aspects of the Casino Control Act relating to the powers of the casino regulator that warrant amendment.
  4. Key aspects of the Casino Control Act have been explained in Chapter 2. It is necessary to consider, in a little more detail, the provisions concerning the power to investigate, supervise and oversee a casino operator and its operations. It is also necessary to consider the cancellation and suspension power.

Investigation power

  1. The Casino Control Act authorises the regulator to investigate the casino and its operations.1 It also authorises the regulator to investigate associates of the casino operator.2
  2. The principal reasons the regulator is authorised to carry out an investigation include:
    • To determine whether the casino operator continues to be a suitable person to hold its casino licence. If not, it can decide what steps, including disciplinary action, should be taken.3
    • To determine whether an associate has become unsuitable to be concerned in or associated with the casino operator’s business and, if so, what steps should be taken.4
    • In the event that a major change has occurred in relation to a casino operator (that is, a person has become an associate of the operator) without the regulator’s approval, it can decide what action should be taken.5
  3. In order to carry out an investigation, the regulator has power to require the casino operator, or a person associated with the operator, to provide it with information, to produce documents and other records or to attend before the regulator to be examined.6
  4. To trigger the obligation to provide information or documents and records or attend for an examination, the regulator must give a notice in writing to the casino operator or other person. The notice should specify the action the operator or other person is required to take.7
  5. A failure to comply with the notice is punishable as if it were a contempt of the Supreme Court of Victoria.8

Supervision power

  1. The regulator has the power to give directions that relate to the conduct, supervision or control of a casino’s operations.9
  2. In order to carry out that function, the casino operator must provide to the regulator certain information about the casino’s affairs. Principally, the obligation will arise when the regulator’s approval is required for some reason; for example, if a person is to become an associate of the casino operator or if the casino operator wishes to enter into a controlled contract (a contract for the supply of goods or services to the casino).10
  3. In the case of Crown Melbourne, the obligation to provide information is also found in the Casino Agreement.11
  4. The Casino Agreement specifies that Crown Melbourne must allow the regulator:
    • to inspect all records, accounts and information of Crown Melbourne
    • to have a representative attend meetings of Crown Melbourne, but not the right to vote at those meetings.12
  5. In addition, Crown Melbourne is required to provide to the regulator:
    • all notices sent to shareholders13
    • all notices or other information provided to the ASX and all notices or other information relating to Crown Melbourne received from the ASX, if Crown Melbourne is a listed company14
    • all notices or other information provided to ASIC, and all notices and other information relating to Crown Melbourne received from ASIC15
    • information regarding the activities of the Audit Committee and the Compliance Committee16
    • financial information about Crown Melbourne’s capital expenditure, budgets, investments and the like.17
  6. Crown Melbourne’s failings revealed by the Bergin Inquiry and this Commission occurred at all levels of the organisation.
  7. The directors did not properly monitor Crown Melbourne’s performance or oversee its processes to ensure that the organisation met its legal and regulatory obligations. Senior executives were personally involved in all aspects of Crown Melbourne’s misconduct. Even employees played a role.
  8. Had the regulator’s existing powers been more extensive, it is possible that it would have detected, or dealt with, at least some of the problems that arose.

Oversight of the casino floor

  1. It is also necessary to consider whether there is sufficient oversight of conduct that takes place on the casino floor itself.
  2. Principally, that task falls on the inspectors. Inspectors are appointed under the Victorian Commission for Gambling and Liquor Regulation Act.18 They have functions under gaming and liquor legislation.19 Under the Casino Control Act, inspectors have a number of functions, which include responsibilities at a casino.20
  3. An inspector may enter and remain at the casino premises to:
    • observe its operations
    • ascertain whether its operations are properly conducted
    • ascertain whether the provisions of relevant legislation are being complied with
    • supervise the handling of money
    • help detect Casino Control Act offences
    • investigate complaints.21
  4. Mr Connor, QC had recommended the appointment of inspectors in his 1983 Report. He said:
    • There must be an investigative, surveillance and auditing team of high integrity and skill. The skills needed include legal, accounting, auditing and investigative skills.22
    • The casino operator must be required to provide an office in the casino for the team.
    • Members of the team should have power to examine the books and records of the casino operations, wherever the books and records are located.
    • Members of the team should have power to take direct control of surveillance facilities in the casino.
    • Members of the team should have power to exclude persons from the casino.23
  5. It is not clear whether the inspectors are carrying out all the functions Mr Connor, QC envisaged.
  6. In addition to inspectors, when the Melbourne Casino commenced operation, the Casino Crime Unit of the Victoria Police was permanently stationed at the casino. The purpose of the Casino Crime Unit, as explained by Commander Michael Frewen, was:

    to maintain the integrity of the Casino Industry by effective strategies, investigation techniques and prosecution of criminal acts thereby preventing the infiltration of significant criminal and corruptive influences.24

  7. In his evidence to the Commission, Commander Frewen (then an Acting Assistant Commissioner) explained this in a little more detail.25 He said the Casino Crime Unit:

    was responsible for a 24/7 presence at the casino, the collection of intelligence on behalf of Victoria Police and/or other agencies as the need necessitated, [and] providing an investigative response to a variety of different themes, including suspected international cheats, money laundering activities, counterfeiting and other suspicious activity ...26

  8. Commander Frewen said the Casino Crime Unit also provided a ‘primary response’ to criminal conduct in and around the casino complex ‘that presented on a day-to-day basis’.27
  9. The Casino Crime Unit was disbanded in 2006 following an independent review of Crime Command. Having a physical base at the Melbourne Casino had little value in helping Victoria Police investigate serious money laundering and organised and serious crime, which are far-reaching and borderless. Money laundering, in particular, took place at many physical and virtual locations, including banking institutions, cash-based business venues and online platforms.28
  10. Commander Frewen acknowledged that a police presence in large public places, such as a casino, is a form of effective policing. But he said this could be achieved by having uniformed members present, and that this was so in the case of Melbourne Casino.29
  11. The functions of the permanently stationed team that Mr Connor, QC envisaged are different from the functions that the Casino Crime Unit performed, although there was a degree of overlap. Police were present at a casino to prevent criminal conduct and, if it did occur, to investigate the crime and prosecute the offender. Mr Connor, QC’s proposed task force of skilled investigators was intended to provide broader oversight of the casino’s operations as well as the activities of the casino operator.
  12. The evidence before the Commission is that much illegal activity takes place in the casino itself. Money laundering, for example, remains a significant problem.30 It is not only money that has been transferred from overseas that is of concern. Cash is regularly brought into the casino by, or on behalf of, local criminal elements to be laundered.
  13. A Police Officer currently stationed in the Organised Crime Intelligence Unit at Victoria Police gave evidence about money laundering.31 They said that:
    • ‘there [was] money laundering at the casino on a daily basis’32
    • ‘[outside] junket programs … we observed a lot of lower level money laundering or suspected money laundering’33
    • ‘individuals had a certain amount of cash with them … [for example] in plastic bags … going to the casino’34
    • a particular type of container in which the cash was placed was ‘a very big indicator [of money laundering] for us’35
    • ‘there is a high probability [that certain people carrying money into the casino] are just money runners … working for a money laundering syndicate’.36
  14. The Police Officer was also asked about illegal prostitution at the Melbourne Casino. They said, ‘I can answer that in relation to the illegal prostitution or prostitution, [it occurs] regularly, from what we’ve seen.’ 37
  15. The Police Officer did not say whether loansharking took place.38 Other evidence is to the effect that loansharking does occur.39
  16. This evidence, together with other evidence before the Commission, indicates that Melbourne Casino staff do not take sufficient action to deter or prevent illegal conduct, even when it is happening in plain sight.
  17. In light of the evidence given by Victoria Police, and the fact that the Casino Crime Unit has been disbanded, it is appropriate that inspectors have more functions and are able to carry out these and any additional functions effectively.

Recommendation 17: Functions of inspectors

It is recommended that the Casino Control Act be amended to add to inspectors’ functions the following:

  • to ascertain whether money laundering is taking place
  • to ascertain whether loansharking is taking place
  • to ascertain whether illicit drugs are being sold
  • to make an exclusion order when appropriate
  • on behalf of the casino operator, to withdraw a person’s licence to remain on the casino premises
  • any other functions as are prescribed by regulation.

    Recommendation 18: Powers of inspectors

    It is recommended that the Casino Control Act be further amended so that:

    • inspectors have free and unfettered access to all parts of the casino, all the surveillance equipment used by the casino operator, and all the books and records of the casino wherever they be located
    • any interference with inspectors’ performance of their functions is to be a strict liability offence the contravention of which should carry a significant penalty.

    A problematic casino operator

    1. As will by now be apparent from other parts of this Report, the regulator faces real difficulty in carrying out its functions if the casino operator adopts a non-cooperative, adversarial or even hostile attitude in its dealings with the regulator.
    2. The adoption of this attitude places a significant constraint on the regulator’s ability to carry out its statutory functions.
    3. The position is made much worse if, as well as having a non-cooperative attitude, the casino operator withholds information from the regulator or actively misleads the regulator in an effort to hide the true facts.
    4. This is the type of conduct Crown Melbourne engaged in. There is a description of that conduct in Chapter 10. It is not necessary to repeat what was said. It is sufficient to note that during several inquiries undertaken by the VCGLR, Crown Melbourne made a concerted effort to frustrate the regulator and conceal from it what had actually occurred.
    5. Conduct like this cannot be allowed to continue. Crown Melbourne’s assurances that the conduct will not be repeated cannot be relied upon. In the past, assurances of that kind were given but immediately broken.40
    6. Other jurisdictions have recognised the problems caused by a recalcitrant casino operator. They have dealt with these licensees by imposing on them an obligation to cooperate as the price of the privilege of conducting a casino operation.
    7. For example, the Gambling Commission of the United Kingdom, in its Licence Conditions and Codes of Practice (31 October 2020), records that it expects licensees ‘to work with the Commission in an open and cooperative way’.41 To give effect to this legitimate expectation, a licensee can have its licence suspended or cancelled if it has not cooperated with the Commission during a statutory review.42

    Recommendation 19: Cooperation with the regulator

    It is recommended that the Casino Control Act be amended:

    • to oblige a casino operator to cooperate with the regulator in relation to the performance by the regulator of its functions. Cooperation requires the licensee to make full and frank disclosure of all information that relates to the performance by the regulator of a particular function
    • to oblige the casino operator to notify the regulator of a material breach, or a likely material breach, of the Casino Control Act, the Casino (Management Agreement) Act, the Gambling Regulation Act, its Responsible Gambling Code of Conduct and any agreements made pursuant to sections 15 and 142 of the Casino Control Act. A breach or likely breach will be material having regard to, among other things, the number and frequency of similar previous breaches or likely breaches, the impact of the breach or likely breach and any other matter prescribed by regulation
    • to prohibit the casino operator from making false or misleading statements or providing false or misleading material to the regulator
    • to make a contravention of those obligations a strict liability offence that carries a significant penalty.
    1. The Commission has also closely analysed several investigations that the regulator carried out into the affairs of Crown Melbourne. The details are in Chapter 10. What is apparent from that analysis is that, to more effectively carry out its inquiries, the regulator needs additional powers.

    Recommendation 20: New powers for the regulator

    It is recommended that the Casino Control Act be amended to permit the regulator:

    • to require any person attending for an examination under section 26(1)(c) to answer questions on oath or affirmation
    • in addition to the powers conferred by section 26, to require a casino operator or an associate to provide it with a written statement (verified on oath or affirmation) containing such information as the regulator reasonably requires to carry out its duties or perform its functions
    • to make a costs order in respect of any action under section 20
    • to require the casino operator to retain at its own cost and pay for a suitably qualified expert:
      • approved by the regulator
      • engaged on terms approved by the regulator

      to inquire into and report to the regulator on any matter the regulator reasonably requires to carry out its duties or perform its functions

    • to direct the casino operator to provide the expert with all information the expert reasonably requires
    • to require the casino operator to comply with any recommendation made by the regulator as a result of an investigation under section 25.

    Special Manager

    1. In light of what is now known about the extent of Crown Melbourne’s misconduct, it is also desirable for the regulator to have greater powers to oversee and control the casino operator’s management.
    2. The particular problem that needs to be dealt with is when it appears that the casino operator is not, or may no longer be, a suitable person to hold a casino licence, but it is not appropriate to cancel or vary the casino licence.
    3. There will only be limited circumstances in which this situation could arise. The most obvious is when the casino operator’s unsuitability is likely to be temporary. Under the current statutory regime, the regulator has few options. It could suspend the casino licence for a period and appoint a manager to conduct the casino operations during the period of suspension.43 The only other alternative is for the regulator to permit the casino operator to continue operating the casino and keep a watchful eye on its operations.
    4. Neither of these alternatives may be appropriate in particular circumstances. Missing from the legislation is the ability to permit the casino operator to continue to run the casino but to have in place some means by which the casino operations can be supervised, short of taking away all the casino operator’s powers.
    5. The gap in the legislation could be filled by creating the position of a Special Manager (however called), that can be appointed to oversee and control the casino operator and the casino operations. The Special Manager may also be required to investigate aspects of the casino’s operations and report the results of that investigation.

    Recommendation 21: Special Manager

    It is recommended that the Casino Control Act be amended to the following effect:

    • The regulator has power by an instrument in writing to appoint a Special Manager to oversee the affairs of the casino operator:
      • if the regulator is directed to do so by the Minister; or
      • where it appears to the regulator that at least one of the following situations exist:
        • there are reasonable grounds to suspect that the casino operator has contravened, in a material respect, a provision of its casino licence, the Casino Control Act, or any agreement entered into under sections 15 or 142 of the Casino Control Act
        • the casino operator is or may no longer be a suitable person to hold a casino licence
        • it is in the public interest because fraud, misfeasance or other misconduct by a person concerned with the affairs of the casino operator is alleged
        • in any case it is in the public interest.
    • The Special Manager:
      • may be a body corporate or unincorporate
      • if a body corporate or unincorporate, the Special Manager must nominate one or more individuals to carry out any of its functions that can only be undertaken by a natural person.
    • The Special Manager must be qualified for appointment by virtue of their knowledge of, or experience in, industry, commerce, law or public administration.
    • The instrument appointing the Special Manager must specify:
      • the period of the appointment
      • the terms and conditions (if any) to which the appointment is subject
      • any particular functions the Special Manager is to perform
      • any other matter the regulator considers appropriate
      • if appointed at the direction of the Minister, any function specified in the Minister’s direction.
    • The functions of the Special Manager shall be to:
      • oversee the affairs of the casino operator including the casino operations
      • carry out investigations that are specified in the instrument of appointment
      • report to the regulator on any matter it has investigated
      • otherwise comply with any direction in the instrument of appointment.
    • The Special Manager or, if a body corporate or unincorporate, the nominated person(s), should have the following rights, privileges and powers:
      • the rights and privileges of a director of the casino operator, but not the right to vote
      • despite not having the right to vote, the power to:
        • direct the board of directors of the casino operator to take particular action
        • direct the board of directors of the casino operator to refrain from taking particular action

        if the Special Manager believes that the direction:

        • is in the best interests of the casino operator or of the casino operations; or
        • is necessary to secure compliance with any law or regulation governing the casino operator or the casino operations.
    • A failure to comply with a direction should be a strict liability offence carrying a significant penalty.
    • Without limiting its rights, privileges and powers, the Special Manager may:
      • investigate the affairs of the casino operator and the casino operations
      • attend meetings of the board of directors and any subcommittee of the board
      • attend meetings of the casino operator’s management, including meetings of any audit committee and compliance committee
      • inspect all the books and records of the casino operator
      • obtain the advice of, or services from, any third party including experts
      • require any director, officer, employee or agent of the casino operator to provide such information, including confidential or privileged information, as the Special Manager requires to carry out its duties.
    • A person who fails to comply with a requirement to provide information will be guilty of a strict liability offence with a significant penalty. The court may direct the person to comply with the requirement.
    • The Special Manager may carry out its functions, and any director or officer of the casino operator acting under the direction of the Special Manager must observe that direction, despite:
      • the Corporations Act, except to the extent of any inconsistency
      • the casino operator’s constitution.
    • The Special Manager may if special circumstances arise, and if so directed by the regulator must, make interim reports to the regulator and on the termination of its appointment shall report its opinion on, or in relation to:
      • the conduct of the casino operator and casino operations
      • the particular affairs of the casino operator or casino operations that the instrument of appointment requires the Special Manager to investigate.
    • A report may contain confidential or privileged information.
    • A copy of any interim report and the final report must be forwarded to the Minister.
    • Neither the Minister nor the regulator is to provide a copy of a report to any person unless it is in the public interest to do so. If the report contains information the subject of legal professional privilege, the privilege does not cease.
    • The regulator must consider any interim report or the final report and decide what action, including disciplinary action, it should take.
    • The costs and expenses of the Special Manager and any costs incurred by the regulator in connection with the Special Manager process must be paid by the casino operator.
    • The Special Manager is to be given an indemnity by the State for properly incurred debts.
    • If a Special Manager is appointed to Crown Melbourne:
      • The regulator must within 90 days of receiving the Special Manager’s final report decide whether it is clearly satisfied that:
        • Crown Melbourne has become a suitable person to continue to hold its casino licence; and
        • it is in the public interest that Crown Melbourne’s casino licence should continue in force.
      • The regulator must engage a senior counsel to assist in its deliberations.
      • For the purposes of its decision, the regulator must only have regard to:
        • the Bergin Report (and documents/evidence tendered)
        • the Report of this Royal Commission (and documents/evidence tendered)
        • the Reports of the Perth Royal Commission (and documents/evidence tendered)
        • the report(s) of the Special Manager.
      • If the regulator is not clearly satisfied that:
        • Crown Melbourne has become a suitable person to continue to hold its casino licence; and
        • it is in the public interest that Crown Melbourne’s casino licence should continue in force,

        the casino licence granted to Crown Melbourne on 19 November 1993 under Part 2 of the Casino Control Act should forthwith be cancelled.

      • If the regulator has not made a decision within 90 days of receiving the Special Manager’s final report, the casino licence should be cancelled forthwith.
    1. If the previous recommendations are accepted, then the following should apply in respect of the appointment of the Special Manager.

    Recommendation 22: Appointment of the Special Manager

    It is recommended that the Minister direct the regulator to appoint the Special Manager to Crown Melbourne for a period of two years.

    The direction should specify the matters the Special Manager is required to investigate and report on. Those matters could include the following:

    • details of each direction the Special Manager has given to members of the board
    • whether the direction was complied with
    • whether the casino operator has put in place appropriate policies, processes and structures to meet its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act
    • whether those Anti-Money Laundering/Counter-Terrorism Financing policies, processes and structures are being implemented
    • whether the casino operator has put in place appropriate risk management policies, processes and structures
    • whether those risk management policies, processes and structures are being implemented
    • whether the casino operator has revised its Responsible Service of Gambling practices to take account of the concerns highlighted in this Commission’s Report
    • whether the casino operator has adopted policies, processes and structures that will enable it to comply with its Responsible Gambling Code of Conduct in force
    • whether the casino operator is complying with its Responsible Gambling Code of Conduct
    • whether the casino operator is conducting its casino operations in a manner that has regard to the best operating practices in casinos of a similar size and nature to the Melbourne Casino
    • whether the casino operator has conducted a ‘root cause’ analysis into the failures outlined in the Bergin Report and in the Report of this Commission, and what the findings were
    • whether there is any evidence of maladministration
    • whether there is any evidence of illegal or improper conduct
    • whether the casino operator has engaged in any conduct that may give rise to a material contravention of any law
    • the conduct of the casino operations generally.

    Further details of the matters the Special Manager could investigate are set out in Appendix I.

    Recommendation 23: Periodic review

    It is recommended that, if, following the receipt of the Special Manager’s report, the regulator does not cancel Crown Melbourne’s casino licence, the Casino Control Act be amended so that the next investigation due to be undertaken pursuant to section 25 of the Casino Control Act is deferred for at least three years.

    Powers on cancellation and suspension

    1. There is another aspect of the Casino Control Act that should be examined. As has been explained, the regulator has power to cancel, suspend or vary the terms of a casino licence if one or more of the grounds for taking disciplinary action is made out.44
    2. The suspension or cancellation of a casino licence may not automatically bring to an end the casino’s operations.
    3. If a casino licence is suspended or cancelled, the regulator may appoint a manager of the casino.45 If appointed, the manager is deemed to hold the casino licence on the same terms on which the casino operator held the licence.46 The manager then assumes full control of, and responsibility for, the business of the casino operator and may retain for use in the casino any property of the casino operator.47 The manager may also employ staff as required.48
    4. Provision is made for the distribution of the net income of the casino business conducted by the manager. In brief, no payments are to be made to the former casino operator without approval; the former casino operator is entitled to a fair rate of return for the property retained by the manager; and the balance must be paid into the Consolidated Fund or to the former casino operator as the regulator determines.49
    5. This scheme is unsatisfactory and most likely unworkable. One principal deficiency is that the casino operations must be conducted by, and in the name of, the manager.
    6. Practically speaking, for this to occur the manager would need to take over many, if not all, contracts between the casino operator and third parties (employees, suppliers and the like). This would be a complex and time-consuming task. It would be a major impediment to a smooth transfer of power from the licensee to the manager.
    7. Another impediment is the likelihood that third parties would have a security interest over some gaming equipment and other property needed for use in the casino. There is nothing in the Casino Control Act that prevents those third parties exercising their property rights.
    8. Finally, if a suitable person is found to take over the casino operations, including the gaming equipment and other property used in its operations, the manager has no power to sell the property to the new licensee.
    9. These deficiencies can be overcome if the manager is appointed as the agent of the casino operator to take control of the casino operations and to take possession of the property used in those operations. It would also be necessary to prevent third parties from exercising their property rights.

    Recommendation 24: Additional functions and powers of the manager

    It is recommended that the Casino Control Act be amended to include the following provisions relating to the manager:

    • Upon appointment the manager:

      • has control of the casino operator’s casino operations and all the property used in those operations
      • may carry on those operations and manage that property
      • may dispose of any of the property used in the casino operations and pay the net proceeds of sale to the persons entitled to the proceeds
      • may perform any function and exercise any power that the casino operator or any of its officers could have exercised in relation to the casino operations
      • when performing a function or exercising a power as manager of the casino operator, is taken to be acting as the casino operator’s agent.
    • The regulator is to determine the rate of compensation payable to the manager by the former casino operator and to approve the costs and expenses incurred by the manager.
    • During the period of management, the former casino operator must:
      • use its best endeavours to facilitate the operation of the casino within the casino complex
      • afford the manager all appropriate rights, including rights of access and egress over the casino complex, as are necessary to enable the manager to operate a casino in the casino complex.
    • The manager is to be given an indemnity by the State for properly incurred debts.

