Suitability and the public interest
- This chapter will deal with two central issues raised by the Terms of Reference. First, whether Crown Melbourne is a suitable person to continue to hold its casino licence. Second, in any event, whether it is in the public interest for Crown Melbourne to continue to hold its casino licence.
- A related issue, whether any associate of Crown Melbourne is a suitable associate, is considered in Chapter 20.
- An application for a casino licence cannot be granted unless the regulator is satisfied that the applicant and each associate of the applicant is ‘a suitable person to be concerned in or associated with the management and operation of a casino’.1
- Once granted, a casino licence may be cancelled or suspended if the casino operator is no longer suitable to hold its licence or it is no longer in the public interest for its licence to remain in force.2
- In 1997, the regulator obtained the advice of senior counsel on the meaning of ‘suitable person’ and ‘public interest’.3 Extracts from those opinions are set out in Appendix H. That Appendix also extracts the discussion of the meaning of ‘suitability’ from the Bergin Report.
- It is appropriate to say a little more about each of these concepts.
- ‘Suitable person’ is not expressly defined in the Casino Control Act. There are, however, statutory criteria that describe the attributes of a ‘suitable person’. They include that:
- the person is of good repute, having regard to character, honesty and integrity
- the applicant has sufficient business ability to establish and maintain a successful casino
- the person has adequate financial resources to operate a casino
- the person’s associates are of good repute
- each person connected with the casino business is also suitable.4
- The suitability requirement came from the concern that criminal elements may infiltrate a casino.5 It is clear, though, that ‘suitability’ involves much broader considerations. This is plain from the requirement in the Casino Control Act that, in considering suitability, other factors must be taken into account. The most important of those factors are the casino operator’s character, honesty and integrity, and its financial standing.6 Another important factor is the suitability of the directors and officers involved in the administration of the casino’s operations.7
- Critical to any inquiry into an applicant’s suitability for a casino licence is whether they are of ‘good character’. Character is an elusive concept. It can be seen indirectly through a person’s acts and deeds, and is understood as being indicative of future conduct.
- The New Jersey Casino Control Commission, in determining the suitability of an applicant for a casino licence, said:
[W]e conceive character to be the sum total of an individual’s attributes, the thread of intention, good or bad, that weaves its way through the experience of a lifetime … We must focus particularly on those attributes of trustworthiness, honesty, integrity and candor which are relevant to our inquiry.8
- Ms Bergin, SC said that a suitable person is a person who ‘possess[es] “high standards of conduct” and act[s] in accordance with those standards under pressure’.9
- The typical assessment of suitability entails looking for evidence of misconduct and, if it exists, asking what conclusion may be drawn. It is also possible from these cases of misconduct to draw up a list of factors that, either individually or collectively, may indicate that a casino operator is unsuitable to hold a casino licence. Such a list would include:
- misleading a licensing authority10
- failing to cooperate with a regulator during an investigation11
- previous criminal conduct, especially conduct that arose while carrying out functions permitted by the licence12
- failing to comply with relevant statutory requirements that regulate the licensed activities.13
- This approach is satisfactory when considering a new applicant for a casino licence. The information that is available will be about the past life or past corporate conduct of the applicant. That information will enable an assessment to be made of what may happen in the future.
- A different approach is preferable when considering whether an existing casino licensee continues to be suitable to hold its licence. This approach will look more broadly at the licensee’s conduct as a casino operator.
- Elsewhere in this Report there is a statement of what are the appropriate norms of conduct to which a casino operator should conform.14 They are worth repeating. A casino operator must:
- obey the law
- act honestly
- deter illegal and immoral behaviour that might take place in a casino
- not exploit people who come to the casino to gamble
- take active measures to minimise the harm caused by gambling
- cooperate fully and candidly with the regulator and with government.
- Whether or not there has been adherence to these norms is a better guide to suitability than considering isolated examples of misconduct to see whether, when considered in aggregate, they tell something about the future. So, if a casino operator infringes any one of the norms, it is on the road to unsuitability. If a casino operator infringes several of the norms, the end of the road is near. If a casino operator has infringed most of the norms, the journey is at an end.
- In the process of assessing suitability, it is necessary to recognise that a casino operator, such as Crown Melbourne, is a corporation. So, in effect, it is the conduct of its directors, officers and employees that is under consideration.
