Chapter 13

The China Union Pay issue

Introduction

1. In 1983, Mr Connor, QC warned of the dangers of casinos providing credit to patrons:

   Credit has almost routinely been the principal source of trouble with casinos. Casino management is generally anxious to be in a position to extend credit at its discretion to favoured gamblers. It increases casino turnover as well as encouraging gamblers to gamble beyond their means. The granting of credit leads to all kinds of problems particularly relating to skimming and collecting the unpaid debts of gamblers who live out of State. The way to eliminate problems relating to credit is simply to prohibit it.¹

2. Mr Connor, QC also said that it was in the public interest that persons coming to and going from casinos should not carry large amounts of cash. He said: ‘[a] properly controlled cheque cashing facility would go a fair distance toward [encouraging gamblers not to carry cash]’.²
3. The Casino Control Act adopted these suggestions.
4. Relevantly, subject to certain exceptions, by section 68(2) a casino operator is prohibited from providing money or chips as part of a transaction involving a credit card or debit card.
5. One exception is section 68(8), which provides that a casino operator may provide credit to a non-Australian resident participating in a premium player arrangement or a junket.
6. This chapter will outline how Crown Melbourne contravened section 68 by implementing what has become known as the ‘CUP process’; the ‘CUP process’ being the use of the Chinese-based bank card, China Union Pay, to allow international patrons to access funds in order to gamble at Crown Melbourne.

The process

7. On 10 March 2021, Solicitors Assisting the Commission wrote to Crown Resorts and Crown Melbourne requesting them to disclose, relevantly, conduct that would or might breach any provision of the Casino Control Act.³
8. On 16 March 2021, a leadership training workshop was attended by a number of Crown Melbourne employees. There, one of the employees said he was aware that money laundering was taking place at the Melbourne Casino.
9. A surveillance log entry report summarised what the employee had said:

   [The form of money laundering] involved having a high action international patron staying at a hotel (ie. Crown Towers). They (the hosting or hotel staff) would charge an ‘incidental charge’ ([the employee] failed to specify an amount) to the hotel invoice of the patron. The patron would then settle their hotel bill, including the incidental charge, using ‘tap and go’. This would transfer money from an international account to Crown to settle the amount on the hotel room. The money for the incidental charge would then be made available to the patron, potentially at the cage, for the purposes of gaming.⁴

10. On 25 March 2021, the employee was interviewed by three Crown Melbourne officers, including Mr Robert Meade (Crown Melbourne’s in-house counsel), Ms Jan Williamson (another in-house lawyer) and Ms Miriam Burado (the manager of the employee’s direct manager).⁵
11. On 21 April 2021, in response to the disclosure request, the Commission was informed that Crown Melbourne may have breached the AML/CTF Act. The Commission was provided with a copy of the surveillance log entry report recording what the employee said at the leadership training workshop. It was advised that Crown Resorts had begun an investigation into the matter.⁶
12. In due course, the Commission was provided with a Memorandum of Advice, dated 1 June 2021, by senior and junior counsel who had been retained by the directors of Crown Resorts to investigate the matters raised by the employee. That advice sets out a detailed history of the practice.⁷ It will be necessary to return to aspects of that advice.
13. It is important to understand the reason for the CUP process. China had imposed restrictions on Chinese nationals transferring money out of the country. Between the years 2012 and 2016, a Chinese national could not transfer more than USD50,000 per year to another jurisdiction. The Chinese currency restrictions were well known to Crown Melbourne executives.⁸ The CUP process was devised to enable the illegal transfer of funds from China.
14. In brief outline, the CUP process involved the following steps. International VIP patrons, mostly from China, were permitted to transfer funds to the Crown Towers Hotel through their CUP credit card or debit card. NAB was the merchant facility provider whose terminal facility was used. The hotel issued a room charge bill to the patron, falsely asserting that the hotel had provided services to the person. The patron would pay the bill and be given a voucher acknowledging the receipt of funds. Then the patron, accompanied by a Crown VIP host, took the voucher to the Cage and exchanged it for cash or chips.⁹
15. Crown Melbourne adopted the CUP process in the following circumstances. In August 2012, Crown Melbourne’s Vice President South China contacted Mr William Mackay, the Executive Vice President of VIP Operations. He enquired whether two Chinese VIP patrons who were planning to visit Crown Melbourne could transfer to the casino $200,000 via a credit card so that they could purchase chips to gamble.¹⁰
16. Crown Melbourne’s Vice President South China discussed the matter with several Crown executives, including Mr Matt Sanders, a strategy manager at Crown Melbourne. Mr Sanders came up with the idea that the patrons could pretend to acquire services from the Crown Towers Hotel and use money transferred from their credit card account to pay for those services. Mr Sanders sought advice from Ms Debra Tegoni and Ms Michelle Fielding, Crown Melbourne’s legal and compliance officers, on whether it could be done.¹¹

