Volume 1

Acronyms

Reports

History of gambling regulation in Victoria

Introduction

1. The first casino to open in Australia was Wrest Point Hotel Casino in 1973, located in Hobart, Tasmania. By 1986, eight casinos had opened across Australia.¹ Victoria resisted the introduction of both electronic gaming machines (EGMs) and casinos in the 1970s and early 1980s. But by the late 1980s, changes in the economic fortunes of the State, and public opinion, paved the way for their introduction.² By the time the proposed legislation to legalise casinos and EGMs reached the Victorian Parliament in 1991, both sides of politics generally supported the policy decision to legalise these forms of gambling. The Coalition opposition at the time declared that the Casino Control Bill 1991 (Vic) ‘should be regarded as a coalition initiative’.³

Terms used in this chapter

2. The regulator of the Melbourne Casino has had a number of different names since it was first established. In this Report, the term ‘regulator’ is used to refer to these bodies, unless otherwise required by context. See Acronyms for the names of the regulatory bodies.
3. The Melbourne Casino licence holder has also had a number of different names. In this Report, the casino licence holder will be referred to as the ‘casino operator’ unless otherwise required by context. Appendix E details the different names of the licence holder.

Legalisation and establishment of a casino in Victoria

4. In Victoria, it has been—and continues to be—public policy to prohibit gambling and the conduct of gambling unless they are specifically legalised. Where permitted, legislation has carefully constrained how legal forms of gambling are conducted. Victorian gambling legislation has responded to the need to control gambling markets that were previously illegal and to mitigate or control the negative side effects of gambling activity.
5. During the 1970s and early 1980s, successive Victorian Governments resisted legalising casinos and EGMs, and did not progress various private sector proposals to develop a casino.⁴
6. In October 1982, former Federal Court judge, the Hon. Xavier Connor, QC, was appointed by the Victorian Government to inquire into and recommend whether casinos should be established in Victoria. At this time, a number of casinos had opened across Australia, providing states and territories with a source of tax revenue and helping them create employment and attract tourism. Mr Connor, QC also inquired into, among other matters:

   ...

   3. the legal and administrative measures, if any, which should be adopted to control and supervise the operations of any casino or casinos that may be established in Victoria;
   4. the measures, if any, which should be taken to prevent undesirable persons from having a financial or other connection with or being in a position to influence any aspect of the operations of any casino or casinos which may be established in Victoria; and
   5. whether such a casino or casinos should be established or operated by the Minister, an agency of Government, or private enterprise.⁵

7. In April 1983, Mr Connor, QC, issued his Report of Board of Inquiry into Casinos in the State of Victoria (1983 Report). The 1983 Report recommended against the establishing of casinos in Victoria because of the social and regulatory problems that could result.⁶
8. Mr Connor, QC formed the view that if casinos were to be legalised, they would need to be subject to a very high level of regulatory control. He noted:

   No one disputed the proposition that, if there were to be casinos, their establishment and operation should be strictly controlled by Government. The broad object of such control is to ensure that casinos are properly run. One indispensable requirement for a properly run casino is a proprietor of integrity and ability. Any legislation must provide for adequate machinery for selection of such a proprietor. Another indispensable requirement is a sound system of Government control staffed by honest and capable people. To those unfamiliar with casinos, the degree of control 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. The degree and form of control will vary in some respects according to the type of casino which is ultimately introduced; but there are many measures of control and supervision which apply to any casino. Control may be ineffective because it is corrupt; it may also be ineffective because it is incompetent, albeit honest.⁷

9. The government accepted Mr Connor, QC’s 1983 Report findings and announced that Victoria would not proceed with any casino proposal. The Premier at that time, the Hon. John Cain, had argued consistently that EGMs would encourage people to gamble beyond their financial capacity and that they exploited the working class.⁸
10. Mr Cain resigned in August 1990. The State was facing economic challenges and increasing political pressure to increase state revenue. The new government, led by the Hon. Joan Kirner, AC, announced the legalisation of casinos and EGMs.⁹
11. There were a number of factors motivating that decision. These included that:
    • casinos would stimulate a struggling economy by bringing both employment opportunities and tax revenue
    • legalising EGMs and casinos would redirect to Victoria money being spent by Victorians crossing the border into New South Wales to use EGMs
    • community attitudes towards establishing casinos in Victoria were changing.¹⁰
12. While political and community views on developing casinos in Victoria had changed, concern remained that casinos would attract criminal influence and exploitation. Under the gambling reforms announced in December 1990, the Kirner Government reappointed Mr Connor, QC to report on the preferred method for the establishment and control of an ‘open casino’ and ‘[t]he feasibility of establishing an unobtrusive casino prior to and in addition to the open casino’.¹¹
13. In his second report, Report on Casinos, delivered on 14 February 1991 (1991 Report), Mr Connor, QC inquired into, and reported on:

    …

    5. the content of legislation to be introduced which would be designed to provide strict controls over all aspects of the operation of such casinos, including whether or not an independent authority needs to be established to oversee the operations of the casinos and if so the membership, functions and powers of the independent authority;
    6. the measures to be taken to exclude criminal activity and influence from the casinos and criteria/restrictions if any for person/bodies having a financial, ownership or other connections with the establishment or management of the casino.¹²

14. The 1991 Report observed:

    It has now become commonplace to editorialise that since [1983] it has been demonstrated that Australian casinos can be conducted in a way which keeps them free of organised crime. It remains a fact, however, that crime is constantly knocking on the door and the most stringent and sustained measures are required to keep it out.¹³

15. Mr Connor, QC made recommendations regarding the system of regulation and control for casinos. He concluded that he still considered Victoria would be better off without casinos and that he had no real confidence crime would be kept out over the long term.¹⁴
16. When the Victorian Government made the policy decision to authorise the operation of a casino in Victoria, it largely accepted Mr Connor, QC’s recommendations.

Establishing a legislative framework

17. In the 1991 Report, Mr Connor, QC recommended that the Casino Control Act 1983 (Qld) (Queensland Act) be used as the model for casino control legislation in Victoria, subject to the modifications, adaptations and additions he specified in that report.¹⁵
18. Mr Connor, QC noted that the Queensland Act was based substantially on New Jersey legislation. The Queensland Act did, however, differ from the New Jersey legislation in an important respect: the Queensland Act was administered by a Minister. Virtually all decisions of any importance were at the Minister’s discretion. The Queensland Act did not provide for any independent control body. With this important exception, Mr Connor, QC considered the Queensland Act generally to be a good model for Victoria to follow.¹⁶
19. After considering the 1991 Report, the Victorian Government introduced two Bills to facilitate the establishment of a legal gambling industry in Victoria: the Gaming Machine Control Bill 1991 (Vic), to regulate EGMs, and the Casino Control Bill 1991 (Vic), to regulate casinos.
20. During the second reading of the Casino Control Bill, the then Minister for Major Projects said:

    This Bill will enable the establishment of the casinos and is the result of the recommendations of the [1991] Connor report. The government has worked closely with the New South Wales government, which also is preparing casinos legislation based on the Connor report. The Bill mirrors the current New South Wales draft Bill, and indeed the two Bills are almost identical in format and wording. This consistency of approach will be of benefit to prospective tenderers for casino licences and will offer to both States the same high level of stringent control and regulation of casino operations.

    In order to exclude criminal activity and influence from the casinos, legislation designed to provide strict control over all aspects of the operation of casinos is required. The government believes the Bill will achieve the objective, based on the Connor report and the experience of interstate and overseas legislation.¹⁷

21. The Casino Control Bill was passed on 4 June 1991 and received Royal Assent on 25 June 1991. Not all of Mr Connor, QC’s recommendations were adopted. The Casino Control Act 1991 (Vic) was less prescriptive than the Queensland Act in several respects. Further, a number of Mr Connor, QC’s recommended modifications, adaptions and additions to the Queensland Act were not adopted, including modifications relating to the regulation of junkets.

Grant of the Crown Casino licence

22. In late 1991, the Victorian Government called for parties to express interest in developing and operating a large casino in Melbourne. Expressions of interest were received from Australian and international consortiums. The Hudson Conway consortium involved large Melbourne-based companies and well-known business identities. It was formed by Hudson Conway Limited (HCL) (a listed property construction company, then controlled by Mr Lloyd Williams and the late Mr Ron Walker, AC, CBE),¹⁸ Federal Hotels Ltd and Carlton & United Breweries Ltd (CUB) (collectively the founding shareholders). It was promoted as the only genuinely Melbourne-based bid. The consortium proposed raising capital from the public to establish the casino.¹⁹
23. Following probity investigations by the Victorian Casino Control Authority (VCCA), a casino licence was granted to the Hudson Conway consortium’s Crown Casino Ltd on 19 November 1993 for a term of 40 years.²⁰ The corporate history of the Crown group of companies is detailed in Appendix E.
24. The temporary Melbourne Casino, called the Galleria Casino, opened on 30 June 1994. It was located at the World Trade Centre on the north bank of the Yarra River while the preferred Southbank site was being developed. Operations transferred to the Southbank site on 8 May 1997.²¹
25. In October 2014, the term of the casino licence was extended by 17 years to 2050.²²

Ownership and corporate structure of the casino operator

26. At the time the casino licence was granted, Crown Casino Ltd entered into an agreement with the VCCA under section 142 of the Casino Control Act (Casino Agreement). It also entered into the Management Agreement with the State under section 15 of the Casino Control Act (Management Agreement). The Management Agreement was ratified by the Casino (Management Agreement) Act 1993 (Vic) (Management Agreement Act).
27. The Casino Agreement included a number of obligations regarding the corporate structure of the casino operator, including the need for prior approval by the regulator before a person’s shareholding in the casino operator (other than the founding shareholders) exceeded 5 per cent of the total number of shares on issue.²³
28. Since Crown Casino Ltd was granted the casino licence, there have been a number of changes in the ownership of the casino operator, including the Publishing and Broadcasting Limited (PBL)–Crown merger and a subsequent restructure. Given the importance of these changes, they are dealt with separately in Chapter 17.

Regulation of the casino operator

29. The casino operator is currently regulated by the Victorian Commission for Gambling and Liquor Regulation (VCGLR). Both the regulator and the regulatory framework under which the casino is regulated have changed significantly since the Casino Control Act was first enacted.

Overview of the current framework

30. The casino operator is currently subject to a range of legislative, regulatory and contractual requirements set out in:
    • the Casino Control Act
    • the Management Agreement Act
    • the Gambling Regulation Act 2003 (Vic)
    • the Liquor Control Reform Act 1998 (Vic)
    • relevant regulations and ministerial directions made under those Acts²⁴
    • a suite of commercial agreements concerning the operation of the Melbourne Casino Complex (Transaction Documents).
31. The Transaction Documents set out the details of the relationship between the various participants in the Melbourne Casino, including the State, the VCGLR and financiers. In its Sixth Review of the Casino Operator and Licence (June 2018) (Sixth Review), the VCGLR defined the Transaction Documents to include the Management Agreement, the casino licence, the Casino Agreement and other listed documents setting out financial and quasi-regulatory obligations and privileges of the casino operator and its holding company.²⁵
32. The framework in which the casino operator is regulated today is significantly different from that envisaged when the legislation authorising casinos in Victoria was passed in 1991.

The Casino Control Act

33. The Casino Control Act provides for the licensing and operation of casinos in Victoria. Key features of the Casino Control Act in its original form included:
    • The establishment of a specialist, standalone, independent regulator (the VCCA). This body was responsible for, among other things, licensing the casino operator and approving the casino’s systems of internal controls and procedures, accounting procedures and bank accounts.²⁶
    • The creation of a separate office of the Director of Casino Surveillance, responsible for supervising the day-to-day operations in the casino, investigating complaints and helping to detect offences. The Director of Casino Surveillance was separate from the VCCA, but was required to report to and generally assist the VCCA.²⁷
    • The appointment of inspectors by the Director of Casino Surveillance to supervise the operations of the casino, including handling and counting money in the casino, and helping to detect offences.²⁸
    • The process for licensing casino operators. The Act also outlined the criteria the VCCA had to consider when determining the suitability of an applicant for a casino licence and the suitability of each of that applicant’s associates. More than one casino licence could be issued under the Casino Control Act (with the Minister’s approval), subject to any exclusivity arrangements entered into by the VCCA.²⁹
    • The process for licensing special employees of the casino, including those working in a managerial capacity, those involved in the conduct of gaming, those involved in the counting or movement of money or chips, and those involved in the repair of gaming equipment. The Director of Casino Surveillance was required to investigate and assess each applicant against the specific suitability criteria before granting a special employee licence.³⁰
    • A general power for the VCCA to investigate a casino at any time and a requirement for the VCCA to undertake an investigation at the Minister’s direction. Additionally, the VCCA was required to reassess, at least every three years, the suitability of the casino operator to continue holding the casino licence and to determine whether keeping the casino licence in force remained in the public interest.³¹
    • A requirement for the VCCA to approve certain supply contracts entered into by the casino operator. This required the VCCA to inquire into the operation of each contract and the suitability of each person who was a party to the contract. The VCCA had power to require the termination of a contract if it considered the contract was no longer in the public interest.³²
    • Subject to a limited exception, a prohibition on the casino operator providing credit to patrons.³³
    • The power to make subordinate legislation regulating or prohibiting the promotion and conduct of junkets.³⁴
    • The power for the Director of Casino Surveillance or the casino operator (including on the direction of the Chief Commissioner of Police) to issue exclusion orders to a person, prohibiting them from entering or remaining in the casino.³⁵
    • A requirement for the VCCA to approve a detailed system of internal controls and administrative and accounting procedures governing the day-to-day operations of the casino. The required content of the system of internal controls and administrative and accounting procedures was specified in the Casino Control Act.³⁶
    • The power for the VCCA to issue directions to the casino operator that related to the conduct, supervision or control of casino operations. The casino operator was required to comply with the directions.³⁷
    • The power for the VCCA to require a casino operator, or a person directly or indirectly associated with the operator, to provide information, to produce documents or to attend before the VCCA to be examined. Failure to comply without a reasonable excuse was punishable as if the person was in contempt of court.³⁸
    • The power for the VCCA to take disciplinary action against the casino operator, which could include cancellation, suspension, letter of censure, variation to the terms of the licence or the imposition of a fine not exceeding $1 million.³⁹
    • A provision that no right of compensation was enforceable against the State in relation to the cancellation, suspension or variation of the terms of the licence, or an amendment of the conditions of a licence, under the Casino Control Act.⁴⁰
34. Before a tender process for the award of a casino licence could commence, the Casino Control Act required that regulations be made setting out, among other things:

    …

    4. the maximum permissible number of casinos;
    5. the permissible locations for casinos;
    6. the required style and size of casinos generally or of any particular casino; and
    7. such other matters (if any) as the Minister considers relevant to the expressions of interest, invitations or applications.⁴¹

35. The Casino Control Act has been amended many times over the past 30 years. There have been several substantial changes to elements of the regulatory framework in which the Melbourne Casino operates.

The Casino Agreement

36. Under the Casino Control Act as originally enacted, the VCCA was permitted, subject to the Minister’s approval, to enter into agreements for or in connection with the establishment and operation of casinos. The agreement could provide that the obligations it imposed were to be considered as conditions of the casino licence.⁴²
37. In addition, the Casino Control Act also permitted the VCCA to enter into an agreement with the proposed casino operator as to the exclusivity of the casino licence.⁴³
38. On 21 September 1993, the VCCA entered into the original Casino Agreement with the proposed casino operator in relation to the establishment and operation of the Melbourne Casino and the exclusivity of the casino licence.⁴⁴
39. The Casino Agreement addressed various matters, including the development and completion of the Melbourne Casino, conditions relating to the casino operator’s company structure and disclosure requirements, the grant of the casino licence, the casino games and operating practices, and licence conditions.⁴⁵
40. Under the Casino Agreement, the casino operator was required to:
    • Obtain the VCCA’s approval for the appointment of any director or alternate director.⁴⁶
    • Remove any director or alternate director from office in accordance with the VCCA’s direction.⁴⁷
    • Not knowingly permit any person (other than the founding shareholders) to be entitled to more than 5 per cent of the total number of shares of the casino operator at any time without the VCCA’s approval.⁴⁸
    • Obtain the VCCA’s approval before carrying on or conducting any business other than the businesses authorised under the Casino Agreement and the casino licence or any business incidental to or complementary with those businesses.⁴⁹
    • Obtain the VCCA’s approval before establishing or acquiring a subsidiary unless that subsidiary related to a business incidental to or complementary with those businesses contemplated by or authorised under the Casino Agreement and the casino licence.⁵⁰
41. Other key provisions of the Casino Agreement included that:
    • While the casino licence remained in force, the VCCA undertook not to grant a casino licence to any other person for the operation of a casino anywhere in Victoria for six years from the licensing date under the Casino Agreement and, in those parts of Victoria within a radius of 150 km from the casino site, for 12 years from that licensing date.⁵¹
    • The casino operator was required to strive to obtain the maximum Gross Gaming Revenue (GGR) by conducting its operations in the temporary casino and later at the Melbourne Casino 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 to the Melbourne Casino.⁵²
    • Subject to a specified Transaction Document, it would be a contravention of the casino licence, enabling the VCCA to take disciplinary action against the casino operator under the Casino Control Act, if certain events occurred (including if the casino operator breached the Casino Agreement).⁵³
    • Subject to the Minister’s approval, the parties to the Casino Agreement could vary any provision of the Casino Agreement.⁵⁴
42. Since the Casino Agreement as originally enacted was entered into, it has been the subject of 12 Deeds of Variation.⁵⁵
43. While the amendments in the earlier Deeds of Variation related primarily to the development of the Melbourne Casino and the casino operator’s financial arrangements,⁵⁶ there have been significant changes to, among other things, the conditions relating to the casino operator’s structure.⁵⁷ Some of these changes affect the ongoing regulation of the casino, and are discussed in more detail in other chapters.⁵⁸

The Management Agreement Act

44. Under the Casino Control Act as originally enacted, the VCCA was prohibited from granting a casino licence unless a management agreement had been entered into between the State and the proposed casino operator that: (a) identified the casino to be the subject of the licence; and (b) contained any other terms and conditions the Minister thought fit.⁵⁹
45. This management agreement was initially intended to cover matters such as ‘taxation arrangements, design of the development of the casino, and infrastructure provision arrangements with the developer’.⁶⁰ Since then, the scope of matters incorporated into the agreement has expanded.
46. On 16 November 1993, the Management Agreement entered into between the State and the casino operator dated 20 September 1993 was ratified by Parliament and set out in schedule 1 of the Management Agreement Act as originally enacted.
47. The Management Agreement Act, as originally enacted, principally addressed the approvals for, and development of, the casino. Key provisions included:
    • That to the extent that the Management Agreement was inconsistent with a provision of the Casino Control Act, the provisions of the Management Agreement would prevail. This provision allowed any terms in the Casino Control Act to be overridden by any ratified commercial arrangements incorporated into the Management Agreement between the State and the casino operator.⁶¹
    • That the sale, transfer, assignment or other disposal of the licence by the casino operator to another person would be permitted only if the Minister approved the sale, transfer, assignment or other disposal to that person of the casino operator’s rights, liabilities and obligations under the Management Agreement and the person had been approved by the VCCA.⁶²
    • That the casino operator would be obliged to pay the premium payments, fees and taxes to the State.⁶³
    • That the casino operator would have the exclusive right to conduct games approved under the Casino Control Act by the VCCA for a period of six years, extended to 12 years for those parts of the State within a radius of 150 km of the casino, subject to a carve-out for specified EGMs, lottery and club keno games. The Management Agreement also restricted the maximum number of EGMs permitted in venues within 100 km of the casino to 105, and the total number of EGMs in the state to 45,000, for a 12-year period.⁶⁴
48. The Management Agreement Act, as originally enacted, also included:
    • A requirement to obtain the State’s consent before dealing with the casino assets, making changes to the building, or any improvement or fixture forming part of the casino assets, or leasing or acquiring any asset other than in the ordinary course of the casino operator’s business, except as permitted by the Casino Agreement.⁶⁵
    • The processes and procedures for the further development and approval of the design documentation, for the approval of the casino location and for the development of the casino.⁶⁶
    • The process for, and consequences of, the termination of the Management Agreement.⁶⁷
49. The Management Agreement can only be amended by agreement of the State and the casino operator, and any amendment only comes into effect when ratified by Parliament.⁶⁸ Since the enactment of the Management Agreement Act, the Management Agreement has been the subject of 10 Deeds of Variation, each of which Parliament has ratified.⁶⁹
50. While many of the early amendments related to changes to the development phase of the project, there have been some significant changes to the Management Agreement that affect the ongoing regulation of the casino. These are discussed in more detail in other chapters.⁷⁰

The Gaming Machine Control Act

51. The Gaming Machine Control Act 1991 (Vic) was enacted after the Casino Control Act had passed.
52. The Gaming Machine Control Act created the regulatory framework for the introduction of EGMs in Victoria including:
    • their use in hotels, clubs and casinos
    • the activities of persons in the industry, including EGM manufacturers and suppliers.⁷¹
53. The Act provided for:
    • The manufacture, sale, supply, obtaining and possession of EGMs to be regulated.⁷²
    • The Minister to issue directions about the requirements for EGMs. These covered a range of matters, including the maximum number of EGMs permitted in Victoria, how many of these could be located outside the metropolitan area, the maximum number of EGMs allowed in restricted and unrestricted areas, and the bet limits for each class or area.⁷³
    • The casino operator to be authorised, as a licensed venue operator, to obtain and possess EGMs.⁷⁴
    • Technicians to be licensed to service, repair or maintain gaming equipment and to carry out prescribed duties. It further provided for persons listed on the roll of recognised manufacturers and suppliers of EGMs and components (Roll) to manufacture, sell or supply EGMs.⁷⁵ The casino operator was not able to obtain EGMs or components from a person not listed on the Roll.
    • The regulator to approve EGM types, games and linked jackpot arrangements; restrict access to EGM components; and create offences for unlawful interference with gaming equipment.⁷⁶
    • The establishment of the Victorian Gaming Commission. The Victorian Gaming Commission’s objectives included to ensure that gaming on EGMs was conducted honestly and that the management of gaming was free from criminal influence and exploitation; and to regulate the use of EGMs in casinos and approved venues. Its objectives also included to regulate the activities of key operatives in the gaming machine industry, including those who manufactured, supplied, repaired or owned machines, or provided venues for and operated machines.⁷⁷
    • The establishment of the position of the Director of Gaming. The Director of Gaming’s functions included ensuring that the conduct of gaming at approved venues was supervised; detecting offences committed in or in relation to approved venues; and reporting to and assisting the Victorian Gaming Commission with the operation of the Gaming Machine Control Act. The Director of Gaming was authorised to appoint inspectors to enforce the provisions in the Gaming Machine Control Act.⁷⁸
54. Inspectors appointed under the Casino Control Act had all the rights, duties and functions conferred on inspectors by the Gaming Machine Control Act in relation to EGMs on casino premises.⁷⁹
55. Amendments were made by the Casino Control (Amendment) Act 1993 (Vic) and the Casino Control (Further Amendment) Act 1993 (Vic) to the Casino Control Act and the Gaming Machine Control Act to clarify the intended interactions between these Acts. The amendments ensured that the responsibility for the supervision and control of all gaming within the casino rested with the VCCA and the Director of Casino Surveillance, as was originally intended. Further, the amendments gave responsibility for the approval of EGM manufacturers to the Victorian Gaming Commission.