- The traditional approach is to recognise that a corporation can only act through its directors, officers and employees. Its moral responsibility (that is, its integrity, good character and the like), and its corporate culpability, are usually measured by the conduct of those who lead the organisation.15
- This approach has been justifiably criticised in examinations of corporate responsibility. The submission by Dr Elise Bant, Professor of Private Law and Commercial Regulation at the University of Western Australia Law School, contends that the traditional approach ‘is unduly restrictive and, arguably, runs counter to the more recent trend of corporate theory and regulation of corporations in Australia’. She goes on to say that ‘corporate culpability is not merely to be equated with the character and morals of its leading officers although, of course, they may be important factors’.16
- Dr Bant’s thesis is that, for the purpose of determining corporate culpability, the mind of a corporation is shown in its systems, policies and patterns of behaviour. She said that it is the corporate culture of a firm that may direct, encourage, tolerate or lead to non-compliance with relevant laws. By corporate culture, Dr Bant means ‘an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities take place’.17
- In other words, the traditional approach to assessing suitability is too narrow. It does not acknowledge that many organisational decisions are more than the combination of individual choices and actions.18 It is the systems, strategy, structure and culture of the corporation that can either cause or inhibit corporate misconduct.
- Other researchers have identified that defective organisational ‘“structures” and “information” and “decision-making” procedures may result in irrationalities, group think, flawed risk perceptions or secrecy with regard to misconduct’.19
- This line of thinking seems to have influenced Mr Hayne, QC in his Banking Royal Commission Final Report. He said:
Failings of organisational culture, governance arrangements and remuneration systems lie at the heart of the misconduct examined in this Commission.20
- Ms Bergin, SC has a more narrowly focused view. She proceeded on the basis that ‘a company’s suitability may ebb and flow with changes to the composition of the company’s Board and Management, and others who influence its affairs, over time’.21 The assumption here is that by simply changing those who control the corporation, it is possible to change the company’s suitability.
- As posited by Dr Bant, the true position is more complicated. If the corporate systems or corporate culture tolerate wrongdoing, merely changing the personnel will not suffice. In that event, it will be more important to assess whether there has been a sufficient change in the organisation’s hierarchy, corporate goals, systems and policies to be satisfied that there will be full compliance with all applicable rules and regulations.
- Turning to the operational capacity of the casino operator, both the past and present must be considered. That will require an historical analysis of the casino operator’s business dealings and management coupled with an assessment of the casino operator’s current financial position.
- The key question usually is not whether the casino operator is struggling and might seek capital from organised crime.22 That will be a significant issue. In reality, though, the main question will be whether the casino operator has the operational resources and capacity to run a casino. If the casino operator is under financial stress, it might be tempted to cut corners in the honest and fair delivery of gambling services or seek financial aid from the wrong places.
- The term ‘public interest’ is of ‘broad import’.23 When used in a statute, it usually requires a discretionary value judgement to be made by reference to undefined matters confined only by the particular purpose for the inquiry.24 Whether or not something is in the public interest requires the decision maker to examine the matter from the perspective of the public at large, or of a significant portion of the public. Here, the purpose of public interest is the maintenance of public ‘confidence and trust in the credibility, integrity and stability of casino operations’.25
- It involves consideration of the broad interest of the community, regardless of whether acting in the community’s interest disadvantages the casino operator’s private interest.26
- While the definition of public interest in relation to a casino operator refers to the credibility, integrity and stability of casino operations, the task of assessing whether it is in the public interest for a particular casino operator to continue to hold a casino licence is different. It requires an assessment of whether the casino operator’s conduct (and the conduct of those who control it) has adversely affected the public confidence and trust in the casino operations.27
- The reference to public confidence is to local confidence, which will be grounded in local community standards. Those standards will change over time and will be affected by matters that have received both adverse or positive publicity.28
The suitability of Crown Melbourne
- It is no exaggeration to say that news reports of what has been discovered by the Bergin Inquiry and what has come to light during the hearings of this Commission will have shocked the public as they gained a picture of the extent and gravity of Crown Melbourne’s misconduct:
- criminals were allowed to gamble at the casino
- money laundering flourished
- millions of dollars in taxes were not paid
- wealthy Chinese patrons were assisted in illegally transferring up to $160 million in funds from their country
- the regulator was bullied and its investigations frustrated because it was fed misleading information
- employees’ liberty and safety were put at risk, and some employees were jailed
- other employees, at the Crown Towers Hotel, were instructed to falsify documents
- vulnerable gamblers were encouraged and enticed to continue gambling beyond their means
- tragically, the lives of many gamblers have been ruined.