    Recommendation 25: Property rights of third parties

    It is recommended that the Casino Control Act be amended so that a third party cannot, without the regulator’s permission:

    • enforce any security interest (as defined in the Corporations Act) over property that the manager retains for use in the casino’s operations
    • take possession of any property retained by the manager for use in the casino’s operations
    • levy execution on any judgment obtained against the former casino operator.
    1. Finally, on this aspect it is noted that if the casino licence is cancelled and the State wishes to grant a casino licence to another person, the State can require Crown Melbourne to grant to the new casino operator a sub-lease of the Melbourne Casino.50
    2. Through a complicated set of definitions, the area over which the sub-lease is to be granted is identified by a set of drawings that were initialled by, or on behalf of, the State and Crown Melbourne when the Management Agreement was entered into in 1993.
    3. The area in which the casino operations are presently conducted no longer conforms with the 1993 drawings, although, of course, appropriate permissions were obtained from the regulator to extend the casino area from time to time.

    Recommendation 26: The area of the sub-lease

    It is recommended that steps be taken to ensure that the area in which the Melbourne Casino’s casino operations are being conducted and the area that is to be the subject of a sub-lease under the Management Agreement are the same. If the matter cannot be agreed then legislation will be necessary.

    Penalties

    1. The Casino Control Act has a number of provisions the contravention of which is an offence leading to the imposition of a penalty. Most, if not all, of the penalties were set many years ago.
    2. For that reason, many of the penalties are now inadequate, especially if it is hoped that their existence is to have a deterrent effect.
    3. Take, for example, the penalty for refusing to comply with a direction given by the regulator. The penalty is 50 penalty units.51 Another example is where a casino operator fails to keep accounting records. Once again, the penalty is 50 penalty units.52 These penalties are absurdly low. There are many other examples.

    Recommendation 27: Penalties

    It is recommended that there be a thorough review of all the penalties imposed by the Casino Control Act. Most should be substantially increased.

    Special attention should be given to the penalty to be imposed for disciplinary action. Currently the penalty is a fine not exceeding $1 million. It is recommended that the penalty be increased to at least $10 million.

    Endnotes

    1 Casino Control Act 1991 (Vic) s 24.

    2 Casino Control Act 1991 (Vic) s 28A.

    3 Casino Control Act 1991 (Vic) ss 20(1) (definition of ‘grounds for disciplinary action’, para (d)), 25(1)(a), 25(2).

    4 Casino Control Act 1991 (Vic) ss 28A(3)–(5).

    5 Casino Control Act 1991 (Vic) ss 28(5).

    6 Casino Control Act 1991 (Vic) s 26(1).

    7 Casino Control Act 1991 (Vic) s 26(1).

    8 Casino Control Act 1991 (Vic) s 27.

    9 Casino Control Act 1991 (Vic) s 23(1).

    10 Casino Control Act 1991 (Vic) ss 28(2)(a), 30.

    11 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013.

    12 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cls 23, 24.1.

    13 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cl 24.2.

    14 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cl 25.1.

    15 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cl 25.5.

    16 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cl 25.6, sch 5 items 1–4.

    17 Exhibit RC0435 Consolidated Casino Agreement, 21 September 2013, cl 25.6, sch 5 items 6–10.

    18 Casino Control Act 1991 (Vic) s 3(1) (definition of ‘inspector’); Gambling Regulation Act 2003 (Vic) s 1.3(1) (definition of ‘inspector’); Victorian Commission for Gambling and Liquor Regulation Act 2011 (Vic) s 40.

    19 Victorian Commission for Gambling and Liquor Regulation Act 2011 (Vic) s 42(1)(a).

    20 Casino Control Act 1991 (Vic) s 106.

    21 Casino Control Act 1991 (Vic) ss 105(1), 106(b)–(d).

    22 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.27].

    23 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.28].

    24 Exhibit RC1574 Supplementary Statement of Michael Frewen, 17 July 2021, 2 [2.1]–[2.2].

    25 Transcript of Michael Frewen, 7 May 2021, 2.

    26 Transcript of Michael Frewen, 7 May 2021, 9.

    27 Transcript of Michael Frewen, 7 May 2021, 9.

    28 Exhibit RC1574 Supplementary Statement of Michael Frewen, 17 July 2021, 2 [2.4]–[2.5].

    29 Transcript of Michael Frewen, 7 May 2021, 10.

    30 See Chapter 6.

    31 Transcript of A Police Officer, 18 June 2021, 2057.

    32 Transcript of A Police Officer, 18 June 2021, 2079.

    33 Transcript of A Police Officer, 18 June 2021, 2080.

    34 Transcript of A Police Officer, 18 June 2021, 2085.

    35 Transcript of A Police Officer, 18 June 2021, 2085.

    36 Transcript of A Police Officer, 18 June 2021, 2087.

    37 Transcript of A Police Officer, 18 June 2021, 2079.

    38 Transcript of A Police Officer, 18 June 2021, 2057–113.

    39 Transcript of EZ, 20 May 2021, 394–6; Transcript of EX, 20 May 2021, 416–17.

    40 See, eg, Chapter 10.

    41 Gambling Commission (United Kingdom), Licence Conditions and Codes of Practice (at 31 October 2020) code 1.1.1.

    42 Gambling Act 2005 (UK) s 120(1)(c).

    43 Casino Control Act 1991 (Vic) ss 20, 22.

    44 Casino Control Act 1991 (Vic) s 20.

    45 Casino Control Act 1991 (Vic) s 22(1).

    46 Casino Control Act 1991 (Vic) s 22(6)(a).

    47 Casino Control Act 1991 (Vic) s 22(6)(b).

    48 Casino Control Act 1991 (Vic) s 22(6)(e).

    49 Casino Control Act 1991 (Vic) s 22(8).

    50 Exhibit RC0502 Consolidated Management Agreement, 20 September 1993, cl 26.5.

    51 Casino Control Act 1991 (Vic) s 23(1).

    52 Casino Control Act 1991 (Vic) s 124(2).


    Chapter 17

    The structure of Crown Melbourne

    Introduction

    1. In 1993, the then casino regulator, the VCCA, agreed to grant Crown Melbourne (then known as Crown Casino) a casino licence to operate the Melbourne Casino.
    2. On 21 September 1993, pursuant to section 142 of the Casino Control Act, the VCCA and Crown Melbourne entered into an agreement for the establishment and operation of the casino—the Casino Agreement.
    3. The Casino Agreement deals with the development of the Melbourne Casino Complex; the grant of the casino licence (including the payments to be made for the grant); the security to be provided by Crown Melbourne for the performance of its obligations; and the manner in which the casino operations are to be conducted.
    4. The Casino Agreement also deals with the structure of Crown Melbourne. There are three aspects of the structure that will be considered in this chapter:
      • ownership of the casino operator
      • management of the casino operator
      • the single purpose restriction.
    5. Finally, the Casino Agreement deals with the extent to which Crown Melbourne’s holding company, Crown Resorts, is entitled to compete with Crown Melbourne’s casino operations. While incidental to the structure of Crown Melbourne, this aspect will also be explored.

    Ownership structure

    Original shareholding

    1. The Casino Agreement has been varied on 12 occasions. It is convenient to consider the ownership structure first by reference to the Casino Agreement in its original form.
    2. The Casino Agreement originally provided that:
      • until the completion of the Melbourne Casino Complex, the total number of shares to be held by the original developers, HCL and Federal Hotels (together known as the Sponsors) and by CUB was to be not less than 40 per cent of the issued capital in Crown Melbourne1
      • during the 12 months following the completion of the complex, each Sponsor was not to reduce its shareholding to less than 10 per cent of the issued capital2
      • apart from the initial shareholders, Crown Melbourne would not permit a person to become entitled to, or continue to hold, shares exceeding 5 per cent of the issued capital without the approval of the regulator.3
    3. Consistent with the contractual 5 per cent limit on shareholding, the Articles of Association of Crown Melbourne contained the following clauses:
      • The number of shares to which a person (other than a Sponsor) was entitled could not exceed 5 per cent of the total number of shares in the company without the prior consent of the VCCA.4
      • The VCCA could require the company to dispose of any shares held by a member.5
    4. These provisions were entrenched because the Articles of Association could not be amended without the VCCA’s approval.6
    5. The reference to a person becoming ‘entitled to shares’ in both the Casino Agreement and the Articles of Association adopted the meaning of that expression in the Corporations Act 1989 (Cth) (Corporations Act 1989), which was then in force.7 It also adopted any change to that meaning that would result from an amendment to the Corporations Act 1989 or any replacement legislation.8
    6. The shares to which a person was ‘entitled’ under the Corporations Act 1989 included shares in which that person had a ‘relevant interest’.9 A person had a ‘relevant interest’ in shares principally if they had the power to vote or dispose of the shares.10 In addition, if a person had the prescribed shareholding in a body corporate (20 per cent of the shares), that person was deemed to have the same power to vote or dispose of the shares as had the body corporate.11 The person was, therefore, deemed to have a ‘relevant interest’ in the shares held by the body corporate.
    7. The Corporations Act 1989 was repealed and, ultimately, replaced by the Corporations Act 2001. The concept of an ‘entitlement’ to shares is not found in the Corporations Act. Instead, it has been replaced by a ‘relevant interest’ in shares.12 The principles are, however, substantially the same.13
    8. The reference in the Casino Agreement to an ‘entitlement’ to shares must now be taken to refer to a ‘relevant interest’ in shares as defined by the Corporations Act. Applying the applicable principles of the construction of instruments would lead to the same conclusion regarding the meaning of an ‘entitlement’ to shares in the Articles of Association.
    9. HCL was not a party to the Casino Agreement. But it had entered into the Supplemental Sponsors’ Agreement by which it undertook to comply, and to use its best endeavours to ensure that the other Sponsors comply, with clause 22 of the Casino Agreement (the clause where the shareholding restriction is found).14
    10. The requirement that the Sponsors and CUB should hold not less than 40 per cent of the shares had two objectives. One was to secure the capital base of Crown Melbourne. The other was to ensure that the Sponsors remained committed to the development of the casino project.15
    11. This purpose was reinforced by clause 22.1(b), which permitted the Sponsors to only sell their shareholding down to less than 10 per cent of the issued capital during the 12 months following the completion of the Casino Complex.16

    Change to original shareholding

    1. In January 1996, Crown Melbourne (then named Crown Limited) advised the then regulator, the VCGA, that the Sponsors’ shareholding had fallen below 40 per cent. This occurred because Crown Resorts had made several private placements of shares to finance property acquisitions and building works.17
    2. HCL and Crown Melbourne requested the VCGA to agree to reduce the minimum shareholding requirement from 40 per cent to 37 per cent.18
    3. Later, HCL sought a variation of the Casino Agreement to permit it to sell down its shareholding to 33.5 per cent of the shares on issue.
    4. Ultimately, the VCGA agreed to alter the shareholding requirements. One reason was that because Crown Melbourne had become a listed company, it now had a secure capital base. Another reason was that a sell-down by HCL or a dilution of HCL’s interest was seen as a positive factor, because it would reduce its influence over Crown Melbourne and create a greater diversity of ownership.19
    5. On 8 May 1997, the agreement to allow the reduction in the shareholding requirement was put into effect by the Sixth Variation to the Casino Agreement.20 By that variation, the changes to the shareholding requirements included the following:
      • The original shareholding requirements were revoked by the deletion of paragraphs (a) and (b) of clauses 22.1.
      • A new paragraph 22(a) was inserted that provided, among other things, that HCL must not dispose of any of its shares. That restriction did not, however, prevent HCL from disposing of its shares, provided it still held 33.5 per cent of the total number of shares on issue.
      • A new paragraph 22(b) was inserted that provided that 12 months after the date of completion of the Melbourne Casino Complex (with a specified exclusion), HCL could reduce its shareholding to less than 10 per cent of the shares on issue or the number of shares held on that date (whichever was lower).21

    Merger with PBL

    1. In December 1998, PBL proposed a ‘merger’ with Crown Melbourne.22 The proposed merger involved PBL acquiring Crown Melbourne for around $2 billion.23 Shareholders in Crown Melbourne (then a listed company) were to be offered ‘one PBL share for each 11 Crown Limited shares’.24
    2. To understand what happened next, it is necessary to mention other provisions in the Casino Agreement in its original form: those that establish the so-called single purpose restriction.25 They are:
      • Crown Melbourne must not carry on or conduct any business other than the casino business, or any business incidental to or complementary with the casino business, without the regulator’s approval.26
      • Crown Melbourne must not establish or acquire a subsidiary, unless it relates to an incidental or complementary business, without the regulator’s approval.27 (A business was incidental or complementary to the casino business if a dominant purpose of the business was to operate in support of and in conjunction with the casino business to increase or preserve the revenue of that business.)28
      • Crown Melbourne must strive to obtain the maximum GGR by conducting its operations as a discrete business operated in Melbourne in a proper and efficient manner having regard to the best operating practices in international casinos of a similar size and nature.29
    3. The VCGA thought that, should the proposed merger go ahead, these restrictions might no longer be effective. For example, its view was that:
      • PBL could ‘cannibalise’ Crown Melbourne and establish a competing casino elsewhere in Australia
      • PBL could acquire another casino, market it and move the high roller business to the new casino or between the two casinos
      • PBL could set up a casino tax bidding war between Victoria and other states.30
    4. A mechanism had to be found to prevent PBL, or any related company, from carrying out casino operations elsewhere in Australia.
    5. In addition, to evaluate the merger proposal, the VCGA obtained a report from the National Institute of Economic and Industry Research. The report made the following observations:
      • The merger was expected to result in a net loss of $150 million for the Victorian economy.
      • Loss of control over Crown Melbourne would largely contribute to that loss.
      • The refinancing arrangements that would occur as a result of the merger would remove the difficulties Crown Melbourne then had with its financial covenants.31
    6. The National Institute of Economic and Industry Research also noted that, as Crown Melbourne was a single purpose company without subsidiaries, Victoria’s economic interest and the shareholders’ interests were being given equal value. This would be lost, according to the National Institute, if the ownership of Crown Melbourne changed as a result of the merger.
    7. Ultimately, the merger proposal was agreed. That agreement led to the Eighth Variation to the Casino Agreement, made on 27 May 1999.32
    8. The Eighth Variation Agreement brought about the following relevant amendments. First, definitions were added, including:
      • ‘Holding Company’, which was defined to mean, in effect, Crown Melbourne’s holding company that was not itself a subsidiary of a company incorporated in Australia. The Holding Company was PBL.33
      • ‘Holding Company Group’, which was defined to mean:
        1. the Holding Company;
        2. the Holding Company’s Subsidiaries (including without limitation, [Crown Melbourne] and its Subsidiaries); and
        3. any other entity which the directors of the Holding Company are required to consolidate in the consolidated profit and loss accounts and balance sheets of the Holding Company under the Corporations Act.34
    9. Second, the provisions relating to the founding shareholders (including clauses 22.1(a) and (b)) would become redundant if PBL was the sole shareholder in Crown Melbourne. Hence, they were removed.
    10. Third, clause 22.1(f), which dealt with the 5 per cent shareholding limit, was deleted and replaced by the following clause:
      [Crown Melbourne] will not knowingly permit a person or, upon becoming aware of a person being entitled, allow a person to continue to be entitled to a number of Shares which exceeds 5% of the total number of Shares on issue at any time, without the prior written approval of the [VCGA].35
    11. This was designed to prevent PBL from listing Crown Melbourne on the ASX or from selling Crown Melbourne to another party without the VCGA’s consent.36
    12. Fourth, a new clause 22.1(r) was added. This provides:

      The Holding Company Group, if it pursues anywhere in Australia a business similar to that of [Crown Melbourne], will use its best endeavours to ensure that such business is conducted in a manner:

      1. which is beneficial both to that business and to [Crown Melbourne] and which promotes tourism, employment and economic development generally in the State of Victoria; and
      2. which is not detrimental to [Crown Melbourne’s] interests.37
    13. The obvious purpose of this clause was to ensure that PBL conducted all its businesses to promote, rather than undermine, the Casino Control Act’s objective of promoting tourism, employment and economic development generally in Victoria.38
    14. That being said, under the new arrangements PBL was not prevented from acquiring an interstate casino operation. If it did, however, it would not be able to operate the interstate casino ‘to the detriment of the Melbourne Casino’.39
    15. Contemporaneously with the making of the Eighth Variation Agreement, the VCGA, Crown Melbourne and PBL entered into a Supplemental Casino Agreement. This agreement was made so that PBL could acquire the shares in Crown Melbourne with the VCGA’s approval.40
    16. By the Supplemental Casino Agreement, PBL undertook, among other things:
      • to comply with and ensure that each member of the Holding Company Group complied with clause 22 of the Casino Agreement
      • to ensure that Crown Melbourne would require the transfer, or the compulsory transfer, of shares in accordance with the company’s constitution if the transfer would remedy a breach of the Casino Agreement or if the VCGA requested the transfer
      • to procure the affairs of Crown Melbourne to be conducted in accordance with the conditions set out in clause 22 of the Casino Agreement.41
    17. It was also agreed that, for the purposes of the Casino Agreement, PBL would be regarded as the Holding Company of Crown Melbourne.42
    18. For its part, the VCGA agreed that it would not treat Crown Melbourne as being in breach of clause 22(1)(f) of the Casino Agreement or article 2.7 of its constitution (the 5 per cent shareholding restriction), or regard PBL as being in breach of clause 4 of the Supplemental Casino Agreement (the obligation to enforce the 5 per cent share limit), if a person became entitled to more than 5 per cent of the issued capital of Crown Melbourne solely through their shareholding in PBL.43
    19. It is not clear whether the effect of this last provision (clause 7 of the Supplemental Casino Agreement) was properly understood. PBL had obtained approval to acquire all the shares in Crown Melbourne despite the 5 per cent share limit. After that, however, a person who acquired more than 20 per cent of the shares in PBL would become ‘entitled’ to, or have a ‘relevant interest’ in, the shares in Crown Melbourne held by PBL.
    20. The consequence was that any person could acquire between 20 per cent and 100 per cent of the capital of PBL, and thereby acquire an ‘entitlement’ or ‘relevant interest’ in all the issued shares of Crown Melbourne without being in breach of the 5 per cent share limit.
    21. For some reason, the VCGA took a limited (and potentially incorrect) view of the effect of clause 7. It regarded the clause as:

      a technical provision intended to remove a possible, unintended consequence of clause 22.1(f) of the Casino Agreement which, operating in conjunction with the share entitlement provisions of the Corporations Law in the circumstance where a person acquired 6% of PBL, would require PBL to dispose of shares in Crown.44

    Restructure

    1. The position was to become even more complicated as a result of the following events.
    2. First, on 12 December 2007, the shares in Crown Melbourne were acquired by Crown Resorts (then known as Crown Limited) as part of a corporate restructure. The restructure involved PBL separating its gaming operations from its other ventures. It also involved Crown Resorts undertaking to assume the obligations of PBL under the Supplemental Casino Agreement, including the obligation to ensure that each member of the Holding Company Group complies with clause 22 of the Casino Agreement.45
    3. Then, in 2019, there were discussions between Crown Resorts and the VCGLR (which had by then become the regulator) concerning a possible alteration of the securities provided by the Crown group to the State to secure the performance of Crown Melbourne’s obligations under the Management Agreement.
    4. Agreement in-principle was reached. That agreement was to be recorded in a further variation (the Twelfth Variation) to the Casino Agreement. In the course of discussions about the terms of the Twelfth Variation, Ms Mary Manos, the solicitor at Crown Resorts who had carriage of the negotiations, emailed Mr Scott May, General Counsel at the VCGLR, on 13 September 2019. She had the following proposal:

      Clause 7.1 of the Supplemental Casino Agreement provides that the [regulator] agrees that it will not regard Crown Melbourne as breaching clause 22.1(f) of the Consolidated Casino Agreement or article 2.7 of the Crown Melbourne’s constitution if a person becomes entitled to more than 5% of the total number of Shares in Crown Melbourne solely through that person’s shareholding in PBL.

      When Crown Resorts acquired Crown Melbourne at the end of 2007, an exercise was undertaken to update references to PBL in the Consolidated Casino Agreement to Crown Resorts. It appears that when that exercise was done, the separate Supplemental Casino Agreement was not incorporated into the one document so continues to exist alongside the Consolidated Casino Agreement. The currently proposed amendments to the Casino Agreement reflect an agreed position in relation to the security package. As part of that [process] we have also undertaken the administrative exercise of consolidating the provisions of the Supplemental Casino Agreement so that going forward, the parties need only refer to the one document.

      Clause 7.1 of the Supplemental Casino Agreement now appears as clause 22B.1 of the Consolidated Casino Agreement. But for updating the reference to PBL to Crown Resorts, the clause is in the exact same terms.

      The effect of the clause is to acknowledge that Crown Melbourne as a subsidiary company of Crown Resorts has no power to direct or control the register of Crown Resorts. Similarly, as a listed public company whose shares are [freely] traded, Crown Resorts also has limited power to control its register.

      In the above circumstances, it is appropriate that [it] be clarified that Crown Melbourne should not be taken to have contravened clause 22.1(f) of the Consolidated Casino Agreement if a person becomes entitled to more than 5% of the total number of Shares in Crown Melbourne solely through that person’s shareholding in Crown Resorts. Even if Crown Melbourne became aware of a deemed interest in its shares there would be little it could do to ‘not allow’ that interest.46

    5. The proposed change (the addition of clause 22B to the Casino Agreement) was referred to a solicitor at the VCGLR for comment.47 The solicitor recognised that the change would mean that an acquisition of 20 per cent or more of the shares in Crown Resorts would not breach the 5 per cent share restriction. That would confine the VCGLR’s oversight to the question of whether an acquisition of a significant shareholding in Crown Resorts would trigger the ‘major change’ provision in the Casino Control Act.48
    6. The solicitor emailed Mr May advising that ‘[i]f the Commission wishes to retain its power to consider the suitability of a person with significant interests in the holding company of the casino operator, then the [Casino Control Act] may need to be revised to allow this’.49
    7. The issue identified by the solicitor was then the subject of correspondence between Mr May and Ms Manos. During that exchange, Mr May wrote that ‘the proposed [clause] 22B.1 simply imports from the Supplemental Agreement into the Casino Agreement what is currently the case, and there is no “update” (the update having already occurred in 2007)’.50
    8. The Twelfth Variation Agreement was made on 26 September 2019.51 It was intended to give effect to the restructure of the securities and to consolidate the provisions of the Supplemental Casino Agreement and the Casino Agreement. The consolidation involved adding the following clause 22B.1:

      The [VCGLR] agrees that it will not regard [Crown Melbourne] as breaching clause 22.1(f) of this document or article 2.7 of [Crown Melbourne’s] constitution if a person becomes entitled to more than 5% of the total number of Shares in [Crown Melbourne] solely through that person’s shareholding in Crown Resorts.52

    9. Plainly, the new clause was more than a consolidation of the two existing agreements. It substituted permitted acquisitions of shares in PBL for permitted acquisitions of shares in Crown Resorts, a public listed company. In a practical sense, it made the 5 per cent share limit almost irrelevant. The only time it would come into operation was if Crown Resorts wished to dispose of its subsidiary, Crown Melbourne.