Key changes to the casino regulator

56. In the 1991 Report, Mr Connor, QC identified two basic functions of government in the management of casino gambling: a control function and a regulatory function. He recommended that each function be discharged by separately appointed persons or bodies.⁸⁰
57. The control function related primarily to the licensing of casinos and covered the administrative functions, some of which were described as ‘quasi-judicial’.⁸¹ The regulatory function related primarily to the direct supervision of the operation of casinos and the conduct of gambling in casinos. Mr Connor, QC stated that if this function was to be discharged satisfactorily, there would need to be a Division of Casino Regulation staffed by people with highly developed skills in administration, finance, auditing, policy and surveillance.⁸²
58. The regulatory framework initially established in Victoria to regulate EGMs and casinos comprised two bodies:
    • the Victorian Gaming Commission established under the Gaming Machine Control Act
    • the VCCA established under the Casino Control Act.
59. Consistent with the advice of Mr Connor, QC, the VCCA was established as an independent, standalone specialist regulator, responsible for the control functions in the casino.⁸³ The Director of Casino Surveillance was also established as the entity responsible for the conduct of gambling within, and for the direct supervision of, the casino.⁸⁴
60. After the VCCA had completed the probity assessments of the casino licensee applicants, but before the casino opened, the standalone specialist casino regulator was merged with the Victorian Gaming Commission to create a regulator responsible for both casinos and EGMs: the Victorian Casino and Gaming Authority (VCGA).

Victorian Casino and Gaming Authority

61. In September 1993, the Victorian Government commissioned a review of EGMs in Victoria. The review included a consideration of the effectiveness and efficiency of the regulatory and managerial framework governing the introduction and operation of EGMs. The recommendations of the review stressed the importance of having one Minister responsible for all aspects of gambling.⁸⁵
62. On 3 June 1994, by part 8 of the Gaming and Betting Act 1994 (Vic), the VCCA was merged with the Victorian Gaming Commission to form the VCGA.⁸⁶ The VCGA was an independent statutory body for monitoring and controlling all forms of gambling in Victoria, and had powers under a number of Acts.⁸⁷
63. The merger of the VCCA and the Victorian Gaming Commission was said to be a logical step because they had similar regulatory roles. It was intended to ensure a consistent approach to the regulation of all aspects of gaming. It was also intended to help pool existing regulatory expertise and carry out similar functions more efficiently. In addition, the new authority assumed responsibility for the regulation of wagering and approved betting competitions.⁸⁸
64. At this time, the office of the Director of Gaming and Betting was also established. It was given the power to investigate compliance under the Gaming and Betting Act, including with betting rules and licences, and to generally assist the VCGA in relation to the operation of the Gaming and Betting Act.⁸⁹

Victorian Commission for Gambling Regulation

65. Some eight years later, in 2002, the Victorian Government commissioned a high-level review of the governance arrangements for gambling regulation. The review found that gambling regulation in Victoria was confusing, with responsibilities spread across a number of Acts and regulators. It recommended simplifying and streamlining the regulatory regime through the creation of the VCGR. It also recommended a consolidation of existing legislation.⁹⁰
66. On 1 July 2004, the VCGR was established under chapter 10 of the Gambling Regulation Act. The Gambling Regulation Act repealed the Gaming and Betting Act, and replaced the VCGA and the two statutory positions (Director of Gaming and Betting and Director of Casino Surveillance) with the VCGR.⁹¹
67. The Gambling Regulation Act consolidated eight of Victoria’s 10 principal gaming statutes into a single Act.⁹² The Casino Control Act and the Management Agreement Act were excluded from the consolidation as they related solely to a standalone casino, to which ‘more onerous inspection and control requirements appl[ied]’.⁹³ However, the responsible gambling provisions in the consolidated Gambling Regulation Act applied to the casino.

Victorian Commission for Gambling and Liquor Regulation

68. On 6 February 2012, the VCGLR was established by the Victorian Commission for Gambling and Liquor Regulation Act 2011 (Vic).⁹⁴ The VCGLR assumed all regulatory functions, duties and powers of the VCGR, the Director of Liquor Licensing and the Liquor Licensing Panel.
69. The establishment of the VCGLR was said to be a reform; not a merger, rebranding or restructure. The reform sought to create a ‘new, modern, world-class regulator for liquor and gambling in Victoria’.⁹⁵ The government expected that the natural synergies between liquor and gambling regulation would enable better use of regulatory resources, which would lead to ‘improved education and compliance outcomes for the Victorian community, as well as industry’.⁹⁶

Scope of functions

70. The VCGLR is a very different regulator to the one created by the Casino Control Act. The VCCA was set up to regulate casinos, with three objectives:

    …

    1. ensuring that the management and operation of casinos remains free from criminal influence or exploitation; and
    2. ensuring that gaming in casinos is conducted honestly; and
    3. promoting tourism, employment and economic development generally in the State.⁹⁷

71. The objectives of the VCGLR today are significantly broader. Its responsibilities include regulating the compliance of all Victorian gambling and liquor licences, and educating the public and the relevant industries on issues of compliance, as well as advising the Minister on liquor and gambling-related matters.⁹⁸

Independence of the regulator

72. The VCCA, VCGA and VCGR had each been established as an independent regulator and were not subject to the general direction of the Minister. When the VCGLR was established however, it was required, when performing functions or duties or exercising its powers, to have regard to any decision making guidelines issued by the Minister.⁹⁹ This provision was intended to enable the Minister to provide general policy guidance to the VCGLR. It does not, however, give the Minister the power to direct the VCGLR on how it should determine any individual matter. In addition, one of the VCGLR’s functions is to ensure that government policy in relation to gambling and liquor is implemented.¹⁰⁰ These obligations indicate that the VCGLR may not be as independent as its predecessors.

Funding arrangements

73. When the VCCA was established, the Casino Control Act provided that the VCCA and the Director of Casino Surveillance were to be funded out of the Consolidated Fund for expenses incurred in carrying out their respective functions.¹⁰¹ When established, the VCGA was funded in a similar way.¹⁰² The VCGR was funded differently: the Gambling Regulation Act made it budget-funded.¹⁰³ The VCGLR is also budget-funded. Its Corporate Plan 2020–23 states that the annual budget is provided by the Department of Justice and Community Safety and its recurrent funding is subject to annual government budget decisions. The VCGLR has indicated that it is ‘responsible for the management of all resources [it has] at [its] disposal within the constraints of its operating budget’.¹⁰⁴ The VCGLR’s Corporate Plan identifies as a key strategic risk that the current funding model is incompatible with operational requirements.¹⁰⁵

Persons appointed to the regulator

74. The 1991 Report recommended that the president of the regulator be someone who had at least 10 years’ experience as a barrister or solicitor. This was so that the president would have experience with the quasi-judicial and administrative functions of the regulator—for example, conducting hearings—and be able to manage proceedings so as to ensure that they adhered to principles of natural justice.¹⁰⁶
75. When the VCCA was first established, its Chair was required to be a legal practitioner or a magistrate with at least 10 years’ experience.¹⁰⁷ The Chair of the VCGLR is, however, no longer required to be a legal practitioner or magistrate. A person is qualified if the Minister is satisfied that they have the appropriate knowledge, experience and expertise to be a member of the VCGLR.¹⁰⁸

Staff

76. The VCCA was entitled to employ staff and engage consultants on terms it determined itself.¹⁰⁹ When the VCGA was established, its staff became employees under the Public Sector Management Act 1992 (Vic).¹¹⁰ VCGLR staff are now engaged under the Public Administration Act 2004 (Vic).¹¹¹

Victorian Gambling and Casino Control Commission

77. On 3 August 2021, the Victorian Government announced the establishment of a new regulator, the Victorian Gambling and Casino Control Commission (VGCCC). Unlike the VCGLR, the VGCCC will focus solely on regulating the casino and gambling operators, with a dedicated casino regulation division.
78. Prior to the establishment of the VCGLR, liquor and gambling were regulated by two standalone agencies. The Victorian Government has described the combined regulation of liquor and gaming as a ‘failed experiment’.¹¹² The introduction of the VGCCC will see ‘governance return to a model that has a specific and separate focus on liquor and gambling regulation’.¹¹³

Changes to key aspects of casino regulation

79. Since 1991, substantive changes have been made to key aspects of casino regulation. The most relevant of these changes are summarised below.

Periodic suitability reviews

80. In 2005, the maximum number of years between periodic reviews of the casino operator was changed from at least every three years to at least every five years.¹¹⁴ The scope of the reviews was also expanded. In addition to considering the casino licensee’s suitability and the public interest in the licence continuing, the regulator has to consider:
    • whether or not the casino operator was complying with the Casino Control Act, the Management Agreement Act, the Gambling Regulation Act and the regulations made under any of those Acts
    • whether or not the casino operator was complying with the Transaction Documents and any other agreements between the casino operator and the State, or a body representing the State, that impose obligations on the casino operator in relation to gaming.¹¹⁵
81. The extended period of time between reviews was intended to enable a ‘more rigorous and detailed review of the casino operator’, noting that a review could still be conducted more frequently if the regulator considered it necessary.¹¹⁶
82. While the matters required to be addressed in the periodic review of the casino operator and its licence were expanded to include these additional considerations, the VCGLR observed in the Sixth Review that these matters had previously been considered under the general heading of ‘suitability’.¹¹⁷
83. The Report of the Inquiry under Section 143 of the Casino Control Act 1992 (NSW) (Bergin Report) noted that in New South Wales, there had been proposals that the periodic reviews be abandoned altogether. The Bergin Report also noted that the Casino Control Act 1992 (NSW) was amended (in March 2018) so that the timing of these reviews in New South Wales can be altered by the making of regulations.118 In the Sixth Review, the VCGLR stated:

    One other Australian jurisdiction, New South Wales, mandates periodic licence reviews by the regulator in very similar terms. Other jurisdictions provide for ad hoc reviews. While the regulatory regime of Singapore (expressly benchmarked for the purposes of this review) does not specifically mandate a periodic review, its two casinos operate under three-year renewable licences, meaning that a very similar outcome is achieved.

    The New South Wales Government recently considered its policy position on periodic reviews, as part of a process of alignment of the regulatory regimes for the present Sydney Casino and a new restricted gaming facility licensed to commence operations from 2019 (Crown Sydney).

    Those considerations canvassed the role of a review and a particular paradox associated with the activity: that, if such a review could conclude that the casino operator was no longer suitable, that same state of affairs would already have been apparent to the regulator and a licence removal process would have been initiated. Noting this paradox, and the fact that the most recent review of the present Sydney Casino licence had been completed in 2016, the NSW Government determined that the periodic review requirement should remain in place at least until the first review following the opening of Crown Sydney.

    To the VCGLR, this review has presented the opportunity to assess and reflect, overall, on the casino operator’s past and ongoing conduct of the licensed business, with the benefit of input from stakeholders and comparison with other jurisdictions, and with the transparency arising from the obligation to report to the responsible Minister.¹¹⁹

‘Single purpose’ restriction

84. In 2005, following a review of the commercial agreements between the State, the regulator and the casino operator, the Victorian Government agreed to the removal of the restriction on the casino operator owning and operating other casino businesses (‘single purpose’ restriction).¹²⁰ Consequently, the Casino Control (Amendment) Act 2005 (Vic) was passed and a suite of new and amended agreements were entered into between the regulator, the casino operator and PBL (the new and amended arrangements and agreements are discussed in more detail in another chapter).¹²¹
85. The following amendments were made to the Casino Agreement to facilitate the removal of the ‘single purpose’ restriction:
    • The removal of the restriction that the casino operator must not:
      • conduct any business other than the business authorised under the Casino Agreement and the casino licence or any business incidental or complementary with those businesses without the prior written approval of the regulator
      • establish or acquire a subsidiary unless it relates to an incidental or complementary business without the prior written approval of the regulator
      • take on or under a lease, or acquire for consideration, any asset other than in the ordinary course of the casino operator’s business, without the prior consent of the State.¹²²
    • A requirement that the casino operator must conduct its operations in the Melbourne Casino in a manner that has regard to the best operating practices in casinos of a similar size and nature to the Melbourne Casino.¹²³
86. The Management Agreement was also amended to remove the obligation on the casino operator to obtain the prior written consent of the State to take on or under a lease, or acquire for consideration, any asset other than in the ordinary course of the casino operator’s business.¹²⁴
87. These amendments allowed the casino operator to own or operate businesses in addition to the Melbourne Casino. The change was intended to benefit Victoria by providing for ‘increased tourism and export income’.¹²⁵ In the second reading of the Casino Control (Amendment) Bill 2005 (Vic), which gave effect to the suite of agreements, the then Attorney-General stated:

    This review of the casino agreement has resulted in a package of agreements between the [VCGR], the government, Crown and Crown’s parent company, [PBL].

    These agreements will provide significant benefits for Victoria, including:

    • increased transparency and accountability through the improved provision of information by Crown to the [VCGR];
    • the expenditure by Crown of at least $170 million over the next five years on the Melbourne Casino complex. This will maintain the value of the complex which is leased by the state to Crown;
    • increased tourism and export income as a result of the removal of the single-purpose restriction. Crown will be able to compete for interstate and international casino business and for other non-gaming business;
    • the promotion of tourism to Victoria by Crown; and
    • employment and other economic benefits that will result from Melbourne being the headquarters for the gaming business of [PBL] and the Melbourne casino remaining the flagship gaming business for [PBL] in Australia.¹²⁶

Prohibition on providing credit

88. The Casino Control Act as originally enacted prohibited a casino operator from providing credit to patrons, subject to a limited exception. The casino operator was, in certain circumstances, permitted to issue chips in exchange for a cheque, without waiting for the funds to clear.¹²⁷ Amendments to the Casino Control Act were passed in 1996 to introduce a further exception—to permit the casino operator to provide credit to players not ordinarily residing in Australia when participating in a ‘premium player arrangement’ or a junket. To be able to use this exception, the casino operator and the player needed to satisfy the requirements of any relevant controls and procedures approved by the regulator.¹²⁸
89. The ability to offer credit directly (to premium and junket players) or indirectly (to players by cashing cheques before they had cleared) resulted in the casino operator having to manage unpaid debts. The casino operator is required to seek the regulator’s approval before discharging any debts accrued by players.¹²⁹

Oversight of controlled contracts

90. The Casino Control Act defines certain categories of contracts that the casino operator enters into as ‘controlled contracts’. From its commencement, the Casino Control Act established a process for the regulator to regulate controlled contracts, subject to limited exceptions.¹³⁰ This measure was intended to prevent criminal elements from obtaining a financial interest in the casino ‘by the back door’.¹³¹
91. The regulatory oversight of controlled contracts has shifted over time and moved towards a model where the casino operator, rather than the regulator, undertakes due diligence in relation to its contractors.
92. The Casino Control Act was amended in 1993, before the Melbourne Casino opened, to provide the regulator with greater flexibility as to the types of contracts it needed to approve and to adopt an approach to controlled contracts that was considered ‘commercially practical’.¹³² The amendments:
    • Authorised the regulator to exempt any specified classes of contract or particular matters from the definition of ‘controlled contracts’.¹³³
    • Required the regulator to publish an annual report on the classes of exempt contracts.¹³⁴
    • Removed the requirement that the regulator investigate the operation of, and suitability of parties to, all controlled contracts before the casino operator could enter such contracts. In its place, the casino operator was required to provide notice of the controlled contract to the regulator, which could object to the contract or notify the casino operator that it required more time to conduct investigations.¹³⁵
93. Further changes to the regulation of controlled contracts were made:
    • To allow the casino operator to develop a system of self-regulation for controlled contracts. The regulator needed to be satisfied that the casino operator’s system of internal controls and administrative and accounting procedures—approved by the regulator—enabled an adequate assessment of the suitability of the supplier and ensured that the requirements of the controlled contract were met.¹³⁶ The intent of this amendment was to reduce the administrative burden on the regulator. Instead of investigating every controlled contract, it could focus its investigations as required. The regulator retained the power to require the termination of a controlled contract on public interest grounds.¹³⁷
    • To exempt from the controlled contract provisions any contracts between the casino operator and a person listed on the Roll.¹³⁸
94. The regulator advised in its Fifth Review of the Casino Operator and Licence (June 2013) (Fifth Review) that it had categorised the level of risk associated with the types of contracts entered into by the casino operator. Category A was considered to be the highest risk, Category B to be medium risk and Category C to be low risk. At the time of the Fifth Review, Category A and B contracts were considered to be ‘controlled contracts’ for the purposes of the Casino Control Act.¹³⁹

Oversight of junkets

95. In the 1991 Report, Mr Connor, QC noted that the Queensland Act did not deal with junkets but left them to be dealt with by regulation. He considered junkets to be ‘of such importance that they should be dealt with in the Act’ and that a modified version of the junket provisions included in the Queensland regulations should appear in the Victorian Act.¹⁴⁰ This recommendation was not adopted in the Casino Control Act as originally enacted where, consistent with the Queensland Act, the details for the oversight of junkets were left to regulations.¹⁴¹
96. The Casino Control Act as originally enacted authorised regulations to be made that regulated or prohibited the promotion and conduct of junkets.¹⁴² Regulations could be made that:
    • imposed restrictions on those who may organise or promote a junket
    • required the organiser or promoter of a junket, or the casino operator concerned, to give the regulator advance notice of the junket and to provide to the regulator detailed information about the conduct of, and the arrangements for, any junkets
    • required any contract or other agreement that related to the conduct of a junket to be in a form the regulator approved
    • required the organiser or promoter of a junket, or the casino operator concerned, to give specified information about the conduct of the junket to participants in that junket.¹⁴³
97. The regulation-making power was amended in 1994 to allow regulations also to be made relating to premium player arrangements, and to require the casino operator to give the regulator advance notice of a ‘premium player arrangement’.¹⁴⁴
98. In 1996, the Casino Control Act was amended to include new provisions that prohibited a person from organising or promoting a junket without the approval of the Director of Casino Surveillance. The amendment also prohibited the Director of Casino Surveillance from granting an approval to a junket organiser or promoter unless satisfied that the criteria specified in the regulations had been met.¹⁴⁵ This amendment meant that the Director of Casino Surveillance became responsible for approving junket organisers and promoters.
99. On 20 October 1998, the Casino Control (Junkets and Premium Players) (Interim) Regulations 1998 (Vic) came into effect. On 31 March 1999, those regulations were superseded by the Casino Control (Junkets and Premium Players) Regulations 1999 (Vic).
100. The 1999 regulations had as their objective to provide for: ‘(a) the approval of junket organisers and promotors; (b) [the form and minimum content of] junket agreements; [and] (c) information to be given to the [regulator] about junkets and premium player arrangements’.¹⁴⁶
101. Specific relevant regulations included:
     • Regulation 6, which permitted a person to apply to the Director of Casino Surveillance for approval to organise or promote one or more junkets and the Director of Casino Surveillance to require an applicant to provide any information relevant to their investigation of the application.
     • Regulation 7, which required the Director of Casino Surveillance to refer a copy of each application to the Chief Commissioner of Police and the Chief Commissioner to inquire into and report to the Director of Casino Surveillance on any matters concerning the application that the Director of Casino Surveillance requested.
     • Regulation 9, which specified the criteria for approval of applications for the purposes of section 69(1AB) of the Casino Control Act as it then stood. The test was whether the applicant was of good repute. In the case of natural person applicants, regulation 9 required the applicant and each agent of the applicant who would accompany the junket to Australia to be of good repute, having regard to character, honesty and integrity. In the case of body corporate applicants, each agent who would accompany the junket, as well as each person who, in the opinion of the Director of Casino Surveillance, was able to exercise ‘a significant influence over or with respect to the management or operation of the applicant’s junket business’, similarly had to be of good repute, having regard to those same matters.
     • Regulation 10(3), which provided that if the Director of Casino Surveillance gave approval, it remained in force for the period specified in the approval, which could not exceed three years.
     • Regulation 16, which required junket arrangements to be in writing in a form approved by the regulator and to contain prescribed content, including the names and countries of origin of junket players.
102. The Casino Control Act was further amended in 2002 to permit casino operators to accept gaming wagers, and pay wagers won, in foreign currencies for commission-based players. This arrangement was required to be in accordance with any relevant controls and procedures approved by the regulator in respect of foreign currency.¹⁴⁷
103. In 2003, by amendments to the Casino Control Act, the regulation of junkets in Victoria changed significantly. Regulatory oversight of junkets and premium player arrangements was replaced with a system of self-regulation. Under the new system, the casino operator’s system of internal controls and administrative and accounting procedures (approved by the regulator) included procedures for the promotion and conduct of junkets or premium player arrangements.¹⁴⁸
104. In the second reading speech for the Gambling Regulation Bill 2003 (Vic), which would introduce this change, the then Minister for Sport and Recreation stated:

     [P]robity requirements for junket operators will now be the responsibility of the casino operator, but overseen by the [regulator] through its supervision of the casino’s internal controls and procedures ...¹⁴⁹

Oversight of associates

105. The Casino Control Act as originally enacted did not include any process for assessing the suitability of new associates or for the casino operator to separate from an associate considered to be unsuitable.
106. In 1996, a new provision was inserted into the Casino Control Act, permitting the regulator to investigate an associate of a casino operator, or a person likely to become an associate of a casino operator. The casino operator was obliged to notify the regulator in writing, and as soon as practicable, that a person was likely to become an associate, and to take all reasonable steps to ensure that a person did not become an associate except with the regulator’s prior approval. The regulator was required to consider whether the associate:

     …

     1. [was] of good repute, having regard to character, honesty and integrity;
     2. [was] of sound and stable financial background;
     3. [had] any business association with any person, body or association who or which, in the opinion of the regulator, [was] not of good repute having regard to character, honesty and integrity, or [had] undesirable or unsatisfactory financial resources.¹⁵⁰

107. If the regulator determined that an associate was unsuitable, the regulator could require the associate to terminate the association with the casino operator. If the association was not terminated within a certain timeframe, the regulator could direct the casino operator to take all reasonable steps to do so. The casino operator was required to comply with the direction, and the regulator could take disciplinary action if the casino operator failed to comply.¹⁵¹
108. In 2000, the Casino Control Act was further amended to empower the regulator to:
     • issue a warning to an associate or require an associate to give a written undertaking to the regulator regarding the associate’s future conduct. The regulator could do this if it determined that the associate had engaged, or was engaging in, conduct that it considered to be unacceptable
     • give notice to the associate to require it to terminate the association with the casino operator. The regulator could do this if the associate failed to give an undertaking the regulator required or if the associate breached an undertaking.¹⁵²
109. The obligation on the casino operator to separate from unsuitable associates was also amended in 2000 to require the casino operator ‘take all reasonable steps’ to terminate an association.¹⁵³

Recognising gambling harm

110. Along with the key aspects of casino regulation discussed above, the legislated objectives of casino regulation have changed over time. The main changes to the legislated objectives, discussed below, relate to responsible gambling.
111. In 2000, the objectives of the regulator under the Casino Control Act were amended. The objective of ‘promoting tourism, employment and economic development generally in the State’ was replaced with:

     fostering responsible gambling in casinos in order to:

     2. minimise harm caused by problem gambling; and
     3. accommodate those who gamble without harming themselves or others.¹⁵⁴

112. The purpose of the Gaming Machine Control Act was also amended, adding the same objective.¹⁵⁵
113. During the second reading of the Gambling Legislation (Responsible Gambling) Bill 2000 (Vic), which would also make a number of amendments to the Gaming Machine Control Act in relation to EGMs in pubs and clubs outside the casino, the then Minister for Sport and Recreation said:

     The government is very much focused on its election commitment to policies that swing the pendulum back to better gaming regulation that will ameliorate the adverse impacts of gambling on all communities.