Internal advice on the process

17. On 9 August 2012, Ms Fielding sent an email to Mr Sanders and Ms Tegoni containing her advice. The advice noted that:
    • the Casino Control Act prevented a cash advance from a credit card on the gaming floor and within 50m of any casino entrance
    • the Casino Control Act also forbade the provision of cash or chips as part of a transaction involving a credit card or debit card
    • there was an exception where the chips were provided on credit to a person not ordinarily resident in Australia and the person was participating in a junket or a premium player arrangement.¹²
18. Ms Fielding’s advice did not deal with the lawfulness of the proposed arrangement. She merely paraphrased the applicable provisions in the Casino Control Act.
19. However, Ms Fielding was alive to the risk such transactions represented, for she stated:

    There is therefore a risk that the Regulator may take the view that to take advantage of exemption it must be the casino operator providing the credit and not the bank. We would argue in reply (if the matter arises), that the chips are being sold on credit as facilitated by and for the benefit of the casino operator and accordingly, in our view, the exemption should apply.¹³

20. Nonetheless, Ms Fielding advised that Crown Melbourne could sell and provide chips from a credit card to international patrons, provided those patrons were participating in a junket or a premium player arrangement.
21. Unfortunately, Ms Fielding did not consider whether, by acting in accordance with her advice, Crown Melbourne would be providing credit to the VIP patrons—for it is only in that circumstance that the exemption in section 68(8) would apply.

Adoption of the process and further reviews

22. Also on 9 August 2012, Mr Jason O’Connor (Group Executive General Manager, VIP International) approved the process and limited the transfer of funds to $200,000.¹⁴
23. The process was then partially formalised. Mr Sanders emailed the duty managers at the hotel and the manager of the Cage on 6 September 2012 and explained the procedure to be followed. The instructions were quite detailed.¹⁵
24. By mid-2013, 14 patrons had used the CUP process. The amounts transferred ranged from $5,000 to $450,000.¹⁶
25. An internal review of the process was then undertaken. The report of the review, dated 6 June 2013, identified potential money laundering as a problem. The report noted that the staff at the Cage were responsible for compliance with the AML requirements.¹⁷
26. There was no evidence before the Commission that, at any time during which the CUP process was in operation, the Cage staff considered that it might be necessary to make reports to AUSTRAC regarding the funds transferred from China. To the contrary, the evidence suggests they did nothing.
27. In mid-2013, an issue arose that should have alerted Ms Tegoni to the unlawfulness of the CUP process. In July 2013, Crown Melbourne reviewed whether its banking arrangements with NAB permitted the CUP process. It also considered whether it might engage CBA to be its merchant facility provider instead of NAB. Ms Tegoni was one of the review team.
28. During the review, correspondence passed between Ms Tegoni and an officer at CBA. In particular, on 26 July 2013, the CBA officer emailed an executive at Crown Melbourne, who forwarded the email to Ms Tegoni, noting there were a number of constraints on using the CUP process. Of the problems identified, three should be noted. According to the CBA officer, CUP cards:
    • cannot be used to process cash out
    • cannot be used to place bets or purchase gaming chips
    • cannot be used to purchase foreign currency.¹⁸
29. On 16 September 2013, Ms Tegoni reviewed an article from China Briefing News. The article discussed the problems faced by Chinese nationals seeking to transfer funds from China.¹⁹
30. In the unlikely event that Ms Tegoni had not been aware that the CUP process enabled Crown Melbourne’s Chinese VIP patrons to illegally transfer funds from China, she now knew it. Upon reading the article, Ms Tegoni made a file note: ‘[t]ransaction NOT valid if it’s illegal. Where?? Discretion if breaches laws or sanctions of another country.’²⁰
31. Ms Tegoni was also concerned about Crown Melbourne’s AML obligations. She sent an email to Mr Roland Theiler, Senior Vice President of International Business at Crown Melbourne, asking: ‘Do you know if the Cage report on any pre-approval or intention to visit and use CUP here from an AML perspective—i.e. an IFTI on the instruction?’²¹
32. On 17 September 2013, Ms Tegoni prepared a ‘note to file’. In summary, she recorded:
    • CBA emailed to say CUP cannot be used to purchase chips.
    • The NAB offer allows a CUP card to process a ‘quasi-cash transaction’ (something, such as chips, that may be readily converted to cash) as a ‘purchase’ rather than a ‘cash out’. This suggests CUP can process such a transaction.
    • There would be proceeds of crime issues if such transactions were not legal.
    • NAB’s terms and conditions suggest that such transactions are not valid if they are illegal.
    • Such transactions cannot be processed to provide players with cash.
    • If it is illegal for Chinese residents to gamble overseas (and she did not think it was), then that would be a matter for the individual patron, subject to proceeds of crime issues and NAB terms and conditions.
    • There is a technical risk that such transactions are only completed on the gaming floor, but ‘we have been doing this for a long time and this has been acceptable’.
    • It is hard to see how the transactions could be illegal unless NAB has changed its terms and conditions or specified that using a CUP card for a quasi-cash transaction such as this is now illegal and invalid. This should be clarified and a new letter of offer obtained.²²
33. Once again, Ms Tegoni was on notice that the CUP process was potentially unlawful.
34. In the same month, Ms Tegoni was asked to consider whether the CUP process required the patron to be a guest of the Crown Towers Hotel. In her advice, provided on 30 September 2013, Ms Tegoni stated:
    • … S68 (2) of the Act prohibits Crown from providing money or chips as part of transaction involving a credit or a debit card unless exempted under S68(8) when the chips are provided on credit (there is no mention of debit card in this section) is provided to an International resident when participating in a Premium program agreement or a junket at the casino.
    • Accordingly, this is a further reason why we may have required them to be hotel guests. Either way it is preferable that we check that they are International residents and on such a program before we allow them to transact in this manner—I understand that this is the case.
    • It may well be argued that S68(2) does not apply for funds accessed at the hotel at all, as the section only deals with a transaction ‘in connection with gaming or betting in the casino’ and providing access to funds at the hotel is not this type of transaction. Irrespective, we have taken the view that, it is preferable to ensure the customer is international and playing on a program just in case.²³
35. In October 2013, the CUP process was formalised in the VIP International ‘Credit and Debit Card cash out policy’.²⁴
36. In December 2013, the previous transfer limit of $200,000 per transaction was increased to $500,000 per transaction and patrons were informed of the increase.²⁵
37. In fact, on several occasions, the $500,000 limit was exceeded.²⁶
38. In February 2014, Mr O’Connor met with representatives of Regal Crown (a Hong Kong-based remittance payment company) in Hong Kong to discuss whether it would become a merchant acquirer for CUP. At the time of the meeting, Mr O’Connor had been informed of concerns held by Ms Tegoni. Those concerns were:

    ...

    • Do CUP know that the transactions are gaming related?
    • Can we review the agreement between RC [Regal Crown] and CUP? ...
    • How can we be assured that RC have a proper AML reporting process in place?²⁷
39. Around the same time, there were internal discussions about whether the CUP process should be adopted by Crown Perth. Mr O’Connor was concerned about this. In an email to Ms Tegoni, he wrote, ‘[o]ne issue is what the VCGLR might do if contacted by the Perth regulator, which Josh [Preston] feels is likely to happen’.²⁸
40. Whatever may have been the position in 2012 and 2013, by early 2014, Mr O’Connor, Mr Preston (then Chief Legal Officer, Australian Resorts) and Ms Tegoni were obviously worried about the lawfulness of the CUP process.
41. Indeed, in March 2014, Mr O’Connor read a Reuters article that referred to the CUP process; specifically, it noted that the process violated China’s AML regulations and restrictions on currency exports. It also noted that the Chinese authorities feared the CUP process was being used by ‘corrupt officials and business people to send money out of the country’.²⁹
42. On 17 October 2014, Ms Tegoni sent the following email to Mr O’Connor:

    Further to our conversation today, I thought that I should point out and clarify the relevant provisions of the Casino Control Act (Vic) 1991 that we have previously discussed in the context of this issue.

    See attached section 68(2)(c). This provision states that, other than is provided/permitted under the remaining parts of section 68, Crown is not permitted ‘in connection with any gaming or betting in the casino … to provide money or chips as part of a transaction involving a debit or credit card’.

    This was the provision I was talking about that we would have to defend in circumstances where the transactions were questioned.

    We would argue that subsection 68(8) allows us to provide credit to a person who is not ordinarily resident in Australia on a premium player arrangement or as a Junket and so is effectively an exception to the above prohibition. Technically, however and as discussed, a credit card transaction is where credit is provided by the bank.

    If we are providing chips as part of a credit or debit card transaction for those that are not international customers there may be additional risks involved.

    In either situation (international or local customers), we would need to rely on the fact that the transaction is not ‘in connection with gaming or betting in the casino’ given that such transactions occur at the hotel (albeit may be argued to be completed at the Cage).