    The 5 per cent limit

    1. The reason for the 5 per cent limit on shareholding in Crown Melbourne can be traced back to Mr Connor, QC’s 1983 Report. He said that it was:

      essential that the licensing body be given ample power to investigate proposed changes in the corporate structure of the company which holds a licence or in a group of companies of which it is part. The essential object of all such investigations is to expose the seat of effective control, which may often be hidden; and then to regulate it.53

    2. Mr Connor, QC explained that a person who wished to acquire a 5 per cent shareholding in a licensee should be subject to investigation. He expressed the view that a shareholding of that size may be sufficient, in combination with other shareholders, to effect vital changes in the personnel and policies of a casino licensee.54
    3. These observations are as true today as they were when made in 1983. There is now a substantial body of academic literature that considers the position of a dominant shareholder— a shareholder who has the power to remove a corporation’s board or management or who can significantly influence a corporation’s affairs—and the dangers such a shareholder poses for a corporation.
    4. To be sure, a dominant shareholder can be beneficial. A dominant shareholder has the capacity, and sometimes the incentive, to monitor management and enhance a corporation’s value.55 This minimises the risk of management acting opportunistically or in their own interests.56 Research indicates that a dominant shareholder can prevent:
      • suboptimal investment and wastage of resources
      • excessive executive compensation
      • practices that confer management with non-pecuniary benefits that reduce share value.57
    5. On the other hand, a dominant shareholder can use its power to harm a corporation.58 It is not uncommon, for example, for a dominant shareholder to take action to expropriate minority shareholders’ rights. One method is by a non prorata distribution of dividends.
    6. Another problem is where the dominant shareholder has arrangements with persons who contract with the corporation so that they can receive favourable contractual treatment in return for kickbacks.
    7. Yet another problem is where the dominant shareholder diverts the corporation’s assets or value to itself.
    8. More relevantly, a dominant shareholder has the capacity, and often the incentive, to exercise active control over, and monitor the actions of, senior management of the corporation, if not its board.
    9. Experience shows that a dominant shareholder usually has no difficulty making the board take into account its views on any important issue. At the very least, it is unlikely that the board would disregard the dominant shareholder’s preferences.59
    10. Directors who are linked to the dominant shareholder will often make decisions on transactions that benefit the dominant shareholder, even when those decisions may be detrimental to the corporation as a whole. This occurs even when the dominant shareholder does not have power, or does not exercise power, to nominate its appointees to the board.
    11. CPH is an instructive example of the power of a dominant shareholder. Currently, CPH holds 37 per cent of the shares in Crown Resorts. For some time, Mr James Packer (the effective owner of CPH) was on the Crown Resorts board. He then resigned for personal reasons.
    12. Both before and after his resignation, Mr Packer exercised a powerful influence over Crown Resorts—an influence much more powerful than any single director could exercise. According to the Bergin Report:
      • It was second nature for Mr Packer to require information from Crown Resorts so that he, Mr Packer, could make judgements about Crown Melbourne’s financial position on a daily basis and to make demands on those who were managing that financial position.60
      • Mr Packer was involved in many very important decisions affecting the operations of Crown Resorts and its employees and officers, even when he was no longer a director of Crown Resorts.61 This was more than a major shareholder proffering advice or views about Crown Resorts’ operations. It involved him ‘managing and manoeuvring’ all significant decisions of Crown Resorts.62
      • Mr Packer took a prominent and active role in shaping the course of major business decisions, including alterations to the entire capital structure and strategic direction of the Crown group.63
    13. In other words, CPH, through Mr Packer, acted in a manner that a dominant shareholder often can—to further its own commercial interest.
    14. To ensure this situation does not arise again is itself a compelling reason why there should be an effective limit on the number of shares that can be held in a casino operator, or in the casino operator’s holding company, that ought only be exceeded with the regulator’s approval. There is, however, a significant obstacle to imposing an effective limit on the shareholding in Crown Melbourne, even on a ‘look through’ basis.
    15. The 5 per cent limit is not found in the Casino Control Act. It was implemented in a private contract, the Casino Agreement. At the time the agreement was made, the shareholders in Crown Melbourne were known. Although the 5 per cent limit was exceeded, and indeed the initial shareholders were required to hold more than 5 per cent of the capital, that was acceptable to the regulator.64
    16. The Casino Agreement was subsequently amended so that PBL could acquire all the shares in Crown Melbourne and so that CPH (as a substantial shareholder of PBL) could thereby indirectly acquire an entitlement to more than 5 per cent of the shares in Crown Melbourne. This was also acceptable to the regulator.65
    17. Then the Casino Agreement was again amended, substituting Crown Resorts for PBL.66 This now allows shareholders in Crown Resorts to indirectly acquire an entitlement to more than 5 per cent of the shares in Crown Melbourne without the regulator’s approval.
    18. With Crown Resorts’ shares listed on the ASX and the contractual 5 per cent limit of little effect, an acquisition of a substantial interest in Crown Melbourne can only be policed by the ‘major change’ provision in the Casino Control Act.67
    19. It is, however, often difficult to identify who are the ‘real’ shareholders in a public company. It is common for shares to be held on trust by a nominee company, such as a subsidiary of a trading bank. It is true that there is an obligation on a person who acquires 5 per cent or more of the shares in a listed corporation to notify the corporation of that fact.68 Moreover, there is statutory power to enable the beneficial owner of shares in a listed corporation to be discovered.69 But these provisions are often ignored and, in any event, difficult for the regulator to supervise.
    20. Greater problems would arise if Crown Resorts ceased to be a listed company, as then none of these provisions would apply. In that circumstance, the true owner of shares in Crown Resorts may never be known.
    21. While Crown Resorts remains a listed entity, it would be impossible to have existing shareholders agree not sell their shares to a person if the share sale would result in the purchaser having more than 5 per cent of the issued capital.
    22. It is equally impossible to suppose that the shareholders in Crown Resorts would agree to amend that company’s constitution to incorporate a limit on shareholding in the company.
    23. In these circumstances, the only effective means of imposing a limit on shares directly or indirectly held in a casino operator is by an amendment to the Casino Control Act.
    24. There is good reason for there to be a limit. Without one, it is possible that an undesirable person could take control of the casino operations or, at a minimum, be in a position to influence the operations of a casino.
    25. It is not to the point, as the CPH parties would have it, that CPH does not now, and is no longer in a position to, control Crown Resorts or its subsidiaries because of undertakings it has given to ILGA in New South Wales and which it is also prepared to give to the VCGLR.70
    26. The undertakings are, in substance, that CPH will not obtain from Crown Resorts any information about its affairs that is not otherwise available to all shareholders, and it will not exercise its ability to appoint directors to the Crown Resorts board.71
    27. First, the issue is one of principle. A person should not, without the approval of the regulator, have the capacity to exercise control over, or be able to influence the affairs of, a casino operator. For, at some point, that potential may become the reality.
    28. Second, CPH is in a special position. For the reasons exposed in the Bergin Report, CPH should never be in the position to exert control over Crown Resorts and Crown Melbourne. While it maintains its shareholding, it could resume control once its undertakings to ILGA not to do so have expired.
    29. Nor is it appropriate, if there is to be a cap on shareholding, that the cap be 20 per cent as contended for by CPH,72 or even 10 per cent as suggested by Crown Resorts.73 A person who holds more than 5 per cent of the shares in a listed company will often have power to influence its affairs. The more widely the other shares are held, the greater the potential for influence.
    30. For these reasons, it is appropriate that the 5 per cent limit on the shareholding in the casino operator be retained or, at least, reinstated. The same limit should apply to any corporation that is the ultimate or intermediate holding company of the casino operator.
    31. The Bergin Report suggested that there should be a 10 per cent limit on the ownership of shares in the holding company of a casino operator.74 It would be good policy if there could be uniform legislation governing this issue. Nevertheless, not only is the 10 per cent limit inconsistent with the position that has been in place in Victoria since the casino licence was first granted, but the risk of undue influence by a person holding such a large stake in the holding company is unacceptable.

    Recommendation 28: Limit on shareholding

    It is recommended that the Casino Control Act be amended as follows:

    • No person shall have or acquire a relevant interest in 5 per cent or more of the issued capital in a casino operator or 5 per cent or more of the issued capital in the holding company or intermediate holding company of which the casino operator is a subsidiary, without the regulator’s approval.
    • If a person does hold or acquire a relevant interest in 5 per cent or more of the issued capital of a casino operator, or 5 per cent or more of the issued capital in the holding company or intermediate holding company of a casino operator without the regulator’s approval, that holding or acquisition should be deemed to be a breach by the casino operator of its casino licence.
    • ‘Relevant interest’ should have the same meaning as in sections 608 and 609 of the Corporations Act.
    • If the regulator requests the casino operator, its holding company or any intermediate holding company of a casino operator to take steps to discover who holds a relevant interest in the casino operator, or its holding company or any intermediate holding company and they fail to do so, that failure should be deemed to be a breach of the casino licence.
    • The restriction on shareholding should not apply to any existing shareholding in Crown Resorts (at the current holding) and Crown Melbourne, other than CPH’s shareholding in Crown Resorts. It should apply to CPH with effect from September 2024.
    • If a person contravenes the 5 per cent rule, the regulator may serve that person with a notice requiring the person to dispose of the relevant interest within a specified time.
    • A failure to comply with the notice should be an offence with a significant penalty. In addition, the Supreme Court should have power to make any order it considers appropriate to secure compliance with the regulator’s notice, including an order directing the person to dispose of any relevant interest.
    1. The reason for the carve-out—not restricting any existing shareholding in Crown Resorts other than for CPH—should be explained. Currently, Crown Resorts owns all the shares in Crown Melbourne and three shareholders hold more than 5 per cent of the issued capital of Crown Resorts: CPH, the Blackstone Group (9.99 per cent) and Perpetual Investments (8.19 per cent). Apart from the CPH interest, the other substantial shareholders were entitled to acquire their shares without approval. It would not be appropriate for the Parliament to now impose restrictions on their holdings without good cause being shown.
    2. The CPH stake is different. CPH abused its position as a dominant shareholder. It has temporarily given up its power to control, or exercise control over, the Crown Resorts board. On the other hand, once its undertakings to ILGA lapse, its position of control would be restored. That could be detrimental to Crown Melbourne.
    3. At the same time, it would not be reasonable to force CPH to immediately sell its interest in Crown Resorts. Among other things, that would have a negative effect on the share price. There is no reason for that to occur. Hence, the recommendation is limited in two respects. First, it allows CPH to retain a 5 per cent holding. Second, it gives CPH until September 2024 to dispose of the remainder of its holding. That will enable it to realise a fair price.

    Control of management

    1. The regulator has some control over the structure of the Crown Melbourne board and management team. Conversely, it has little oversight of decision making, whether at board or management level.
    2. The regulator has power:
      • to approve the appointment of directors or alternative directors
      • to direct the removal of any director or alternative director.75
    3. There is also an obligation that Crown Melbourne must, at all times, have a minimum of five directors.76
    4. The failings of Crown Melbourne that have been exposed by the Bergin Inquiry, as well as those that have been discovered by this Commission, make plain that greater control of a casino operator is required.
    5. A casino operator is not simply an organisation whose success or failure is a matter in which the Victorian Government has no real interest and no role to play.
    6. The rationale for regulatory oversight of casinos in Australia and elsewhere include:
      • concerns about the potential for links with organised crime
      • concerns about the adverse social impacts of gambling
      • reducing the scope for money laundering
      • reducing the scope for other illegal conduct
      • ensuring that the casino operator complies with the conditions of its licence, the Casino Control Act and any agreements with the State or the regulator
      • ensuring that the casino operator remains financially stable.77
    7. The focus of regulating a casino begins with ensuring the suitability of the casino operator. This invites extensive scrutiny during the application process. The focus must continue throughout the period of the casino’s operations.
    8. Close regulation of a casino is clearly justified. In their report on Responsible Gambling and Casinos, researchers from the South Australian Centre for Economic Studies explain:

      The justification for regulation with respect to casinos is indisputable for the simple fact that it is government legislation which established casinos in each jurisdiction, government controls the rate of entry of competing business (e.g. conveys a monopoly licence for a specified time period), and government confers special privileges on casinos and then may apply different tax rates with respect to the privileges thus granted. Regulations are imposed on the industry to assist government with respect to a broad range of obligations such as disclosure regulation (e.g. monitor money laundering, large financial transactions) and ensure venues are free from criminal elements (e.g. review of probity, integrity and performance standards). Tax arrangements are designed (they are often negotiated) to facilitate international competitiveness (e.g. to attract VIP gamblers) as well as to address the negative externalities arising from the industry, such as the development of problem gambling, the cost of government provided gambling help services and traditional services such as policing, correctional services, health services and impact on third parties (families, businesses, etc).78

    9. The investigation carried out by this Commission shows that the existing oversight framework has been ineffective in preventing corporate misconduct (including significant breaches of the law) or in preventing the harms caused to Melbourne Casino’s patrons and others.
    10. One obvious area for regulatory improvement is the board of the casino operator. If change is made here, as well as in other aspects of the casino’s operations, the misconduct that has occurred and the harms that are still occurring may not be repeated.
    11. There are several steps that could be taken to improve board functions. One is to specify the type of director that should be appointed to the board of a casino operator. At present, Crown Melbourne’s Articles of Association provide that at least one-third of the board must be ‘independent of the Sponsors and their respective [a]ssociates’.79 This restriction no longer has any effect as the Sponsors (HCL and Federal Hotels) no longer hold shares in Crown Melbourne.
    12. It is appropriate here to say something about independent directors. An independent director is one who, broadly speaking, is not a member of the management team and has no commercial relationship with the company that would interfere with the independent exercise of the director’s judgement.80
    13. The ASX Corporate Governance Principles and Recommendations recommend that a majority of a listed company’s board be independent directors.81 The commentary to the recommendation states:

      Having a majority of independent directors … maximises the likelihood that the decisions of the board will reflect the best interests of the entity as a whole and will not be biased toward the interests of management or any other person or group with whom a non-independent director might be associated.82

    14. Bodies around the world publish corporate governance guidelines. Most recommend that the board of a public corporation should have independent directors. The guidelines usually recommend that the independent directors make up a certain proportion of the board, ranging from one independent director to a majority of independent directors. Some guidelines suggest that there simply be a sufficient number of independent directors to influence the conduct of the board as a whole.83
    15. Interestingly, academics Jeffrey Lawrence and Geof Stapledon have conducted an analysis of the effectiveness of independent directors. The analysis suggested that, on average, the performance of listed Australian companies did not improve even though they had independent directors. In other words, their existence did not add shareholder value.84 The authors suggest that possible reasons for this include:
      • Independent directors may not have been performing their monitoring roles effectively at the time the study was undertaken.
      • Different types of boards may be appropriate for different companies.
      • Board behaviour rather than board composition is the critical factor.
      • Only some independent directors add value.
      • Non-executive independent directors may simply be ineffective.85
    16. Crown Melbourne is a striking example of the ineffectiveness of independent directors, at least when the directors are not independent of the holding company. Independent directors have always been on the board. They were on the boards of both Crown Resorts and Crown Melbourne when CPH was the controlling shareholder. Some are still on the boards.
    17. It is nothing short of an understatement to say that the independent directors failed to benefit the management of Crown Melbourne as it is thought independent directors will do.
    18. This is not to say, however, that the concept of independent directors should be put aside. To the contrary, it is likely that independent directors can have an important role to play on the Crown Melbourne board.
    19. Mr Nigel Morrison is one of the recently appointed directors to the boards of both Crown Resorts and Crown Melbourne. Mr Morrison has an impressive background. He is a chartered accountant. He has worked extensively in the commercial world. He has had professional associations with casinos in Australia and overseas. For eight years, he was the Managing Director of SkyCity, a company that operates five casinos in New Zealand and Australia.86
    20. Mr Morrison was asked for his views on having independent directors on the board of a company. He said, ‘I think it is absolutely appropriate and fundamental to proper governance of any company.’87
    21. Mr Morrison went on to explain:

      [B]ecause—I think the independent directors need to make sure they are free to exercise their judgment, and their best judgment, and not be constrained with any loyalties or any other matters that might influence their judgment which aren’t appropriate to thinking about the matter as a whole, objectively, and in the interests of all stakeholders and all shareholders.88

    22. Mr Morrison was then asked whether it would be appropriate for a majority or some other number of the board members to be independent. He replied:

      I will speak about SkyCity a little bit. When I was a managing director for eight years, there was no dominant shareholder, no major shareholder, all institutional shareholders, and the board was made up of non-executive directors. 100 per cent non-executive directors. And I thought that gave a really good demarcation between management and the board such that management was in charge of strategy, it was great for the management team to exercise its view about things, it could come up with its own strategy, formulate its own strategy, present it to the board, have the board critique it, get some good independent advice in relation to that strategy, and we’d come out with a stronger plan at the end of the day. I thought that worked really, really well, without having any executive directors on the board other than I guess myself being the managing director.89

    23. Mr Morrison’s views are compelling. They conform to the views of many knowledgeable commentators who contend that good corporate governance requires there to be independent decision makers on the board.
    24. However, where the casino operator is a subsidiary company, it is important that the directors of the subsidiary are also independent of the holding company.
    25. For some time, this has been the view of the regulator. In the Second Review that was undertaken in 2000, the regulator (then the VCGA) looked into the corporate governance of Crown Melbourne after the merger with PBL. The report noted:
      • After Crown Melbourne ceased to be a listed company, there was a reduction in the disclosure of information relevant to the regulator’s functions.90
      • The regulator did not consider a Victorian-based director nominated by the holding company to be the same thing as an independent director.91
      • The regulator expressed concern that:

      the proper level of decision making for the Crown [Melbourne] board requires a degree of independence from the parent company. Crown [Melbourne] is the licensed entity responsible for detailed technical compliance with the regulatory regime and it is the board of Crown [Melbourne] which is primarily responsible for Crown [Melbourne]’s actions.92

    26. At the time, the VCGA was advised that Crown Melbourne’s constitution was being reviewed and changes might be made to the director provisions.93
    27. In its Third Review, undertaken in 2003, the VCGA revisited the issue of independent directors for the casino operator. Its report noted:
      • The VCGA had been informed that Crown Melbourne’s review of its constitution had been completed and that Crown Melbourne had decided not to amend it.
      • The VCGA was of the view that Crown Melbourne should appoint two additional independent directors so that at least one-third of the board were independent; that is, independent of the holding company.94
    28. The regulator’s observations were wholly justified.

    Recommendation 29: An independent board

    It is recommended that the Casino Control Act 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.

    1. This recommendation is made despite the fact that the regulator has power to approve the appointment of a director as well as power to require the removal of a director. The imposition of a statutory obligation that a majority of the directors of a casino operator be independent of any holding company emphasises the importance of the casino operator making decisions that are solely in its interests, and not those of other companies.
    2. Each of Crown Resorts and Crown Melbourne accept that a casino operator should have an independent board and, if there is a holding company, that the board should be independent of the holding company.95

    The single purpose restriction

    1. One of the principal objectives of the Casino Control Act is for a casino in Victoria to maximise the financial benefits to the State.
    2. With this objective in mind, the Casino Agreement required the Melbourne Casino to be a single purpose company. The three clauses of the Casino Agreement that imposed this requirement have been outlined earlier in this chapter.96
    3. There were several reasons for the imposition of the single purpose restriction:
      • To ensure that the employment benefits of operating a large casino remain in Victoria. The restriction prevents Crown Melbourne from shifting its operations interstate where it might own and operate another casino.
      • To prevent the casino operator from shifting, or threatening to shift, significant sources of casino revenue, such as the high roller business, to an interstate or overseas casino.
      • To ensure the casino operator avoids any conflict of interest in operating a competing casino and is not distracted from focusing on ensuring the Melbourne Casino Complex remains a world-class tourist attraction, generating maximum revenue for the State.
      • So that disciplinary action requiring the suspension or cancellation of the casino licence and the appointment of a manager would not be hampered by the possibility of such action having an adverse impact on some other ‘entwined casino business’ owned by Crown Melbourne.97
    4. Coupled with the single purpose restriction was the best operating practices obligation (clause 28). By this obligation, the Melbourne Casino and the Casino Complex were to be conducted in accordance with the best international operating practices.