     For its part, the government is not opposed to the gaming or casino industries in Victoria. But we want an industry that is acutely aware of its special place in the community and committed to fulfilling its obligations to the people of Victoria.

     The bill introduces key areas of our election commitments relating to the better regulation of gambling in order to secure a better balanced approach to gambling and better protect the community from the adverse effects of gambling.¹⁵⁶

114. Although the purpose of ‘promoting tourism, employment and economic development generally in the State’ is no longer a purpose of the regulator, it remains one of the purposes of the Casino Control Act.¹⁵⁷
115. In June 2000, in the Second Triennial Review of the Casino Operator and Licence (Second Review), the regulator observed that ‘[w]hile the Casino Control Act still has an economic purpose, the amendments make it clear that the [regulator] no longer has a responsibility to manage its licensing systems for an economic purpose’.¹⁵⁸ Nevertheless, the regulator considered the Second Review should still address the impact of the casino on tourism, employment and economic development generally in Melbourne and Victoria. The regulator noted that the casino operator had several obligations, under the Transaction Documents, with respect to tourism, employment and economic development. It further noted that performance of those obligations was relevant to the general suitability of the casino operator, and that therefore a general examination of economic impact would have relevance to the review.¹⁵⁹
116. When the regulator came to conduct the Third Triennial Review of the Casino Operator and Licence (June 2003) (Third Review), it sought legal advice about how the amendment to its statutory objectives affected its obligation to conduct periodic reviews of the casino operator.¹⁶⁰
117. Mr Peter Hanks, QC advised that while the amendment to the regulator’s statutory objectives had the effect of reorienting the regulator away from economic development issues and towards social issues, the requirement to conduct regular reviews of the casino operator remained focused on issues of reputation, integrity, stability, honesty and efficacy of the casino operator and its operations. Mr Hanks, QC noted that, in this context, it was significant that the definition of ‘public interest’ in the Casino Control Act had not been changed in any substantial way in 2000, and the definition continued to define that term as ‘public interest or interest of the public ... having regard to the creation and maintenance of public confidence and trust in the credibility, integrity and stability of casino operations’.¹⁶¹
118. The regulator considered that advice in the context of the terms of reference that it had prepared for the Third Review. It decided to remove an item from the terms of reference relating to the impact of the Melbourne Casino on tourism, employment and economic development generally in Melbourne and in Victoria on the basis that:
     • the statutory powers of the regulator did not extend to this area
     • these issues did not impact on the activities of the regulator
     • the then Minister for Gaming received advice on these issues from the then Gaming Policy Unit within the Department of Justice.¹⁶²

The introduction of the Gambling Regulation Act

119. As has been mentioned, the Gaming Machine Control Act was repealed on 1 July 2004 by the Gambling Regulation Act, which consolidated eight of the 10 principal gaming Acts into a single Act.¹⁶³
120. While the Casino Control Act and the Management Agreement Act were not consolidated into the Gambling Regulation Act, the matters relating to casino regulation that were previously addressed under the Gaming Machine Control Act were, subject to some exceptions, re-enacted in the Gambling Regulation Act. These included responsible gambling measures.¹⁶⁴
121. Two purposes of the amended Gambling Regulation Act are to:
     • foster responsible gambling in order to minimise harm caused by problem gambling and to accommodate those who gamble without harming themselves or others
     • ensure that minors are neither encouraged to gamble nor allowed to do so.¹⁶⁵
122. While there are no corresponding purposes in the Casino Control Act,¹⁶⁶ parts of the Gambling Regulation Act that incorporate responsible gambling measures are imposed on a casino operator.¹⁶⁷

Changing responsible gambling obligations

123. The purpose of the Casino Control Act as originally enacted was to establish a system for the licensing, supervision and control of casinos, with the aims of:

     …

     1. ensuring that the management and operation of casinos remains free from criminal influence or exploitation; and
     2. ensuring that gaming in casinos is conducted honestly; and
     3. promoting tourism, employment and economic development generally in the State.¹⁶⁸

124. The Casino Control Act as originally enacted included no express reference to harm minimisation or responsible gambling, and neither did the second reading speech that introduced the Casino Control Bill to Parliament.¹⁶⁹ At the time the Casino Control Bill was debated, the main harm envisaged was criminal activity and influence in casinos.¹⁷⁰ While this concern remains a focus of the Casino Control Act in its current form,¹⁷¹ later amendments to the Act and its supporting legislation, including the Gaming Machine Control Act and later the Gambling Regulation Act, included a focus on the harms associated with gambling.
125. The Casino Control Act as originally enacted did, however, include a number of harm minimisation and responsible gambling measures, although they were not described as such in the Act. These included:
     • Casino operator agents or employees being prohibited from inducing patrons to enter the casino or to take part in gaming in the casino.¹⁷²
     • The casino operator being required to provide copies of the rules of games; display advice and information in relation to gaming rules, including odds; and display minimum and maximum odds.¹⁷³
     • Subject to certain exceptions, the casino operator being prohibited from providing credit to patrons.¹⁷⁴
     • Minors being prohibited from entering the casino.¹⁷⁵
     • The Director of Casino Surveillance or casino operator having the power to exclude persons from entering or remaining in the casino.¹⁷⁶
126. These harm minimisation and responsible gambling measures have been added to and amended, responding to changing community expectations and the government’s approach to regulating responsible gambling.
127. Further changes relating to harm minimisation and responsible gambling in the Casino Control Act have included:
     • Prohibiting the casino operator from knowingly sending or directing advertisements to a person subject to an exclusion order.¹⁷⁷
     • Permitting the Minister to make directions about bet limits on EGMs in casinos.¹⁷⁸
     • Subject to certain exceptions, prohibiting the casino operator from accepting large-denomination banknotes, and prohibiting games from being played on an EGM unless each spin could be initiated only by a distinct and separate activation of the machine by the player.¹⁷⁹
     • Requiring the casino operator to limit withdrawals, and prohibit cash advances from credit accounts, from cash facilities within 50 m of the casino entrance.¹⁸⁰
     • Subject to certain exceptions, requiring the casino operator to pay out EGM winnings over $2,000 by cheque, and to prohibit cheques drawn by the casino operator from being cashed at the casino or exchanged for gaming tokens.¹⁸¹
     • Requiring a person subject to an exclusion order to forfeit winnings to the State.¹⁸²
     • Prohibiting the casino operator from allowing a person to gamble or bet while intoxicated.¹⁸³
     • Requiring the casino operator, as a condition of its licence, to implement a Responsible Gambling Code of Conduct (Gambling Code).¹⁸⁴
128. The Gaming Machine Control Act, and later the Gambling Regulation Act, have also imposed additional harm minimisation and responsible gambling obligations on the casino operator, including:
     • Regulating the use of loyalty programs.¹⁸⁵
     • Requiring the regulator to approve types of EGMs, or specific EGM games, having regard to a range of matters, including the game fairness and security, and responsible gambling.¹⁸⁶
     • Regulating the content of, and compliance with, Gambling Codes.¹⁸⁷
     • Requiring pre-commitment systems to be installed on all EGMs in Victoria.¹⁸⁸

Responsible Gambling Codes of Conduct

129. The Casino Control Act and the Gambling Regulation Act were amended in 2007 to require the casino operator to implement a Gambling Code approved by the regulator.¹⁸⁹
130. Prior to the introduction of mandatory Gambling Codes, the casino operator was part of the Victorian Gaming Machine Industry Accord and was a signatory to the Victorian Gaming Machine Industry Code of Practice. This was a voluntary responsible gambling code.¹⁹⁰
131. It was intended that gambling industry participants would be required to develop codes that were appropriate for the nature of their business and the type of gaming that they provided. This approach acknowledged that ‘there can be more than one means of achieving the objective of responsible gambling and that a degree of flexibility is appropriate’.¹⁹¹
132. When mandatory Gambling Codes were first introduced, the Minister could issue directions under the Gambling Regulation Act to the regulator. This included directions in relation to:

     …

     1. the standards and requirements that a Responsible Gambling Code of Conduct, approved by the [regulator], and implemented by [the casino operator], must meet;
     2. guidelines in respect of Responsible Gambling Codes of Conduct;
     3. the content, monitoring and enforcement of Responsible Gambling Codes of Conduct.¹⁹²

133. In addition to any directions given by the Minister, a Gambling Code was required to:
     • demonstrate a commitment to foster responsible gambling
     • be appropriate for, and relevant to, the nature and type of gambling provided
     • set out a review process by which the casino operator would assess the operation and effectiveness of the Gambling Code.¹⁹³
134. The regulator was required to approve all Gambling Codes¹⁹⁴ and the casino operator was required to implement an approved Gambling Code.¹⁹⁵ The Casino Control Act was amended to empower the regulator to take disciplinary action against the casino operator for ‘repeated breaches by the casino operator of the casino operator’s [Gambling Code]’.¹⁹⁶
135. In addition, the regulator was required to report at least annually to the Minister on:
     • the effectiveness of the Gambling Codes
     • the casino operator’s level of compliance
     • whether any disciplinary action had been taken against the casino operator because of repeated breaches of the Gambling Codes
     • whether the regulator had conducted any programs, such as educational programs, for the benefit of the casino operator in order to increase compliance with, and the effectiveness of, the Gambling Codes.¹⁹⁷
136. The regulator approved the casino operator’s first Gambling Code in May 2009, which was implemented by the casino operator on 1 June 2009.¹⁹⁸
137. The requirement in the Casino Control Act that a Gambling Code be approved by the regulator was removed in 2018. It was replaced with a requirement that the casino operator implement a Gambling Code that complies with:
     • relevant regulations made under the Gambling Regulation Act
     • ministerial directions under the Gambling Regulation Act that applied to the casino operator.¹⁹⁹
138. The Gambling Regulation Act was amended to:
     • Authorise the Minister to issue directions about the standards and requirements that a Gambling Code must meet.²⁰⁰
     • Replace the requirement for annual reviews of Gambling Codes by the regulator with the requirement that the Minister undertake a review every five years.²⁰¹ This amendment was intended to allow a more meaningful evaluation to take place at regular intervals and to reduce the burden on the regulator.²⁰²
139. The requirement for a Minister’s review every five years is still in force. The reviews must consider how effectively Gambling Codes:
     • ensure that gambling products are supplied responsibly
     • promote practices that support and encourage responsible gambling
     • help minimise harm caused by gambling.²⁰³
140. The 2018 changes were intended to improve the enforceability of the Gambling Codes and enable the ministerial directions to be more prescriptive about a range of matters, including how venue operators can better identify and respond to problematic gambling behaviour.²⁰⁴
141. With these changes, the casino operator became responsible for ensuring that its Gambling Codes complied with the applicable ministerial directions. The regulator continued to have a compliance and enforcement role. All the 2018 changes are still in force.

Pre-commitment and loyalty schemes

142. In 2003, a new regulatory framework for player loyalty schemes came into effect under the Gaming Machine Control Act.²⁰⁵ The framework was designed to address the ‘increasing use of card technology and the emergence of databases that collect and manage consumer information on the spending and playing patterns of players’.²⁰⁶
143. Among other things, the new framework required loyalty scheme providers, including the casino operator, to:
     • Provide loyalty scheme participants with written ‘player activity statements’ containing prescribed information.
     • Allow loyalty scheme participants to set limits on the time they could play games under the scheme and on their net loss in a 24-hour period and over a year. The participants could change the limits but, under the framework, the change could not take effect for at least 24 hours. When a participant’s limits were reached, the loyalty scheme provider was prohibited from allowing the participant to continue playing under the loyalty scheme.²⁰⁷
144. Excluded persons were not permitted to participate in loyalty schemes.²⁰⁸
145. Under this regime, in June 2003, the casino operator introduced the ‘Play Safe Limits’ program to allow members of its loyalty program to voluntarily pre-set limits on time or spending for each session before playing EGMs and fully-automated table games (FATGs).²⁰⁹
146. When the Gaming Machine Control Act was repealed by the Gambling Regulation Act in 2004, the regulatory framework for loyalty schemes was incorporated into the Gambling Regulation Act.²¹⁰
147. The loyalty scheme requirements in the Gambling Regulation Act were subsequently amended in 2015, when it became mandatory for the new statewide pre-commitment system to be used by venue operators, including the casino operator, as the limit-setting mechanism on EGMs.²¹¹ The system allows a person to set a time limit or net loss limit before that person gambles on an EGM in any venue in Victoria with EGMs.²¹² From 1 December 2015, it became mandatory for all EGMs at all gaming venues in Victoria, including the casino, to be linked to the statewide pre-commitment system.²¹³
148. In the second reading of the Gambling Regulation Amendment (Pre-commitment) Bill 2013 (Vic) that implemented the statewide pre-commitment system, the then Treasurer stated:

     The coalition government has led the way by committing to introducing a voluntary precommitment scheme. Precommitment is a vital harm minimisation and consumer protection measure that will help players control their gambling and avoid it escalating to harmful levels. Precommitment is not just for problem gamblers; it is for everyone who makes the decision to play a gaming machine. Players can decide what they want to spend or how long they want to spend playing a gaming machine, and precommitment provides the tools to enable the player to keep track of the time and costs of their gaming machine play and the tools to enable the player to stick to the limits they have set.²¹⁴

149. Intralot Gaming Services Pty Ltd (Intralot) was authorised under the Gambling Regulation Act to provide, operate and maintain a pre-commitment system and associated services.²¹⁵
150. While it is mandatory for all EGMs to be linked to Intralot’s pre-commitment system, players may use the scheme on a voluntary basis and the limits imposed by the player are not binding.
151. The Intralot pre-commitment system for players in Victoria is called ‘YourPlay’.²¹⁶ When a player reaches their pre-determined time or spending limit, the EGM is disabled and informs the player that the limit has been reached. The player can then elect to continue gambling by clicking through the screen or can exit the system by removing their card. As such, the system acts as an information cue, reminding the player of the pre-determined limit, rather than as a protective measure preventing continued play beyond the set limits.²¹⁷
152. At the time YourPlay was implemented on EGMs at the Melbourne Casino, the Play Safe Limits program operated through the casino operator’s loyalty scheme was required to be disabled on EGMs, as only the statewide pre-commitment system could be used to offer limit-setting mechanisms.²¹⁸ The Play Safe Limits program continues to be used by the casino operator to provide a pre-commitment system to players of FATGs.
153. To encourage participation in the YourPlay scheme, when it was introduced, the loyalty scheme requirements under the Gambling Regulation Act were amended to provide that players had to use one card for both pre-commitment and loyalty schemes. This meant that if a venue operator, including the casino operator, wished to have a loyalty scheme, the same player card, card reader, display screen and kiosk would be used for both the loyalty scheme and the pre-commitment system.²¹⁹ These new requirements created one means of obtaining access to information at a gaming venue about both schemes.²²⁰ This approach was intended to remove the stigma of using a card designed solely for pre-commitment.²²¹

Provision of regulatory certainty to Crown

154. In 2014, amendments were made to the Management Agreement, which were ratified by Parliament, to provide ‘regulatory certainty’ to the casino operator. The then Minister for Liquor and Gaming Regulation stated that the amendments were intended to support continued investment and jobs for Victoria ‘in an increasingly competitive environment’, where the Melbourne Casino faced a sharp increase in competition from casinos in Australia and the region, ‘while delivering substantial financial benefits to the State’.²²²
155. The agreement negotiated between the State and the casino operator provided for:
     • an extension of the casino licence term by 17 years to 18 November 2050
     • an increase in the number of gaming tables in the casino from 400 to 440 and an increase in the number of FATG terminals from 200 to 250
     • an increase in the number of EGMs from 2,500 to 2,628
     • the receipt by the State of payments up to $910 million from Crown
     • the provision to the casino operator of ‘enhanced’ regulatory certainty.²²³
156. The ‘regulatory certainty’ acquired by Crown Melbourne is of such importance, it is the subject of a separate chapter (Chapter 9).

Current approach to casino regulation: risk based regulation

157. Since its establishment in 2012, the VCGLR has aimed to transform itself into a ‘modern, risk-based regulator’.²²⁴
158. The VCGLR describes its regulatory approach as being risk based, and has indicated that an understanding of risk guides its decision-making priorities and use of resources in discharging its statutory functions in licensing, information and education, monitoring and enforcement. The VCGLR also indicates that under this risk based approach, it considers the risks associated with activities, such as particular types of gambling, as well as the risk presented by individuals and businesses in the gambling and liquor industries. By adopting a risk based approach, the VCGLR acknowledges that a tolerance of risk is necessary to properly meet its regulatory objectives.²²⁵
159. Mr Peter Cohen, a former executive commissioner of the VCGR,²²⁶ conducted the Casino Modernisation Review for the New South Wales Office of Liquor, Gaming and Racing in 2016. Mr Cohen advised the New South Wales Government that risk based regulation allowed risk to be transferred from the government sector to the operators. He stated:

     Regulators unnecessarily involved in day-to-day operations of casinos, which prescriptive models engender, assume a level of liability which should not be the State’s responsibility. These risks come in many forms but are generally in place where the regulator is asked to approve something in advance rather than allow the operator to decide the correct course of action.²²⁷

160. The risk based approach adopted by the VCGLR today is a significant change from the prescriptive regulatory oversight approach under the Casino Control Act as first enacted.²²⁸ Some of the changes to the regulatory framework in Victoria over time reflecting this shift include:
     • Significant changes to junket oversight. Probity assessments for junket operators have shifted from being the responsibility of the regulator to that of the casino operator, with the regulator now only overseeing junket operations through its supervision of the casino’s internal controls and procedures. Mr Cohen noted that the Victorian approach to junket regulation is an example of permissive, risk based regulation. While junkets are no longer required to be approved by the regulator, that does not mean that the casino operator has no responsibility to ensure, among other things, that junket operations comply with its approved systems of administrative and internal controls. Mr Cohen also noted that the regulator retains a general power to issue binding directions to the casino operator in relation to the conduct, supervision or control of operations in the casino.²²⁹
     • Changes to oversight of contracts for the supply of goods and services (controlled contracts). These changes allow the casino operator to develop a system of self-regulation, provided that the regulator is satisfied that the casino operator’s systems of internal controls and accounting procedures adequately enable the assessment of suppliers’ suitability, and that the casino operator has complied with the requirements for controlled contracts imposed under the Casino Control Act.²³⁰
     • Replacing the requirement that the regulator approve Responsible Gambling Codes of Conduct with a requirement that the casino operator is responsible for ensuring that its Responsible Gambling Code of Conduct complies with the Casino Control Act.²³¹
161. When comparing the Victorian and Singaporean regulatory practices, Mr Cohen stated that even though the legislation in these jurisdictions is similar, the methodology for regulating is vastly different. Victoria has shifted its focus from the highly prescriptive approach implemented in the early days of casino regulation in the 1990s to the essentially risk based approach of today. Conversely, Singapore started with a heavily prescriptive approach and has continued in that form.²³²

Auditor-General’s reports on the regulation of gambling

162. The Victorian Auditor-General’s Report entitled Regulating Gambling and Liquor, released in February 2017, identified a number of issues with the VCGLR’s implementation of a risk based approach.
163. The Auditor-General recognised that a risk based approach helps the VCGLR to allocate its finite resources to areas that have the greatest impact on limiting the negative effects of gambling and alcohol. It also provides the VCGLR with a transparent, defensible approach to its regulatory work.²³³
164. The Auditor-General observed, however, that ‘some audits of key areas of risk for the casino operator had not been performed consistently, or at all, since 2012’.²³⁴ The Auditor-General further noted that the Casino Control Act prohibits the casino operator from running the casino unless the VCGLR has approved its system of internal controls and administrative and accounting procedures. While the Casino Control Act requires the casino operator to implement the approved controls and procedures, the Auditor-General indicated that the VCGLR should regularly assess whether this is happening.²³⁵
165. The Auditor-General also noted that regular reviews of the internal audit activities of the casino could provide assurance about the adequacy of the internal controls and oversight of the casino. However, the Auditor-General observed that while the VCGLR planned to undertake a quarterly audit on the internal audit function of the operator, this would have been the first occasion since August 2012 that it had undertaken any such review. The Auditor-General stated:

     [The] VCGLR obtains information on the casino operator’s annual internal audit program and copies of the agenda and minutes of the operator’s audit and compliance committee meetings. However, [the] VCGLR could not demonstrate that it systematically reviews this material. In addition, the information the operator provides is not sufficient to give assurance that its internal controls and oversight are robust or adequate, because it does not adequately demonstrate the risk assessments, resources, processes or quality assurance used in these activities.

     [The] VCGLR can request complete documentation of the operator’s audit and compliance committee meetings but has not done so since 2013. This is a gap in its approach because this information could be used to improve its understanding of the effectiveness of the operator’s internal controls and to inform the targeting of [the] VCGLR’s compliance activities.²³⁶

166. The Auditor-General recommended that the VCGLR continue to revise the risk based approach to compliance to ensure better targeting of compliance activities.²³⁷
167. When the Auditor-General followed up on the recommendations in 2019, it noted that the VCGLR was still finalising implementation of its risk based model for gambling licensing.²³⁸

Suitability and public interest

168. The notions of suitability and public interest are central to the Casino Control Act and the Terms of Reference of this Commission. Given their importance, they are dealt with separately in Chapter 18 and Appendix H.