- These were not isolated instances of misconduct. They were part of a pattern of disgraceful behaviour that has been going on for over a decade.
- Why did it happen? How was it allowed to happen?
- It is likely that the complete truth will never be known. What can be said is that senior executives within Crown Resorts and Crown Melbourne allowed the misconduct to occur and, on many occasions, instigated the wrongdoing. And, worst of all, the misconduct involved all levels of the organisation.
- The board must take considerable responsibility. One of the board’s main functions is to make sure the organisation meets its legal and regulatory obligations. That basic duty seems to have been overlooked.
- In their evidence before the Bergin Inquiry, as well as before this Commission, some directors claimed that the misconduct occurred without their knowledge. They pointed to a failure by senior executives to inform the board of what was going on. Others said that the board was not given accurate information.
- There may be some truth to these claims. At the same time, it paints a picture of an ineffectual and incompetent board: a board that was not carrying out its duties. It is unacceptable for a board not to know anything about the litany of the company’s wrongdoings over a sustained period.
- Senior executives also were plainly at fault. They were responsible for the day-to-day affairs of the organisation. It was their job to make sure that all legal and regulatory obligations were, in fact, satisfied.
- What is now known is that many senior executives were personally involved in the wrongdoing. Some knew that improper action was proposed and authorised it to go ahead. Others suspected wrongdoing but did nothing to prevent it from happening.
- It is open to conclude that the actions of certain senior executives were so unsatisfactory that they should no longer have any role in the affairs of a public company.
- Finally, it is not possible to ignore the ordinary employees. Most Crown Melbourne employees are honest people. Some are not. Many gambling hosts took advantage of their vulnerable clients. They knew some clients could not afford to gamble, yet they encouraged and enticed them to keep going.
- Identifying who was responsible for the wrongdoing does not fully explain why things went wrong. That is a difficult task, but some explanations are possible. There are two standout reasons that help explain why wrongdoing occurred and also the extent of the wrongdoing.
- The first is the prioritisation of profit over all other considerations, including the wellbeing of Crown Melbourne’s customers and staff. It is Crown Melbourne’s pursuit of profit that led to patrons connected with organised crime being permitted to come to the casino to gamble. It is Crown Melbourne’s pursuit of profit that led to the underpayment of casino tax. It is Crown Melbourne’s pursuit of profit that resulted in overseas staff being told to engage in potentially illegal action. It is Crown Melbourne’s pursuit of profit that led to the arrest of the 19 China-based staff and that put at risk those working in other countries. Finally, it is Crown Melbourne’s pursuit of profit that led to its dereliction of the duty owed to customers experiencing distress because of problem gambling.
- It is too simple, and probably unfair, to state that CPH (Mr James Packer’s company) was the driving force behind Crown’s pursuit of profit at all costs. CPH and Mr Packer obviously played a key part, as the Bergin Inquiry found. So also did the CPH appointees to the boards of Crown Resorts and Crown Melbourne. During their tenure, they ‘captured’ the independent directors and were a harmful influence, as the Bergin Inquiry also found. But many other Crown executives were of the same mindset.
- It is also too simple to explain what happened by reference only to profit maximisation. There is a second, and more insidious, cause at play. It is that Crown Melbourne took a risk based approach to legal and moral obligations. That approach focused more on the chance of getting caught (and preparing defensively for that event) than on the need for compliance with the law and adherence to ethical standards and community expectations.
- This approach is what Mr Oliver Wendell Holmes, the great American jurist, referred to as the ‘bad man’s’ view of legal rules: the rules are the price discounted by sanctions—or to reduce it even further, by the probability of the enforcement of sanctions.29 That is, laws are not norms of conduct but tariffs on conduct.30
- Many senior executives adopted this mindset. Their decision whether or not to engage in improper, or probably improper, conduct was made by considering the chance of discovery and sanction. If these executives thought Crown Melbourne would get away with improper conduct that was otherwise beneficial, they did not hesitate in going ahead. It was only when conduct was plainly unlawful that it was rejected.
- However, it is not only the executives who were at fault. The lawyers (both in-house and external) played their part. It is only necessary to refer to a few examples to make the point.
- There were occasions when Crown Melbourne was investigated by the regulator. Some investigations concerned alleged wrongdoing. Strategies were adopted to thwart and frustrate the regulatory process. All too often, these strategies were devised by lawyers or, at least, they were willing accomplices.