    Removal of the restriction

    1. On 25 August 2003, Crown Resorts wrote to the Minister and to the regulator requesting a variation of the Casino Agreement by removing the single purpose restriction.98 The letters made the following points:
      • Crown Resorts was unaware of the original reason for the restriction.
      • No other casino or gambling operator in Australia has such a restriction imposed on it.
      • Given the Victorian Government’s stated commitment to promote the export-oriented development of Victorian companies and industries, it was ‘incongruous’ that a successful Victorian company should be restrained from competing nationally and internationally.
      • The gambling industry is competitive and there are significant advantages to be gained by broadening the activities of a casino operator beyond a single property.
      • There is an appreciable risk that the size and scale of merged operations, both in Australia and worldwide, would make it difficult for Crown to continue to compete effectively in key areas.99
    2. Ultimately, the State and the regulator agreed to remove the single purpose restriction and permit Crown Melbourne to operate businesses in addition to the Melbourne Casino.
    3. The price for the removal of the single purpose restriction was Crown’s agreement that:
      • any business owned or operated by Crown Resorts outside Victoria was to be managed from Melbourne
      • PBL was to locate the headquarters of its gaming business at the Melbourne Casino
      • the Melbourne Casino would remain the flagship of PBL’s gaming business in Australia
      • Crown Melbourne would endeavour to maintain the Melbourne Casino as the dominant Commission Based Player casino in Australia.100
    4. The removal of the single purpose restriction and the implementation of the terms agreed to give effect to this removal were achieved by the Ninth Variation Agreement to the Casino Agreement.101
    5. By that variation:
      • Crown Melbourne must ensure that at least 75 per cent of the meetings of the company’s board of directors are held in Melbourne.102
      • Crown Melbourne must ensure that at least 75 per cent of the meetings of the company’s senior executive managers are held in Melbourne.103
      • Crown Melbourne must ensure that its senior executive managers reside in Victoria.104 The senior executives are the CEO, CFO, COO, a director who is an executive officer, and the heads of Gaming, Surveillance, International and Domestic VIP Business and Compliance.105
      • One company secretary must reside in Victoria.106
      • Crown Melbourne must ensure that the Holding Company Group locates the headquarters of its gaming business in Melbourne.107
      • Crown Melbourne must endeavour to maintain the Melbourne Casino as the dominant Commission Based Player casino in Australia.108
      • Crown Melbourne must ensure that the Holding Company Group maintains the Melbourne Casino as the flagship casino of the Holding Company Group’s gaming business in Australia.109
      • Crown Melbourne must conduct its operations at the Melbourne Casino in a manner that has regard to the best operating practices in international casinos of a similar size and nature.110

    The centralisation controversy

    1. It is clear what these provisions were designed to achieve. Their objective was to make sure that the Melbourne Casino remained the dominant Commission Based Player casino in Australia and that the actual decision makers; the board and senior executives of Crown Melbourne, had personal knowledge of, and exercised control over, all critical aspects of the Melbourne Casino’s operations.
    2. Has this objective been achieved? There are two aspects of the obligations that the new provisions imposed. One is geographic; the other is substantive.
    3. The geographic aspect is simple enough. It requires certain meetings and certain officers to reside in Melbourne or Victoria. There is no dispute about this aspect. Crown has conceded, however, that while Mr Barry Felstead was the CEO of Crown Melbourne, it was possible that there was a breach of clause 22.1(bb), for he was a resident of, and spent much time in, Western Australia.111 That breach was rectified when Mr Xavier Walsh was appointed CEO.112
    4. The second aspect, the one of substance, does give rise to a controversy. The controversy arises in this way. By centralising all the administrative functions, Crown Resorts is in effective control of Crown Melbourne’s management team. At the same time, Crown Melbourne has its own executives.
    5. The CPH group contends that, so long as Crown Melbourne employs officers who have the designation CEO, CFO and so on, the substantive aspects of the provisions are satisfied.113 That cannot be correct. This approach is inconsistent with the objective that lies behind the new provisions.
    6. On the proper construction of the new provisions, a designated office holder must carry out the duties that pertain to that office. A CEO, for example, is the head of the executive team of an organisation. The CEO takes instructions from, and is answerable to, the directors. The provisions do not permit a CEO to take instructions from, and be answerable to, the CEO of the holding company. Put more simply, Crown Melbourne must employ ‘the CEO’ for its organisation (the actual head of the management team) not ‘a CEO’ (who takes instructions from the actual head). The same is true for the other designated positions.
    7. The same construction applies for the directors of Crown Melbourne. The directors must be the actual decision makers. They cannot act as mere surrogates of the Crown Resorts board.
    8. The substantive obligations imposed by the new provisions seems to have been overlooked. For some time, the power to make important decisions affecting Crown Melbourne’s operations, including the operation of the Melbourne Casino, has been delegated to the executives of the holding company, Crown Resorts. This was noted by the VCGLR in its Sixth Review:

      [M]ost of the resolutions [of Crown Melbourne] were related to capital initiatives already determined by the Crown Resorts board or were formal resolutions complying with Corporations Law requirements (such as the approval of financial statements and the declaration of dividends) …114

      The VCGLR noted also:

      Not only does Crown Resorts control Crown Melbourne, but many critical functions are performed on behalf of the casino operator at the group level or by people whose accountability is to the board of Crown Resorts rather than Crown Melbourne.115

    9. The Sixth Review identifies the functions that have been delegated to Crown Resorts:
      • strategic direction and financial strategy
      • information technology
      • regulation and compliance
      • responsible gaming
      • international business operations
      • learning and development
      • public relations
      • product, strategy and innovation
      • procurement and supply
      • risk and audit
      • finance
      • AML
      • enterprise reporting
      • legal
      • VIP International
      • customer analytics
      • strategy and finance
      • hotels
      • retail
      • food and beverage.116
    10. As a result, the Crown Melbourne board has little to do. According to the Sixth Review, board meetings took only 35 minutes and the chair of the Crown Melbourne board participated in only two of the 16 meetings held between January 2013 and May 2016.117 The Crown Melbourne board’s functions were, and remain, mainly formal. That is less true of the executive level. But it is the case that most, if not all, major decisions are made by those responsible to the Crown Resorts board, not the Crown Melbourne board.
    11. Crown Melbourne justifies a centralisation of board and management decision making on the basis that it produces greater consistency in approach across the Crown group and helps executives develop greater expertise because they have a broader experience. It explained to the VCGLR that there are local staff at each Crown operating subsidiary who report to group managers at Crown Resorts. It asserted that this arrangement was needed for good management.118
    12. Here there is some uncertainty about some of the information Crown Melbourne provided to the VCGLR regarding its current management structure. Those details are different from the evidence presented to the Commission. Mr Nick Weeks is the newly appointed Executive General Manager, Transformation and Regulatory Response at Crown Resorts. Mr Weeks said that, at present, the Crown group has ‘a decentralised corporate governance model … that results in duplication of decision-making regarding core compliance, risk and governance issues’.119 He said that the Crown group’s plan for the future is to transition to a centralised model, so that corporate governance and risk functions for the group are centralised. Mr Weeks said that the Crown Resorts board has given in-principle support to this plan.120
    13. Crown Resorts has taken advice from Herbert Smith Freehills (HSF) about the appropriateness of centralising all management functions. In that advice, given on 8 September 2020, it is recorded (no doubt based on instructions) that Crown Resorts is operating a ‘decentralised governance framework’ and wishes to centralise its governance structure to facilitate best-practice governance for a corporate group.121
    14. Putting to one side the divergence on the facts, HSF noted the potential problems that might arise from a centralised corporate governance model:
      • Directors of the holding company must be able to demonstrate that they exercise due care and diligence in relation to the entire corporate group.
      • Oversight and monitoring of the entire group is a more complex task and increases the workload of the directors of the holding company, which may increase the risk that they fail to oversee and monitor the entire corporate group.122
    15. HSF advised that the majority of large ASX-listed companies use a centralised management structure and consolidate the core governance, risk and compliance functions at the level of the holding company. This approach, according to HSF, is ‘best practice for large ASX-listed companies but subject to any regulatory requirements … and conflicting fiduciary duties’.123
    16. HSF also explained that if the principal governance functions are performed on a group basis by central management (including functions such as setting strategy and business plans, monitoring risk and audit functions, monitoring compliance with group policies, procedures and the like), ‘subsidiary boards are not expected to, and generally should not, duplicate functions performed for the [g]roup’.124 HSF advised:

      Under the centralised governance structure, the directors of each subsidiary will place reliance on the [g]roup management processes and, in general, will only separately consider such issues at the subsidiary level where exceptional circumstances exist.125

    Centralisation inappropriate

    1. In the case of a Victorian casino operator, centralising management functions is not an acceptable position. There are several reasons. They should be understood against the background of Mr Connor, QC’s observations in his 1983 Report:

      To those unfamiliar with casinos, the degree of control [over a casino operator] which has been found necessary may seem at first to be somewhat far fetched. Once the dangerous and volatile nature of casino gambling is understood, however, the absolute necessity for competent ongoing strict, even draconian, control becomes clear.126

    2. Recognising this, the Casino Agreement requires management decisions to be taken at the Crown Melbourne level. What Mr Weeks put forward as a proposal, and what Crown Melbourne has informed the regulator it wishes to do, is inconsistent with that requirement. Put more simply, as explained earlier, on the proper construction of the Casino Agreement, decisions typically made by a board and by senior managers must be made by the Crown Melbourne board and its senior managers, and not by the Crown Resorts board and senior management.
    3. There are good reasons for important decisions to be made by the casino operator and not delegated to a third party.
    4. First, there must be strict oversight of the casino operator by the regulator to ensure that it is properly run. That will not be possible if major decisions are not made by the casino operator.
    5. Second, as an aspect of the first reason, there is a need for the regulator to be able to deal directly with the senior executives of the casino operator. Sometimes the regulator will need to deal with senior executives urgently and sometimes it will be exercising its statutory power to obtain information. If major decision making takes place at the holding company level, that will unnecessarily and unduly restrict the regulator in performing its functions.
    6. Third, decision making at senior management level should be done by the casino operator’s senior management to ensure those making the decisions have a thorough understanding of the casino operations.
    7. Fourth, policies or decisions that may be in the interest of a corporate group may not be in the interests of the casino operator. A simple example will make the point.
    8. Part 2M.3 of the Corporations Act requires every company to lodge an annual financial report and an audit report. ASIC has issued an instrument that sets out the conditions upon which wholly owned corporations may be relieved of their reporting obligations under part 2M.3. Compliance with the instrument will allow the group to publish consolidated accounts.127
    9. One condition that must be satisfied to obtain the benefit of the instrument is that each subsidiary must enter into a deed of guarantee by which it guarantees the debts of the holding company and all other companies in the group.128
    10. Crown Resorts and its subsidiaries have taken advantage of the instrument. The result is that Crown Melbourne is relieved of its obligation to lodge annual returns. The price it pays is that it has now guaranteed the obligations of Crown Resorts and all other Crown Resorts subsidiary companies. This occurred in circumstances where Crown Melbourne is the most valuable company in the group.
    11. Providing the guarantee might not involve any financial risk for Crown Melbourne. It will not involve any risk if Crown Resorts and all the other subsidiaries are solvent and there is no chance of them becoming insolvent. Indeed, in some circumstances, Crown Melbourne may be advantaged by cross-guarantees because its debts will be secured by the assets of Crown Resorts and its other subsidiaries.
    12. However, the opposite may be the case. For example, Crown Melbourne is under an obligation to ensure its total liabilities do not exceed 60 per cent of its total assets without the regulator’s approval.129 This obligation could be put in jeopardy if there is a deterioration in the financial position of Crown Resorts or one of its subsidiaries.
    13. It is not only the potential of a future breach of the financial covenant (the 60 per cent requirement) that is problematic. The mere existence of the cross-guarantees makes it difficult for the regulator to determine whether the casino operator continues to be commercially viable when so much might depend on the financial position of all the companies in the Crown group. As a consequence, the regulator must become familiar with the assets and liabilities of every company in the corporate group. That puts the regulator in an unenviable position.
    14. Perhaps there could be a suitable arrangement between Crown Melbourne and the regulator that allows some decision making to be centralised. It would not, however, be appropriate for board decisions, and decisions by the senior managers holding the positions identified in the Casino Agreement, to be made by the board and senior managers of the holding company.

    Recommendation 30: Independence of senior management

    For the avoidance of any doubt about the construction of the Casino Agreement, it is recommended that the Casino Control Act be amended so that:

    • the board of a casino operator is not permitted to delegate any of its functions to any person or body of persons other than a subcommittee of the board or an individual director
    • the casino operator must appoint a full-time:
      • chief executive officer (however described)
      • chief financial officer (however described)
      • chief operating officer (however described)
      • heads of Gaming, Surveillance, International and Domestic VIP Business and Compliance (however described)

      and ensure that those persons do not report to, or take instructions from, any person or group of persons other than the board of the casino operator or an officer of the casino operator

    • the Minister has power to vary these requirements.

    The amending legislation should make clear that it does not diminish any of the other obligations imposed by clauses 22 and 28 of the Casino Agreement.

    Competing with the Melbourne Casino

    1. Crown Resorts is permitted to operate casinos outside Victoria. If it does so, the Casino Agreement imposes obligations on Crown Resorts to protect the position of the Melbourne Casino.
    2. In the event that Crown Resorts does operate another casino, then, as has been explained, the Holding Company Group (which includes Crown Resorts) must ‘use its best endeavours’ to ensure that the other casino is conducted in a manner:
      • which is beneficial … to [Crown Melbourne] and which promotes tourism, employment and economic development generally in Victoria; and
      • which is not detrimental to [Crown Melbourne’s] interests.130
    3. In addition, Crown Melbourne is under an obligation:
      • to endeavour to maintain the Melbourne Casino as the dominant ‘Commission Based Player’ casino in Australia;
      • to ensure the Crown group maintains the Melbourne Casino as the flagship casino of Crown Resorts gaming business in Australia.131
    4. Crown Melbourne may terminate some of its obligations on giving the regulator notice.132 Presumably, it was assumed that Crown Resorts could require Crown Melbourne to give the notice, regardless of whether it was in the best interests of Crown Melbourne to do so. If Crown Melbourne is under independent control, it would not act against its own best interests.
    5. On 4 July 2013, the then Premier of New South Wales announced that Crown Resorts had been invited to move ahead with a proposal to establish a six-star resort, including VIP gaming facilities, at Barangaroo in Sydney. This casino would have no EGMs, no low bet tables and only VIP members.133
    6. In an ASX media release, Crown Resorts said the proposal would ‘give Sydney a landmark hotel it can be proud of … [it would] attract international tourists, create jobs and put Sydney on the map’.134
    7. Crown Resorts proposed that:
      • it pay an upfront licence fee of $100 million
      • it pay a casino tax of 29 per cent of gaming revenue
      • it make total payments of $1 billion to the New South Wales Government over the first 15 years of full operation
      • the licence fee and tax be reviewed only after 20 years.135
    8. According to the then New South Wales Premier, the new resort’s contribution to Gross State Product and State taxes would be greater than that contributed by Star Casino, another casino operating in Sydney. The Premier also estimated that the proposed development would create 1,250 additional jobs after the casino was constructed and increase international tourism.136
    9. In its annual reports, Crown Resorts said that the proposed Barangaroo development would:
      • be ‘a world-class’ development that would attract ‘a larger share of the booming Asian outbound tourism market. Incorporating world-class VIP gaming [that would] provide a further attraction to high net worth tourists from China and other Asian countries’137
      • ‘deliver significant and unique benefits for the people of [New South Wales], boosting employment, business investment, export income and state revenue’. It would ‘also assist Sydney attract a larger share of the booming outbound Asian tourism market’138
      • ‘become an international tourism icon and [would] help Sydney attract high net worth travellers from all parts of the world’139
      • represent a ‘$2.2 billion investment’ that [would] bring ‘long term benefits’ to ‘Crown and the New South Wales economy more broadly’.140

    Material breach

    1. There is a possibility that by proceeding with the Barangaroo development, including the new casino, Crown Melbourne will breach its obligations under the Casino Agreement. There are several reasons for this view.
    2. The Commission requested Crown Resorts to produce its business plan for the development. It is unlikely that development of this magnitude would get underway without the preparation of a business plan that analysed the viability of the project.
    3. No business plan was produced. Instead, the Commission was provided with a submission by Crown Resorts that had been provided to the New South Wales Government in June 2013. The submission sought government approval for the Barangaroo development.141
    4. The submission contains a financial analysis of the project. Part of that analysis assumes a significant growth in the VIP International business for Australia. It also records that growth would accrue to both Melbourne and Sydney. It is suggested that the Melbourne Casino would experience a 6 per cent growth in this market, which would be driven by the opening of Crown Sydney.142
    5. The submission also indicates that Crown Sydney would not be taking business away from Melbourne.
    6. There is a not insignificant risk, however, that the Melbourne Casino would suffer a loss of custom.
    7. First, it is apparent from the published material that the patrons of the proposed Barangaroo casino (Chinese and Asian VIP players) are to be drawn from the same pool that Melbourne Casino targets.
    8. Second, no detailed financial analysis appears to have been undertaken by Crown Resorts on the effect of the proposed Barangaroo casino on Melbourne Casino’s operations or on the effect on tourism, employment and economic development in Victoria.
    9. Third, the submission to the New South Wales Government does not address whether the projected 6 per cent growth of the Melbourne Casino business was less than the likely growth if the Barangaroo casino did not commence operations.
    10. Fourth, more recent information that is contained in a Crown Resorts Business Plan and Budget for Crown Melbourne’s VIP International business indicates a downturn in revenue at the Melbourne Casino. The budget was prepared for the financial years 2019 to 2023. The budget anticipates a decline in profits in each of the years 2022 and 2023. The budget does not attribute this potential decline to the opening of the new casino at Barangaroo, but the new casino may be a contributing factor.143
    11. On the other side, the Commission did hear evidence suggesting that the Barangaroo development would benefit at least Crown Melbourne and its operations. Ms Jane Halton, a director of Crown Resorts, said that as a result of the Sydney development, ‘everyone gets a better financial outcome … nothing I’ve seen, or ever been told, … suggests otherwise’.144
    12. Mr Stephen McCann, recently appointed CEO Crown Resorts and CEO Crown Melbourne, went further. He said, ‘… one of the big drivers for Victoria is tourism revenue, and part of the vision around having Crown Sydney is to become more appealing to international tourism spend, which would go to both Sydney and Melbourne’.145
    13. In the end, it is not possible to determine whether there is likely to be a breach of the Casino Agreement. That will depend on what happens if and when the Barangaroo casino gets underway. Even then, it will take some time to determine whether the operation of the Barangaroo casino will be detrimental to the Melbourne operation or will benefit Victoria in any way.
    14. That is a matter that will no doubt be properly investigated at some future time. If a problem develops, the parties can resort to their existing statutory/contractual rights.
    15. On the other hand, it seems tolerably clear that Crown Resorts did not undertake a detailed analysis to determine whether Crown Sydney would be beneficial to Crown Melbourne or would promote tourism, employment and economic development in Victoria. This is a matter of real concern. The potential breach of a promise by Crown Melbourne to the State should be taken seriously.
    16. It may turn out that the failure to undertake a detailed analysis is of no consequence. If so, that may be little more than good luck. It does, however, provide another example of the risks Crown is prepared to run.

    Endnotes

    1 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(a).

    2 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(b).

    3 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(f).

    4 Exhibit RC1467 Crown Melbourne Memorandum and Articles of Association, 25 May 1998, art 2.7.

    5 Exhibit RC1467 Crown Melbourne Memorandum and Articles of Association, 25 May 1998, art 9.11.

    6 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(k).

    7 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.3; Exhibit RC1467 Crown Melbourne Memorandum and Articles of Association, 25 May 1998, art 1.2(i).

    8 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 47.1(c); Exhibit RC1467 Crown Melbourne Memorandum and Articles of Association, 25 May 1998, art 1.2(a).

    9 Corporations Act 1989 (Cth) ss 603 (definition of ‘entitled’), 609(1)(a).

    10 Corporations Act 1989 (Cth) ss 9 (definition of ‘relevant interest’), 31.

    11 Corporations Act 1989 (Cth) ss 33, 30(7)(b).

    12 Corporations Act 2001 (Cth) s 9 (definition of ‘relevant interest’).

    13 Corporations Act 2001 (Cth) ss 608(1), 608(3)(a).

    14 Exhibit RC0481 Bundle of contracts and correspondence between the VCGA and Crown, various dates, 210 (Facsimile from MinterEllison to VCGA, 12 July 1996).

    15 Exhibit RC0481 Bundle of contracts and correspondence between the VCGA and Crown, various dates, 17 (File Note regarding comments on submissions made in response to the draft amendment proposed to clause 22.1(a), 20 November 1996).

    16 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(b).

    17 Exhibit RC0481 Bundle of contracts and correspondence between the VCGA and Crown, various dates, 227 (Letter from Peter Ronec to Alan Rowe, 23 January 1996).

    18 Exhibit RC0481 Bundle of contracts and correspondence between the VCGA and Crown, various dates, 157 [7] (VCGA General Report on All ‘In-Progress’ Amendments to the Agreements for the Casino, n.d.).

    19 Exhibit RC0481 Bundle of contracts and correspondence between the VCGA and Crown, various dates, 17 (File Note regarding comments on submissions made in response to the draft amendment proposed to clause 22.1(a), 20 November 1996).

    20 Exhibit RC0494 VCGA Melbourne Casino Project Sixth Variation Agreement to the Casino Agreement, 8 May 1997.

    21 Exhibit RC0494 VCGA Melbourne Casino Project Sixth Variation Agreement to the Casino Agreement, 8 May 1997, cl 2.1(e).

    22 For further discussion of the merger, see Appendix E.

    23 Exhibit RC1620 Article: Packer Deals Again for Crown, 15 December 1998.

    24 VCGA, Third Triennial Review of the Casino Operator and Licence (Report, June 2003) 32.

    25 See the discussion of single purpose later in this chapter and in Chapter 2.

    26 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(p).

    27 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(q).

    28 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.4.

    29 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 28.

    30 Exhibit RC0486 VCGA meeting minutes, 21 May 1999, 126–7 (Proposed Crown/PBL Merger Supporting Paper No. 1).

    31 Exhibit RC0486 VCGA meeting minutes, 21 May 1999, 26 (National Institute of Economic and Industry Research, ‘The economic impact of the proposed Crown/PBL merger’ report).

    32 Exhibit RC0496 VCGA Melbourne Casino Project Eighth Variation Agreement to the Casino Agreement, 27 May 1999.

    33 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 2 (definition of ‘Holding Company’).

    34 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 2 (definition of ‘Holding Company Group’).

    35 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(f).

    36 Exhibit RC0486 VCGA meeting minutes, 21 May 1999, 109–10 (Detailed explanation of the proposed transaction documents: Eighth Variation).

    37 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(r).

    38 Exhibit RC0486 VCGA meeting minutes, 21 May 1999, 110 (Detailed explanation of the proposed transaction documents: Eighth Variation); Casino Control Act 1991 (Vic) s 1(a)(iii).

    39 Exhibit RC0485 Bundle of contracts and file notes, various dates, 266 (Office of Gambling Regulation, Review of the Casino Agreement, 23 September 2003).

    40 Exhibit RC1568 Melbourne Casino Project Supplemental Casino Agreement, 27 May 1999.

    41 Exhibit RC1568 Melbourne Casino Project Supplemental Casino Agreement, 27 May 1999, cl 4.

    42 Exhibit RC1568 Melbourne Casino Project Supplemental Casino Agreement, 27 May 1999, cl 6.

    43 Exhibit RC1568 Melbourne Casino Project Supplemental Casino Agreement, 27 May 1999, cl 7.

    44 Exhibit RC0486 VCGA meeting minutes, 21 May 1999, 111 (Detailed explanation of the Proposed Transaction Documents: Eighth Variation).

    45 Exhibit RC1569 Deed of Amendment, Accession and Release, 22 October 2007, cl 5; Exhibit RC1568 Melbourne Casino Project Supplemental Casino Agreement, 27 May 1999, cl 4(a).

    46 Exhibit RC1570 Email from Mary Manos to Scott May, 13 September 2019.

    47 Exhibit RC1571 Email chain between VCGLR Solicitor and Scott May, 10 September 2019, 5.

    48 Exhibit RC1571 Email chain between VCGLR Solicitor and Scott May, 10 September 2019, 3–4; Casino Control Act 1991 (Vic) s 28.

    49 Exhibit RC1571 Email chain between VCGLR Solicitor and Scott May, 10 September 2019, 4.

    50 Exhibit RC1572 Email from Scott May to Mary Manos, 16 September 2019.

    51 Exhibit RC0500 VCGLR Melbourne Casino Agreement Project Twelfth Variation Agreement to the Casino Agreement, 26 September 2019.

    52 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22B.1. As discussed further in Appendix E, at different times, both Crown Resorts and Crown Melbourne were named ‘Crown Ltd’; consequently we have substituted the current name for the entity in square brackets.

    53 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.24].

    54 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.24].

    55 Exhibit RC1603 Article: The Role and Effect of Controlling Shareholders in Corporate Governance, 2 November 2016, 563.