The Bergin Inquiry: corporate failures and the Packer influence

Introduction

1. This chapter examines the inquiry under section 143 of the Casino Control Act 1992 (NSW) that was undertaken by the Hon. Patricia Bergin, AO, SC (Bergin Inquiry). The Report of the Bergin Inquiry was provided to the Independent Liquor and Gaming Authority (NSW) (ILGA) on 1 February 2021.¹ The findings of the Bergin Inquiry constitute a critical context for the work of this Commission.
2. By way of background, Crown Resorts has three operating subsidiaries: Crown Melbo urne, which operates the Melbourne Casino, Burswood Nominees Ltd as trustee for the Burswood Property Trust (Crown Perth), which operates the Crown casino in Perth, and Crown Sydney Gaming Pty Ltd (Crown Sydney), which holds a restricted gaming licence to operate the Crown casino at Barangaroo.²
3. The Bergin Inquiry was established to determine whether:
   • Crown Sydney was a suitable person to continue to hold a restricted gaming licence; and
   • Crown Resorts was a suitable person to be a close associate of Crown Sydney.³
4. A key focus of the Bergin Inquiry was whether Crown Resorts or its subsidiaries had engaged in money laundering, breached gambling laws in China and made arrangements with junket operators who had links to organised crime.⁴
5. The Bergin Inquiry also examined the sale by CPH to Melco Resorts & Entertainment Limited (Melco) of a 19.99 per cent stake of its shareholding (then 46.1 per cent) in Crown Resorts.⁵
6. The Bergin Inquiry concluded that:
   • Crown Sydney is not a suitable person to continue to give effect to its restricted gaming licence
   • Crown Resorts is not a suitable person to be a close associate of Crown Sydney.⁶
7. The principal findings upon which these conclusions were based were that:
   • between 2014 and 2019, Crown enabled or facilitated money laundering through the bank accounts of its subsidiaries Southbank Investments Pty Limited (Southbank) and Riverbank Investments Pty Limited (Riverbank), and that this situation went unchecked and unchanged despite warnings from its bankers⁷
   • between 2014 and 2016, Crown 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 structure⁸
   • between 2012 and 2020, Crown entered into and/or continued commercial relationships with junket operators who had links to triads and other organised crime groups, and maintained those relationships after becoming aware of persistent public allegations of such links in national and international media reports and in its own due diligence reports.⁹
8. Shortly after this Commission was established, Crown Melbourne was requested to inform the Commission whether it accepted that, based on the evidence and material that was before the Bergin Inquiry, it was open for the Commission to: (a) make the principal findings set out above; and (b) conclude that Crown Resorts is not a suitable person to be a close associate of Crown Sydney.¹⁰
9. This Commission received a response by letter on behalf of both Crown Resorts and Crown Melbourne.¹¹ The letter defined those companies together as ‘Crown’ and recorded Crown’s acknowledgement that:
   • Between 2013 and 2017 in the case of the Riverbank accounts, and between 2013 and 2019 in the case of the Southbank accounts, third parties engaged in apparent money laundering through those accounts. Crown inadvertently facilitated or enabled this activity despite concerns being raised by its bankers.
   • Between 2015 and 2016, the pursuit of an aggressive VIP sales policy and a failure to escalate risks through the appropriate corporate risk management structure put Crown’s China-based staff at risk of detention.
   • Between 2012 and 2020, having relied on its due diligence, Crown entered into and/or continued commercial relationships with some junket operators after becoming aware of a number of allegations in national and international media reports of links between those operators and triads or other organised crime groups.
10. Neither Crown Resorts nor Crown Melbourne has sought to resile from those concessions, although they were given the opportunity to do so.¹² Further, Crown Resorts and Crown Melbourne accept that, based on the evidence and material before the Bergin Inquiry, it was open to conclude that Crown Resorts was not a suitable person to be a close associate of Crown Sydney.¹³
11. Following the commencement of the Bergin Inquiry, Crown began to implement ‘a substantial reform program’.¹⁴ The program is continuing and intends to deal, among other things, with the deficiencies in governance that came to light during the Bergin Inquiry.
12. A key issue for this Commission is to consider the effectiveness of this reform program. To undertake that task requires a proper understanding of the facts and circumstances that led the Bergin Inquiry to make its findings and reach its conclusions.
13. This chapter will summarise the Bergin Report. In the Bergin Report Crown Resorts Limited is referred to as ‘Crown’but in some instances, the term ‘Crown’ is used in a generic sense to refer to the broader Crown business or group.¹⁵ For fidelity to the Bergin Report, this chapter reflects the language used in that Report.

The genesis of the Bergin Inquiry

14. On 30 May 2019, CPH Crown Holdings Pty Ltd, a wholly owned CPH subsidiary, agreed to sell 19.99 per cent of its approximately 46.1 per cent shareholding in Crown to Melco (Share Sale Agreement).¹⁶ Melco owns casinos in Asia that operate in Macau and the Philippines.¹⁷
15. The Share Sale Agreement between CPH Crown Holdings and Melco provided for the shares to be transferred in two equal tranches—the first on 6 June 2019 and the second by 30 September 2019.¹⁸
16. On 6 June 2019, Melco advised ILGA that it intended to seek ‘approvals’ for representation on the Crown board and relevant subsidiary boards, and for six named individuals to become close associates of Crown Sydney. Melco also advised ILGA that it intended to apply to become a close associate of Crown Sydney.¹⁹
17. As a result, ILGA began to inquire into the suitability of Melco and the six named persons becoming close associates of Crown Sydney.²⁰
18. In July and August 2019, various media outlets, including The Sydney Morning Herald and The Age, published allegations of illegal and/or improper conduct by Crown and its alleged associates and business partners.²¹ The allegations included that Crown or its agents, affiliates or subsidiaries:
    • engaged in money laundering
    • breached gambling laws in China
    • partnered with junket operators who had links to drug traffickers, money launderers, human traffickers and organised crime groups.²²
19. The partial consummation of the sale to Melco and the media allegations caused ILGA to establish the Bergin Inquiry on 14 August 2019.²³ Its purpose was to conduct a suitability review and undertake a regulatory framework and review.
20. On 6 February 2020, CPH Crown Holdings and Melco agreed to release Melco of its obligations to purchase the second tranche of shares in Crown.²⁴
21. Three key issues considered by the Bergin Inquiry were:
    • ‘China arrests’: In October 2016, Chinese police detained 19 Crown employees, for promoting Crown’s Australian casinos.²⁵ Sixteen were sentenced to imprisonment and fined.
    • Money laundering at Crown: This involved suspect transactions through the Riverbank and Southbank bank accounts, and the deposit of large sums of cash carried into the Melbourne Casino in shopping bags.
    • Junkets and organised crime: This involved Crown’s relationships with junket tour operators (JTOs) (who arranged for high rollers from mainland China to come to Crown casinos in Australia) with links to organised crime, including triad gangs notorious for laundering drug money, suspect debt collection techniques and links to sex trafficking.

China arrests

22. Crown Melbourne had a business unit known as ‘VIP International’. That business unit reported to the Crown Melbourne board and was responsible for managing all overseas operations.²⁶ It identified and developed relationships with international VIP gamblers with a view to having those gamblers visit Crown casinos in Australia. From as early as March 2007, Crown’s VIP marketing efforts were focused on offshore expansion.²⁷
23. The following people were involved in the management of VIP International:
    • From August 2013, Mr Barry Felstead was the CEO of Crown’s Australian Resorts and the most senior executive responsible for VIP International. Mr Felstead reported to Mr Rowen Craigie. Mr Craigie was then Managing Director and CEO of Crown.²⁸
    • From 2011 until his arrest in October 2016, Mr Jason O’Connor was the ultimate decision maker in VIP International. His job title was Group Executive General Manger of VIP International Gaming.²⁹
    • From February 2012, Mr Michael Chen, based in Hong Kong, was the most senior internationally based member of VIP International. He reported directly to Mr O’Connor and they spoke at least once a day.³⁰
    • A number of senior vice presidents were responsible for different geographic regions or business lines within VIP International, including, until mid-2013, Mr Stefan Albouy.³¹
    • The VIP International leadership team comprising:³²
      • Ms Jacinta Maguire, General Manager of Commercial
      • Mr Roland Theiler, Senior Vice President of International Business
      • Mr Ishan Kunaratnam (known as Mr Ratnam), a Crown executive with a longstanding relationship with the Packer family.³³
24. To facilitate its activities, VIP International established and maintained overseas sales teams and operations in various jurisdictions, including China.³⁴ Those operations were intended to take advantage of the wealth of the middle class and the increasing propensity of Chinese citizens to travel.³⁵
25. By 2011, China had become Crown’s largest market for high-value international VIP players.³⁶
26. Initially, VIP International operated in mainland China by having sales staff travel to meet existing or prospective Chinese VIP customers from neighbouring regions such as Macau and Hong Kong.³⁷
27. Subsequently, although the Bergin Report does not record precisely when, Crown consolidated its presence in China. It did so by having staff who lived and worked in various regions of China conduct its sales and marketing activities.³⁸ Members of senior management also regularly travelled to China to undertake roadshows on behalf of Crown.³⁹
28. From 2012 onwards, China-based staff were employed by Crown Singapore. The directors of that entity were Mr Craigie and Mr Felstead.⁴⁰
29. The role of the sales team in China was to maintain relationships with existing VIP gaming customers, to establish and consolidate relationships with high-value gamblers who had yet to visit Crown’s casinos, and to market those casinos to existing and potential customers.⁴¹ The team’s role also involved collecting gambling debts.⁴²
30. The presence of Crown in China led to the continued growth of VIP International turnover in Australia. VIP International achieved turnover of $26.9 billion and $31 billion in 2010 and 2011 respectively, with turnover increasing year on year between 2012 and 2014.⁴³ As at September 2014, approximately 20 Crown staff lived and worked in mainland China.⁴⁴
31. On 13 and 14 October 2016, Chinese police conducted a series of coordinated raids on the homes of staff in mainland China. Nineteen Crown employees were arrested and questioned by the authorities. All were charged with assembling a crowd to engage in gambling in breach of Article 303 of the Criminal Law of the People’s Republic of China 1997 (China).⁴⁵
32. Article 303 provides:

    Whoever, for the purpose of profit, gathers a crowd to gamble, or undertakes gambling as a business shall be sentenced to fixed-term imprisonment of three years or less, detention or surveillance and shall be subject to a fine.⁴⁶

33. On 26 June 2017, 16 of the 19 employees were fined and sentenced to terms of imprisonment of between nine and ten months. The remaining three employees were exempted from criminal penalty.⁴⁷

Media allegations and Crown’s response

34. In July and August 2019, various media outlets published allegations concerning the operations of Crown in China and the arrests of its China-based staff. It was alleged that:
    • Crown knew that its China-based staff were breaching Chinese gambling laws
    • Crown exposed its staff to the risk of detention in China
    • Crown disregarded the welfare of its employees who were offered ‘huge bonuses’ to lure Chinese high rollers to its Australian casinos
    • even as it became likely that Chinese police were closing in, Crown directed its China-based staff to continue to promote gambling, but to do so ‘under the radar’
    • Crown’s operations in China cast doubt over its corporate governance practices.⁴⁸
35. On 31 July 2019, in response to the media allegations, the Crown board made an Australian Securities Exchange (ASX) announcement titled ‘A Message from the Crown Resorts board of Directors’.⁴⁹ The announcement sought to defend Crown against the allegation that it knew that its staff breached Chinese gambling laws. In the announcement, the board stated that Crown:
    • did not know that the conduct of its staff in China constituted an offence in China
    • had itself not been charged with or convicted of any offence in China
    • understood that its staff were operating in a manner that did not breach Article 303
    • had obtained legal and government relations advice from reputable independent specialists.⁵⁰

The findings of the Bergin Inquiry

No business licence to operate an office in China

36. Neither Crown nor any Crown subsidiary held any form of licence, authorisation or approval to operate or conduct business activities of any kind in mainland China.⁵¹
37. At various times between 2011 and October 2015, Crown obtained legal advice relating to the legality of its business activities in China. Based on an interpretation of the legal advice, those involved in VIP International appeared to form the view that it was legal for Crown to employ staff in China to promote gambling without a business licence so long as Crown was not operating an office in China. That is, Crown considered that a business licence was only required if it sought to establish an office in China.⁵²
38. While the China-based staff were typically required to work from their residential homes when conducting their marketing activities, from at least 2012 an ‘unofficial’ office had been opened in Guangzhou, China.⁵³ The following facts are relevant:
    • The office was a residential apartment, rented by Crown to support VIP International business activities and to process visa applications for its Chinese customers. The office carried no Crown signage.⁵⁴
    • The office was used by staff to perform administrative functions related to processing visa applications for VIP players from Macau, Hong Kong and mainland China.⁵⁵
    • By May 2012 at the latest, the existence of the office was known to the Crown Melbourne legal team and several executives. This followed an email from Crown executive Mr Albouy to Mr Chen, Mr O’Connor and others describing the office arrangements as ‘unsuitable’, ‘subject to random checks by authorities’ and ‘posing many risks’. The email also proposed that the Guangzhou team move into a new premises, with business registration, so as to ‘give the team a more safe and professional environment’ in which to work.⁵⁶
    • Mr Albouy’s concerns and suggestion were ignored, with Crown continuing to lease the same premises until at least 2015.⁵⁷
    • In 2015, the Guangzhou office moved to new premises and continued to operate until the China arrests in October 2016.⁵⁸
    • Following the China arrests, the premises continued to be leased on a rolling basis under the names of the employees, as negotiated between Mr Chen and the property owner. The lease continued until August 2017.⁵⁹
    • Prior to the China arrests, additional people who were aware of the existence of the Guangzhou office included Ms Jan Williamson, Senior Legal Counsel at Crown Melbourne, Ms Debra Tegoni, Executive General Manager, Legal and Regulatory Services, Mr Theiler and Mr Chris MacKay, a non-executive director of Crown.⁶⁰
    • Mr O’Connor told the Bergin Inquiry that the existence of the office ‘wasn’t a secret’ in Crown Melbourne.⁶¹
    • Mr Craigie accepted that the unofficial office in Guangzhou was an attempt to disguise from the Chinese authorities the fact that Crown was conducting an office in Guangzhou.⁶²

Advice regarding the legality of Crown’s activities and escalating risks in China

39. Article 303 prohibits a person, for the purpose of profit, from ‘gather[ing] a crowd to gamble’ or from ‘undertak[ing] gambling as a business’. Article 1 of Interpretation No. 3 [2005] of the Supreme People’s Court Criminal Division, effective from 13 May 2015, sets out four scenarios that constitute ‘gather[ing] a crowd to gamble’. One of those scenarios is ‘organising 10 or more persons who are citizens of the People’s Republic of China to go abroad to gamble, from which kickbacks or referral fees are collected’.⁶³
40. Further guidance from the Supreme People’s Court Criminal Division provides:

    The number of persons organised is not calculated on an aggregate basis. It is necessary that 10 or more [Chinese] citizens are organised at one time to go abroad to gamble … The phrase ‘at one time’ can be translated as on a single occasion.⁶⁴

41. Mr Craigie, Mr Felstead and Mr O’Connor understood that whether or not the China-based staff were breaching Article 303 turned on two questions of interpretation:
    • First, whether staff in China were organising more than 10 Chinese citizens to travel to venues to gamble on one single occasion, or whether the number of 10 citizens could be accumulated over a number of occasions.
    • Second, whether staff were receiving a commission from Crown based on the amount of the Chinese citizens’ gambling turnover (which they understood to be legal) or whether staff were receiving a commission from the gamblers directly (which they understood to be illegal).⁶⁵
42. Mr Craigie accepted that it was ‘particularly unsafe to rely on some technical construction of Chinese law’.⁶⁶ Mr O’Connor gave evidence that he referred to legal and other advice at the time, but that he assessed that advice ‘through the eyes of a Westerner and … didn’t fully appreciate that China’s legal system doesn’t operate the same way as the Western legal system does’.⁶⁷
43. Crown directors and management generally accepted the following propositions:
    • The Chinese legal system was different to the Australian legal system.
    • China was a country where the law may be enforced inconsistently.
    • There was a risk of arbitrary action by Chinese authorities.
    • In the period up to October 2016, China was a riskier place for Crown staff to be working than Australia.⁶⁸
44. Crown sought legal advice about its activities in China from international law firm WilmerHale on at least seven occasions between 2012 and 2015.
45. In June 2012, following a change in the political landscape in China when the Chinese Government announced a crackdown on corruption, WilmerHale advised:
    • It was not illegal to sell offshore gaming within China.
    • There were laws prohibiting the marketing of gaming onshore for more than 10 people.
    • Because gaming was a ‘sensitive topic’, Crown should be ‘cautious and avoid openly marketing’.⁶⁹
46. On 19 February 2013, WilmerHale advised that a normal casino employee is unlikely to be deemed a ‘principal’ or found guilty under Chinese criminal law by merely marketing or participating in casino operations, provided that the employee is not directly making a profit from doing so.⁷⁰
47. Mr Albouy cautioned that reliance could not be placed on the advice when it came to protecting staff, stating that ‘the issue is not conviction … but the fact that authorities “may” apprehend our team for questioning’.⁷¹
48. On 25 March 2013, Mr Chen wrote to Mr O’Connor and Mr Felstead noting that two China-based staff of Crown had been seen regularly with a customer who had been recently detained. Mr Chen stated they were at risk of being called in for questioning by Chinese authorities.⁷² Mr Chen followed up with an email the next day that included the following:

    Folks in the VIP industry have long been very sensitive to the actions of the Chinese government. There has been much misinformation in the field about the legalities of what we do and the rights people have if they were identified to be marketing casinos in China.

    … We received definitive advice that the activities that we undertake in China do NOT violate any criminal laws …

    We have provided all China staff with the attached protocol to follow in the event such a knock on the door arrives …

    This is one thing that it is important to understand when it comes to the China team. They are living in constant fear of getting tapped on the shoulder. In a country where due process is inconsistently applied, it is a risky place to be for all of our team …

    Most folks in the industry just think it is in [a] gray area and that they are at risk of arrest …⁷³

49. On 19 May 2013, following Mr Chen receiving notice that a Crown junket operator had been detained by authorities for questioning in Guangzhou, WilmerHale advised that the law remained ‘unchanged’.⁷⁴
50. Crown engaged Mintz Group, a global investigations and risk advisory firm, to provide advice in relation to its operations in China.⁷⁵ On 12 July 2013, Mintz Group sent Mr Chen a copy of an article it had published regarding foreign companies doing business in China. That article stated:

    While the draw of China’s large and growing market might be worth the risk, foreign companies must enter with full anticipation of a lack of transparency, fairness, and accountability under the country’s laws.⁷⁶

51. On 1 October 2013, Mintz Group sent a further email attaching a new article it had published. This article suggested that a newly established investigatory agency in China was adopting an aggressive stance towards foreign companies that was not ‘business as usual’.⁷⁷
52. On 15 October 2013, Mr O’Connor suggested adding ‘foreign political policy risk’ to the Crown Melbourne Risk Register as a risk affecting Crown Melbourne’s international business. The Risk Register was amended to record Chinese political action as a significant risk to the performance of Crown Melbourne.⁷⁸ No other action was taken by Crown Melbourne.
53. In March 2014, Mr Veng Anh, then a Vice President of International Business Operations at Crown Melbourne, exchanged a series of texts with Mr O’Connor. In his texts, he reported ‘inside information’ from China. The inside information suggested that from April to May 2014, the Chinese Government would begin arresting people, including those having ‘anything to do with gambling or moving money out of the country’. Mr Anh advised Mr O’Connor that Crown should remove all of its staff from China for one month.⁷⁹ It appears that no staff were relocated. Instead, the warning appeared to prompt Crown to suggest that staff collect outstanding debts as soon as possible because of the crackdown.⁸⁰
54. In mid-August 2014, a bank in China made an inquiry with a China-based member of Crown staff, ‘CY’. CY then expressed concerns to Mr Chen about doing business in China without any formal registration. That prompted Mr Chen to seek advice from WilmerHale, which advised Crown not to use particular descriptors in banking fields when paying salaries, allowances, bonuses or consulting fees to its employees in China. Following this advice, Mr Chen suggested to Mr O’Connor that all wire transfers to overseas staff should have generic references and no reference to ‘VIP’ or ‘gaming’. Mr O’Connor in turn instructed Crown accounts payable staff to ensure that no China ‘funding templates’ displayed the words ‘VIP funding’ and to instead use ‘services/consulting fees’ as a generic reference.⁸¹
55. Also in August 2014, Mr Chen wrote to Mr Felstead about the VIP International business in China. He proposed two alternative approaches to the future conduct of that business. The first was ‘doubling-down’ and maintaining aggressive targets and promotional activities. The second approach was reducing projections, expectations and promotional intensity in China. Mr Chen stated that the first approach would expose Crown to ‘a lot more risk’. Mr Felstead suggested that Mr Michael Johnston, a member of the Crown board, be included in a discussion on the topic. Thereafter, VIP International adopted the first approach and continued with a strategy to increase sales and pursue targets aggressively throughout 2014, 2015 and 2016. Pressure to improve performance, driven by Mr Felstead, continued into early 2015.⁸²
56. On 19 September 2014, a China-based employee informed Mr Chen by email that he had been questioned by Chinese police the previous day about his regular contact with an individual identified as a casino patron in 2012, and about what his job involved. The employee recounted that he told the police that he was doing ‘Crown Hotel marketing in China’ and only assisted with hotel accommodation in China. The questioning of the employee was reported to various individuals the same day, including Mr O’Connor, Ms Williamson and Ms Tegoni.⁸³
57. In October 2014, a VIP International marketing workshop for the 2015 financial year noted that the sales teams in many countries, especially in China, were ‘operating under constant threat of being detained, questioned, and harassed with regards to their customers and their activities’.⁸⁴
58. On 6 February 2015, the Chinese Ministry of Public Security announced that China was cracking down on foreign casinos seeking to attract and recruit Chinese citizens to travel abroad for gambling (Crackdown Announcement).⁸⁵ The Crackdown Announcement was widely reported in international media. The next day, media reports included the claim that President Xi Jinping had ‘officially declared war on the global gaming industry’.⁸⁶
59. The Crackdown Announcement quickly came to the attention of senior executives within VIP International, including Mr O’Connor and Mr Felstead, and a number of Crown executives and directors, including Mr James Packer, Mr John Alexander, Mr Craigie and Mr Johnston.⁸⁷
60. On 9 February 2015, a market intelligence service, Asia Gaming Brief, published a report quoting Mr Hua Jingfeng, a deputy bureau chief at the Ministry of Public Security, as saying:

    A fair number of neighbouring countries have casinos, and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will … be an area that we will crack down on.⁸⁸

61. That same day, WilmerHale provided advice in relation to whether the Crackdown Announcement affected the China-based staff and, if so, how.⁸⁹ It advised that:

    Given the highlighted government efforts to crack down on rep offices with core business to facilitate Chinese individuals gambling abroad, the company’s rep offices/employees in China should focus its business on introducing the hotel/resort and facilities, rather than [engaging] in any activities which may be viewed as directly facilitating Chinese individuals gambling offshore.⁹⁰