    Obviously we may fail in any defence in this manner but the way in which we agreed to undertake these transactions are designed to mitigate the risks. This is predominantly why we agreed to limit CUP card transactions to international patrons staying at the hotel etc.

    To the extent that we are accepting cards for other patrons—debit and credit—we need to be aware of the restriction of section 68(2)(c).³⁰

43. Throughout 2015 and into 2016, further events occurred that threw more doubt on the lawfulness of the CUP process. Star Casino, which operated a casino in New South Wales, was also using the CUP process with NAB as its merchant service provider. NAB had begun querying their arrangement.³¹
44. On learning this, Ms Tegoni wrote another file note, which included the statement: ‘[m]y suggestion close down before if going to happen anyway’.³²
45. In late 2015, Ms Tegoni spoke with Mr Alex Carmichael, the Managing Director of Promontory Group Australasia. Ms Tegoni’s notes of the conversation included:

    CUP Chinese Govt—crusade against corruption effectively shut down a lot of junkets operating out of Macau. Ceased.

    CUP goes through at lower levels and prob exceed levels with multiple cards being used—within per day limit.

    Large amounts over $50k—single card.

    Processed up $200k.

    Single card would be flagged—Chinese Govt—tracking $50k and above.

    Could be spread amongst multiple cards.³³

46. Ms Tegoni’s concern about compliance with the AML rules remained. She discussed the issue with senior officers during February 2016, but no action was taken to overcome any failings.³⁴
47. If Ms Tegoni was still in any doubt about the propriety of the currency controls, that doubt was removed by a research note prepared by her legal assistant in February 2016. The research note stated that Chinese banks do not allow customers to send more than USD50,000 out of China each year.³⁵
48. Notwithstanding the concerns about the CUP process, in March 2016 there were detailed discussions about extending the CUP process to Crown Perth even though the VCGLR might learn about the process.³⁶
49. The CUP process came to an end in October 2016 following the arrests of Crown staff in China.³⁷
50. However, between 2018 and 2019, the VIP business sought to reintroduce the practice. This was resisted by Mr Preston.³⁸
51. It should be noted that the process of using credit cards or debit cards at Crown Towers in return for cash continues. Invoices from Crown Towers from 2017 to 2021 show that customers used the card facilities to access cash of up to $5,000. The invoices also include false room numbers for those not staying at Crown Towers Hotel.³⁹
52. Mr Meade has succinctly summed up the purpose and consequences of the CUP process. In a file note prepared following his review of the CUP material, Mr Meade wrote that the CUP process:
    • was clearly designed to circumvent Chinese capital control laws
    • may have been contrary to Crown Melbourne’s AML obligations
    • compromised Crown Melbourne’s financial books and records.⁴⁰
53. There was no need for Mr Meade to add that the CUP process contravened section 68 of the Casino Control Act as it plainly did—a point Crown Melbourne concedes.⁴¹ First, section 68(2)(c) prohibited the provision of money or chips as part of a transaction involving a credit card or debit card. The CUP process fell within the prohibition. Second, the exception in section 68(8) only applied if the casino operator provided credit to a person. The CUP process did not involve Crown Melbourne providing credit.

Repercussions of the CUP process

54. Counsel retained by the directors of Crown Resorts considered whether officers of Crown Resorts or Crown Melbourne had contravened the AML obligations under the AML/CTF Act, certain sections of the Crimes Act 1958 (Vic) and certain parts of the Criminal Code 1995 (Cth).⁴²
55. It is not appropriate to discuss those aspects of their advice. For one thing, the CUP process has been referred to AUSTRAC and it will no doubt undertake its own inquiries to decide whether the AML/CTF Act has been contravened.
56. Second, the ability of counsel to advise adequately on the criminality of the conduct was hampered by the fact that they could not speak with all important participants and may not have had all relevant documents. As counsel themselves explain, this only allowed them to express tentative opinions on the illegality of the conduct.⁴³
57. That said, and putting aside any potential criminal offences, there is a strong case to be made that parties involved in the CUP process have contravened section 184 of the Corporations Act. That section relevantly provides that an officer of a corporation commits an offence if they are reckless or dishonest and fail to exercise their powers in good faith and in the best interests of the corporation.
58. The decision to authorise and oversee the CUP process was clearly not in the best interests of Crown Melbourne. On the contrary, it was plainly against its interests for, having breached section 68, Crown Melbourne was at risk of being caught and subjected to disciplinary action of some kind.⁴⁴ Indeed, it is still possible that action will be taken as regulatory investigations are currently underway.