    56 Exhibit RC1598 Article: The Elusive Quest for Global Governance Standards, 2009, 1281; Exhibit RC1603 Article: The Role and Effect of Controlling Shareholders in Corporate Governance, 2017, 562; Exhibit RC1601 Article: Deconstructing Independent Directors, 2013, 71.

    57 See, eg, Exhibit RC1601 Article: Deconstructing Independent Directors, 2013, 70–1; Exhibit RC1598 Article: The Elusive Quest for Global Governance Standards, 2009, 1284–6, 1305.

    58 Exhibit RC1603 Article: The Role and Effect of Controlling Shareholders in Corporate Governance, 2017, 563; Exhibit RC1598 Article: The Elusive Quest for Global Governance Standards, 2009, 1295; Exhibit RC1611 Article: Tunnelling, 2000, 23; Exhibit RC1612 Article: Unbundling and Measuring Tunnelling, 2014, 1700–1; Exhibit RC1607 Related Party Transactions: Policy Options and Real-World Challenges, October 2014, 3.

    59 Exhibit RC1598 Article: The Elusive Quest for Global Governance Standards, 2009, 1295.

    60 Exhibit RC0445 Bergin Report Volume 1, 1 February 2021, 168 [120].

    61 Exhibit RC0445 Bergin Report Volume 1, 1 February 2021, 169–70 [121]–[123].

    62 Exhibit RC0445 Bergin Report Volume 1, 1 February 2021, 171 [127].

    63 Exhibit RC0445 Bergin Report Volume 1, 1 February 2021, 175 [148].

    64 Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cl 22.1(f).

    65 VCGA, Third Triennial Review of the Casino Operator and Licence (Report, June 2003) 27, 32; Exhibit RC0496 VCGA Melbourne Casino Project Eighth Variation Agreement to the Casino Agreement, 27 May 1999.

    66 Exhibit RC0500 VCGLR Melbourne Casino Project Twelfth Variation Agreement to the Casino Agreement, 26 September 2019.

    67 Casino Control Act 1991 (Vic) s 28.

    68 Corporations Act 2001 (Cth) ss 9 (definition of ‘substantial holding’), 671B(1)(a).

    69 Corporations Act 2001 (Cth) ss 672A, 672B.

    70 Responsive submission CPH Parties, 2 August 2021, 10–13 [19]–[31].

    71 Exhibit RC0437 Statement of Helen Coonan, 28 April 2021 (marked up corrections applied 5 July 2021), Annexure i.

    72 Responsive submission CPH Parties, 2 August 2021, 26–8 [80]–[86].

    73 Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 83–4 [C.152(a)].

    74 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 636 [110].

    75 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cls 22.1(c)–(d).

    76 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(e).

    77 Submission 08 South Australian Centre for Economic Studies, 30–5.

    78 Submission 08 South Australian Centre for Economic Studies, 35.

    79 Exhibit RC1467 Crown Melbourne Memorandum and Articles of Association, 15 June 2007, art 14.2.

    80 See commentary at ASX Corporate Governance Council, Corporate Governance Principles and Recommendations (4th ed, February 2019) 13–14.

    81 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations (4th ed, February 2019) 15.

    82 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations (4th ed, February 2019) 15.

    83 Jeffrey Lawrence and Geof Stapledon, Do Independent Directors Add Value? (Report, 1999) 2.

    84 Jeffrey Lawrence and Geof Stapledon, Do Independent Directors Add Value? (Report, 1999) 53.

    85 Jeffrey Lawrence and Geof Stapledon, Do Independent Directors Add Value? (Report, 1999) 53–5.

    86 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 1–2, 4; Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, Annexure b.

    87 Transcript of Nigel Morrison, 22 June 2021, 2268.

    88 Transcript of Nigel Morrison, 22 June 2021, 2268.

    89 Transcript of Nigel Morrison, 22 June 2021, 2270.

    90 VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 24.

    91 VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 26.

    92 VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 26.

    93 VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 25–6.

    94 VCGA, Third Triennial Review of the Casino Operator and Licence (Report, June 2003) 12.

    95 Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 85 [C.152(d)].

    96 For further information on the single purpose restriction, see the discussion in Chapter 2.

    97 Exhibit RC0485 Bundle of contracts and file notes, various dates, 266 [16] (Office of Gambling Regulation, Review of the Casino Agreement, n.d.).

    98 Exhibit RC0483 Brian Forrest Casino Agreement Review, n.d., 31–5 (see Letter from Rowen Craigie to Brian Forrest, 25 August 2003 and letter from Rowen Craigie to the Minister for Gaming, 25 August 2003); Exhibit RC0488 VCCA Melbourne Casino Project Casino Agreement, 21 September 1993, cls 22.1(p), 22.1(q), 22.4, 48.2(e).

    99 Exhibit RC0483 Brian Forrest Casino Agreement Review, n.d., 31−2 (Letter from Rowen Craigie to Brian Forrest, 25 August 2003).

    100 Exhibit RC0483 Brian Forrest Casino Agreement Review, n.d., 249–50 (Ministerial Brief regarding outcome of negotiations with Crown on removal of single purpose company provision and changes required by government in exchange, n.d., Attachment 4).

    101 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.6 (deleting cls 22.1(p)−(r), 22.4 of the Casino Agreement).

    102 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.3 (inserting cl 22.1(b) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(b).

    103 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.3 (inserting cl 22.1(c) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(ba).

    104 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.4 (inserting cl 22.1(bb) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(bb).

    105 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.2 (amending cl 2 of the Casino Agreement, inserting definition of ‘Senior Executive Manager’); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 2 (definition of ‘Senior Executive Manager’).

    106 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.4 (inserting cl 22.1(bc) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(bc).

    107 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.7 (inserting cl 22.1(ra) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(ra)(i).

    108 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.7 (inserting cl 22.1(ra) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(ra)(ii).

    109 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.7 (inserting cl 22.1(ra) of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(ra)(iii).

    110 Exhibit RC0497 VCGR Melbourne Casino Project Ninth Variation Agreement to the Casino Agreement, 8 July 2005, cl 2.11 (substituting cl 28 of the Casino Agreement); Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 28.

    111 Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 71–2 [C.109].

    112 Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 71–2 [C.111].

    113 Responsive submission CPH Parties, 2 August 2021, 45 [150].

    114 Exhibit RC0002 VCGLR Sixth Review of the Casino Operator and Licence, June 2018, 56.

    115 Exhibit RC0002 VCGLR Sixth Review of the Casino Operator and Licence, June 2018, 39.

    116 Exhibit RC0002 VCGLR Sixth Review of the Casino Operator and Licence, June 2018, 51.

    117 Exhibit RC0002 VCGLR Sixth Review of the Casino Operator and Licence, June 2018, 56.

    118 Exhibit RC0002 VCGLR Sixth Review of the Casino Operator and Licence, June 2018, 52.

    119 Exhibit RC0416 Statement of Nick Weeks, 7 June 2021, 10.

    120 Exhibit RC0416 Statement of Nick Weeks, 7 June 2021, 10.

    121 Exhibit RC1557 Memorandum of advice regarding Crown Resorts Governance Structure, 8 September 2020, 1.

    122 Exhibit RC1557 Memorandum of advice regarding Crown Resorts Governance Structure, 8 September 2020, 3.

    123 Exhibit RC1557 Memorandum of advice regarding Crown Resorts Governance Structure, 8 September 2020, 4.

    124 Exhibit RC1557 Memorandum of advice regarding Crown Resorts Governance Structure, 8 September 2020, 5.

    125 Exhibit RC1557 Memorandum of advice regarding Crown Resorts Governance Structure, 8 September 2020, 5.

    126 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, 1983) [16.02].

    127 ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.

    128 ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, s 5.

    129 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(m).

    130 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cls 22.1(r)(i)–(ii).

    131 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cls 22.1(ra)(ii)–(iii).

    132 Exhibit RC0435 Consolidated Casino Agreement, 21 September 1993, cl 22.1(ra).

    133 Crown Resorts, ‘Crown Sydney Hotel Resort Unsolicited Proposal Update’ (ASX Media Release, 4 July 2013); New South Wales Government, ‘Crown Proposal Moves to Stage 3’ (Media Release, 4 July 2013).

    134 Crown Resorts, ‘Crown Sydney Hotel Resort Unsolicited Proposal Update’ (ASX Media Release, 4 July 2013).

    135 New South Wales Government, ‘Crown Proposal Moves to Stage 3’ (Media Release, 4 July 2013).

    136 New South Wales Government, ‘Crown Proposal Moves to Stage 3’ (Media Release, 4 July 2013).

    137 Crown Resorts, Annual Report 2014 (Report, 2014) 20.

    138 Crown Resorts, Annual Report 2015 (Report, 2015) 26.

    139 Crown Resorts, Annual Report 2018 (Report, 2018) 3.

    140 Crown Resorts, Annual Report 2020 (Report, 2020) 5.

    141 Exhibit RC1466 Crown Sydney Hotel Resort Financial Submission, June 2013.

    142 Exhibit RC1466 Crown Sydney Hotel Resort Financial Submission, June 2013, 8, 12.

    143 Exhibit RC0353 Second Statement of Xavier Walsh, 23 April 2021, Annexure x, 17.

    144 Transcript of Jane Halton, 7 July 2021, 3621.

    145 Transcript of Stephen McCann, 6 July 2021, 3495.


    Chapter 18

    Suitability and the public interest

    Suitability and the public interest

    Introduction

    1. This chapter will deal with two central issues raised by the Terms of Reference. First, whether Crown Melbourne is a suitable person to continue to hold its casino licence. Second, in any event, whether it is in the public interest for Crown Melbourne to continue to hold its casino licence.
    2. A related issue, whether any associate of Crown Melbourne is a suitable associate, is considered in Chapter 20.
    3. An application for a casino licence cannot be granted unless the regulator is satisfied that the applicant and each associate of the applicant is ‘a suitable person to be concerned in or associated with the management and operation of a casino’.1
    4. Once granted, a casino licence may be cancelled or suspended if the casino operator is no longer suitable to hold its licence or it is no longer in the public interest for its licence to remain in force.2
    5. In 1997, the regulator obtained the advice of senior counsel on the meaning of ‘suitable person’ and ‘public interest’.3 Extracts from those opinions are set out in Appendix H. That Appendix also extracts the discussion of the meaning of ‘suitability’ from the Bergin Report.
    6. It is appropriate to say a little more about each of these concepts.

    Suitability

    1. ‘Suitable person’ is not expressly defined in the Casino Control Act. There are, however, statutory criteria that describe the attributes of a ‘suitable person’. They include that:
      • the person is of good repute, having regard to character, honesty and integrity
      • the applicant has sufficient business ability to establish and maintain a successful casino
      • the person has adequate financial resources to operate a casino
      • the person’s associates are of good repute
      • each person connected with the casino business is also suitable.4
    2. The suitability requirement came from the concern that criminal elements may infiltrate a casino.5 It is clear, though, that ‘suitability’ involves much broader considerations. This is plain from the requirement in the Casino Control Act that, in considering suitability, other factors must be taken into account. The most important of those factors are the casino operator’s character, honesty and integrity, and its financial standing.6 Another important factor is the suitability of the directors and officers involved in the administration of the casino’s operations.7
    3. Critical to any inquiry into an applicant’s suitability for a casino licence is whether they are of ‘good character’. Character is an elusive concept. It can be seen indirectly through a person’s acts and deeds, and is understood as being indicative of future conduct.
    4. The New Jersey Casino Control Commission, in determining the suitability of an applicant for a casino licence, said:

      [W]e conceive character to be the sum total of an individual’s attributes, the thread of intention, good or bad, that weaves its way through the experience of a lifetime … We must focus particularly on those attributes of trustworthiness, honesty, integrity and candor which are relevant to our inquiry.8

    5. Ms Bergin, SC said that a suitable person is a person who ‘possess[es] “high standards of conduct” and act[s] in accordance with those standards under pressure’.9
    6. The typical assessment of suitability entails looking for evidence of misconduct and, if it exists, asking what conclusion may be drawn. It is also possible from these cases of misconduct to draw up a list of factors that, either individually or collectively, may indicate that a casino operator is unsuitable to hold a casino licence. Such a list would include:
      • misleading a licensing authority10
      • failing to cooperate with a regulator during an investigation11
      • previous criminal conduct, especially conduct that arose while carrying out functions permitted by the licence12
      • failing to comply with relevant statutory requirements that regulate the licensed activities.13
    7. This approach is satisfactory when considering a new applicant for a casino licence. The information that is available will be about the past life or past corporate conduct of the applicant. That information will enable an assessment to be made of what may happen in the future.
    8. A different approach is preferable when considering whether an existing casino licensee continues to be suitable to hold its licence. This approach will look more broadly at the licensee’s conduct as a casino operator.
    9. Elsewhere in this Report there is a statement of what are the appropriate norms of conduct to which a casino operator should conform.14 They are worth repeating. A casino operator must:
      • obey the law
      • act honestly
      • deter illegal and immoral behaviour that might take place in a casino
      • not exploit people who come to the casino to gamble
      • take active measures to minimise the harm caused by gambling
      • cooperate fully and candidly with the regulator and with government.
    10. Whether or not there has been adherence to these norms is a better guide to suitability than considering isolated examples of misconduct to see whether, when considered in aggregate, they tell something about the future. So, if a casino operator infringes any one of the norms, it is on the road to unsuitability. If a casino operator infringes several of the norms, the end of the road is near. If a casino operator has infringed most of the norms, the journey is at an end.
    11. In the process of assessing suitability, it is necessary to recognise that a casino operator, such as Crown Melbourne, is a corporation. So, in effect, it is the conduct of its directors, officers and employees that is under consideration.
    12. The traditional approach is to recognise that a corporation can only act through its directors, officers and employees. Its moral responsibility (that is, its integrity, good character and the like), and its corporate culpability, are usually measured by the conduct of those who lead the organisation.15
    13. This approach has been justifiably criticised in examinations of corporate responsibility. The submission by Dr Elise Bant, Professor of Private Law and Commercial Regulation at the University of Western Australia Law School, contends that the traditional approach ‘is unduly restrictive and, arguably, runs counter to the more recent trend of corporate theory and regulation of corporations in Australia’. She goes on to say that ‘corporate culpability is not merely to be equated with the character and morals of its leading officers although, of course, they may be important factors’.16
    14. Dr Bant’s thesis is that, for the purpose of determining corporate culpability, the mind of a corporation is shown in its systems, policies and patterns of behaviour. She said that it is the corporate culture of a firm that may direct, encourage, tolerate or lead to non-compliance with relevant laws. By corporate culture, Dr Bant means ‘an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities take place’.17
    15. In other words, the traditional approach to assessing suitability is too narrow. It does not acknowledge that many organisational decisions are more than the combination of individual choices and actions.18 It is the systems, strategy, structure and culture of the corporation that can either cause or inhibit corporate misconduct.
    16. Other researchers have identified that defective organisational ‘“structures” and “information” and “decision-making” procedures may result in irrationalities, group think, flawed risk perceptions or secrecy with regard to misconduct’.19
    17. This line of thinking seems to have influenced Mr Hayne, QC in his Banking Royal Commission Final Report. He said:

      Failings of organisational culture, governance arrangements and remuneration systems lie at the heart of the misconduct examined in this Commission.20

    18. Ms Bergin, SC has a more narrowly focused view. She proceeded on the basis that ‘a company’s suitability may ebb and flow with changes to the composition of the company’s Board and Management, and others who influence its affairs, over time’.21 The assumption here is that by simply changing those who control the corporation, it is possible to change the company’s suitability.
    19. As posited by Dr Bant, the true position is more complicated. If the corporate systems or corporate culture tolerate wrongdoing, merely changing the personnel will not suffice. In that event, it will be more important to assess whether there has been a sufficient change in the organisation’s hierarchy, corporate goals, systems and policies to be satisfied that there will be full compliance with all applicable rules and regulations.
    20. Turning to the operational capacity of the casino operator, both the past and present must be considered. That will require an historical analysis of the casino operator’s business dealings and management coupled with an assessment of the casino operator’s current financial position.
    21. The key question usually is not whether the casino operator is struggling and might seek capital from organised crime.22 That will be a significant issue. In reality, though, the main question will be whether the casino operator has the operational resources and capacity to run a casino. If the casino operator is under financial stress, it might be tempted to cut corners in the honest and fair delivery of gambling services or seek financial aid from the wrong places.

    Public interest

    1. The term ‘public interest’ is of ‘broad import’.23 When used in a statute, it usually requires a discretionary value judgement to be made by reference to undefined matters confined only by the particular purpose for the inquiry.24 Whether or not something is in the public interest requires the decision maker to examine the matter from the perspective of the public at large, or of a significant portion of the public. Here, the purpose of public interest is the maintenance of public ‘confidence and trust in the credibility, integrity and stability of casino operations’.25
    2. It involves consideration of the broad interest of the community, regardless of whether acting in the community’s interest disadvantages the casino operator’s private interest.26
    3. While the definition of public interest in relation to a casino operator refers to the credibility, integrity and stability of casino operations, the task of assessing whether it is in the public interest for a particular casino operator to continue to hold a casino licence is different. It requires an assessment of whether the casino operator’s conduct (and the conduct of those who control it) has adversely affected the public confidence and trust in the casino operations.27
    4. The reference to public confidence is to local confidence, which will be grounded in local community standards. Those standards will change over time and will be affected by matters that have received both adverse or positive publicity.28