62. Also on 9 February 2015, Mr Chen emailed staff at the ‘VIP International Offices’ email address reassuring them that they were not in violation of ‘any known laws’. The email indicated that application would be made for Hong Kong or Singapore work permits for all China-based staff who did not currently hold a foreign passport. Mr Chen told staff: ‘[t]his is purely a precautionary measure that will allow you to say that you work out of an overseas location and are on business travel in China’ (although the application for work permits did not ultimately occur).⁹¹
63. The following day, on 10 February 2015, WilmerHale provided advice in relation to whether there had been any change to the law regarding Article 303. It advised that there had been no recent changes but that, given the current enforcement environment, ‘it would be prudent for staff not to be involved in the money-moving activities because it can be easily interpreted as an effort to facilitate overseas gambling’.⁹²
64. Following the Crackdown Announcement, VIP International executives not based in China decided to avoid travelling to mainland China for a while.⁹³
65. The Crackdown Announcement did not cause Crown to stop or alter its business operations in China.⁹⁴ Crown did, however, attempt to make them less overt by not proceeding with or deferring an ‘official’ office in China.⁹⁵ Crown also removed the Crown logo from private jets used to transport high rollers from China to Crown venues in Australia (with a view to making Crown’s targeting of Chinese citizens to visit its casinos more ‘under the radar’, as noted by Mr Ratnam).⁹⁶
66. In contrast, competitors of Crown ‘pulled their entire teams out of China’.⁹⁷ Mr Chen asked WilmerHale if Crown should do the same. On 25 February 2015, WilmerHale advised that the picture was not entirely clear. WilmerHale was ‘not sure’ whether the removal of staff from China was necessary at that point, but suggested that perhaps Crown could have some key China-based employees ‘tentatively’ work outside China; for example, in Hong Kong.⁹⁸
67. On 13 March 2015, VIP International engaged Mintz Group to do a risk assessment of the prevailing situation.⁹⁹
68. On 16 March 2015, a ‘VIP Update’ document, which was circulated to Mr Alexander, Mr Johnston, Mr Robert Rankin, Mr Guy Jalland, Mr Craigie and Mr Kenneth Barton (the then CFO of Crown),¹⁰⁰ reported the Crackdown Announcement as a financial threat and a possible reason for the lower-than-expected turnover across the Chinese New Year period. The VIP Update did not, however, report the increased risk to the safety of staff, or the decision of VIP International executives to defer their own travel as a consequence of the announcement.¹⁰¹
69. On 23 March 2015, Mr Chen emailed Mr O’Connor providing directions as to what should happen to his pay cheque if he were detained in China.¹⁰²
70. On 25 March 2015, Mintz Group provided its risk assessment. It relevantly read:

    There is clearly enhanced attention underway from relevant [Chinese] authorities concerning foreign casino marketing activities in mainland China … The coming months likely will feature an increasing level of scrutiny by [the Ministry of Public Security], and possibly other authorities directed at foreign casino marketing and other personnel in the mainland …

    … Given this current state of affairs, it would still seem prudent to proceed with planned marketing efforts, but keep them low-key, ideally with small groups at a time, and little to no publicity …

    … it is likely that relevant Chinese authorities will pursue this crackdown with greater than average vigour.¹⁰³

71. In mid-June 2015, Chinese authorities arrested and detained employees of certain South Korean casino operators. In late June 2015, Crown received advice from Mintz Group that the South Korean employees were detained because they were assisting with the transfer of funds out of China, in contravention of Chinese currency laws.¹⁰⁴ That advice was circulated to Mr O’Connor, Mr Felstead and Mr Ratnam, and forwarded by Mr Felstead to Ms Tegoni, Mr Michael Neilson, Mr Craigie, Mr Johnston and Mr Barton.¹⁰⁵
72. On 22 June 2015, WilmerHale provided advice following the arrest of the South Korean casino employees. It advised that the potential charges included luring Chinese citizens to gamble in Korean casinos and violating Chinese foreign currency policies. WilmerHale also advised that those employees were not based in China but had travelled there to conduct marketing activities, and that their arrests should be read in the context of the government’s continued crackdown on corruption in recent years.¹⁰⁶
73. On 9 July 2015, Chinese police questioned two members of the VIP International team in relation to their involvement in gambling activities.¹⁰⁷ Both were referred to the police by tipsters.¹⁰⁸ One of the staff members, ‘Mr BX’, did not give a truthful response to police about what his employment involved, saying that he worked for Crown Resorts and helped to organise leisure trips for customers.¹⁰⁹ The response of the second staff member was not recorded. Mr O’Connor and Ms Williamson appreciated that Mr BX had not been truthful in the answers he gave. Mr O’Connor acknowledged his awareness that Mr BX was in fact involved in organising gambling tours to Crown’s casinos in Melbourne and Perth.¹¹⁰
74. Chinese police asked Mr BX to provide a letter confirming the nature of his employment by Crown.¹¹¹ This triggered a flurry of internal activity within Crown. There was discussion regarding which Crown entity should send the letter and what should be said, if anything, about the activities of Crown.¹¹² Parties to the discussion included Mr Chen, Ms Williamson, Ms Tegoni, Mr Neilson and Mr Felstead.¹¹³ Mr Johnston was made aware that Mr BX had been questioned by Chinese police in July 2015.¹¹⁴
75. Ultimately, Crown Singapore sent a letter confirming Mr BX’s employment by that entity. It noted that Crown Singapore was a subsidiary of Crown Melbourne, which was, in turn, part of the Crown Resorts group. Finally, the letter noted that Crown Resorts was listed on the ASX and was one of the ‘leading hotel, resort and entertaining companies in Australia’.¹¹⁵ It did not mention that Crown through its subsidiaries operated two casinos in Australia.
76. On 13 October 2015, Chinese national television broadcast a program called Topics in Focus (CCTV Program). The CCTV Program addressed the subject of foreign casinos and their networks inside China, with a particular focus on foreign casinos marketing to Chinese citizens. The CCTV Program included a discussion of the legal prohibitions on promoting gambling, and summarised the hard-line approach taken by the Chinese Government in relation to foreign casinos.¹¹⁶ Many of the China-based staff were shaken by the CCTV Program and sought advice on the current state of affairs regarding their activities in China.
77. On 15 October 2015, Mr Chen advised China-based staff to limit meetings with guests to small numbers and to avoid ‘any overt sales and marketing activity’.¹¹⁷ No other changes were made to the day-to-day activities of China-based staff.
78. On 20 October 2015, Mr Chen reported to Mr O’Connor that the team in China had ‘definitely heightened concerns’.¹¹⁸
79. WilmerHale provided advice in October 2015, following the broadcast of the CCTV Program.¹¹⁹ WilmerHale advised that in the current environment, Crown marketing should not expressly promote the casino business and should not refer patrons to money changers.¹²⁰
80. Throughout 2016, Mr Chen continued to encourage his China-based staff to increase sales and performance, including on the first day of the arrests (13 October 2016).¹²¹
81. On 26 June 2016, Mr Chen wrote to Mr Felstead advocating for a favourable performance review and noting that he had ‘taken on the risks of being prosecuted in China’.¹²²
82. On 13 and 14 October 2016, the raids and arrests of the 19 employees occurred. Sixteen were sentenced to terms of imprisonment.¹²³

Conclusions of the Bergin Inquiry

83. The Bergin Inquiry reached the following conclusions.
84. The allegation that Crown knew its staff were breaching Chinese gambling laws was not established in view of the legal advice that Crown had obtained.¹²⁴ The Bergin Inquiry did not consider whether Crown had breached other laws by operating in an office in China without a business licence.
85. The allegation that Crown exposed its staff to the risk of detention in China was established. The Bergin Report noted that Crown kept pushing its China-based staff to make greater sales in the face of the questioning of its employees by Chinese authorities, the arrests of South Korean casino employees and the targeted crackdown on foreign casinos targeting and luring Chinese citizens to gamble overseas.¹²⁵
86. The allegation that Crown disregarded the welfare of its employees and pushed them to make greater sales was established.¹²⁶
87. The allegation that, as the Chinese police were closing in, Crown directed its China-based staff to keep promoting gambling but ‘under the radar’ was established.¹²⁷
88. The allegation that Crown instructed its China-based staff to falsely claim they were not working in China but in other locations was not established. This was because Mr Chen did not go ahead with the WilmerHale suggestion to that effect.¹²⁸
89. The allegation that Crown’s operations in China cast doubt over its corporate governance practices was established.¹²⁹

Money laundering

Background

90. Money laundering is the process of legitimising proceeds of crime. Casinos are particularly vulnerable to being used for money laundering.¹³⁰ In part this is because of the large volumes of cash with which they deal.¹³¹ There are various mechanisms by which money may be laundered through a casino.¹³² One difficulty for casinos is that there is often little observable basis for distinguishing between those patrons laundering funds and other patrons.¹³³
91. Between 27 July 2019 and mid-August 2019, numerous newspaper articles alleged that money laundering had occurred through the Southbank and Riverbank bank accounts.¹³⁴
92. Separate allegations about money laundering at the Melbourne Casino were made in the media around that same time, including in a 60 Minutes program titled ‘Crown Unmasked’ that aired on 28 July 2019.¹³⁵
93. In an ASX announcement on 31 July 2019, the Crown board sought to defend Crown against the allegations that it facilitated money laundering in its casinos and that it turned a blind eye to this activity.¹³⁶ Among other things, the board stated that Crown took its regulatory obligations very seriously, proactively complied with those obligations, and had in place a comprehensive anti-money laundering (AML) and counter-terrorism financing (CTF) program.¹³⁷
94. Most relevantly, on 5 and 6 August 2019, The Sydney Morning Herald and The Age published an article titled ‘Crown’s Firms Used to Launder Drug Funds’.¹³⁸ The article alleged:

    Drug traffickers have used two private companies that were set up by Crown Resorts with Crown executives as directors to bank suspected proceeds of crime, federal investigations have alleged.

    Investigators traced money from a number of suspected or convicted drug traffickers and money launderers flowing into the bank accounts of the two companies, Southbank Investments Pty Ltd and Riverbank Investments Pty Ltd, between 2012 and 2016, according to former officials.

    One source said that federal police believed the two Crown companies were used by criminal entities because they believed that the money they deposited into them would not be closely scrutinised.¹³⁹

95. The Bergin Report directed its consideration of money laundering to the veracity of the media allegations that Crown: (a) facilitated money laundering or turned a blind eye to such activity in the Southbank and Riverbank accounts; and (b) facilitated money laundering or turned a blind eye to such activity in the Melbourne Casino.¹⁴⁰

The Southbank and Riverbank accounts

Southbank: incorporation and activity

96. Southbank was incorporated on 1 August 1996.¹⁴¹ It is a wholly owned subsidiary of Crown Melbourne.¹⁴²
97. As at 1 January 2021, the directors of Southbank were Mr Felstead, who was appointed on 8 November 2013, and Mr Barton, who was appointed on 30 June 2017.¹⁴³ Its secretaries were Mr Joshua Preston, who was appointed on 12 August 2014, and Ms Mary Manos, who was appointed on 30 June 2017.¹⁴⁴
98. Previous directors of Southbank included Mr Alexander, between 22 March 2017 and 24 January 2020, and Mr Craigie, between 9 January 2002 and 22 March 2017.¹⁴⁵
99. The Bergin Report does not record why Southbank was incorporated, why it was named ‘Southbank Investments Pty Ltd’ or what activities, besides operating a bank account, it undertook. The Bergin Report does, however, refer to internal legal advice provided some time after December 2016 that suggested that Southbank did not carry on business and simply operated a bank account to receive casino patrons’ funds.¹⁴⁶
100. In late 2001, the regulator advised Crown Melbourne that it had no objection in principle to its proposal that international patrons be permitted to make deposits to Crown Melbourne through the Southbank account in order to afford those patrons ‘privacy’, subject to certain conditions. One condition was that the regulator be provided with quarterly reports of the details of deposits into the account. This, however, occurred only for a relatively short period. Thereafter, the regulator received quarterly reports only of the total assets and liabilities of Southbank. The regulator therefore lacked visibility of the actual deposits made into the account.¹⁴⁷
101. The Bergin Report does not identify from whom, or why, patrons were said to require privacy; but presumably the patrons did not wish for their own banking records to reveal deposits into a Crown casino bank account.
102. In December 2016, Australian Transaction Reports and Analysis Centre (AUSTRAC) queried whether Southbank should be enrolled as a ‘reporting entity’, within the meaning of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), in its own right. Internal legal advice obtained by Crown suggested that because the Southbank account had ‘no other function than the mere conduit for the receipt’ of casino patrons’ funds, Southbank was not providing a ‘designed service’ under the AML/CTF Act (and was therefore not itself a reporting entity).¹⁴⁸
103. Subsequently, Crown sought external legal advice as to whether Southbank and Riverbank were reporting entities because they were providing a designated remittance service.¹⁴⁹ The Bergin Report does not record what advice was received or whether any action was taken in response.

Riverbank: incorporation and activity

104. Riverbank was incorporated on 15 May 2003 and is a subsidiary of Burswood Limited, which operates Crown Perth.¹⁵⁰
105. As at the time of the Bergin Report, the directors of Riverbank were Mr Felstead, who was appointed on 26 March 2007, and Mr Barton, who was appointed on 12 August 2014.¹⁵¹ Its secretaries were Mr Preston and Ms Manos, who were both appointed on 30 June 2017.¹⁵²
106. Previous directors of Riverbank included Mr Alexander, between 22 March 2017 and 24 January 2020, and Mr Craigie, between 29 October 2008 and 22 March 2017.¹⁵³
107. As with Southbank, the Bergin Report does not explain why Riverbank was incorporated, why it was named ‘Riverbank Investments Pty Ltd’ or what activities, besides operating a bank account, it undertook. The Bergin Report does, however, indicate that the purpose of Riverbank was ‘also to afford its international patrons privacy’, and records that patrons of Crown Perth made deposits through the Riverbank account.¹⁵⁴

Operation of the Southbank and Riverbank accounts

108. Initially, both Southbank and Riverbank held bank accounts with HSBC. In 2013, following a strategic review of the gaming sector, HSBC decided to discontinue its relationship with Southbank and Riverbank.¹⁵⁵
109. Southbank then opened an account with CBA and Riverbank opened an account with ANZ.¹⁵⁶
110. Crown circulated the details of the Southbank and Riverbank accounts to its patrons. It advised its patrons that when making a deposit, the depositor should reference the Crown identification number of the patron to whom the deposit should be credited. This was so that the patron’s deposit account could be credited accordingly.¹⁵⁷ If no patron identification number was referenced at the time of deposit, the patron had to provide it to the casino, via the Cage or VIP International, with evidence of the deposit to enable Crown to credit their patron deposit account.¹⁵⁸ The evidence could take the form of a receipt from the bank or from internet banking, or a phone screenshot showing the nature of transfer that had occurred.¹⁵⁹
111. When funds accumulated in the Southbank and Riverbank accounts, they would be ‘swept’ into Crown bank accounts at regular intervals.¹⁶⁰ Hundreds of millions of dollars flowed through the Southbank and Riverbank accounts annually.¹⁶¹
112. Despite Crown directing patrons that the Southbank and Riverbank accounts would not accept transfers from companies, when such transfers were made, they were in fact accepted. Southbank and Riverbank also accepted anonymous deposits made using the ‘QuickCash’ method.¹⁶²

The aggregation problem

113. Cage staff at Crown Melbourne and Crown Perth entered details of deposits made by patrons into the Southbank and Riverbank accounts into a database known as ‘SYCO’.
114. SYCO is an electronic customer relationship management system used by Crown Melbourne and Crown Perth. It records information about patrons and details of deposits credited to their patron deposit accounts.¹⁶³
115. Certain Cage staff at both casinos aggregated numerous deposits (made to the credit of a single patron deposit account) into a single SYCO entry recording only the sum total of the deposits, rather than recording each individual deposit separately. Other staff recorded both the aggregate value of deposits to a single account and the individual deposits that constituted the aggregate amount.¹⁶⁴ In the main, Cage staff favoured the former practice.¹⁶⁵ By aggregating individual deposits, important information that could be seen in the Southbank and Riverbank bank statements was lost in the process of data entry into the SYCO system.¹⁶⁶ There was no indication on the face of relevant SYCO entries that the amount being credited to the relevant patron deposit account was comprised of two or more smaller amounts. This is what is termed the ‘aggregation’ problem.
116. SYCO played an important role in the AML transaction monitoring program in place at Crown Melbourne and Crown Perth. Members of the AML Teams at Crown Melbourne and Crown Perth accessed and reviewed SYCO for the purpose of identifying suspicious transactionsor patterns of transactions at their respective casinos. In particular, the AML Teams extracted reports from SYCO to review deposits for AML purposes.¹⁶⁷
117. The aggregation of multiple deposits to the credit of a single patron deposit account into a single SYCO entry by Cage staff meant that AML staff were unable to identify the fact of aggregation, or the number and nature of deposits that constituted the aggregated amount. AML staff were denied a complete picture of what was occurring in the underlying bank accounts.¹⁶⁸
118. Further, there were indications that money laundering was, or was likely to be, occurring through the Southbank and Riverbank accounts from at least January 2014.¹⁶⁹
119. These are summarised below.

Red flag: ANZ and the Riverbank account

120. On 31 January 2014, approximately six months after the Riverbank account was opened, ANZ raised concerns with Crown by email to Mr Travis Costin, Group Treasury and Finance Manager, about multiple cash deposits that were indicative of ‘structuring’ in the account. By internal email to Mr Barton that same day, Mr Costin expressed the incorrect belief that the accounts could not receive cash deposits.¹⁷⁰
121. On the same day, Mr Costin responded to ANZ requesting further details of the transactions in question. ANZ provided those details and posed a series of questions to Mr Costin about the Riverbank account. The questions related to the purpose of the account, why the account was being used as a conduit account, the reason for establishing a separate legal entity to conduct ‘this activity’, why the entity included ‘Investments’ in its company name, whether ‘other “investment” accounts under the Crown group’ were being utilised in a similar fashion, and what, if any, monitoring of the Riverbank account was taking place.¹⁷¹ The questions indicated that ANZ had serious concerns about the operation of the Riverbank account.
122. In an internal email from Mr Costin to Mr Barton on 31 January 2014, Mr Costin stated that he was ‘not 100% sure what we should/shouldn’t mention around the use of company names’.¹⁷² Mr Barton recommended that Mr Costin speak with Mr Birch of ANZ.¹⁷³
123. On 3 February 2014, a meeting took place at the office of Crown Melbourne between Mr Costin and Mr Birch about the suspect transactions in the Riverbank account. At the meeting, Mr Costin sought to ‘get ANZ comfortable’ with the accounts, and noted in a subsequent email to Mr Theiler that one outstanding question from the meeting ‘was why the money changer deposits multiple amounts under $10k at different branches’.¹⁷⁴ The ‘obvious answer’ was that the deposits were indicative of money laundering, explaining why they had been queried by ANZ in the first instance.¹⁷⁵
124. There was no evidence that Crown provided any written response to the questions from ANZ.¹⁷⁶ Nor was there any evidence of the following:
     • That Mr Costin, Mr Barton or anyone else at Crown or its subsidiaries elevated ANZ’s concerns or queries to any Crown Risk Management Committee (RMC)¹⁷⁷ or the boards of Crown, Crown Perth or Riverbank.¹⁷⁸
     • That any person at Crown took steps to review the balance of the transactions in the bank statements for the Riverbank account in light of ANZ’s concerns. A review would have revealed that those statements up to January 2014 were ‘riddled with examples’ of structuring. From 31 January 2014 until the accounts were shut for good in late 2019,¹⁷⁹ an additional 61 cash deposits indicative of structuring appeared in the accounts.¹⁸⁰
125. On 27 March 2014, a further meeting took place between representatives of ANZ and Crown relating to issues of money laundering. Those present included Mr Neilson (then General Counsel of Crown), Ms Tegoni (then Legal Officer and AML Compliance Officer for Crown Melbourne), Mr Preston (then Legal Officer and AML Compliance Officer for Crown Perth), Mr Barton and Mr Costin. That meeting and the fact that it related to issues of money laundering was not brought to the attention of the Crown RMC, the Crown board, the Crown Perth board or the Riverbank board.¹⁸¹
126. On 31 March 2014, ANZ sent an email to Mr Costin raising the practice of aggregation in the context of reporting to AUSTRAC.¹⁸² The practice of aggregation was neither reviewed nor stopped after this email.
127. On 31 March 2014, Mr Barton retained consultancy firm Promontory to undertake a review of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) programs at Crown Melbourne and Crown Perth. Crown commissioned this review to give ANZ comfort in circumstances where transactions indicative of money laundering had been identified in the Riverbank account. Promontory was not, however, alerted to the existence of the Southbank and Riverbank accounts; nor about the issues that ANZ had identified in those accounts.¹⁸³
128. On 29 April 2014, Mr Barton and Mr Costin again met with ANZ. At that meeting ANZ informed Crown that the Riverbank account would be closed in July 2014.¹⁸⁴ In response, Mr Barton directed Mr Costin to tell patrons of Crown Melbourne and Crown Perth ‘to stop making multiple in branch cash deposits below the [reporting] threshold’.¹⁸⁵ That same day, Mr Costin emailed numerous Crown staff noting that the closure of the Riverbank account had been expected. He requested that customers be advised that multiple in-branch cash deposits under the $10,000 reporting threshold (set under the AML/CTF Act) would not be accepted in the new CBA accounts, as ‘we don’t want this process to occur again with CBA in six months time … due to the suspect transactions’.¹⁸⁶
129. On 29 September 2014, Promontory delivered its report to Mr Barton. The report noted that Promontory had reviewed the manual (as opposed to automated) transaction monitoring undertaken by Crown and, without conducting any testing, was able to infer that Crown Melbourne and Crown Perth had implemented the manual control in a manner consistent with their AML/CTF programs.¹⁸⁷ The Promontory report did not address the Southbank or Riverbank accounts, nor the issues ANZ had identified with those accounts. The report did, however, observe that the procedures and documentation for the cash transactions report monitor’s (CTRM) review of bank statements was deficient and depended largely on the monitor’s experience with AML/CTF issues and familiarity with the business of Crown Melbourne.¹⁸⁸
130. Mr Barton subsequently provided the Promontory report to Mr Birch at ANZ. On 5 March 2015, Mr Birch responded to Mr Barton with commentary on the Promontory analysis, suggesting improvements that Crown might make to its AML/CTF Program in the areas of know-your-customer (KYC), junkets due diligence, enhanced due diligence, and transaction monitoring. It is not clear from the Bergin Report whether that commentary was passed on to Crown AML Teams. On 6 March 2015, Mr Barton replied to Mr Birch stating that his commentary ‘seems to largely be a comparison with ANZ’s processes’ and enquiring ‘[a]re there any specific area that should be addressed from this comparison?’¹⁸⁹
131. Despite ANZ closing the Riverbank account in July 2014, the delivery of the Promontory report on 29 September 2014 recording deficiencies in Crown processes for reviewing bank statements, and Mr Birch’s commentary of 5 March 2015, no changes were made to the operation or monitoring of the Southbank or Riverbank accounts at this time.¹⁹⁰

