Chapter 16

The powers of the regulator

Introduction

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

Investigation power

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

Supervision power

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

Oversight of the casino floor

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

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

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

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

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

A problematic casino operator

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

42. The Commission has also closely analysed several investigations that the regulator carried out into the affairs of Crown Melbourne. The details are in Chapter 10. What is apparent from that analysis is that, to more effectively carry out its inquiries, the regulator needs additional powers.

Special Manager

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

48. If the previous recommendations are accepted, then the following should apply in respect of the appointment of the Special Manager.

Powers on cancellation and suspension

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

58. Finally, on this aspect it is noted that if the casino licence is cancelled and the State wishes to grant a casino licence to another person, the State can require Crown Melbourne to grant to the new casino operator a sub-lease of the Melbourne Casino.⁵⁰
59. Through a complicated set of definitions, the area over which the sub-lease is to be granted is identified by a set of drawings that were initialled by, or on behalf of, the State and Crown Melbourne when the Management Agreement was entered into in 1993.
60. The area in which the casino operations are presently conducted no longer conforms with the 1993 drawings, although, of course, appropriate permissions were obtained from the regulator to extend the casino area from time to time.

Penalties

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