    The suitability of Crown Melbourne

    1. It is no exaggeration to say that news reports of what has been discovered by the Bergin Inquiry and what has come to light during the hearings of this Commission will have shocked the public as they gained a picture of the extent and gravity of Crown Melbourne’s misconduct:
      • criminals were allowed to gamble at the casino
      • money laundering flourished
      • millions of dollars in taxes were not paid
      • wealthy Chinese patrons were assisted in illegally transferring up to $160 million in funds from their country
      • the regulator was bullied and its investigations frustrated because it was fed misleading information
      • employees’ liberty and safety were put at risk, and some employees were jailed
      • other employees, at the Crown Towers Hotel, were instructed to falsify documents
      • vulnerable gamblers were encouraged and enticed to continue gambling beyond their means
      • tragically, the lives of many gamblers have been ruined.
    2. These were not isolated instances of misconduct. They were part of a pattern of disgraceful behaviour that has been going on for over a decade.
    3. Why did it happen? How was it allowed to happen?
    4. It is likely that the complete truth will never be known. What can be said is that senior executives within Crown Resorts and Crown Melbourne allowed the misconduct to occur and, on many occasions, instigated the wrongdoing. And, worst of all, the misconduct involved all levels of the organisation.
    5. The board must take considerable responsibility. One of the board’s main functions is to make sure the organisation meets its legal and regulatory obligations. That basic duty seems to have been overlooked.
    6. In their evidence before the Bergin Inquiry, as well as before this Commission, some directors claimed that the misconduct occurred without their knowledge. They pointed to a failure by senior executives to inform the board of what was going on. Others said that the board was not given accurate information.
    7. There may be some truth to these claims. At the same time, it paints a picture of an ineffectual and incompetent board: a board that was not carrying out its duties. It is unacceptable for a board not to know anything about the litany of the company’s wrongdoings over a sustained period.
    8. Senior executives also were plainly at fault. They were responsible for the day-to-day affairs of the organisation. It was their job to make sure that all legal and regulatory obligations were, in fact, satisfied.
    9. What is now known is that many senior executives were personally involved in the wrongdoing. Some knew that improper action was proposed and authorised it to go ahead. Others suspected wrongdoing but did nothing to prevent it from happening.
    10. It is open to conclude that the actions of certain senior executives were so unsatisfactory that they should no longer have any role in the affairs of a public company.
    11. Finally, it is not possible to ignore the ordinary employees. Most Crown Melbourne employees are honest people. Some are not. Many gambling hosts took advantage of their vulnerable clients. They knew some clients could not afford to gamble, yet they encouraged and enticed them to keep going.
    12. Identifying who was responsible for the wrongdoing does not fully explain why things went wrong. That is a difficult task, but some explanations are possible. There are two standout reasons that help explain why wrongdoing occurred and also the extent of the wrongdoing.
    13. The first is the prioritisation of profit over all other considerations, including the wellbeing of Crown Melbourne’s customers and staff. It is Crown Melbourne’s pursuit of profit that led to patrons connected with organised crime being permitted to come to the casino to gamble. It is Crown Melbourne’s pursuit of profit that led to the underpayment of casino tax. It is Crown Melbourne’s pursuit of profit that resulted in overseas staff being told to engage in potentially illegal action. It is Crown Melbourne’s pursuit of profit that led to the arrest of the 19 China-based staff and that put at risk those working in other countries. Finally, it is Crown Melbourne’s pursuit of profit that led to its dereliction of the duty owed to customers experiencing distress because of problem gambling.
    14. It is too simple, and probably unfair, to state that CPH (Mr James Packer’s company) was the driving force behind Crown’s pursuit of profit at all costs. CPH and Mr Packer obviously played a key part, as the Bergin Inquiry found. So also did the CPH appointees to the boards of Crown Resorts and Crown Melbourne. During their tenure, they ‘captured’ the independent directors and were a harmful influence, as the Bergin Inquiry also found. But many other Crown executives were of the same mindset.
    15. It is also too simple to explain what happened by reference only to profit maximisation. There is a second, and more insidious, cause at play. It is that Crown Melbourne took a risk based approach to legal and moral obligations. That approach focused more on the chance of getting caught (and preparing defensively for that event) than on the need for compliance with the law and adherence to ethical standards and community expectations.
    16. This approach is what Mr Oliver Wendell Holmes, the great American jurist, referred to as the ‘bad man’s’ view of legal rules: the rules are the price discounted by sanctions—or to reduce it even further, by the probability of the enforcement of sanctions.29 That is, laws are not norms of conduct but tariffs on conduct.30
    17. Many senior executives adopted this mindset. Their decision whether or not to engage in improper, or probably improper, conduct was made by considering the chance of discovery and sanction. If these executives thought Crown Melbourne would get away with improper conduct that was otherwise beneficial, they did not hesitate in going ahead. It was only when conduct was plainly unlawful that it was rejected.
    18. However, it is not only the executives who were at fault. The lawyers (both in-house and external) played their part. It is only necessary to refer to a few examples to make the point.
    19. There were occasions when Crown Melbourne was investigated by the regulator. Some investigations concerned alleged wrongdoing. Strategies were adopted to thwart and frustrate the regulatory process. All too often, these strategies were devised by lawyers or, at least, they were willing accomplices.
    20. Other examples are the CUP money transfer affair and the underpayment of casino tax. Each had lawyers closely involved. Crown Melbourne’s in-house legal team knew that each activity was improper, if not worse. Yet their approach was to devise arguments that, if Crown Melbourne were caught, could be put forward to reduce its culpability. Language such as ‘We could argue in reply (if the matter arises) that …’ (Ms Michelle Fielding on the CUP affair)31 or ‘One can argue that these types of rewards are a “bonus”’ (Ms Debra Tegoni on the Bonus Jackpots deductions)32 finds its way into many of their opinions.
    21. At no point did any lawyer say, ‘This is improper’ or ‘A regulated entity must always remain suitable, and consistent with the privilege it has been given, should not engage in this type of conduct’.
    22. Not only did the in-house lawyers fail to take this position, but Mr Richard Murphy, an external lawyer, justified the approach. He was asked whether Crown Melbourne should have been told not to engage in conduct that was potentially illegal. Mr Murphy’s answer was: ‘I didn’t see that to be my role as the external lawyer. My role was to help them appreciate what the laws were’.33
    23. When asked whether it made any difference that the client had special responsibilities and that the legislation under which it operates requires it to be ‘super perfect’, Mr Murphy responded: ‘Again … I didn’t see it to be my role to be telling them what they should or shouldn’t be doing’.34
    24. This is a rule of conduct that lawyers have devised for themselves. But the rule is merely an assertion. It is not an explanation. It begs the question what the lawyer’s role should be when it is plain that their client intends to engage in improper or illegal conduct.
    25. A lawyer need not simply be an agent of their client. The lawyer is by their training and vocation committed to the law. The lawyer is part of the system charged with upholding the law. That is the reason why the lawyer should have some obligation, perhaps best characterised as a moral obligation, to see that their client obeys the law.
    26. Put more directly, rather than a lawyer simply advising a client whether a given course of action is completely legal, in an appropriate case (and whether the case is appropriate will usually be self-evident) the lawyer could ask their client of the proposed conduct: ‘Is it right?’, ‘Is it honest?’ and ‘Does it thwart the purpose of the law?’35
    27. To give moral advice is not to impose it. It may be nothing more than a trigger for a useful or necessary reconsideration of a course of action.
    28. If the lawyers who were involved in Crown Melbourne’s misconduct had adopted this attitude, much of what has happened, and most of the dishonourable conduct, would not have occurred.
    29. Coming back to the question of whether Crown Melbourne is suitable to continue to hold its casino licence, when taking into account the dishonourable conduct that has been identified, it is simply not possible to describe Crown Melbourne as an entity of good repute having regard to character, honesty and integrity—the central requirement of suitability for a casino licensee.
    30. The failings—or, more accurately, the serious acts of misconduct—are breaches of almost every one of the norms of conduct that Crown Melbourne is required to observe. It has not obeyed the law. It has not acted honestly. It has exploited vulnerable individuals. It has not cooperated with the regulator or with government.
    31. The only contention in favour of suitability that is put forward by Crown Melbourne is, in effect, that it is a new organisation that has cast aside its troubled past.
    32. It is true that there have been significant changes to the boards of Crown Resorts and Crown Melbourne. Most of the old directors have gone. The new directors are honest, reputable and appropriately skilled people.
    33. There have also been significant changes at the senior management level. The new managers are also honest, reputable and appropriately skilled people.
    34. A significant remediation and reform program was introduced, probably beginning in the latter part of 2020, and its progress (at least in some respects) is well underway. The remediation and reform program deals with governance and organisational restructure, the VIP International business, new risk management controls for AML and cultural reform.
    35. All these steps are important. If Crown Melbourne is to have any chance of retaining its casino licence, they are plainly necessary.
    36. It may be accepted that past misconduct does not always determine the present suitability of a licensee. The gravity of the past misconduct, the extent of the past misconduct, how recently that misconduct occurred and its consequences are obviously factors (and very important factors) to be taken into account.
    37. Also relevant is the licensee’s recognition of its past wrongs and its promise to redress the causes of its past failings through appropriate reforms.
    38. Where the past failings are acknowledged and promises of reform are made, it is also necessary to take into account the amount of work required to redress the underlying causes, the time it will take to remedy or remove those causes, and the level of uncertainty about the success of any reform program.
    39. The Commission acknowledges that a careful balance must be struck in weighing past conduct against present expressions of contrition and promises to improve.
    40. With Crown Melbourne, however, it is simply impossible to sustain a finding of present suitability.
    41. At its most basic, Crown Melbourne’s submission is that, despite the obvious seriousness of its past misconduct, it can be trusted to implement the changes required to achieve a satisfactory level of operation.
    42. This submission places too little weight upon the gravity, extent and recency of its misconduct than the facts would reasonably permit. Crown Melbourne’s conduct is of the most egregious kind and it involved systemic and repeated failings in relation to a wide range of activities.
    43. Without unduly going over ground covered elsewhere, it is only necessary to mention the facilitation of money laundering and the association with people connected with organised crime to show the gravity of the misconduct. It is also impossible to forget the indifference Crown Melbourne displayed to the wellbeing of its customers vulnerable to gambling harm; and that it underpaid millions of dollars of casino tax because it was thought the underpayment could be hidden from the regulator.
    44. The submission also fails to acknowledge sufficiently that Crown Melbourne is in a position where it has no choice other than to undertake the most thorough review and implementation of appropriate reforms. It has not embarked upon that course voluntarily.
    45. Last, the submission pays insufficient regard to the fact that, according to the evidence given by its own experts, Crown Melbourne’s reform program is far from straightforward, far from simple and far from complete. This is, at least in part, the result of the magnitude of wrongdoing, the problems Crown Melbourne must address and the size of the task involved to remedy them.
    46. Achieving real and sustainable change in organisational behaviour from the kind of culture that has existed at Crown Melbourne for a decade or more presents significant challenges in and of itself.
    47. Properly understood, the evidence makes plain that the reform program is in its very early stages. It may or may not be successful. And, if successful, it may take considerable time to achieve.
    48. It would be wrong to say, and the Commission does not say, that it is impossible for Crown Melbourne to achieve the reforms it proposes. On the contrary, it is quite possible that, with the required dedication, reform will be achieved.
    49. But that is not the test. The Casino Control Act requires that a licensee be suitable to conduct the business of a casino. The test is not that the licensee might become suitable at some future point.
    50. When regarding the extent of the misconduct that has occurred over the past 10 years, the seriousness of that misconduct and the harm that misconduct caused, to now hold Crown Melbourne to be suitable on the basis that it has begun a serious and earnest reform program would be to undermine a central element of the licensing framework.
    51. The evidence, when considered and weighed, only admits of one conclusion: Crown Melbourne is not a suitable person to continue to hold its casino licence.
    52. In light of this finding, there is no need also to consider whether it is in the public interest for Crown Melbourne to hold its casino licence.

    Endnotes

    1 Casino Control Act 1991 (Vic) s 9(1).

    2 Casino Control Act 1991 (Vic) s 20(1).

    3 See VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4–6; VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 49; VCGA, Third Triennial Review of the Casino Operator and Licence (Report, June 2003) 33.

    4 Casino Control Act 1991 (Vic) s 9(2).

    5 See the discussion in Chapter 2.

    6 Casino Control Act 1991 (Vic) ss 9(2)(a)–(b).

    7 Casino Control Act 1991 (Vic) s 9(2)(g).

    8 In Re Bally’s Casino Application (1981) 10 NJAR 356, 393.

    9 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 337 [12], citing Prothonotary of the Supreme Court of New South Wales v Da Rocha [2013] NSWCA 151, [21].

    10 In Re Mayers and Casino Surveillance Authority (1993) 29 ALD 585.

    11 NSW Bar Association v Thomas (No 2) [1989] 18 NSWLR 193, 206.

    12 See, eg, Legal Services Board v Bourozikas [2009] VSC 382; Law Institute of Victoria v Gough (Unreported, Supreme Court of Victoria, Hansen J, 10 February 1995) 14; Petracaro v Commissioner of Consumer Affairs (1994) 62 SASR 387.

    13 See, eg, Tsaganas v Building Practitioners Board (No 2) (Review and Regulation) [2016] VCAT 2151; Victorian Building Authority v Tsaganas [2017] VSCA 248; Stasos v Tax Agents’ Board (1990) 21 ALD 437.

    14 See Chapter 4.

    15 In the Matter of Wynn MA, LLC, Massachusetts Gaming Commission, 30 April 2019.

    16 Submission 49 University of Western Australia Law School, 17 May 2021, 5.

    17 Submission 49 University of Western Australia Law School, 17 May 2021, 7.

    18 Exhibit RC1545 Article: The Organization of Corporate Crime: Introduction to Special Issues of Administrative Sciences, 2018.

    19 Exhibit RC1545 Article: The Organization of Corporate Crime: Introduction to Special Issues of Administrative Sciences, 2018, 38.

    20 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Final Report, February 2019) vol 1, 412.

    21 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 338 [16].

    22 Bergin Inquiry Transcript (Rose), 25 February 2020, 170–1.

    23 ICM Agriculture Pty Ltd v The Commonwealth (2009) 240 CLR 140, 162 [20].

    24 ICM Agriculture Pty Ltd v The Commonwealth (2009) 240 CLR 140, 162 [20].

    25 Casino Control Act 1991 (Vic) s 3 (definition of ‘public interest’ or ‘interest of the public’).

    26 Cf Comalco Aluminium (Bell Bay) Ltd v O’Connor (No 2) (1995) 131 ALR 657, 681.

    27 VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4–6. An extract of David Habersberger’s advice is set out in VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 54–5 (at Appendix 3) and in Appendix H of this Report.

    28 VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4. An extract of Ms Crennan’s advice is set out in VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000), 49–54 (at Appendix 3) and in Appendix H of this Report.

    29 Exhibit RC1600 Article: The Path of the Law, 1897.

    30 Exhibit RC1609 Article: The Internal Point of View in Law and Ethics: Introduction, 2006, 1145.

    31 Exhibit RC0263 Email chain between Matt Sanders and Jason O‘Connor et al, 11 September 2012, 2.

    32 Exhibit RC0818 Email from Peter Herring to Joshua Preston, 5 June 2018, Annexure d, 3 [12].

    33 Transcript of Richard Murphy, 29 June 2021, 2888.

    34 Transcript of Richard Murphy, 29 June 2021, 2889.

    35 Exhibit RC1616 Article: Moral Counseling, 2006, 1317, 1333.


    Chapter 19

    The path to suitability

    The path to suitability

    Introduction

    1. The finding that Crown Melbourne is no longer suitable to hold its casino licence was inevitable. The conduct it engaged in for over a decade was so disgraceful that no other conclusion is possible.
    2. To decide what should be done, on the other hand, is more complex and requires a consideration of a range of actions, governmental and private.
    3. If, in a proceeding instituted by the regulator under the Casino Control Act, a casino operator is found to be an unsuitable person, the regulator may take one, or a combination of, the following steps:
      • cancel or suspend the licence
      • vary the licence
      • impose a fine of up to $1 million
      • issue a letter of censure, which can direct the casino operator to rectify a particular matter.1
    4. In recommending what action should be taken against Crown Melbourne, the remedies of a fine or a letter of censure can be put aside. Those remedies are simply inadequate in the circumstances.
    5. Under the current statutory regime, the remedies of licence cancellation or suspension are the appropriate remedies to be employed in the case of an unsuitable casino operator.
    6. In his 1983 Report, Mr Connor, QC recommended that a power of cancellation be included in the legislation. He was troubled that the power would not be ‘as effective a sanction as it seems on the surface’. He referred to evidence given by witnesses, both local and overseas, who expressed concern about the consequence a cancellation would have on tourism, the workforce, the State’s economy and the like.2
    7. Nonetheless, Mr Connor, QC said it is absolutely necessary that the power of cancellation should be in the statute and that, in appropriate cases, it be exercised for the long term integrity of the casino industry.3 He described cancellation as the ‘ultimate sanction’.4
    8. So, when there is serious and sustained misconduct by a casino operator leading to an unsuitability finding, unless the casino licence is cancelled or suspended, the unsuitable operator will be left in charge of its casino. That would be inconsistent with the objects of the Casino Control Act. And it would be contrary to the public interest.
    9. As a matter of principle, however, it is possible for circumstances to exist where a person who is an unsuitable casino operator need not lose its licence.
    10. Seeking guidance on this issue from what has happened in other countries is not often very productive. The applicable rules and regulations, as well as the norms of conduct, may be different. On the other hand, there are occasions where overseas precedent may be instructive.
    11. This is so with the decision of the United Kingdom Court of Appeal in the Knightsbridge case.5 There, three gaming club licensees (each a private company) had committed numerous and serious breaches of the Gaming Act 1968 (UK). The Gaming Licensee Committee cancelled their licences on the basis that each licensee was not a ‘fit and proper person’ to hold a gaming licence. The ‘fit and proper person’ test was the applicable test under the United Kingdom legislation.
    12. The licensees appealed the decision to the Crown Court. Before the appeal was heard, the owners of the licensees sold their shares to new owners.
    13. On the hearing of the appeal, the new owners argued that, whatever be the past sins of the companies, ‘they were completely reformed characters and were now fit and proper persons to hold gaming licences’ and it was not appropriate for the licences to be cancelled.6
    14. The Crown Court upheld the cancellation orders. It did so on the basis of the licensees’ previous misconduct. It decided that the change in ownership was irrelevant.
    15. In judicial review proceedings in the Court of Appeal to challenge the decision of the Crown Court, one of the points raised was that the Crown Court had made a mistake in refusing to consider whether the licensees had reformed their character. The Court of Appeal upheld the complaint. Whether or not a person was ‘fit and proper’ to hold a gaming licence had to be determined at the time of the hearing before the Crown Court. Accordingly, the Court of Appeal said that when the licence holder is a limited company it is necessary to take into account:

      whether the shareholding or management of the company remains the same … as they were when the past misconduct occurred; [and] the general character and reputation of the shareholders and directors of the company at the date of the hearing … So should any evidence that the ‘re-structured’ licence holder has the capacity and intention to run the casino on different lines, or indeed that it may have already started to do so.7

    16. The following propositions can be drawn from this statement. First, a licensee that has engaged in serious breaches of the United Kingdom Gaming Act may, nevertheless, be a ‘fit and proper person’ to hold a gaming licence if it has fundamentally changed its ways. Second, the licensee may be able to satisfy the ‘fit and proper’ test if it intends to and will fundamentally change its ways.
    17. This is, however, only one side of the issue that needed to be considered. The Court of Appeal pointed out that a fundamental change of character by the licensee might not be sufficient to save its gaming licence. The Court of Appeal explained:

      There may well be cases in which the wrongdoing of the company license holder has been so flagrant and so well publicised that no amount of restructuring can restore confidence in it as a fit and proper person to hold a license; it will stand condemned in the public mind as a person unfit to hold a license and public confidence in the licensing justices [who had cancelled the license] would be gravely shaken by allowing it to continue to run the casino.8

    18. The Court of Appeal went on to say:

      If persons carrying on gaming through a limited company can run their establishment disgracefully, make a great deal of money and then when the licence is cancelled sell the company to someone who because he is a fit and proper person must be entitled to continue to hold the licence through the company, it will seriously devalue the sanction of cancellation … A licensing authority is fully entitled to use the sanction of cancellation in the public interest to encourage other operators or would-be operators of gaming establishments to observe the law ...9

    19. Translating these propositions into the mechanisms for action under the Casino Control Act, a casino operator may be a suitable person to hold a casino licence but it may no longer be in the public interest for its licence to remain in force.10

    The nature of a corporation

    1. It might be helpful to explain in the more formal language used by company lawyers what the Court of Appeal had in mind when it referred to the ‘restructure’ of a corporate licensee so that it could become a ‘fit and proper person’.
    2. A corporation is an abstraction, a creation of parliament. It can carry out action—for example, engage in misconduct—only because the law attributes to the corporation the conduct of its directors and officers.
    3. A corporation has a personality and a reputation. The action of the individuals, directors and officers, for whose conduct the corporation is responsible, sets its personality and reputation. That reputation, though it is derived from the actions of individuals, is not attached to those individuals. It is attached to the corporation.
    4. A corporation is deemed to have knowledge. Its knowledge, like its reputation, is derived from the individuals who act on the corporation’s behalf.
    5. A corporation has a culture. The culture is made up of the corporation’s policies, programs and practices that prescribe the rules in accordance with which its directors and officers act.
    6. A corporation has an owner; its shareholders own the corporation. The shareholders have power to remove the individuals for whose actions the corporation is responsible and from whom the corporation derives its persona, reputation and culture. They can be replaced by individuals whose actions will produce a different persona, reputation and culture.

    An alternative to cancellation

    1. Applying the approach suggested by the Knightsbridge case, a corporate casino operator that is unsuitable to hold a casino licence because of past misconduct may become a suitable casino operator and avoid the cancellation of its licence if the corporation has so thoroughly ‘re-made’ itself that it has, in substance, become a ‘different’ corporation. This transformation could happen if:
      • the corporation recognises and understands the reasons that led it to be an unsuitable licensee and has implemented appropriate change
      • the directors and officers whose conduct caused the unsuitability finding have been replaced with suitable directors and officers
      • steps have been taken internally to eliminate any lasting influence of the directors and officers whose conduct led to the unsuitability finding
      • any deficient systems, processes and programs that permitted or encouraged improper conduct have been repaired or replaced
      • an appropriate culture exists
      • the ownership of the corporation has changed.
    2. It might also be necessary to amend the regulatory framework that governs the casino operator to impose more rigorous obligations on the operator in order to prevent the recurrence of the conduct that led to its unsuitability.
    3. If these changes (internal and external) occur there can, in both a real and a commercial sense, be a ‘re-made’ corporation with a different persona, reputation, culture, management and ownership. Of course, in the eyes of the law, the corporation would remain as the same legal abstraction.
    4. If there is a fundamentally restructured licensee, there will be circumstances in which it is neither necessary nor appropriate to cancel or suspend the casino operator’s licence on the basis that it has transformed itself from an unsuitable person to a suitable person and there is no public interest why its licence should be cancelled.
    5. Here, however, there is a different situation. Crown Melbourne is an unsuitable person to hold its casino licence despite the reform program it has embarked upon. It nevertheless contends that it is not appropriate for its licence to be cancelled or suspended.

    The case against cancellation

    1. Crown Melbourne says there is no need for any intervention for several reasons:
      • Its current reform program will in the short term result in a company that returns to a state of suitability.
      • The cancellation or suspension of the licence will give rise to potentially significant consequences for its financing arrangements. This could affect the viability of the company and group of which it is part, putting at risk the security of investors and employees alike.
      • Over many years Crown has made a significant contribution to the State, tourism and the fabric of the Victorian economy and, in the end, there is no guarantee that if the licence were cancelled the State would find a new licensee as good at running a casino as Crown Melbourne has been and will make itself in the near future.
    2. In order to appreciate the import of these contentions and the effect they should have on the consequences of the unsuitability finding, it is necessary to look at them in a little more detail.
    3. The backdrop against which this examination takes place should be the observations made in the Knightsbridge case about, on one hand, the significance of the restructure of a corporate licensee, and the need to maintain the integrity of the licensing system on the other.
    4. The other matter to be borne in mind is that Crown Melbourne not only holds a casino licence, it is the owner of the Melbourne Casino Complex. The casino is but a part of that integrated resort and entertainment complex, which houses restaurants, bars, cinemas and nightclubs as well as hotel and conference facilities. Gambling only occurs within parts of the complex and those parts have varied slightly from time to time.
    5. When Crown Melbourne was granted its casino licence it was on the basis that all the activities that take place within the complex, not just the casino operations, would provide employment and tourism benefits to Victoria.
    6. Turning now to Crown Melbourne’s submissions, it is best to start with the alleged financial calamity that will result from a cancellation or suspension of its casino licence.
    7. The basis of this claim, which is spelt out in some detail in Crown Melbourne’s closing submissions, is conveniently summarised in a letter from the Crown directors’ lawyers to the Minister, written during the Commission’s hearings.11
    8. The purpose of the letter was to persuade the Minister not to accept any recommendation by the Commission that Crown Melbourne’s casino licence be cancelled or suspended. Not surprisingly, Crown directors’ lawyers did not provide a copy of the letter to the Commission. Quite properly, the State’s solicitors did.
    9. Be that as it may, Crown directors’ lawyers claim that the cancellation of Crown Melbourne’s casino licence or its suspension:
      • gives rise to an event of default under its financing agreements
      • the event of default may also trigger a cross-default under Crown’s Euro Medium Term Note (standing at approximately $180 million)
      • may cause credit rating agencies to downgrade the Notes to non-investment grade and trigger a put option that if exercised would require Crown to redeem the Notes
      • could ultimately lead to financiers calling up all its loan facilities (the bank debt standing at approximately $420 million and letters of credit of which approximately $99 million have been issued).
    10. The letter goes on to say that any event of default:
      • may have severe consequences for Crown and its stakeholders including shareholders, employees, unions, trade creditors, patrons, the hotel precinct and the Melbourne tourism industry
      • may cause the loss of employment or severe threat of loss of employment of more than 11,000 employees
      • could give potential overseas suitors an opportunity to take advantage of the situation.

      For these reasons, according to the directors’ lawyers: ‘It is not in the public interest for Crown to fail.’