Red flag: ASB Bank and the Southbank (New Zealand) account

132. In addition to its CBA Australian dollar account, Southbank held an account in New Zealand with ASB Bank, a subsidiary of CBA.¹⁹¹
133. On 10 July 2018, Ms Tama Tauira, a Transaction Relationship Manager from ASB, requested to speak with Mr Costin to ask him ‘urgent’ due diligence questions regarding the operation of the ASB Southbank account. On 11 July 2018, at Mr Costin’s request, Ms Tauira put those questions in writing, enquiring whether the ASB account:
     • was subject to governance and oversight by the Crown board or senior management
     • was covered by the Crown AML Program or a Crown internal AML audit
     • was covered by periodic audits undertaken by the casino’s regulator
     • was regulated by any regulator in New Zealand.¹⁹²
134. Ms Tauira also asked Mr Costin to confirm whether: (a) there was transaction monitoring in place to detect unusual activity in the Southbank ASB account; and (b) there were processes and procedures in place to identify cash deposits and confirm the source of cash deposits in the account. Ms Tauira requested Mr Costin to provide documentation to support the answers to each of the questions she had posed.¹⁹³
135. Later that day, Mr Costin forwarded Ms Tauira’s queries to Ms Louise Lane, then Group General Manager of AML. Despite Ms Tauira noting the queries to be urgent, no response was provided to ASB until three months later, on 2 October 2018. Mr Costin’s response was drafted by Ms Lane.¹⁹⁴
136. The response to ASB was misleading:
     • There was no evidence to support the suggestion made by Mr Costin that Crown made ‘source of funds’ enquiries in respect of cash deposits into the Southbank account.¹⁹⁵
     • Contrary to Mr Costin’s indication that the Southbank ASB bank account was subject to oversight by Crown’s board or senior management, the majority of the Crown board knew nothing about the Southbank and Riverbank accounts, let alone provided oversight of the Southbank ASB bank account.¹⁹⁶
     • As Southbank was not enrolled as a reporting entity with AUSTRAC, the ASB account was not ‘covered by’ the Crown Melbourne AML/CTF Program or any AML audit, contrary to Mr Costin’s assertion.¹⁹⁷
     • Mr Costin’s response implied that the ASB account was audited by the VCGLR, which was untrue.¹⁹⁸
     • Mr Costin’s response that transaction monitoring was in place was true to an extent. At that time, however, Crown had been made aware by ANZ and Promontory that its transaction monitoring processes had deficiencies, and that its processes and procedures for identifying cash deposits into the Southbank and Riverbank accounts suffered from the aggregation problem described above.¹⁹⁹
137. On 2 November 2018, Ms Tauira raised urgent queries with Mr Costin regarding $15 million in payments made over the preceding two years by a particular patron. She considered that the patron’s activities required investigation and sought particular information from Mr Costin. After internal discussion, Crown did not provide the information requested.²⁰⁰
138. On 23 November 2018, Ms Tauira queried whether Southbank was an AML/CTF reporting entity. Mr Costin replied that it was not, and indicated that the reporting entity was Crown Melbourne, the holding company of Southbank and the operator of the gaming facility.²⁰¹
139. On 22 January 2019, ASB notified Crown that it was closing the Southbank account for reasons that included the information that Crown had provided to ASB.²⁰²
140. Mr Xavier Walsh (then COO of Crown Melbourne), Mr Preston and Ms Lane were all informed of the ASB decision. The same day that ASB notified Crown of its decision to close the Southbank account, Mr Walsh emailed Mr Costin asking ‘[a]re we able to set up an account with a different bank?’ Mr Costin replied, copying Mr Preston and Ms Lane, that that would be unlikely, that ANZ had already shut down the Southbank accounts in Australia due to AML concerns, and that Chinese, European and American banks ‘won’t go anywhere [near] patron accounts’, leaving only Westpac or Bank of New Zealand as banking options.²⁰³
141. Neither the closure of the ASB Southbank account, nor the perceived difficulty in finding an alternative bank, were escalated to Crown’s RMC, the Crown board or the Crown Melbourne board.²⁰⁴
142. The closure of the ASB Southbank account (against the backdrop of the earlier closure by ANZ of the ANZ Riverbank account in light of AML concerns) did not lead to:
     • any review of the wisdom of permitting Southbank and Riverbank to continue to operate conduit accounts
     • any detailed review of either the account statements for those entities or of Crown’s AML processes more generally
     • the implementation of any additional controls to prevent the Southbank and Riverbank accounts from being (or continuing to be) exploited for money-laundering purposes.²⁰⁵

Red flag: CBA and the Southbank account

143. Overlapping with the period during which the ASB developments occurred, there were also developments with CBA regarding the Southbank and Riverbank accounts.
144. On 10 December 2018, CBA raised written queries about money laundering with Crown regarding the operation of the Southbank accounts. In particular, CBA queried whether Southbank was covered by the existing Crown-wide AML Program as a ‘Designated Business Group’ and what measures Southbank undertook to identify and verify the identity of individuals from whom it was accepting funds. CBA also queried what measures Southbank had in place to identify and prevent the receipt of illegitimate funds, and what remedial actions Crown had taken in respect of the VCGLR finding regarding junket arrangements.²⁰⁶
145. On 11 December 2018, Mr Costin emailed Ms Lane to note that the ‘ASB queries have finally reached CBA’. On 20 December 2018, Crown responded to the CBA queries.²⁰⁷
146. In February 2019, Ms Lane met with the CBA account management team to discuss Crown’s AML controls. The fact of this meeting and CBA’s concerns were not notified to the Crown RMC or the boards of Crown, Crown Melbourne or Crown Perth.²⁰⁸
147. In July and August 2019, there was media reporting about money laundering at the Melbourne Casino, which the Crown Resorts board denied through an ASX announcement on 31 July 2019.
148. On 5 and 6 August 2019, the article exposing allegations of money laundering through the Southbank and Riverbank accounts was published in The Sydney Morning Herald and The Age respectively.²⁰⁹
149. On 14 August 2019, ILGA issued the Terms of Reference for the Bergin Inquiry.²¹⁰
150. On 27 August 2019, there was a meeting between Crown and CBA. The meeting was attended by Ms Lane, Mr Costin, Mr Alan McGregor and Mr Barton, on behalf of Crown. At the meeting, CBA indicated that the issues identified in the newspaper article raised red flags, and that an investigation of the Southbank and Riverbank accounts had identified information that CBA could not share with Crown, thereby telegraphing to Crown CBA’s concerns that the accounts had been used for money laundering.²¹¹
151. On 4 October 2019, there was a further meeting between Crown and CBA, attended by Mr Costin and Mr Barton. At that meeting, CBA notified Mr Costin and Mr Barton of the impending closure by CBA of the Southbank and Riverbank accounts.²¹²
152. In December 2019, the decision by CBA to close those accounts was brought to the attention of the Crown RMCs and the boards of Crown, Crown Melbourne and Crown Perth.²¹³

Red flag: Ms Lane’s Review

153. Immediately after the publication of the article in The Sydney Morning Herald and The Age on 5 August 2019, Ms Lane began conducting a review of the Southbank and Riverbank accounts.²¹⁴
154. On 6 August 2019, Ms Lane requested the bank statements for the Southbank account. Between 6 and 20 August 2019, Ms Lane conducted a manual review of the statements, cross-checking suspicious activity with SYCO entries and establishing whether Crown entities had submitted ‘suspicious matter reports’ (SMRs) appropriately.²¹⁵
155. By 20 August 2019, Ms Lane had formed the view that the review process was highly labour intensive and that she would need either additional internal support to complete the task, or that it would need to be done externally. On 20 August 2019, she spoke to Mr Neil Jeans, the Principal of Initialism (a specialist AML consultancy), about obtaining external forensic assistance to review the Southbank and Riverbank accounts. Mr Jeans advised that they might obtain that assistance from Grant Thornton (a business advisory consultancy). That same day, Mr Jeans introduced Ms Lane to Ms Katherine Shamai of Grant Thornton.²¹⁶
156. By email on 21 August 2019, Ms Lane informed Mr Preston that she wished to engage Grant Thornton to assist in her bank account review. She also indicated that if Crown preferred that the ‘incredibly time consuming’ task be completed internally, additional hands would be required. At that time, Mr Preston was a designated AML Compliance Officer for Crown.²¹⁷
157. Ultimately, Crown did not engage Grant Thornton to provide forensic support. Crown obtained advice from law firm MinterEllison that there was a real risk that any such review would not be the subject of legal professional privilege (and thus a risk it would not be immune from production in a legal proceeding). Mr Preston then formed the view that it was not necessary to conduct a comprehensive review of the Southbank and Riverbank accounts. He understood that the Crown transaction monitoring program covered those accounts.²¹⁸ Mr Preston provided incorrect advice to the Crown board that the Southbank and Riverbank accounts were dealt with in the same manner as all other Crown accounts, and that they were covered by the Crown AML policy.²¹⁹
158. Crown’s response to the media allegations demonstrated not only a failure to understand the AML landscape and legislative requirements, but also a total lack of commitment to rectifying obvious problems identified in the 5 and 6 August newspaper article.²²⁰
159. Ms Lane took no further steps in relation to the matter and left her employment at Crown in early October 2019 (following a period of leave between 31 August and 22 September 2019).²²¹
160. Crown did not promptly inform the Bergin Inquiry that Ms Lane had (to Mr Preston’s knowledge) commenced a review of the Southbank and Riverbank accounts following publication of the article in The Sydney Morning Herald and The Age on 5 August 2019. That only came to light on and from 17 November 2020, due in part to the fact that relevant documents relating to these matters, previously not produced by Crown, were newly available.²²²
161. In September 2020, the AML, Compliance and Credit Teams within Crown Melbourne and Crown Perth commenced an internal investigation into the aggregation problem.²²³
162. In November 2020, reports by Grant Thornton comprising forensic data analysis of the Southbank and Riverbank accounts, and a report by Initialism reviewing those accounts for indications of money laundering, were provided to the Bergin Inquiry.²²⁴ The Grant Thornton and Initialism reports identified seven types of transactions indicative of money laundering on those accounts.²²⁵ These included numerous instances of structuring in the manner identified by ANZ in January 2014.²²⁶ The activity continued in the Southbank and Riverbank CBA accounts following closure of the ANZ account in 2014. The activity appeared in the Southbank CBA account from November 2013 to April 2019, and in a new Riverbank CBA account from May 2014 to July 2017.²²⁷
163. Although Crown’s banking instructions required patrons who wished to make deposits into the Southbank or Riverbank accounts to do so from a personal account (that is, not from a company, business or trust bank account), these instructions were regularly ignored by patrons and not enforced by Crown. The bank statements of Southbank and Riverbank included hundreds of transfers from companies and money remitters.²²⁸ The collective value of those transfers was at least in the tens of millions of dollars.²²⁹

Findings in respect of the Southbank and Riverbank accounts

164. The Bergin Inquiry found there was ‘no doubt’ that the processes adopted by Crown enabled or facilitated money laundering through the Southbank and Riverbank accounts.²³⁰ By contrast, the Bergin Inquiry found that the veracity of the media allegations that Crown turned a blind eye to money laundering through those accounts, was not established.²³¹ Instead, the Bergin Inquiry’s findings were equally damning. They were that:
     • Crown knew that money laundering was probably occurring, starting from when ANZ notified Crown in 2014 of its concerns about the indications of money laundering in the Riverbank account.²³²
     • Crown’s facilitation of money laundering continued for years, from at least 2014 until the accounts were closed in October 2019, notwithstanding that Crown was alerted by a number of banks to the real prospect of money laundering in the accounts.²³³
     • Crown displayed a cavalier attitude in relation to queries about money laundering later raised by ASB and CBA.²³⁴
     • Crown failed to ensure that the operation of its casinos was protected from criminal exploitation.²³⁵
     • Decisions made by Crown were infected by extraordinarily poor judgement.²³⁶
     • The aggregation problem compromised the ability of the AML Team to do its work properly.²³⁷
     • Crown’s failure to react urgently and comprehensively to public allegations of money laundering through its subsidiaries exposed a present, very deep corporate cultural problem.²³⁸
     • The lack of understanding of the AML landscape and legislation displayed by the Crown directors constituted a very significant deficiency in the corporate character of Crown.²³⁹

Crown concessions

165. Crown ultimately accepted that there was aggregation of certain transactions in entries in its SYCO system.²⁴⁰ It also accepted that this aggregation compromised the ability of its AML Team to identify examples of structuring in the Southbank and Riverbank accounts.²⁴¹
166. From 18 November 2020, Crown conceded, on the basis of the Initialism report, that it was more probable than not that money laundering occurred in the Southbank and Riverbank accounts as a result of ‘cuckoo smurfing’.²⁴²
167. Crown Chairman at the time, Ms Helen Coonan, conceded that the conduct of Crown had enabled money laundering to occur.²⁴³

Money laundering at the Melbourne Casino

168. The media allegations against Crown were not limited to facilitating and turning a blind eye to money laundering in its Southbank and Riverbank accounts. The media also alleged that Crown facilitated money laundering or turned a blind eye to such activity at the Melbourne Casino.²⁴⁴
169. CCTV footage provided to the Bergin Inquiry depicted three separate incidents at the Suncity junket cash desk (within the Melbourne Casino):
     • In May 2017, a man placed a blue cooler bag on the Suncity desk, unzipped the bag, unpacked many bundles of $50 notes wrapped in elastic bands and placed them in stacks on the cash desk.²⁴⁵
     • In December 2017, a man removed multiple bundles of cash, amounting to many hundreds of thousands of dollars, from a black cardboard shopping bag. The cashier then put the money through a cash-counting machine and provided the man with plaques, a form of chips.²⁴⁶
     • In December 2017, a man placed chips on the Suncity desk. The Suncity cashier then exchanged the chips for cash.²⁴⁷
170. In respect of the three incidents, there was no evidence of Suncity personnel checking the source of the cash, or confirming the identity of the person providing the cash.²⁴⁸
171. CCTV still photographs from January and February 2018 depicted further similar scenarios at the Suncity desk, including bundles of cash wrapped in elastic bands being removed from a suitcase in front of the desk.²⁴⁹
172. In March 2018, the Crown Melbourne International VIP Team received an internal report that large amounts of cash were being stored at the Suncity desk. Following that report, Crown reviewed and changed the Suncity room cash arrangements to limit the amount of cash that could be held in that room to $100,000.²⁵⁰ At the time that limit came into force, on 20 April 2018, $5.6 million in cash was removed from the Suncity room under supervision of Crown staff and deposited into a Suncity patron deposit account.²⁵¹
173. On 19 December 2018, a backpack containing $250,000 was taken from behind a curtain in the Suncity room to two men waiting in a car outside the casino. The two men were subsequently arrested.²⁵²

Findings

174. The Bergin Inquiry found that money taken from the suitcase and shopping bags was, more probably than not, money that was to be laundered. It found that money was laundered through the Suncity VIP room at the Melbourne Casino and conditions were not imposed until 2018 to prevent very large cash transactions from occurring.²⁵³ It concluded that the media allegations that Crown facilitated money laundering through Crown Melbourne were established.²⁵⁴
175. It also concluded that, by reason of the belated actions Crown took with respect to cash in the Suncity room, it did not turn a blind eye to money laundering through the Melbourne Casino.²⁵⁵

Junkets and organised crime

Background

176. Junkets are a well-recognised part of the international casino landscape. An important development in many casinos around the world in the early 2000s was the emergence of the VIP segment of the casino market.²⁵⁶ This is now a global market, with casinos around the world competing for VIP patrons,and the ‘vast majority’ of VIP patrons come from mainland China.²⁵⁷ The Bergin Report explained:

     There is a strong relationship between VIP patrons from Mainland China and Junkets. In Australia … casino operators are heavily dependent on Junkets for the continued success of the VIP market segment of their revenues.²⁵⁸

     …

     Junkets identify VIP patrons and make arrangements for them to travel to gamble in particular casinos, often by offering enticements such as free travel and accommodation. In return, casino operators pay Junket operators commissions which in some jurisdictions such as Macau and Australia are based upon the Junket participant’s turnover during any particular Junket program … Junkets may also advance credit to Junket participants and enforce debts incurred by those participants.²⁵⁹

     …

     In Australia, the casino operator enters into contractual arrangements with the Junket operators, sometimes referred to as ‘junket promoters’, rather than with the individual Junket participants. If the casino operator extends credit to the Junket operator, it looks to the Junket operator to pay the debt. It is a matter for the Junket operator how the debt is received from the Junket participant.²⁶⁰

177. The involvement of organised crime groups in the junket industry has been widely reported for many years.²⁶¹ By reason of their credit-providing and debt-enforcing functions, junkets are particularly vulnerable to infiltration by those involved in organised crime. Criminal behaviour associated with junkets includes unlawful debt collection practices and money laundering.²⁶²
178. It is illegal to enforce gambling debts in China.²⁶³ This has led to the use of extra-judicial means of debt collection, such as threats of violence, to encourage debtors to repay money.²⁶⁴
179. There are also strict limits on the amount of money that individuals can carry or otherwise transfer out of China.²⁶⁵ Junkets have been implicated in the laundering of money out of China.²⁶⁶ The potential link between junkets and money laundering, and the vulnerability of junkets to money laundering, is well recognised. In Australia, this vulnerability has been acknowledged by AUSTRAC and the VCGLR.²⁶⁷
180. The ability of casino operators to ensure that they do not deal with junkets or junket operators engaging in, or facilitating, such behaviour is limited by the opaque nature of many junket operators. At the Bergin Inquiry, the then directors of Crown gave evidence about the difficulties they perceived in dealing with junket operators.²⁶⁸
181. The practice of Crown was to deal only with individuals as junket operators, rather than corporations. Crown had two types of arrangements with junket operators: one was to pay the operator a negotiated rate with a slight discount to theoretical takings; and the other was a revenue-sharing arrangement, with the total revenue generated from the junket split as agreed between the junket operator and the casino.²⁶⁹
182. Crown entered into contracts with individual junket operators to formalise these arrangements.²⁷⁰

Media allegations and Crown’s response

183. Among the various media allegations made in July and August 2019 were allegations that Crown had partnered with junket operators with links to drug traffickers, money launderers, human traffickers and organised crime groups.²⁷¹ In particular, it was alleged that:
     • Crown partnered with seven named junket operators with links to organised crime groups
     • Crown failed to conduct appropriate due diligence into the junket operators with whom it entered into agreements, such that it was either wilfully blind or recklessly indifferent to the links these junket operators had to organised crime groups.²⁷²
184. In an ASX announcement on 31 July 2019, the Crown board sought to rebut the suggestion that Crown partnered with junket operators with links to organised crime.²⁷³ The directors of Crown claimed that:
     • junkets were an established and accepted part of the operations of international casinos
     • Crown dealt with junkets in essentially the same way as other international casinos
     • Australian regulators reviewed junket operators and their dealings with licensed casinos
     • Crown itself had a robust process for vetting junket operators and undertook regular reviews of those operators in light of new or additional information.²⁷⁴

Evidence before the Bergin Inquiry

185. The following topics were common ground at the Bergin Inquiry:
     • In numerous instances, Crown had information that included claims and allegations that some of the seven junket operators named in the media allegations had links to organised crime groups. After receiving that information, Crown continued its relationships with those operators.²⁷⁵
     • Those at Crown in a position to determine whether it should commence or continue a relationship with a particular junket operator did not have any clear guidance as to the proper approach they should take to publicly available reputational information and allegations about junket operators. There was no set ‘bar of tolerance’ against which decision makers could test information and allegations.²⁷⁶
     • The senior people at Crown who had responsibilities for Crown’s junket operators included:
       • Mr Felstead, then the CEO of Australian Resorts and the Head of the VIP business unit
       • Mr Preston, then the Chief Legal Officer responsible for reviewing relationships between Crown and its junket operators
       • Mr Johnston, then a non-executive director of Crown, who was involved in the Crown review of junket operations after the China arrests in October 2016.²⁷⁷
     • Following its review of its operations following the China arrests in October 2016, Crown ceased its relationship with all China-based junket operators, with perhaps one exception.²⁷⁸
     • In about 2017, Mr Felstead, Mr Preston and Mr Johnston formed a ‘review panel’ to review any particular junket operator ‘escalated’ to the panel for consideration. On escalation, the panel was to consider whether Crown should continue its relationship with that operator, or whether the risk rating of the operator should be adjusted.²⁷⁹
     • From July 2017, Mr Felstead, Mr Preston and Mr Johnston made the final decision whether to approve a new junket operator. No prospective operator would be approved unless each of them granted approval. The rationale for determining whether or not an operator would be approved was undocumented.²⁸⁰
     • Also from July 2017, Crown commenced reviewing its relationships with existing junket operators on an annual basis. Most often, those reviews were conducted solely by the Credit Control Team and escalated to the review panel if it determined that material new information or a material change in an operator’s profile warranted such an escalation.²⁸¹
     • In April 2020, Crown commissioned Deloitte to undertake a review of its junket program.²⁸²
     • On 26 August 2020, Deloitte submitted its report. The report advised that a number of improvements were required in respect of Crown’s junket operations, including better definition of risk and probity, gathering more robust information and data, and ensuring a clearer pathway for decision making.²⁸³
     • One shortcoming the Deloitte report identified was the lack of a defined ‘escalation point’ to the review panel, and ambiguity as to triggers for further investigations. Only on five occasions did an annual review result in escalation to the review panel.²⁸⁴
     • In August 2020, the Crown board determined to suspend its junket operations. The suspension was put in place pending a review of problems identified in the course of the Bergin Inquiry, and of Crown’s future relationships with junket operators in general.²⁸⁵
     • Also in August 2020, Crown retained the consultancy Berkeley Research Group to assist in assessing its relationships with junket operators and to undertake a due diligence investigation into various junket operators and representatives.²⁸⁶
     • In September 2020, when its casinos were shut due to COVID-19 restrictions, the Crown board decided to extend the suspension of junket operations until 30 June 2021 so it could conduct a proper assessment of the situation.²⁸⁷
     • On 17 November 2020, Crown announced that it would permanently cease dealing with international junket operators unless those operators are licensed or otherwise authorised by regulators in the jurisdictions in which they operate.²⁸⁸

The evolution of the Crown junket due diligence processes

186. The Crown due diligence processes changed over time.²⁸⁹ The first change occurred in October 2014, following the broadcast of a Four Corners program ‘High Rollers High Risk’ in September 2014. The second change occurred in November 2016, following the China arrests. The third change occurred in mid-2017, following a broad review of VIP International conducted in the aftermath of the China arrests.²⁹⁰
187. Prior to September 2014, the Crown due diligence processes were very limited.²⁹¹ Decisions regarding approval of prospective junket operators were not subject to any sign-off at the senior executive level. Instead, Mr O’Connor had ultimate decision-making responsibility.²⁹²
188. Prospective junket operators submitted applications to in-market sales team members at Crown. Those team members were responsible for collecting identification documents and sending applications to VIP International, which would then assess the applicant’s bona fides. VIP International verified whether the applicant was a junket operator established in other jurisdictions and whether the applicant had a legitimate request to operate a junket with Crown. VIP International also sought evidence of the applicant’s ability to perform the expected function of a junket operator. Once VIP International was satisfied of these matters, it provided the application to the Crown Compliance Team. This team did no more than prepare a form licence document and undertake a further background check against the ‘World-Check’ database. This check focused more on the creditworthiness of the prospective junket operator than the probity of the applicant.²⁹³
189. To Mr O’Connor, a ‘critical’ part of the probity assessment was that the prospective junket operator was able to secure a visa to come to Australia. He reasoned that border control authorities in Australia had access to a lot more robust information and intelligence than Crown. Accordingly, if a junket operator could pass the border authorities’ test (the test involved character suitability) and obtain a visa, that gave him confidence that probity was as it ought to be.²⁹⁴
190. After the Four Corners program, Crown reviewed the allegations made in that broadcast. A compliance probity review was commissioned by Mr O’Connor and undertaken by Ms Michelle Fielding, Group General Manager, Compliance at Crown Melbourne, and her team. Ms Fielding’s team reported to Ms Tegoni, then Legal Officer and AML Compliance Officer at Crown Melbourne.²⁹⁵ Mr O’Connor claimed that Crown thereafter made improvements to the due diligence procedure, including extra due diligence checking against some other databases. Mr O’Connor was unable to identify any other improvements to the due diligence procedure. In fact, due diligence checks often remained limited to World-Check searches.²⁹⁶
191. In the immediate aftermath of the China arrests, Crown reviewed certain aspects of its VIP International business and made changes to its due diligence process for junket operators. The review was undertaken by the Crown ‘VIP Committee’. The VIP Committee comprised Mr Felstead, Mr Johnston, Mr Neilson, Ms Tegoni, Mr Theiler and, on occasion, Mr Craigie and Mr Preston. As part of the review, Crown decided to cease dealing with junket operators based in China.²⁹⁷ Minutes from VIP Committee meetings indicate that:
     • obtaining third party due diligence reports remained the exception, rather than the rule
     • Crown did not keep records of junket due diligence reports
     • only a small portion of junket operators with whom Crown dealt had been confirmed as holding DICJ junket licences (issued by the gambling regulator in Macau).²⁹⁸
192. From mid-2017, the position changed. A prospective junket operator was required to complete a ‘New Junket Operator Application’ and provide a range of information and documentation to Crown. The Credit Control Team then undertook a due diligence procedure on the junket operator. This procedure included obtaining credit and due diligence reports from third party providers, and focused on junket operator creditworthiness and probity. If the credit control team decided to recommend that an applicant be approved, it prepared a due diligence profile for the applicant for review by the review panel comprising Mr Felstead, Mr Preston and Mr Johnston. They made the final decision as to whether a prospective junket operator would be approved. The basis for their approval was not documented.²⁹⁹

Crown concessions

193. Crown initially adopted the same defensive approach to the junket allegations as was apparent in its ASX announcement. Ultimately, however, it made the following concessions to the Bergin Inquiry:
     • Ms Coonan conceded that, while it might be apt to describe the Crown junket due diligence processes as ‘extensive’, they were not ‘robust’. She indicated that one of the deficiencies in the assessment process was that it did not cast the net widely enough to capture people associated with junkets.³⁰⁰
     • Other directors accepted that the junket due diligence and review processes had deficiencies, were not sufficiently robust or could be improved.³⁰¹
     • Crown required more clearly defined escalation points and triggers for further investigation as part of its annual junket operator reviews.³⁰²
     • There were shortcomings in the junket due diligence processes. Even in their most recent formulation, those processes did not eliminate all risks associated with junkets, including because a casino operator can never have full information about probity.³⁰³
     • The scope of junket due diligence processes had been too narrowly focused on the junket operator.³⁰⁴
     • Due diligence carried out on some junket operators either did not identify all necessary information, or was not analysed sufficiently to accurately assess risk.³⁰⁵
     • There was a need for greater input from the Crown Compliance and AML Teams in the due diligence assessments for junkets. Tension could exist in letting people on the operational side of the business have the final say on vetting junket operators.³⁰⁶

Findings

194. The Bergin Inquiry concluded that there was information in the public domain to support the media allegations that at least some of the junket operators with whom Crown had dealings had links to organised crime groups, and that those allegations were established.³⁰⁷ It did not find that Crown was wilfully blind or recklessly indifferent to those links.³⁰⁸ Rather, it found that:
     • Crown had numerous structures in place to deal with junket operators. Those structures were adjusted from time to time and, from mid-July 2017, there were annual reviews into existing operators.³⁰⁹
     • Crown gave consideration to publicly available information in respect of the seven named junket operators, although it reached what the Bergin Inquiry considered to be unjustified conclusions.³¹⁰
     • Crown had flawed structures for reviewing particular junket operators.³¹¹
     • In some instances, decisions to continue dealing with particular junket operators were ‘infected with error or failed to take into account appropriate matters’.³¹²

Conclusions

195. Putting to one side the findings ultimately made by the Bergin Inquiry, some conclusions may be drawn from the foregoing narrative.
196. In respect of the China arrests, those involved in managing the VIP International business favoured the aggressive pursuit of profit over the safety and welfare of China-based staff. In particular:
     • They conducted business in China from the Guangzhou office without any business licence or authorisation, in known disregard of the law, from May 2012 (at the latest) until October 2016.
     • They ignored concerns raised by Mr Albouy that the clandestine Guangzhou office was unsuitable and posed many risks.³¹³
     • They declined to apply for a business licence, authorisation or registration despite the Crackdown Announcement on 6 February 2015, with a view to keeping Crown’s China-based activities ‘under the radar’ and out of sight of Chinese authorities.
     • They relied on a positive interpretation of Article 303 (albeit with the benefit of legal advice) in circumstances where:
       • The Chinese Government had announced a crackdown on foreign casinos soliciting Chinese citizens to gamble abroad.
       • China-based staff were fearful about the legitimacy of their activities (and at least in one instance lied, to the knowledge of Crown senior management, to Chinese authorities about the nature of those activities).
       • After the Crackdown Announcement, VIP International executives decided to defer travel to China for a period.
       • Two China-based employees had been questioned by authorities, after tip-offs, about their activities in China and gambling.
       • They supplied a letter to Chinese authorities confirming the employment of a questioned China-based employee, in which they did not disclose that Crown operated casinos in Australia or the nature of the employee’s work in organising gambling tours in Melbourne and Perth.
       • South Korean casino employees organising for Chinese citizens to visit South Korean casinos had been arrested in China.
     • They ignored the possibility that the risk was not necessarily that Crown employees were committing offences under Article 303 (as the Chinese authorities ultimately alleged), but that the employees were subject, at the very least, to the risk of arrest and detention.
     • They otherwise failed to adequately heed various red flags and warnings about the risk of arrest and limit their activities in China accordingly.
     • They did not sufficiently appreciate the risks of operating in China, or they ignored those risks.
197. The following conclusions may be drawn in respect of money laundering:
     • Crown was aware that money was likely being laundered through its Southbank and Riverbank accounts from as early as 2014. Despite this, it did not investigate the position or otherwise take steps to prevent money laundering (except by directing patrons to stop structuring) until some time after the media allegations about Southbank and Riverbank and the establishment of the Bergin Inquiry. This was despite:
       • ANZ closing the Riverbank account in July 2014 in light of AML concerns
       • ASB closing the Southbank New Zealand dollar account in January 2019 in light of AML concerns
       • CBA closing the Southbank Australian dollar account in around October 2019 in light of AML concerns.
     • Crown was not motivated to identify and report, nor meaningfully mitigate against, the risk of money laundering through its Southbank and Riverbank accounts.
     • Red flags indicating serious money laundering concerns were ignored, and not appropriately escalated to board or RMC levels. Crown’s corporate governance failed in respect of its AML activities.
198. The following conclusions may be drawn in respect of junkets:
     • Crown’s processes for vetting its junket partners were ill-defined and inadequate.
     • Crown did not take sufficient, or sufficiently quick, steps to terminate its relationships with junket operators alleged to have links to organised crime.
     • Crown favoured profits generated by junkets over conducting robust due diligence on its junket partners.
199. The following conclusions may be drawn in respect of governance and culture:
     • Crown had a culture that prioritised profit above compliance with its legal obligations.
     • Crown had inadequate corporate governance processes and failed to appropriately respond to known risks or, otherwise, properly investigate those risks.
     • Crown officers are likely to have breached duties imposed by the Corporations Act 2001 (Cth) by exposing Crown and/or its subsidiaries to the risk of prosecution and civil litigation.

The Packer influence

Background

200. What follows is a summary of evidence presented to the Bergin Inquiry in connection with Mr Packer and CPH.
201. Mr Packer was responsible for much of the success of the Crown enterprise.³¹⁴
202. Mr Packer served as the Executive Chairman of Crown from late 2007 until 13 August 2015.³¹⁵ He remained on the board as a director at that time, until 21 December 2015.³¹⁶ He was again appointed as a director on 3 August 2017.³¹⁷
203. On 21 March 2018, Mr Packer resigned from the board, citing personal reasons. He also resigned as a director of various other entities within the CPH group of companies.³¹⁸
204. Mr Packer still retains ultimate control of CPH, the largest shareholder in Crown Resorts.³¹⁹

The nature of the Packer influence

205. The size of the CPH holding of Crown, coupled with the ubiquitous and powerful influence of Mr Packer, led to the creation of a team of loyal directors and senior managers. Those directors and managers were committed and steadfast in their devotion to assisting Mr Packer achieve his business pursuits.³²⁰ Mr Packer retained significant control over Crown affairs, even after his resignation as Chairman of the board and as a director.
206. The Bergin Report states:

     The extent and nature of Mr Packer’s power whilst at the helm of the Crown Board and in continuing to manoeuvre it remotely after his departure from the Board assisted not only by his loyal team of corporate operatives but also by the information sharing arrangements that had been fastened onto the corporate structure has been the subject of investigation as a matter incidental to the question of the suitability of Crown and the Licensee.³²¹

207. To understand the extent of Mr Packer’s influence over Crown requires some analysis of evidence before the Bergin Inquiry—in particular, in relation to the following directors and senior managers: Mr Johnston, Mr Jalland, Mr Alexander, Mr Andrew Demetriou, Mr Harold Mitchell, Mr Barton, Mr Felstead, Mr Ratnam and Mr Benjamin Brazil.

Michael Johnston

208. Mr Johnston was one of the three CPH nominees on the Crown board from 6 July 2007 and was a non-executive director of Crown until resigning from his positions at CPH and Crown on 10 February 2021.³²² He was the Finance Director of the CPH group of companies from 2004. In 2013, Mr Packer invited Mr Johnston to participate in the Crown VIP working group. Mr Johnston then provided Mr Packer with updates on issues in relation to the VIP business.³²³
209. At different times, Mr Johnston owed obligations to Crown as a director of Crown; to CPH as a director of CPH; to CPH Crown Holdings as its sole director, and/or to Crown as a CPH executive providing services. These obligations resulted in the potential for serious conflicts of interest, which were discussed during the Bergin Inquiry.³²⁴
210. Following Mr Packer’s resignation as a director of Crown and CPH, Mr Johnston wrote to the Crown CEO, Mr Barton, on 23 August 2018 in relation to the Services Agreement between Crown and CPH. This agreement was a formal arrangement for the provision of certain services by CPH to Crown. Mr Johnston suggested an amendment to the Services Agreement to allow Crown to continue to provide confidential information to Mr Packer.³²⁵ The Crown Remuneration Committee resolved that a ‘Controlling Shareholder Protocol’ (Protocol) would be the preferred mechanism to enable the sharing of confidential information with Mr Packer. Mr Johnston executed the Protocol on behalf of CPH on 31 October 2018.³²⁶
211. The Protocol required careful consideration of certain requirements before confidential information was shared by Crown with CPH or Mr Packer. It was Mr Johnston’s practice to give information to Mr Packer in relation to the VIP working group and to brief Mr Packer in relation to the VIP business.³²⁷
212. The Bergin Inquiry concluded that many of the risk management problems and corporate governance issues encountered by Crown were worsened by Mr Johnston’s conflicting roles.³²⁸
213. Mr Packer expected Mr Johnston to inform him of any important issues regarding Crown, particularly in relation to the VIP International business. Mr Johnston showed complete loyalty to Mr Packer.³²⁹

Guy Jalland

214. Mr Jalland was a director of CPH and was appointed to the Crown board in June 2018. He was also the Managing Director of CPH in June 2018.³³⁰ Mr Jalland resigned from his positions at Crown and CPH on 10 February 2021.³³¹
215. Mr Jalland executed the Protocol for the purposes of sharing confidential information with Mr Packer.³³²
216. Mr Jalland was one of Mr Packer’s three key advisors within CPH.³³³

John Alexander

217. Mr Alexander was appointed as a director of Crown Resorts Ltd on 6 July 2007 and remained as a director until 22 October 2020. He was the Executive Deputy Chairman at the commencement of 2015. Mr Alexander was the Executive Chairman as well as the CEO of Crown from 1 February 2017 to 24 January 2020. He was a director of Crown Sydney from 22 March 2017 to 24 January 2020.³³⁴
218. Mr Alexander’s first loyalty has been to Mr Packer for many years. When Mr Packer made suggestions about the business, Mr Alexander had ‘cause to listen’.³³⁵
219. Mr Alexander executed the Protocol on behalf of Crown.³³⁶
220. Mr Alexander used the Protocol to provide Mr Packer with high-level information on a regular basis, including information in relation to proposed initiatives and details of discussions at board meetings.³³⁷
221. Email evidence before the Bergin Inquiry indicated that Mr Alexander had received instructions from Mr Packer regarding cost-cutting measures that Crown should take.³³⁸
222. Mr Packer was asked about the cost-cutting measures that were the subject of the emails:

     Q: So Mr Alexander was raising with you a significant question of whether he should proceed with cost-cutting measures including staff and salaries, and he also referred to short-term incentives; do you see that?

     A: Yes.

     Q: And this was a significant management decision which Mr Alexander was raising?

     A: I would say Mr Alexander was proposing.

     Q: Yes. And, in your email, you were telling him that he had your blessing to do that, to implement those cost-cutting measures; correct?

     A: I agreed with his proposal. Yes.

     Q: Yes. And you expected Mr Alexander to act on what you said and implement those cost-cutting measures, didn’t you?

     A: I expected Mr Alexander to act on what he said and what I agreed with—

     Q: You expected—

     A: —and implement those cost-cutting measures.

     Q: Yes. You were giving him your blessing to implement cost-cutting measures, he having sought it; correct?

     A: Correct.³³⁹

223. This exchange, and the broader email correspondence between Mr Alexander and Mr Packer, shows that Mr Packer was heavily involved in decision making on important issues at Crown, despite holding no position at Crown after March 2018.
224. Not only did Mr Packer influence Mr Alexander, but Mr Alexander also provided confidential information to Mr Packer about board meetings and ‘in camera’ sessions of the board.³⁴⁰

Andrew Demetriou

225. Mr Demetriou was appointed as an independent non-executive director of the Crown board in January 2015.³⁴¹
226. Mr Demetriou was appointed Chairman of Crown Melbourne on 30 January 2020. He resigned on 12 February 2021.³⁴²
227. Mr Demetriou’s relationship with the Packer family resulted from a meeting between Mr Demetriou and Mr Kerry Packer (Mr James Packer’s father) before Mr Kerry Packer’s death. Mr Demetriou was then introduced to Mr James Packer, who approached him directly with a request to join the Crown board in 2012 (which Mr Demetriou refused) and again in January 2015.³⁴³
228. Mr Demetriou regularly shared confidential Crown information with Mr Packer, including providing summaries of Crown board meetings.³⁴⁴
229. The extent of Mr Demetriou’s dedication to Mr Packer is illustrated in an email sent from Mr Demetriou to Mr Packer in April 2019, in which Mr Demetriou said: ‘As previously said, I remain committed to serving the best interests of Crown and, most importantly, you.’³⁴⁵
230. When questioned how his relationship with Mr Packer—and the above statement—were consistent with his obligations as an independent director, Mr Demetriou distanced himself from the statement, and indicated that the best interests of Crown were first and foremost. When pressed, however, Mr Demetriou conceded that a reasonable bystander would question whether he was truly independent based on his statement to Mr Packer.³⁴⁶
231. Other evidence before the Bergin Inquiry confirmed that Mr Packer sought to influence Mr Demetriou in Mr Demetriou’s role as a director of Crown.³⁴⁷

Harold Mitchell

232. Mr Mitchell is a long-term friend of the Packer family. He was appointed as an independent non-executive director of Crown on 10 February 2011.³⁴⁸ He resigned on 22 February 2021.
233. There was no direct evidence before the Bergin Inquiry in relation to Mr James Packer’s influence over Mr Mitchell. There was, however, evidence of a large loan provided by Mr Kerry Packer to Mr Mitchell. Mr Mitchell denied that he had been influenced in his decision making.³⁴⁹

Kenneth Barton

234. Mr Barton was the CFO of Crown from March 2010 until his appointment as CEO on 24 January 2020. He was a director of Crown Melbourne from 17 October 2013, a director of Riverbank from 12 August 2014, and a director of Southbank from 30 June 2017. Mr Barton was also a director of Crown. He resigned from all of these positions on 15 February 2021.³⁵⁰
235. Mr Barton provided financial reports to Mr Packer on an almost daily basis under the Protocol.³⁵¹ Mr Barton acknowledged that, after Mr Packer’s resignation from Crown and CPH, Mr Packer gave him instructions regarding the information he required.³⁵²
236. Mr Packer conceded that, in November 2018, he instructed Mr Barton to prepare specific information and reports for him.³⁵³
237. Mr Packer also conceded that there were numerous other occasions on which he instructed Mr Barton to do as he expected.³⁵⁴
238. Mr Barton acknowledged that he provided confidential information to Mr Packer in order to ‘maintain a strong and open relationship with CPH and to get the benefits that we get from CPH and James’ involvement in the business’.³⁵⁵

Barry Felstead

239. Mr Felstead was CEO of Crown Perth from March 2007 until August 2013, when he was appointed CEO of Australian Resorts at Crown. At the same time he had responsibility for VIP International. He was appointed director of Crown Melbourne in November 2013. He had a standing invitation to attend Crown board meetings, in addition to receiving all board papers. Mr Felstead resigned from all Crown positions at the end of 2020.³⁵⁶
240. Mr Packer told the Bergin Inquiry that he expected Mr Felstead would inform him of any important issues in relation to VIP International, and that Mr Felstead had shown complete loyalty to him for many years.³⁵⁷
241. Mr Felstead engaged in regular correspondence with Mr Packer following Mr Packer’s resignation from Crown and CPH director positions.³⁵⁸

Ishan Kunaratnam (known as Mr Ratnam)

242. Mr Ratnam was a long-term friend of the Packer family and was appointed as Special Advisor to the Chairman by Mr Packer in October 2014 in order to conduct dealings with VIP customers on Mr Packer’s behalf and to provide important information to Mr Packer. Mr Ratnam also held various executive roles in VIP International.³⁵⁹
243. Mr Ratnam’s primary role was to interact with VIP International clients and to provide information to Mr Packer.³⁶⁰ The evidence before the Bergin Inquiry confirmed that Mr Packer had significant influence over Mr Ratnam when he was performing his duties as an officer of Crown.³⁶¹

Benjamin Brazil

244. Mr Brazil was a Crown director from 2009 to 2017. Mr Brazil was a personal friend of Mr Packer and this friendship led to Mr Brazil joining the Crown board.³⁶²
245. Mr Brazil was questioned about his relationship with Mr Packer, and about a series of emails in which he appeared to be assisting Mr Packer. Mr Brazil denied that he acted other than in the interests of Crown.³⁶³

Mr Packer’s use of his influence

246. Mr Packer exercised varying levels of influence over the operations of Crown both while holding positions at Crown and CPH, and after he relinquished those positions.
247. For the most part, Mr Packer used his influence over these directors and executives to elicit from them important information confidential to Crown. Mr Packer also used his influence to exercise control over Crown business operations to suit his own interests, even after his resignation from Crown and CPH.
248. Mr Packer was asked by Ms Bergin, SC about his desire to influence directors and senior management:

     Q: It would appear from what I have read thus far that there is an element, or there was an element at the time that you were Chairman, of a desire to please you. You understand that, don’t you?

     A: Possibly, Madam Commissioner. Possibly.

     Q: Is it a mere possibility, Mr Packer?

     A: If you look at our financial budgets and forecasts, they never please me because we always missed them, and that was probably right towards the top of my list of important things, so I don’t think it would be fair to say that I was always being pleased by people.

     Q: It’s the other way around though; it was their desire to please you, do you not think?

     A: I don’t know, Madam Commissioner. I mean, I always asked for conservative budgets … Whether that was people trying to please me or whether that was people trying to justify the capex [capital expenditure] that we had committed to the business …

     Q: So they weren’t giving you the bad news in relation to the budgets?

     A: Well, the budgets—the actuals never hit the budgets.³⁶⁴

249. The extent of Mr Packer’s influence is demonstrated in a line of questions from counsel assisting the Bergin Inquiry relating to email correspondence between Mr Packer and Mr Barton in 2018:

     Q: You expected Mr Barton to do what you had asked and prepare for you a conservative financial year forecast, didn’t you?

     A: Well, that was Mr Barton’s job.

     Q: Yes. But you were asking him to prepare something for you that you could bank; correct?

     A: Those are the words in the email, Mr Bell, so yes.

     Q: Yes. And you expected Mr Barton to do that, didn’t you?

     A: Yes.³⁶⁵

     The topic was taken up by Ms Bergin, SC:

     Q: But his [Mr Barton’s] job wasn’t to tell you things. His job was to work for Crown.

     A: No, his job Madam Commissioner, there was a budgeting process that was done at this time every year and so I was curious—I was curious about that. I—

     Q: I understand you were curious, but his job was as CFO of Crown, was it not?

     A: Yes, Madam Commissioner.³⁶⁶

250. An email of 1 March 2019 from Mr Packer to Mr Barton further evidences Mr Packer’s influence. Mr Packer wrote: ‘Ken I think all of you have had your heads in the sand this year. We never meet our plans and I’m sick of it. Make sure for your own sake that we achieve the FY 20 [the 2020 financial year] plan.’³⁶⁷
251. The following day, Mr Packer wrote to Mr Barton, copying Mr Alexander and Mr Felstead, and stated: ‘Sorry Ken I meant everyone.’³⁶⁸
252. Mr Packer was questioned about his use of the words ‘for your own sake’. Mr Packer agreed that he was frustrated and that he was making his expectations abundantly clear.³⁶⁹
253. The Bergin Inquiry considered other correspondence between Mr Packer and Crown directors. The correspondence showed not only that Mr Packer had influenced the Crown directors in the execution of their duties, but that he knew he had this influence.³⁷⁰
254. The Bergin Report recorded that Mr Alexander was reporting to Mr Packer. Mr Barton was reporting to Mr Packer. Mr Felstead was reporting to Mr Packer. Mr Johnston was reporting to Mr Packer. Mr Packer did not report to anyone.³⁷¹
255. The Bergin Report’s ultimate conclusion was that the influence of Mr Packer, and his ability to remotely manoeuvre Crown’s operations notwithstanding his absence from the Crown board, had ‘disastrous consequences’ for Crown.³⁷²

CPH undertakings post Bergin Inquiry

256. In April 2021, CPH reached agreement with ILGA that CPH could retain its 37 per cent shareholding in Crown on certain terms. The purpose of the agreement was to reduce Mr Packer’s influence over Crown.³⁷³
257. Under the agreement, CPH undertook that it would not:
     • enter into any information-sharing arrangements with Crown
     • initiate any discussions with Crown, other than through public forums, about Crown businesses or operations
     • seek to have its executive or nominee appointed to the Crown board, or requisition a meeting of Crown shareholders to seek the appointment of any person as a director of Crown, before October 2024
     • seek any amendment to the Crown constitution that would affect the management or operation of Crown businesses.³⁷⁴
258. Similar undertakings have been offered to the VCGLR.³⁷⁵

Corporate governance: general

Introduction

1. This chapter outlines corporate governance best practice. First, it will discuss the underlying principles of good corporate governance. Then it will deal with two important aspects of corporate governance: risk management and culture.