    1. It is impossible to avoid observing that it was the height of ‘chutzpah’ for the letter to have been sent. This Yiddish word appears in modern dictionaries as meaning ‘colossal effrontery’ or ‘brazen gall’. It also means ‘presumption – plus – arrogance’ according to Rosten’s The Joys of Yiddish.12
    2. What the letter slides over is that whatever financial consequences stem from a cancellation or suspension of Crown Melbourne’s casino licence, they are consequences that have been brought about by Crown Resorts and Crown Melbourne. It is their dishonourable conduct that has led to the unsuitability finding.
    3. In any event, the claims of doom are overstated. First, it is likely that there have been extensive discussions between Crown and its financiers regarding the consequences of a loss of the licence. Second, it should also be assumed that contingency plans exist and alternative arrangements made (perhaps conditionally) to meet that eventuality.
    4. Yet the lawyers’ letter is bereft of any information about discussions along those lines. Even if, unlikely though it may be, there have been no discussions with the financiers, the letter should have said so.
    5. All in all, it would not be appropriate for the Commission to accept, in the absence of direct evidence, Crown Melbourne’s claims of financial ruin. This is not, however, to deny that the immediate cancellation of Crown Melbourne’s casino licence may well cause significant harm to a variety of other interests.
    6. The contention that Crown has made a significant contribution to Victoria, the Victorian tourism industry and the Victorian economy must be recognised. Crown Melbourne’s contribution has been significant and a good deal of it has been voluntary; for example, the work of the Crown Resorts Foundation. The loss of that continuing contribution would be a blow to Victoria and to the Victorian economy generally.
    7. Then there is the potential loss that might be suffered by those businesses—the hotels, restaurants, theatres, retail outlets and the like that operate in the complex—that depend for their custom on the millions who visit the Melbourne Casino.
    8. If the casino licence is cancelled it is likely the casino itself will stay, albeit under different management. Ignoring closures caused by the COVID-19 pandemic, the casino operations are lucrative—as even a cursory examination of Crown’s annual reports shows. In a free market economy, it is always possible to find a buyer who will take over a successful operation. The only contentious issue will be the price.
    9. It may, nevertheless, be assumed that on the cancellation of Crown Melbourne’s casino licence, the casino will be shut for some time, at least until a manager is put in place to run the business and then another operator steps in. At each point there will be disruption to the casino’s operations that will cause businesses in and around the complex to suffer.
    10. By now it should be clear that it is not appropriate to proceed on the basis that thousands of employees, from senior executives to kitchen hands, will lose their jobs if the casino licence is cancelled. No doubt there would be job losses. A new operator is likely to reduce existing staff numbers. That may happen at the senior levels as well. For many employees, however, the prospect is that the casino is likely to continue in operation as it has in the past.
    11. It should also be acknowledged that an immediate cancellation of Crown Melbourne’s licence would harm Crown Resorts’ minority shareholders, none of whom have had any involvement in the company’s misconduct. Little has been said of those shareholders. Perhaps this is because, for the most part, the minority shareholders acquired or retained their shares in the knowledge of at least some of Crown’s wrongdoing. For that reason, whether they suffer loss ought not influence what should occur.
    12. Finally, there is the contention that, given time, Crown Melbourne will return to a position of suitability. As the Knightsbridge case shows, this is a matter that requires serious consideration. At the same time, it is a contention that must be reconciled with the other statement in the Knightsbridge case regarding the importance of not undermining the purpose that lies behind the cancellation power—upholding the integrity of the licensing system.
    13. The return to suitability claim must also be reconciled with the proposition that it is inappropriate—and contrary to the public interest—to leave an unsuitable casino operator in charge of a casino on the basis that its efforts at reform might be successful.
    14. Nevertheless, quite apart from what was said in the Knightsbridge case, there are other reasons why a potential transformation to suitability by Crown Melbourne must be considered.
    15. One is that the Commission’s Terms of Reference provide that if Crown Melbourne is found to be unsuitable, the Commission must consider what action, if any, could be taken for Crown Melbourne to become a suitable person to continue to hold its licence.
    16. Another reason is that there may be more efficient means of dealing with a presently unsuitable casino licensee that may become suitable, other than by cancelling or suspending its casino licence.
    17. There is also the need to recommend, if possible, action that will avoid the potentially significant losses that may result from an immediate cancellation of Crown Melbourne’s casino licence.
    18. In that context, the interests of the State, and of the Victorian economy are very important considerations. Although the Commission does not accept Crown Melbourne’s end-of-the-world submission, it does acknowledge the real risk of harm to the Victorian economy if Crown Melbourne’s licence is immediately cancelled and a substitute licensee is not put in place quickly or at all.
    19. The extent of the harm cannot easily be measured in dollar terms. Most likely it would include loss of revenue for the tourism industry, loss of revenue for businesses operating at the Melbourne Casino Complex and loss of employment elsewhere. It could also have indirect consequences in other areas.
    20. To impose these potential harms on the State’s economy, weakened as it is by the COVID-19 pandemic, is a step that should not be taken lightly.
    21. It may be possible to avoid these potential harms if there exists an appropriate alternative to the cancellation of Crown Melbourne’s licence. That alternative is only worthwhile contemplating if there is a real possibility that Crown Melbourne can transform itself into a suitable person in the short term.

    Transformation to suitability

    1. The prospect of a transformation to suitability—of Crown Resorts—was one of the issues addressed by Ms Bergin, SC in the New South Wales inquiry. She laid out a path for Crown Resorts to follow that would bring about the needed changes, the consequence of which would be that Crown Resorts would become a suitable associate of Crown Sydney, which could then regain its licence.
    2. The prospect of transformation was also given detailed attention during the Commission’s inquiries. This involved many witnesses and took up a large proportion of the Commission’s time.
    3. The issues investigated were whether Crown Melbourne could be transformed into a suitable person and how long that might take. Particular attention was given to aspects of the structure of Crown Melbourne (ownership, management and staff), its culture and its reform program.
    4. The problems that exist at Crown Melbourne have many causes. They include poor corporate governance, indifference to the wellbeing of its customers and employees, a deficient risk management system, a drive for profits that overrode other obligations and a penchant for improper behaviour.
    5. Following its investigations, the Commission reached the following conclusions, each of which is based on a detailed examination of material set out in other parts of this Report.
    6. The first is that it is possible for an organisation to change fundamentally the manner in which it operates. To adopt the words of Ms Bergin, SC, an organisation may ‘achieve a fresh start and emerge as a much stronger and better organisation’.13
    7. Crown Melbourne has commenced the task, although it has only done so because of media revelations of money laundering and links with organised crime, the findings of the Bergin Inquiry, and the existence of this Commission. Nevertheless, Crown Melbourne recognises that it can only become a person of good repute by doing whatever is necessary to implement its reform program.
    8. To that end, the following has occurred:
      • an overhaul of the directors
      • replacement of senior management
      • payment of some unpaid casino tax, with interest
      • implementation of a reform program with the assistance of appropriately qualified outside consultants
      • a commitment to a constructive relationship with the regulator
      • a ban on junkets.
    9. Second, while no material transformation has yet occurred, if it does it will take time.
    10. Third, there is no guarantee that the necessary transformation will occur. For example, Crown Melbourne has introduced some new controls to deter money laundering but as yet their sustainability is uncertain. Policies have been adopted to repair culture, but because of the seriousness of the misconduct, ‘the road ahead [is] long’.14
    11. It is clear that more fundamental action must be taken if Crown Melbourne is to return to suitability.
    12. Perhaps the most important requirement is the full implementation of Crown Melbourne’s reform program. This will involve many steps including, but not limited to:
      • a ‘root cause analysis’ of why things went wrong
      • implementation of reforms to its risk management framework
      • repairing its broken culture
      • investigating whether there have been AML/CTF contraventions in patron accounts
      • substantially improving its AML/CTF processes
      • putting in place appropriate responsible gaming policies with adequate staffing to implement them.
    13. Another necessary step is to change the ownership of Crown Melbourne. The harmful influence that CPH and its nominee directors brought to bear on Crown Resorts and Crown Melbourne is described at length in the Bergin Report. The damage caused to Crown Melbourne’s reputation will not be repaired until CPH is removed from its position of dominance.
    14. This is not answered by the undertaking CPH has given to ILGA that it will not exert any influence over Crown Resorts for some years. While CPH retains its shareholding its shadow remains.
    15. Yet another step is to secure the independence of the Crown Melbourne board. It must be free of influence from any outside source, including its holding company, Crown Resorts.
    16. Crown Resorts has commercial interests that are likely to be different from the commercial interests of Crown Melbourne. For that reason alone, it is not appropriate for Crown Resorts to have any influence over decision making at Crown Melbourne. There is another reason. Crown Melbourne is a regulated entity and, as a matter of principle, it should be beyond any outside influence.
    17. It is also necessary for Crown Melbourne to consider whether further changes are required at the executive level. This is not a matter the Commission spent much time considering. But it is clear that if there is to be a fundamental transformation of Crown Melbourne, it will be necessary to consider the role played by some of the existing executives in Crown Melbourne’s past misconduct. Whether they should remain in their present positions requires close attention. If there is even the slightest risk they will not change their ways, the executives should be moved on.
    18. Currently, Crown Melbourne’s reform program is a work in progress. Much remains to be done. But, when the steps are implemented, Crown Melbourne is likely to return to suitability. How long that will take is not clear. Crown Melbourne’s experts say that the reform program can be successfully completed within a year or so. Although this seems to be on the optimistic side, the Commission is prepared to proceed on the basis that it is a fair view.
    19. Somewhat reluctantly because of Crown Melbourne’s past conduct, but with sufficient confidence for the future, the Commission has formed the view that the immediate cancellation of Crown Melbourne’s casino licence is not in the interests of the Victorian community.
    20. There are two main reasons. First, there is the real risk of significant harm to the Victorian economy and to innocent third parties if Crown Melbourne’s licence were immediately cancelled. Although the extent of the harm cannot be measured, it may well be significant.
    21. The second reason is more important than the first. It is the Commission’s belief that Crown Melbourne has the will and the capacity to reform itself so that it again becomes a suitable person to hold a casino licence and can remove the stain on its reputation.
    22. This leaves open the question of what should happen during the time it takes for Crown Melbourne to complete its reform program. One thing that should happen is for legislative intervention to assist the reform program.
    23. To remove CPH as the dominant shareholder, it will be necessary to amend the Casino Control Act to ensure its shareholding is reduced to less than 5 per cent. A recommendation to that effect has been made.
    24. In order to remove Crown Resorts’ control of Crown Melbourne it has been recommended that a majority of the Crown Melbourne directors must be independent, including being independent of Crown Resorts. This would enable Crown Melbourne to have its own ‘directing mind and will’.15
    25. These reforms will assist the restructure process. But they do not deal with what should happen during the time it takes to complete the reform process.
    26. Plainly, it is not appropriate for the casino business to remain under the sole control of Crown Melbourne while it works towards suitability. Crown Melbourne has been found to be an unsuitable person to hold a casino licence and it would be wrong for it to be left in charge of the casino operations while that status persists.
    27. It is equally inappropriate for Crown Melbourne’s reform process to be unsupervised. Supervision is required so that, in due course, the regulator will know whether or not the transformation to suitability has been successful.
    28. At present, the only means of dealing with these twin issues under the Casino Control Act is to suspend Crown Melbourne’s licence and appoint a manager to run the casino operations until the reform process is completed.
    29. The appointment of a manager is a cumbersome solution, fraught with many practical difficulties, foreseen and unforeseen. One difficulty is how the casino operations would be integrated within the Melbourne Casino Complex.
    30. Effective integration would require a complicated set of arrangements between the manager and Crown Melbourne, in its capacity as the owner of the complex. The arrangements would need to deal with staff who work both at the casino and in other parts of the complex, customer access to the non-casino parts of the complex (hotels, restaurants and the like), customer access to car parking, and so on. It is reasonable to assume that it would take months to put appropriate arrangements in place.
    31. Suspension of the casino licence and the appointment of a manager would give rise to other problems. For instance, it would effectively shut down Crown Melbourne’s reform process as many executives and staff would likely become employees of the manager. Even if the reform program were not shut down, Crown Melbourne’s incentive for reform would likely be diminished.
    32. Another problem is the effect that even a temporary suspension of the casino licence would have on the ability of CPH to dispose of its shareholding in Crown Resorts at a reasonable price. It should be assumed the share price would suffer a significant decline in the event of a suspension.
    33. Many, if not all, of these difficulties could be overcome by the creation of the position of a Special Manager (by whatever name) with power to both oversee and monitor the affairs of an unsuitable casino operator until the casino operator reaches a state of suitability. In the meantime the licence can remain in place.
    34. It is important that the Special Manager has powers greater than a mere monitor. A monitor has only a watching role. In the case of an unsuitable casino operator, more than a watching role is required. Because the unsuitable casino operator should not be left in control of its casino, the Special Manager should have something akin to a binding directions power and a veto power over management decisions. Though the casino operator will still manage the casino’s operations, the Special Manager must have the final say over important issues.
    35. The objective is not to transfer control of the casino from the directors and senior management to the Special Manager. They should continue to perform their usual functions. What is required is for the Special Manager to have the ability to instruct the directors (and through them, management) to take or refrain from taking certain action to make sure nothing improper happens.
    36. The Special Manager should also have a reporting role. Upon appointment the Special Manager can be tasked to investigate specific aspects of the casino operations and report the results of that investigation to the regulator and the Minister.
    37. If the reason for the Special Manager’s appointment is the unsuitability of the casino operator, any reform program will obviously be among the matters addressed in the reports.
    38. The Commission has recommended that the Casino Control Act be amended to create the position of a Special Manager who will be able to carry out these functions.

    Conclusion

    1. The decision about what should happen has not been easy to reach. There are powerful voices that say Crown Melbourne’s conduct has been so grievous that it has forfeited the right to operate a casino. They say that to allow it to continue to run the casino would undermine the integrity of the licensing system. It would also undermine the public’s faith in that system.
    2. This is a view that cannot be criticised. It is fairly based and reasonable. But it represents only one view.
    3. Equally important is the view that if there is a path to suitability Crown Melbourne should be permitted to take that path. The reasons for that have been explained.
    4. In weighing the competing views, the Commission was mindful that its Terms of Reference require it to have regard to the most practical, effective and efficient way to address the matters arising out of this inquiry. The Terms of Reference also require the Commission to have regard to the financial impact its recommendations would have on the State.
    5. Each of these considerations pointed to Crown Melbourne being given one, and only one, opportunity to reform itself.
    6. It is reasonable to assume that if Crown Melbourne stays the course of its reform program, and implements in full the reform recommendations made in this Report, all the while monitored and controlled by a Special Manager, it will become a suitable licensee; and potentially a model one.
    7. The scrutiny applied by the various inquiries, the ‘blazing platform’, the appointment of a number of reform-oriented senior managers, each point to Crown Melbourne substantially reforming, if not re-making, itself.
    8. As that process has already begun in earnest, the most practical, effective and efficient way to address Crown Melbourne’s current unsuitability is to set a deadline of two years by which time reform must be achieved. If Crown Melbourne has not reformed itself by the deadline, it will lose its licence. If it has, it will be permitted to continue to operate its casino business.
    9. Further, the process of deciding whether the reform process has succeeded should be truncated. There have already been three major inquiries into the affairs of the Crown group. No further time should be spent in going over the past.
    10. All that is needed at the end of the two-year period is for the regulator to make a speedy decision based on limited material. The regulator should make its decision within 90 days. The only material that the regulator should have are the reports of the several inquiries that have recently taken place and the reports of the Special Manager.
    11. It is also necessary for the task of the regulator to be made quite clear. It is not appropriate that the regulator apply the standard test of suitability in the Casino Control Act.
    12. For Crown Melbourne, greater certainty is required to diminish the possibility of error. Accordingly, it has been recommended that the regulator must be ‘clearly satisfied’ that Crown Melbourne has returned to suitability for Crown Melbourne to retain its licence. If a state of clear satisfaction is not reached, its licence must go.
    13. Finally, if the recommendations made in this Report are adopted, it may be appropriate (though not necessary) to prevent action being taken against the State by any dissatisfied person or any person who may have suffered any loss.

    Recommendation 31: Actions against the State

    It is recommended that legislation be enacted to the effect that:

    • no action claim or demand whatsoever may be made or allowed against the State of Victoria or any responsible Minister of the State in respect of any damage, loss or injury alleged to have been sustained as a result of the implementation of any recommendation made in this Report
    • no decision made to implement any recommendation in this Report may be subject to any appeal or any order in the nature of certiorari, prohibition or mandamus or the grant of any declaration or injunction.

    Endnotes

    1 Casino Control Act 1991 (Vic) s 20.

    2 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.18].

    3 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.19].

    4 Xavier Connor, Report of Board of Inquiry into Casinos in the State of Victoria (Report, April 1983) [16.18].

    5 R v Knightsbridge Crown Court; Ex parte International Sporting Club (London) Ltd [1982] 1 QB 304.

    6 R v Knightsbridge Crown Court; Ex parte International Sporting Club (London) Ltd [1982] 1 QB 304, 310–11.

    7 R v Knightsbridge Crown Court; Ex parte International Sporting Club (London) Ltd [1982] 1 QB 304, 317.

    8 R v Knightsbridge Crown Court; Ex parte International Sporting Club (London) Ltd [1982] 1 QB 304, 318.

    9 R v Knightsbridge Crown Court; Ex parte International Sporting Club (London) Ltd [1982] 1 QB 304, 318–19.

    10 Casino Control Act 1991 (Vic) s 20(1) (definition of ‘grounds for disciplinary action’).

    11 Exhibit RC0415 Letter from ABL to the Minister for Consumer Affairs Gaming and Liquor, 2 July 2021.

    12 Leo Rosten, The Joys of Yiddish (McGraw-Hill, 1968) 92–3.

    13 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 573.

    14 Exhibit RC0477 Elizabeth Arzadon, Expert Opinion regarding Culture Change at Crown Melbourne, June 2021, 25.

    15 Tesco Supermarkets Ltd v Nattrass [1971] 2 All ER 127.


    Chapter 20

    The associates

    The associates

    Introduction

    1. The Terms of Reference direct the Commission to inquire into whether each associate of Crown Melbourne is unsuitable to be associated with its casino business. If an associate is found to be unsuitable, the Terms of Reference require the Commission to identify what action would be required for the associate to become suitable.
    2. The Casino Control Act contains a definition of ‘associate’.1 It is a clumsy definition and, in some respects, difficult to apply. In substance, an associate:
      • is a person who:
        • holds a share in the capital of the casino business or has an entitlement to receive any income derived by the casino business; or
        • has the power, whether exercisable alone or in association with others, (i) to participate in any directorial, managerial or executive decision; or (ii) to elect or appoint any person to be a director, manager or to some other executive position,

        and by virtue of that fact is able to exercise a significant influence over the casino operations

      • is a director, manager, other executive or company secretary.
    3. Two obvious issues arise from the definition. One is how it should apply where the relevant power is exercised indirectly—for example, through a holding company of the casino licensee. The second is that it is difficult to determine what is meant by a ‘managerial’ decision. Various officers within a corporation make decisions. Some are significant, some are only marginal and some sit somewhere in between. It is not clear whether participation in a ‘managerial’ decision is intended to cover every company decision by persons other than ordinary employees. If it is, a vast number of personnel have the relevant power.
    4. Ms Bergin, SC was critical of the equivalent definition—of close associate—in section 5 of the Casino Control Act 1992 (NSW). She described the definition as ‘overly technical and not fit for purpose’. She said that several of the terms embedded in the definition were undefined and nebulous.2
    5. Moving on, the test for the suitability of an associate is the same test as applies to determine the suitability of a casino operator. The test is described in Chapter 18. In brief, to satisfy the test the person must be of good character and financially stable.
    6. There are two groups of associates of Crown Melbourne:
      • Crown Resorts, which is an associate because of its power to control the Crown Melbourne board
      • the current directors and senior executives of Crown Melbourne, who are associates because of the position they hold and power they exercise.
    7. This chapter will consider the suitability of the current directors and a number of the senior executives. For the most part, they have recently become associates and it is appropriate that their suitability be considered.
    8. There are, however, other executives whose suitability has not been examined. The reason is that nothing in the voluminous material that the Commission has examined suggests these executives may not be suitable associates. Therefore, they were not called to give evidence.
    9. There is a third group that may qualify as an associate. This is the CPH group (controlled by Mr James Packer), which may be an associate because one company in the group, CPH Crown Holdings Pty Limited, in which other members of the group hold an interest, is a substantial shareholder in Crown Resorts (approximately 37 per cent). Its shareholding would give it power to control Crown Melbourne.3
    10. The reason there is uncertainty as to whether the CPH group qualifies as an associate of Crown Melbourne is because of undertakings recently given by the CPH group to ILGA. The undertakings are not to enter into any information-sharing arrangement with Crown Resorts, not to initiate discussions with Crown Resorts about its business or operations, not to appoint nominees to the Crown Resorts board and not to seek amendments to Crown Resorts’ constitution.4
    11. One undertaking—not to appoint nominees—runs for a fixed period. The other undertakings can be withdrawn at any time. The CPH group is unlikely to be an associate while the undertakings are in place.
    12. This chapter will proceed on the assumption that the CPH group is, or is likely to be, an associate, although it is acknowledged that this may not be the true position.5

    Crown Resorts

    1. The Bergin Inquiry found that Crown Resorts was not a suitable person to be a close associate of Crown Sydney.6 In brief, Ms Bergin, SC found:
      • Between 2014 and 2019, Crown Resorts enabled and facilitated money laundering through the bank accounts of Southbank and Riverbank, and that this situation went unchecked and unchanged despite warnings from its bankers.7
      • Between 2014 and 2016, Crown Resorts disregarded the welfare of its China-based staff, putting them at risk of detention by pursuing an aggressive sales policy and failing to escalate risks through the appropriate corporate risk management structures.8
      • Between 2012 and 2020, Crown Resorts entered into and/or continued commercial relationships with junket operators who had links to triads and other organised crime groups. Further, it maintained those relationships after becoming aware of persistent allegations of such connections in national and international media reports and its own due diligence reports.9
    2. In addition to those findings, this Commission has uncovered more misconduct on the part of Crown Melbourne when it was under the control of Crown Resorts. For the most part, Crown Resorts’ executives were closely involved in that wrongdoing, and they often instigated it.10
    3. It is clear that Crown Resorts is not a suitable person to be an associate of Crown Melbourne.

    The CPH group

    1. Assuming the CPH group is an associate of Crown Melbourne, which CPH contends it is not, the group’s close involvement in Crown Resorts’ misconduct that was identified by the Bergin Inquiry makes it (strictly speaking, every member of the corporate group, together with Mr Packer) unsuitable to be an associate of Crown Melbourne.
    2. One recommendation made by this Commission will, if implemented, bring any potential future association to an end. The recommendation is that (subject to certain exceptions) no person, including the CPH group, can hold a relevant interest in 5 per cent or more of the capital of Crown Resorts and Crown Melbourne. The effect of this recommendation would apply to the CPH group from September 2024.11
    3. Once the CPH group shareholding in Crown Resorts falls below 5 per cent, the group will not be an associate of Crown Melbourne even upon the expiry of its undertakings to ILGA.

    Office holders

    1. When this Commission commenced its inquiries, the associates of Crown Melbourne included Ms Helen Coonan, the Executive Chairman of Crown Resorts and Mr Xavier Walsh, a director and CEO of Crown Melbourne.
    2. The Commission has been informed that neither Ms Coonan nor Mr Walsh will hold office by the time the Commission hands down its Report.12 Accordingly, it is not appropriate for the Commission to consider the position of these officers.
    3. On 27 August 2021, the Commission was informed that Dr Zygmunt (Ziggy) Switkowski, AO will succeed Ms Coonan as Chairman effective immediately. Dr Switkowski’s appointment is subject to probity and regulatory approvals.13
    4. Given the recency of his appointment and the fact that it remains subject to approvals, the Commission has not considered the suitability of Dr Switkowski as an associate.
    5. The balance of this section examines the suitability of:
      • Ms Antonia Korsanos, a director of both Crown Resorts and Crown Melbourne since 2018
      • Ms Jane Halton, a director of Crown Resorts since 2018
      • Mr Nigel Morrison, a director of both Crown Resorts and Crown Melbourne appointed this year
      • Mr Bruce Carter, a director of Crown Resorts also appointed this year
      • Mr Alan McGregor, the CFO of Crown Resorts
      • Mr Stephen McCann, the CEO of Crown Melbourne and Crown Resorts
      • Mr Steven Blackburn, the Group Chief Compliance and Financial Crime Officer at Crown Resorts.