What is corporate governance?

2. At its simplest, corporate governance is the system by which corporations are directed and controlled. The system:

   specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.¹

3. Corporate governance is different from managing a corporation. Managing a corporation is concerned with running the corporation’s business affairs. Governance is concerned with running the enterprise: making sure that it is ‘running in the right direction and being run well’.²
4. Although corporate governance is about the power exercised over the activities of a corporation, corporate governance principles do not explain how, or in whose interests, that power should be exercised. That will depend upon the view taken about the role of a corporation.
5. There is an ongoing debate about whether a corporation should be run solely in the interests of shareholders or whether it should take into account other interests. Those interests might be those of different stakeholders (those affected by the activities of the corporation) or an even broader class.

The traditional view

6. The classic or traditional view is that the management of a corporation (directors and senior executives) is the agent of the shareholders. Under this approach, the shareholders’ interests are paramount.
7. Professor Milton Friedman is the principal proponent of this view. In a famous article published in the New York Times Magazine on 13 September 1970, Professor Friedman criticised those in the business community who proposed that a corporation should promote desirable sociable ends. He wrote:

   [T]he manager [of a corporation] is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.³

8. According to this view, the job of a corporation’s management is to maximise shareholder value.

The financier’s view

9. Another approach, developed by economists Mr Andrei Shleifer and Mr Robert Vishny, regards corporate governance as ‘the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment’.⁴ This approach is concerned with the economic efficiency of the corporation.
10. The traditional and financier’s views both hold that good corporate governance is concerned with securing the economic wellbeing of those who have a direct stake in the corporation. Good governance does not require other considerations to be taken into account.

The stakeholder view

11. Since the 1980s, the objective of corporate governance has moved away from the narrow interests of shareholders and financiers to those of the stakeholder. From this perspective, corporate governance is concerned not only with the relationship between the corporation and its shareholders and financiers, but also its relationship with other stakeholders. The stakeholders are those groups without whose support the corporation would cease to exist. They include employees, customers, suppliers, banks and, where appropriate, government and governmental agencies.

The socially responsible corporation

12. Many organisations contend that a corporation (and, therefore, corporate governance) should also have regard to the role the corporation plays in society at large.
13. Sir Adrian Cadbury, writing in the foreword to the World Bank Group report on corporate governance in 2000, said:

    Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations, and society.⁵

14. In 2019, the Business Roundtable, a trade association of chief executives of leading United States of America corporations, issued its ‘Statement on the Purpose of a Corporation’. The Business Roundtable has issued statements since 1997 that have endorsed principles of shareholder primacy. The 2019 statement, however, superseded the previous statements and instead outlined a broader, modern standard for corporate responsibility. The standard requires commitment to:
    • delivering value to customers
    • investing in employees through training, education, diversity and inclusion, dignity and respect
    • dealing fairly and ethically with suppliers
    • supporting the community in which the corporation works
    • generating long-term value for shareholders.⁶
15. To summarise, corporate governance requires a commitment to all stakeholders (including local communities and country).
16. Many nations have adopted this broad approach to corporate governance. For example, the Organisation for Economic Co-Operation and Development has published principles, directed to policymakers, that aim to provide a benchmark for good corporate governance.⁷
17. These principles state that a corporate governance framework should:
    • recognise the rights of stakeholders established by law or through mutual agreements and encourage active cooperation between corporations and stakeholders in creating wealth, jobs and sustainable, financially sound enterprises
    • ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company
    • ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.⁸
18. This broad approach has been adopted by many institutional investors when setting the benchmarks against which investment decisions should be made. For example, the Australian Council of Superannuation Investors (ACSI) is a group of 36 Australian and international asset owners and institutional investors who collectively manage around $1 trillion in assets. ACSI has published guidelines concerning the governance practices of the corporations in which ACSI members may invest their funds. These guidelines place emphasis on the engagement of the corporation with its stakeholders.
19. The ACSI guidelines are underpinned by the following core principles:
    • Good governance requires boards to consider and manage all material risks facing their company, including environmental, social and governance (ESG) risks.
    • Board governance should contribute to shareholder value and create the conditions in which sustainable long-term investment can prosper.
    • Company owners should influence the governance, policies, practices and management of the investee entity in order to improve investment outcomes. Material ESG factors should be analysed by company owners when deciding how to exercise their ownership rights, and also when deciding whether to invest.
    • Companies should properly disclose their performance in relation to material ESG factors that could affect the value of shareholders’ investment in the company.
    • Companies rely on a range of stakeholders to operate and succeed, including governments, employees, communities, investors, consumers and suppliers. Effectively engaging with stakeholders is key to maintaining this social licence to operate.⁹
20. The broad perspective of corporate governance is now widely accepted. For example, the Companies Act 2006 (UK) now provides that a company director must act in a way that promotes the success of the company, taking into account various matters including: (a) the interests of the company’s employees; (b) the company’s business relationships; and (c) the company’s impact on the community and environment.¹⁰
21. Under this broad approach, a corporation must take into account the consequences of its actions not only on its shareholders and stakeholders, but on all people outside the corporation whose interests could be affected. According to Professor Ian Ramsay, Director of the Melbourne Law School’s Centre for Corporate Law, this requires corporations to be ‘“socially responsible” and often subordinat[e] profit maximisation to other goals’.¹¹

The legal framework: general

22. The framework for corporate governance is found in legislation, in self-regulating arrangements, in voluntary commitments and in business practices that have developed over time. These practices can be specific to industry sectors as well as to regions and countries.

Corporations Act

23. The Corporations Act sets minimum standards for corporate governance and does not purport to recommend or enforce a model of best practice. It does, however, impose standards of transparency, accountability, fairness and responsibility.
24. The responsibility for managing a corporation is given to its directors. The directors must act diligently and in good faith. They must not act for an improper purpose. They are under a duty to disclose any material personal interest in a matter that is before the board. Subject to certain exceptions, they must not vote on matters in which they may have a material personal interest. For benefits that fall outside the exceptions, there is a rigorous disclosure regime.¹²
25. Shareholders are given protections. There are extensive provisions that regulate takeovers and grant remedies for oppressive conduct. Shareholders must approve related party transactions and may bring proceedings on behalf of a corporation or seek compensation from a corporation.¹³

Guidelines

26. A number of government and private organisations have developed corporate governance guidelines. These do not lay down binding rules; rather, their purpose is to assist the management of the corporation by identifying the key issues to which attention should be given. It is convenient, briefly, to refer to the most significant examples of these.
27. A listed corporation must comply with the ASX Listing Rules (Listing Rules). The Listing Rules recommend use of the good governance standards found in the ASX Principles and Recommendations. The ASX Principles and Recommendations were first introduced in 2003. There were eight key principles (from 10), and separate recommendations for each principle. The original eight key principles were:
    • The corporation should clearly delineate the respective roles and responsibilities of the board and management.
    • The board should be of an appropriate size and have the skills, commitment and knowledge to enable it to discharge its duties effectively.
    • The corporation should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly.
    • The corporation should have appropriate processes to verify the integrity of its corporate reports.
    • The corporation should make timely and balanced disclosure of all matters having a material effect on the price or value of its securities.
    • The corporation should provide its security holders with appropriate information to allow them to exercise their rights.
    • The corporation should establish a sound risk management framework and periodically review that framework.
    • The corporation should pay directors and executives remuneration sufficient to attract and retain high-quality directors and executives.¹⁴
28. In 2003, the third principle (which at the time was to act ‘ethically and responsibly’) had only one key recommendation (from two), which was that the corporation should have and disclose a code of conduct for its directors, senior executives and employees.¹⁵
29. In 2019, the third principle was changed to state that the corporation should ‘instil … a culture … of acting lawfully, ethically and responsibly’. This change brought with it new recommendations, which were that the corporation should:
    • articulate and disclose its values
    • ensure that the board or a committee thereof is informed of any material breaches of the code of conduct for directors, senior executives or employees
    • have and disclose whistleblower and anti-bribery and corruption policies, and ensure that the board or a committee of the board is informed of any material breaches of these policies.¹⁶
30. In addition, the Listing Rules require the corporation to prepare a corporate governance statement that discloses the extent to which the corporation has followed the corporate governance guidelines. This statement must be included in the corporation’s annual report. If the corporation has not followed a recommendation, the statement must identify that recommendation and provide reasons why it was not followed.¹⁷
31. The Australian Securities and Investments Commission (ASIC) has published a number of regulatory guides and reports on corporate governance. They deal with:
    • managing conflicts
    • shareholder engagement
    • director oversight of financials and audit
    • emerging risk management
    • handling corporate information
    • executive remuneration
    • corporate actions involving share capital
    • directors as gatekeepers.¹⁸
32. The Australian Prudential Regulatory Authority (APRA) has developed a number of prudential standards with which regulated firms (authorised deposit-taking institutions, general insurers, life insurers and private health insurers) must comply.
33. The APRA standards are not significantly different from the ASX and ASIC guidelines. They do, however, impose mandatory obligations on the regulated firms.
34. Examination of guidelines discussed above reveals that the dominant focus is on boards and board-related issues. They deal with topics such as board membership criteria, board size, the proportion of inside and outside (independent) directors and the structure of board committees.
35. The guidelines have resulted in a mass of guidance statements from corporations, and the creation of many new jobs (such as ‘Head of Corporate Governance’). Their effectiveness is another matter.

The legal framework: gaming sector

36. In addition to the requirements set out above, corporations operating in the gaming sector have additional obligations, including those set out in the Gambling Regulation Act and their Gambling Code.
37. The Gambling Regulation Act imposes standards of responsible gambling on gaming venue operators, including to minimise harm caused by problem gambling; to accommodate those who gamble without harming themselves or others; to ensure that minors are not allowed to gamble; and to ensure that gaming is conducted honestly and free of criminal influence and that the management of gaming machines is free of criminal influence.¹⁹
38. It is a condition of a casino licence that the casino operator implements a Gambling Code.²⁰
39. A Gambling Code must include, among other matters:
    • a responsible gambling message identifying the commitment of the casino operator to responsible gambling
    • responsible gambling information including information on how to gamble responsibly and on self-exclusion programs
    • the process for interacting with customers who have requested information regarding problem gambling and who are displaying indicators of distress that may be related to problem gambling
    • what the casino operator will do to discourage extended and intensive gambling.²¹
40. Since February 2020, a Gambling Code for gaming venues other than a casino must:
    • provide that the venue operator has a duty to take reasonable steps to prevent and minimise harm arising from the operation of gaming machines
    • identify how the venue operator will monitor behaviour consistent with gambling harm and take steps to discourage intensive and prolonged gambling
    • include certain provisions that discourage playing multiple machines or reserving a gaming machine in order to play another gaming machine in the gaming machine area.²²

Risk management

41. Risk management is the process of identifying, assessing and controlling risks to a corporation in order to minimise the harm the corporation may suffer or to maximise its opportunities.²³ It is a key component of corporate governance and a crucial responsibility of the board and management.²⁴ Risk is properly managed when the corporation is clear about its strategic objectives, understands the ways in which there may be positive or negative deviations from those objectives, and takes action to control those deviations.

Risk appetite

42. Risk is inherent in commercial activity. The risk appetite of an organisation sets the boundaries for risk it is willing to accept in pursuit of strategic objectives.²⁵
43. The board of the corporation is responsible for setting the risk appetite.²⁶ This establishes the parameters within which management is to operate.²⁷ The factors to be taken into account when setting risk appetite include:
    • the mission and vision of the corporation
    • the strategic direction of the corporation and what risks are required to achieve the desired level of performance
    • the principal risks faced by the corporation and its capacity to deal with them
    • the views and expectations of stakeholders.²⁸
44. An effective risk appetite must be:
    • clear and appropriately balanced between risk taking and risk aversion
    • supported and understood by management
    • well communicated throughout all levels of the corporation
    • consistently applied in key decisions
    • monitored to detect when the corporation is acting outside the risk appetite.²⁹
45. Ensuring that the risks taken by management are consistent with the corporation’s risk appetite is critical to effective risk management. When management operates outside the risk appetite, action should be taken to stop the activity.³⁰

Risk management process

46. In broad terms, the process of risk management involves the following steps:
    • First, identify all the categories or types of risk that the corporation might face.
    • Second, analyse and evaluate the risks to understand their causes and potential consequences. The risks can then be prioritised and subject to risk treatment (that is, putting in place actions and controls to mitigate a risk).
    • Third, take the required action to address the risk. The action should be consistent with the risk appetite of the corporation. The object of the action might be to avoid the risk, to remove the source of the risk, or to accept the risk after making an informed decision.³¹

Risk governance

47. Risk governance, in its broadest sense, is the manner in which risk management is undertaken in a corporation, including how it manages risk, makes decisions taking into account the risks, and allocates the necessary resources so that appropriate action may be taken.
48. The ASX Corporate Governance Council has recommended that a listed entity should have a board subcommittee dedicated to overseeing risk. A risk subcommittee can:
    • monitor management’s performance against the corporation’s risk management framework, including its risk appetite
    • review breakdowns of material risks and ascertain what needs to be changed or improved in the risk management framework
    • review management reports about new and emerging sources of risk and the measures management are taking to deal with those risks.³²
49. The Hon. Kenneth M Hayne, AC, QC observed that a board cannot properly oversee risk without having the right information and without challenging management.³³ In 2019, the ASIC Corporate Governance Taskforce published its review into the governance of Australia’s largest financial institutions. It found that material information about the risk faced by those institutions was often contained in dense board packs or reports to the board where the key risks were difficult to identify.³⁴ It recommended that a large corporation should ensure that:
    • the risk committee has sufficient resources to discharge its mandate
    • the risk committee provides informed oversight and ensures that information received from management is adequate
    • the board engages in active oversight of management by probing and analysing information provided by management
    • clear and effective processes exist to escalate and deal with urgent material risks.³⁵
50. A recognised (though not universally accepted) framework for risk governance is the ‘three lines model’.³⁶ The board must oversee this model.³⁷
51. A brief explanation of the model follows.
52. The first line is the part of the organisation that provides the products or services to clients: the frontline team.³⁸ They are responsible for identifying, analysing, evaluating and treating risks to achieve the corporation’s objectives, and for escalating information about risk.
53. The second line comprises those responsible for overseeing the risk management compliance function. Their function is to ensure all appropriate risk factors are being implemented in accordance with policies. They should also analyse and report on the adequacy and effectiveness of risk management procedures.³⁹
54. The third line is an internal audit team that is independent of management. They provide independent and objective advice to management and the board on the adequacy and effectiveness of the corporation’s governance and risk management.⁴⁰

Root cause analysis

55. Root cause analysis is any systematic process that identifies the cause of an undesired event.⁴¹ The objective of the analysis is to determine whether the likelihood of the undesired event occurring, or the impact of the event if it does occur, can be tolerated.
56. The ASIC Corporate Governance Taskforce considers that root cause analysis is important for effective risk management. It recommends that management should undertake root cause analysis to identify underlying causes of recurring breaches of risk appetite.⁴²
57. The steps required to undertake root cause analysis are:
    • First, determine the need, purpose and scope of the analysis.
    • Second, collect information to establish the facts that led to the undesired event.
    • Third, analyse the potential causes.
    • Fourth, once the analysis is complete, validate the findings.

Risk culture

58. Risk culture is a term describing the norms and traditions of individual and group behaviour within an organisation that determine the way the organisation identifies, understands, discusses and acts on the risks the organisation confronts, and the risks it takes.⁴³
59. Risk culture influences the actions and decisions taken by individuals within an organisation and shapes the attitude of the organisation towards its stakeholders.
60. A sound risk culture supports appropriate risk awareness, behaviours and judgements about risk-taking in an organisation. It bolsters effective risk management, promotes sound risk-taking decisions and ensures emerging risks or risk-taking activities beyond a corporation’s risk appetite are recognised, assessed, escalated and addressed in a timely manner.⁴⁴ It is part of the broader culture of a corporation.

Culture

61. Culture is comprised of the shared values and norms that shape behaviours and mindsets within a corporation.⁴⁵ It influences how people operate within the corporation.
62. Culture is often considered at three intersecting levels:
    • the visible organisational structures and processes of the corporation
    • the espoused values: the strategies, goals and philosophies of the corporation
    • the tacit underlying assumptions (sometimes called ‘unwritten ground rules’) of the corporation.⁴⁶
63. These three levels are the essence of culture. They are comprised of the jointly learned values and beliefs that are taken for granted within a corporation.
64. Mr Hayne, QC, in his Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Banking Royal Commission Final Report), made the following general points about culture:
    • The culture of each corporation is unique and varies widely within different parts of the organisation.
    • There is no single ‘best practice’ for creating or maintaining a desirable culture.
    • Culture cannot be prescribed or legislated.⁴⁷

What is the right culture?

65. A good culture aims to create an environment that:
    • ensures adherence to basic norms of behaviour, including a requirement to obey the law, not to mislead or deceive, and to act fairly
    • reinforces judicious decision making that takes into account the interests of multiple stakeholders.⁴⁸
66. Second, a good culture will tend to be characterised by a shared sense of purpose across the organisation. There should be a strong alignment between this purpose and the values, incentives, structures and other policies and procedures of the organisation. This purpose must take into account changing societal expectations. Corporations are now expected to make a broader positive contribution to society and must do more than deliver a financial outcome.⁴⁹
67. Satisfying this expectation will require the corporation to minimise the harm caused by its activities. On the other hand, a toxic culture leading to corporate misconduct can affect consumer confidence in an industry. This can impede the overall performance of participants in that industry and the broader economy.⁵⁰
68. Third, a good culture is one where the directors and senior management clearly set out the expectations of the organisation and lead by example.
69. Fourth, a good culture stems from the capacity of management to appropriately manage, reward, incentivise, equip and communicate with those who work in the organisation.

Good culture in a casino

70. Unacceptable or unethical behaviour that violates social norms may well benefit a casino in the short term. Research indicates, however, that an ethical climate and a good organisational culture that reduces instances of inappropriate behaviour will produce long-term benefits.⁵¹
71. Evidence also indicates that cultural norms supporting an ethical climate contribute positively to the implementation of responsible gambling practices by employees. This also has positive flow-on effects for a casino. In an ethical climate, employees are more likely to be motivated and engaged in their work, and customers are more likely to gamble there.⁵²
72. If a casino takes seriously the pursuit of responsible gambling, first it develops a safety-oriented culture that has a forward-looking focus on the potential harms or risks resulting from its decision making. Second, it integrates responsible gambling into its business decisions so that those decisions are made having regard to the potential harm arising from gambling.⁵³

What makes a culture toxic?

73. A corporation has a toxic culture where it engages in long-term and systemic rule-breaking and damaging behaviour. Toxic behaviour is not limited to illegal conduct. It includes conduct that is plainly damaging or that promotes misbehaviour.⁵⁴
74. There are various reasons why a toxic culture might come about. First, a corporation may develop practices that normalise deviance from accepted standards. For instance, a corporation may be aware of the potential deviation from acceptable norms of conduct, but regard the action as ‘an acceptable risk’.⁵⁵ Deviations are particularly prevalent where the observable practices of the corporation diverge from what is formally expected of people within the organisation, whether under relevant laws or under the organisation’s formal policies or procedures.⁵⁶
75. Second, a corporation may enable toxic behaviour by neutralising unacceptable conduct. This occurs when the corporation denies that harm is caused by its actions or denies responsibility for that harm. It will also occur if the corporation asserts that the victim deserves the harm.⁵⁷
76. Third, a corporation may make it easier to engage in toxic behaviour. This occurs when the impugned conduct is concealed within the structure of the corporation or where there is inadequate internal oversight. It may also occur where employees are left with substantial discretionary power and rule-breaking is condoned or rewarded.⁵⁸
77. Fourth, a corporation may obstruct rule-following when the culture is toxic and the corporation:
    • is unwilling to act when misconduct or harm-causing action occurs (allowing rule-breaking to occur without critique); or
    • fails to assess the causes of misconduct or harm-causing actions and fails to implement the changes necessary to prevent the misconduct or action occurring in the future.⁵⁹
78. Fifth, a corporation may impose undue stress on its employees, which can lead to employees engaging in toxic behaviour. Stress may arise from pressure to meet the objectives of the corporation or an inability for employees to meet those objectives without resorting to toxic behaviour.⁶⁰

How can culture be changed?

79. Cultural norms provide predictability about how a corporation operates. The innate human desire for stability suggests that culture can be difficult to change.⁶¹
80. To bring about change, a corporation must form a view of its culture, identify problems, develop and implement a plan to deal with them, and determine whether the planned changes can be effective.⁶² These are the steps that should be followed:
    • Undertake a deep analysis of the structures, values and practices that contributed to the toxic behaviour, in order to understand their causes.
    • Develop an ethical and compliant tone at the top of the organisational hierarchy (the board) with a clear and specific cultural direction that the corporation must pursue. This may require the recruitment and promotion of managers who will pursue this direction, and clear communication throughout the corporation that reinforces the new norms.
    • Change the tangible structures (for example, artefacts) in the corporation to reinforce the new norms.
    • Change the values and practices of existing employees.⁶³
81. This last step is one of the most critical. A toxic culture cannot be repaired merely by punishing or replacing the executives and the actual wrongdoers. There must be a true change in the values and practices of the corporation. This will require the corporation to demonstrate to employees that it is ready to learn new values and practices. It may be appropriate for employees to participate in decision making regarding issues that concern corporate culture.⁶⁴
82. Cultural change is unlikely to occur if employees doubt whether their leaders are capable of effecting change.⁶⁵ Initiatives to change culture need to take place at all levels within the organisation and may, accordingly, take years to bring into effect.
83. This highlights how important it is for the leadership to speak honestly and responsibly about the need for cultural change. This will be a difficult task if the leadership (including senior management) was responsible for creating the toxic culture.⁶⁶ Nonetheless, if those leaders cannot be open and honest about their conduct, it may only be possible to bring about cultural change by changing the leadership.

What culture should a casino operator adopt?

84. This is not a difficult question. It simply requires a statement of the appropriate norms of conduct to which a casino operator should conform. It will include norms of conduct or standards imposed by the law and norms of conduct that are expected by the community. They are to:
    • 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.