    Antonia Korsanos

    1. Ms Korsanos was appointed a non-executive director of Crown Resorts on 23 May 2018. She was appointed a non-executive director of Crown Melbourne on 5 September 2018 and the Chair of the Crown Melbourne board on 17 February 2021. She is also a member of five Crown Resorts committees, including its Responsible Gaming Committee and RMC.14
    2. Ms Korsanos has recently been appointed Chair of Crown Sydney Gaming Pty Ltd.15
    3. Before joining Crown, Ms Korsanos was an executive at Aristocrat Leisure Limited, first as its CFO and then as its company secretary. Prior to that, Ms Korsanos held various senior finance roles at major public companies.16
    4. Because of her background, Ms Korsanos has considerable experience in the gaming sector.
    5. Ms Korsanos is clearly a person of good character. This was recognised by the Bergin Inquiry. The Bergin Report records:

      The more recently appointed independent directors, Ms Halton and Ms Korsanos, together form a core of the changing character of the company upon which the [ILGA] would be justified in relying for honest, open and fair dealing in the future.17

    6. During her tenure on the Crown Resorts board, Ms Korsanos became aware of the many cultural deficiencies at Crown. She appreciates that Crown’s culture must change and that to effect change will take time and require commitment.18
    7. Ms Korsanos said:

      I wouldn’t be here if I didn’t believe that we could change Crown. I think me, like everybody in the business, has had a choice that we could make. I think the way I think means I didn’t see this as a choice, it was a duty I had. I signed up as a director, fell into … well, I got a great understanding out of the Bergin Inquiry and unfortunately more surprises out of this one, but I like to look … I am a glass half-full person and I like to look at every problem from the perspective of how do you solve it. And back in February I could have made a choice to move on, but I didn’t, because I had signed up. I held myself accountable for what I now understood and I could see that I could be part of the solution.

      But I truly believe that we are on the right path and in my experience you start with your strategies and you start to act as quickly as you can with changes like those that we are engaging in through the reform agenda. And then you follow through with your cultural program, right. And the cultural program really is about establishing the baseline. I think with the team we have today it is about reinforcing, well, revisiting our values …

      We’ve done that across a number of our functions but there is still more to be done. But I think we have definitely … the change I’ve seen here versus how I saw cultural change in my prior experience, this change has been a lot faster. I don’t think we can dismiss the signalling of change from the top down, what the signalling of that change, and also the experience of the NSW Inquiry and the Royal Commission, I don’t think we can dismiss the effect that that has had in terms of speeding up the effort and the outcomes.

      There is still a lot to do, there is still a lot to do and what is to be done is more about the longevity of maintaining and sustaining that change and making sure we have the right accountabilities in the business and people understand and have a line of sight of what their job means in the context of doing the right thing in the context of respect, working together and passion, or whatever the values are when we define what is relevant going forward.

      I will finish with where I started; I wouldn’t be here if I didn’t believe it could be achieved. I don’t believe in failure. I do believe I can support this change. I’ve seen it before. I think we have a group of people who are, despite the fatigue, are completely committed and motivated to do this.19

    8. It is clear that Ms Korsanos has a strong commitment to Crown’s reformation. She understands that changes must be made from the top down and that Crown’s reformation is a work in progress.
    9. Ms Korsanos is a suitable person to be an associate of Crown Melbourne. She has however, indicated her intention to resign as a director.20

    Jane Halton

    1. Ms Halton was appointed a non-executive director of Crown Resorts on 23 May 2018. She is a member of several Crown Resorts committees, including its RMC and Audit and Corporate Governance Committee. She joined the Crown Resorts board at the same time as Ms Korsanos.21
    2. Following the departure of Mr Walsh, Ms Halton was appointed as a director of Crown Melbourne and will act as interim Chairman of Crown Resorts until Dr Switkowski receives the necessary regulatory and probity approvals.22
    3. Ms Halton is a highly experienced and qualified director. Before joining the business community, Ms Halton held senior roles in the Australian Public Service, including Secretary of the Department of Finance and Secretary of the Department of Health.23
    4. Currently Ms Halton is also a director of ANZ Banking Group Limited, law firm Clayton Utz, the Institute of Health Metrics and Evaluation at the University of Washington, among others. Further, she is an Adjunct Professor at both the University of Sydney and the University of Canberra and a council member of the Australian Strategic Policy Institute.24
    5. Ms Halton’s good character was recognised in the Bergin Report. It records:

      The more recently appointed independent directors, Ms Halton and Ms Korsanos, together form a core of the changing character of the company upon which the [ILGA] would be justified in relying for honest, open and fair dealing in the future.25

    6. Ms Halton is alive to the need for reform at Crown. She appreciates that cultural reform is a very important part of Crown’s ongoing remediation plan and has taken steps to ensure the reform program is proceeding.
    7. Recently Ms Halton met the partner at Deloitte leading Deloitte’s review of Crown’s culture.26 Ms Halton gave this account of their meeting:

      So we went through a series of observations. She talked about the fact that there had been focus groups and what she was detecting. I asked a series of questions because of my particular interest about whether, for example, the changed tone and the tone from the top and the messaging to staff in her experience or focus group work had been heard, what the reaction if they are being heard is. We talked about the breadth and the variety of different components of the business.

      She said she had been having it reflected back to her, and in fact I took from that meeting a level of comfort that notwithstanding the relatively short period since we exited the vast number of directors and a series of senior management, that those messages, and I was very … I mean, I had been very keen for the Executive Chairman to send regular messaging to staff, all staff, and I was trying … she was telling me that those messages were being looked at and were being heard. So they are not just read but the message was being absorbed.27

    8. Ms Halton is a suitable person to be an associate of Crown Melbourne.

    Nigel Morrison

    1. Mr Morrison is a new appointee to the boards of Crown Resorts and Crown Melbourne, having taken the position on 28 January 2021.28 On 27 August 2021, the Commission was advised that Mr Morrison was appointed as Chairman of Crown Melbourne.29
    2. Although a recent appointment, Mr Morrison has a long history with Crown. He played a key role coordinating the consortium that bid for the casino licence and he worked in various executive finance roles until 2000.30
    3. Mr Morrison has other experience in the casino industry. For example, he was the Managing Director and CEO of SkyCity Entertainment Group Limited (SkyCity) between 2008 and 2016 and the CFO of the Galaxy Entertainment Group between 2007 and 2008 (both SkyCity and Galaxy own and operate casinos).31
    4. More broadly, Mr Morrison spent 13 years at Ernst & Young, ultimately as a partner in its corporate advisory practice.32
    5. Mr Morrison informed the Commission that when he joined SkyCity in 2008, ‘there were in many ways, some similar challenges to those that face Crown’. He said that there had been no permanent CEO for over a year, the culture was not good, there were accusations of loansharking, and relations with regulators and governments were strained. Mr Morrison said he was able to successfully transform SkyCity in these circumstances.33
    6. Mr Morrison recognises that the challenges facing Crown are ‘seriously substantial’.34 He identified a number of key challenges: rebuilding relationships and trust with regulators and governments; rebuilding the community’s view of Crown and regaining public confidence; managing Crown’s banking and rating agency relationships and funding, including as the Commission’s findings and those of other investigations emerge; repositioning Crown’s RSG to best practice; developing and implementing a new business plan to reflect changes to Crown’s business model following the Bergin Inquiry and the Commission; and retaining quality staff and management, attracting high-quality new employees and maintaining staff morale and engagement.35
    7. Mr Morrison stressed that he considered it ‘absolutely appropriate and fundamental to proper governance of any company’ that its directors be independent and not constrained by loyalties that might unduly prejudice their judgement.36 He further emphasised the importance of an honest, open, frank and constructive relationship with the regulator.37
    8. Mr Morrison did say that in the past he had dealings with Mr Kerry Packer, Mr James Packer and CPH.38
    9. This is unsurprising given Mr Morrison’s involvement in the casino sector. None of his dealings with Mr Kerry Packer, Mr James Packer or CPH affect Mr Morrison’s suitability to be an associate of Crown Melbourne.
    10. Mr Morrison is a suitable person to be an associate of Crown Melbourne.

    Bruce Carter

    1. Mr Carter was invited to join the Crown Resorts board on 12 April 2021.39 The regulator approved the appointment on 16 June 2021 and the appointment was confirmed.40
    2. Following the departure of Mr Walsh, Mr Carter was appointed as an additional director of Crown Melbourne.41
    3. Mr Carter was a partner at Ernst & Young and the Managing Partner at Ferrier Hodgson. In those positions he acquired extensive knowledge of corporate insolvency, restructuring and the ‘turnaround’ of companies.42
    4. Since 2012, Mr Carter’s primary role has been as a non-executive company director. He was a non-executive director of SkyCity for 11 years until his appointment to the Crown Resorts board.43
    5. It is clear from Mr Carter’s experience that he has a sound understanding of the risks currently facing Crown and the community expectations of that organisation. He also understands what needs to be done to repair the situation.44
    6. Mr Carter is a suitable person to be an associate of Crown Melbourne.

    Alan McGregor

    1. Mr McGregor has been at Crown for 16 years. He was the CFO of several Crown companies, including Crown Melbourne. He has been the CFO of Crown Resorts for 12 months.45
    2. Prior to joining Crown, Mr McGregor worked at SkyCity for seven years in various finance roles.46
    3. Mr McGregor had knowledge of, and some involvement in, the Bonus Jackpots tax issue.47
    4. Notwithstanding this knowledge, Mr McGregor did not suggest to the Crown Melbourne board or to its Risk Management or Compliance Committees that the tax issue be properly investigated or that it be raised with the regulator. This was a failing on his part.
    5. Perhaps the failing can be explained by Mr McGregor’s belief that the then CEO and Managing Director of Crown Resorts, Mr Ken Barton, would appropriately deal with the issue.48
    6. Mr McGregor is an experienced senior executive at Crown. His conduct plays a part in setting the culture of the organisation. His failure to bring the Bonus Jackpot tax issue to the attention of others (for example, the board or the regulator) does raise questions about his judgement.
    7. However, bad judgement does not mean that Mr McGregor is an unsuitable associate.
    8. Mr McGregor is a suitable person to be an associate of Crown Melbourne.

    Stephen McCann

    1. Mr McCann was appointed CEO of Crown Resorts effective 1 June 2021. On 20 August 2021 he was appointed CEO of Crown Melbourne.49
    2. Mr McCann has recently been appointed a director of Burswood Limited.50
    3. Mr McCann was appointed as CEO of Crown Resorts because of his general experience in the business world. He has worked in the banking and financial sectors and for Lendlease, a large multinational construction company. At Lendlease he was the Group Chief Executive and later, for a period of 12 years, he was the Managing Director.51
    4. Mr McCann is a competent leader well able to run a large and complex organisation. While at Lendlease he presided over significant changes, including improvements to safety, regulatory compliance and culture.52
    5. Mr McCann described cultural change as requiring a combination of ‘leadership from the top’, ‘setting a direction and a purpose and a vision that people can subscribe to, buy into, be motivated and energised by’, and ‘systems and processes that enable them to follow the leadership’.53
    6. Mr McCann recognises the need for cultural change at Crown Melbourne. He said:

      Crown’s culture needs to reflect an organisation which understands that it is not sustainable to generate revenue from vulnerable people and that it is the responsibility of all employees, not just responsible gaming staff, to be aware of the risks of gambling addiction and to be able to identify observable signs or concerning data and bring it to the appropriate person’s attention. In addition, Crown’s culture needs to encourage all staff to be willing to report any misgivings they may have about any behaviours or practices they observe without any fear of retribution and to be confident instead that their concerns will be addressed and people will be held directly accountable for their actions and rewarded for appropriate behaviour and quality outcomes.54

    7. Mr McCann also appreciates the importance of restoring public confidence in Crown. He acknowledged ‘[t]he long-term viability and sustainability of Crown requires both a social licence and a regulatory licence’, and that Crown must keep pace with an increased focus on responsible gambling and environmental and social responsibility.55
    8. It is clear that Mr McCann has carefully reflected on the challenges Crown faces, and the challenges he will face in his role. He recognises that Crown Melbourne’s employees are ‘looking for direction … [and] leadership’ and considers this his responsibility.56
    9. Mr McCann has no experience dealing with a regulator but has been educating himself about the regulator’s role. Recently he has been involved in discussions with the regulator, particularly about Crown Melbourne’s need to be open and transparent.57
    10. Mr McCann is a suitable person to be an associate of Crown Melbourne.

    Steven Blackburn

    1. Mr Blackburn was appointed as Crown’s Chief Compliance and Financial Crime Officer on 24 February 2021.58
    2. Mr Blackburn has extensive experience in anti-financial crime programs in the banking sector. From 2018 to 2021 he was the Chief Financial Crime Risk Officer and Group Money Laundering Reporting Officer at NAB. From 2011 to 2018, he was the Chief Anti-Money Laundering Officer at the Canadian Imperial Bank of Commerce.59
    3. Through these roles he developed expertise in AML, CTF, sanctions and anti-bribery and corruption. He was responsible for designing, implementing, overseeing and monitoring anti-financial crime regimes, and for building and maintaining relationships with regulators and stakeholders—in NAB’s case with entities such as the AFP, AUSTRAC and Five Eyes Law Enforcement Group.60
    4. Prior to 2011 Mr Blackburn practised as a lawyer. He held various senior legal positions, including as Managing Counsel at the Canadian Imperial Bank of Commerce.61
    5. Following his appointment at Crown, Mr Blackburn’s role was extended to overseeing RSG. Although he has no prior experience with RSG, he has sought to educate himself in this area.62
    6. Mr Blackburn is a person of considerable skill, diligence and integrity. He describes himself as being a ‘passionate advocate for integrity functions’.63 Based on what he now knows, Mr Blackburn has accepted that Crown’s past culture was ‘as bad as [he’d] ever seen anywhere’ in his professional experience.64
    7. Nevertheless, he is optimistic that there has been a genuine and significant cultural shift at Crown.65
    8. Based on his assessment of Crown’s current level of ‘maturity’ with respect to financial crime and compliance, Mr Blackburn has developed an ambitious financial crime and compliance change program.66
    9. He has also devised a proposed series of enhancements to Crown’s RSG Program, though he emphasised that these were not comprehensive and would be further developed in due course.67
    10. The change program and the proposed enhancements were endorsed by the Crown Resorts board on 24 May 2021.68 They demonstrate Mr Blackburn’s genuine intention to bring about change at Crown.
    11. Mr Blackburn is a suitable person to be an associate of Crown Melbourne.

    Conclusion

    1. The New South Wales Government has announced that its Casino Control Act 1992 (NSW) will be amended to change the definition of close associate to address some of the ambiguities mentioned earlier.
    2. The deficiencies in the Casino Control Act should also be remedied, although not precisely along the lines proposed in New South Wales.69

    Recommendation 32: Definition of associate

    It is recommended that the Casino Control Act be amended so that ‘associate’ means:

    • the holding company and each intermediate holding company of the casino operator (holding company to be defined as in the Corporations Act);
    • any person who has a relevant interest (as defined in the Corporations Act) in at least 5 per cent of the issued capital of the casino operator, or any of its intermediate holding companies or its ultimate holding company;
    • any director or officer (as defined in the Corporations Act) of the casino operator, any of its intermediate holding companies or its ultimate holding company; and
    • any individual or company certified by the regulator to be an associate.

    Recommendation 33: Increase in shareholding

    It is recommended that an associate cannot increase its relevant interest in the issued capital of the casino operator, or any of its intermediate holding companies or its ultimate holding company, without the written approval of the regulator.

    Endnotes

    1 Casino Control Act 1991 (Vic) s 4.

    2 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 633 [93], 634 [97].

    3 In addition to CPH Crown Holdings Pty Limited, as of March 2021, other members of the CPH group included CPH Gaming IVA Pty Limited, CPH Gaming IVB Pty Limited, CPH Gaming III Pty Limited, CPH Gaming II Pty Limited, CPH Gaming I Pty Ltd, Consolidated Press Holdings Pty Ltd, Conpress Holdings Pty Ltd, Bareage Pty Ltd and Consolidated Press Financial Services Pty Ltd.

    4 Exhibit RC1411 Email chain between Guy Jalland, Murray Smith and Phillip Crawford, 15 March 2021.

    5 Responsive submission CPH Parties, 2 August 2021, 5 [5].

    6 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 566 [140].

    7 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 543 [9].

    8 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 543 [9].

    9 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 543–4 [9], 545 [18].

    10 See, eg, Chapters 10 and 12.

    11 The CPH Parties submit that no shareholding cap is necessary or desirable: Responsive submission CPH Parties, 2 August 2021, Part C.

    12 Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 324 [1], 328 [2].

    13 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    14 Exhibit RC0434 Statement of Antonia Korsanos, 27 April 2021, 1; Transcript of Antonia Korsanos, 7 July 2021, 3649.

    15 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    16 Exhibit RC0434 Statement of Antonia Korsanos, 27 April 2021, 1.

    17 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 467 [10].

    18 Transcript of Antonia Korsanos, 7 July 2021, 3710.

    19 Transcript of Antonia Korsanos, 7 July 2021, 3708–9.

    20 Crown Resorts, 'Retirement of Director' (ASX Media Release, 16 September 2021).

    21 Exhibit RC0427 Statement of Jane Halton, 28 April 2021, 1 [2]–[3].

    22 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    23 Exhibit RC0427 Statement of Jane Halton, 28 April 2021, 1 [4].

    24 Exhibit RC0427 Statement of Jane Halton, 28 April 2021, 1 [5].

    25 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 467 [10].

    26 See Chapter 5.

    27 Transcript of Jane Halton, 7 July 2021, 3587–8.

    28 Crown Resorts, ‘Appointment of Nigel Morrison as a Director’ (ASX Media Release, 28 January 2021).

    29 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    30 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 1.

    31 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 1–2.

    32 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 3–4.

    33 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 4.

    34 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 8.

    35 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 8.

    36 Transcript of Nigel Morrison, 22 June 2021, 2268.

    37 Transcript of Nigel Morrison, 22 June 2021, 2280–1.

    38 Exhibit RC0223 Statement of Nigel Morrison, 15 June 2021, 2–3.

    39 Exhibit RC0931 Statement of Bruce Carter, 12 June 2021, 1.

    40 Exhibit RC1269 Letter from John Curran to Michelle Fielding, 16 June 2021.

    41 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    42 Exhibit RC0931 Statement of Bruce Carter, 12 June 2021, 1, 4.

    43 Exhibit RC0931 Statement of Bruce Carter, 12 June 2021, 2.

    44 Exhibit RC0931 Statement of Bruce Carter, 12 June 2021, 3–4.

    45 Exhibit RC0423 Statement of Alan McGregor, 16 April 2021, 1.

    46 Exhibit RC0423 Statement of Alan McGregor, 16 April 2021, 1.

    47 Exhibit RC0332 Email chain between Michelle Fielding and Nicole Wendt et al, 4 June 2018; Exhibit RC0824 Email chain between Peter Herring and Michelle Fielding et al, 5 June 2018. For further discussion of the Bonus Jackpots tax issue, see Chapter 12.

    48 See the following minutes: Exhibit RC1294 Minutes of Crown Resorts board meeting, 18 February 2020; Exhibit RC1295 Minutes of Crown Resorts board meeting, 25 March 2020; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure hhhhhhh; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure kkkkkkk; Exhibit RC1296 Crown Resorts board diligent pack, 15 April 2020; Exhibit RC0437 Statement of Helen Coonan, 28 April 2021, Annexure a; Exhibit RC1297 Minutes of Crown Resorts board meeting, 9 September 2020; Exhibit RC0437 Statement of Helen Coonan, 28 April 2021, Annexure n; Exhibit RC1298 Minutes of Crown Resorts board meeting, 2 November 2020; Exhibit RC0437 Statement of Helen Coonan, 28 April 2021, Annexure f; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure vvvvvvv; Exhibit RC1299 Minutes of Crown Resorts board meeting, 15 January 2021; Exhibit RC1300 Minutes of Crown Resorts board meeting, 28 January 2021; Exhibit RC1301 Minutes of Crown Resorts board meeting, 9 February 2021; Exhibit RC1245 Minutes of Crown Resorts board meeting, 17 February 2021; Exhibit RC1302 Minutes of Crown Melbourne board meeting, 11 February 2020; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure yyyy; Exhibit RC1304 Minutes of Crown Melbourne board meeting, 11 August 2020; Exhibit R1306 Minutes of Crown Melbourne board meeting, 2 November 2020; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure ccccc; Exhibit RC1327 Crown Resorts Responsible Gaming Committee diligent pack, 23 June 2020; Exhibit RC1328 Minutes of Crown Resorts Responsible Gaming Committee meeting, 11 August 2020; Exhibit RC0109 Statement of Sonja Bauer, 5 May 2021, Annexure fffff; Exhibit RC1329 Minutes of Crown Resorts Responsible Gaming Committee meeting, 2 December 2020; Exhibit RC1344 Minutes of Crown Melbourne Compliance Committee meeting, 23 November 2020; Exhibit RC1345 Papers, Crown Melbourne Compliance meeting, 2 February 2021; Exhibit RC1346 Minutes of Crown Melbourne Compliance Committee meeting, 25 May 2021.

    49 Crown Resorts, 'Crown Melbourne Management Changes' (ASX Media Release, 20 August 2021).

    50 Exhibit RC1617 Letter from Allens Linklaters to Solicitors Assisting, 27 August 2021.

    51 Exhibit RC0419 Statement of Stephen McCann, 15 June 2021, 2.

    52 Exhibit RC0419 Statement of Stephen McCann, 15 June 2021, 4; Responsive submission Crown Melbourne Limited and Crown Resorts Limited, 2 August 2021, 39–40 [C.37].

    53 Transcript of Stephen McCann, 6 July 2021, 3488.

    54 Exhibit RC0419 Statement of Stephen McCann, 15 June 2021, 9.

    55 Transcript of Stephen McCann, 6 July 2021, 3510.

    56 Transcript of Stephen McCann, 6 July 2021, 3489–90.

    57 Transcript of Stephen McCann, 6 July 2021, 3451–6.

    58 Exhibit RC0310 Supplementary Statement of Steven Blackburn, 28 April 2021, 2.

    59 Exhibit RC0310 Supplementary Statement of Steven Blackburn, 28 April 2021, 1–2.

    60 Exhibit RC0310 Supplementary Statement of Steven Blackburn, 28 April 2021, 2.

    61 Exhibit RC0310 Supplementary Statement of Steven Blackburn, 28 April 2021, 2.

    62 See, eg, Transcript of Steven Blackburn, 1 July 2021, 3033.

    63 Transcript of Steven Blackburn, 1 July 2021, 3036.

    64 Transcript of Steven Blackburn, 1 July 2021, 2962–3.

    65 Transcript of Steven Blackburn, 1 July 2021, 2933, 2963.

    66 Exhibit RC0311 Further Supplementary Statement of Steven Blackburn, 7 June 2021, Annexure a.

    67 Transcript of Steven Blackburn, 1 July 2021, 3033, 3050.

    68 Exhibit RC0696 Minutes of Crown Resorts board meeting, 24 May 2021.

    69 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 635 [100].


    Reviewed 25 October 2021