- Other examples are the CUP money transfer affair and the underpayment of casino tax. Each had lawyers closely involved. Crown Melbourne’s in-house legal team knew that each activity was improper, if not worse. Yet their approach was to devise arguments that, if Crown Melbourne were caught, could be put forward to reduce its culpability. Language such as ‘We could argue in reply (if the matter arises) that …’ (Ms Michelle Fielding on the CUP affair)31 or ‘One can argue that these types of rewards are a “bonus”’ (Ms Debra Tegoni on the Bonus Jackpots deductions)32 finds its way into many of their opinions.
- At no point did any lawyer say, ‘This is improper’ or ‘A regulated entity must always remain suitable, and consistent with the privilege it has been given, should not engage in this type of conduct’.
- Not only did the in-house lawyers fail to take this position, but Mr Richard Murphy, an external lawyer, justified the approach. He was asked whether Crown Melbourne should have been told not to engage in conduct that was potentially illegal. Mr Murphy’s answer was: ‘I didn’t see that to be my role as the external lawyer. My role was to help them appreciate what the laws were’.33
- When asked whether it made any difference that the client had special responsibilities and that the legislation under which it operates requires it to be ‘super perfect’, Mr Murphy responded: ‘Again … I didn’t see it to be my role to be telling them what they should or shouldn’t be doing’.34
- This is a rule of conduct that lawyers have devised for themselves. But the rule is merely an assertion. It is not an explanation. It begs the question what the lawyer’s role should be when it is plain that their client intends to engage in improper or illegal conduct.
- A lawyer need not simply be an agent of their client. The lawyer is by their training and vocation committed to the law. The lawyer is part of the system charged with upholding the law. That is the reason why the lawyer should have some obligation, perhaps best characterised as a moral obligation, to see that their client obeys the law.
- Put more directly, rather than a lawyer simply advising a client whether a given course of action is completely legal, in an appropriate case (and whether the case is appropriate will usually be self-evident) the lawyer could ask their client of the proposed conduct: ‘Is it right?’, ‘Is it honest?’ and ‘Does it thwart the purpose of the law?’35
- To give moral advice is not to impose it. It may be nothing more than a trigger for a useful or necessary reconsideration of a course of action.
- If the lawyers who were involved in Crown Melbourne’s misconduct had adopted this attitude, much of what has happened, and most of the dishonourable conduct, would not have occurred.
- Coming back to the question of whether Crown Melbourne is suitable to continue to hold its casino licence, when taking into account the dishonourable conduct that has been identified, it is simply not possible to describe Crown Melbourne as an entity of good repute having regard to character, honesty and integrity—the central requirement of suitability for a casino licensee.
- The failings—or, more accurately, the serious acts of misconduct—are breaches of almost every one of the norms of conduct that Crown Melbourne is required to observe. It has not obeyed the law. It has not acted honestly. It has exploited vulnerable individuals. It has not cooperated with the regulator or with government.
- The only contention in favour of suitability that is put forward by Crown Melbourne is, in effect, that it is a new organisation that has cast aside its troubled past.
- It is true that there have been significant changes to the boards of Crown Resorts and Crown Melbourne. Most of the old directors have gone. The new directors are honest, reputable and appropriately skilled people.
- There have also been significant changes at the senior management level. The new managers are also honest, reputable and appropriately skilled people.
- A significant remediation and reform program was introduced, probably beginning in the latter part of 2020, and its progress (at least in some respects) is well underway. The remediation and reform program deals with governance and organisational restructure, the VIP International business, new risk management controls for AML and cultural reform.
- All these steps are important. If Crown Melbourne is to have any chance of retaining its casino licence, they are plainly necessary.
- It may be accepted that past misconduct does not always determine the present suitability of a licensee. The gravity of the past misconduct, the extent of the past misconduct, how recently that misconduct occurred and its consequences are obviously factors (and very important factors) to be taken into account.
- Also relevant is the licensee’s recognition of its past wrongs and its promise to redress the causes of its past failings through appropriate reforms.
- Where the past failings are acknowledged and promises of reform are made, it is also necessary to take into account the amount of work required to redress the underlying causes, the time it will take to remedy or remove those causes, and the level of uncertainty about the success of any reform program.
- The Commission acknowledges that a careful balance must be struck in weighing past conduct against present expressions of contrition and promises to improve.
- With Crown Melbourne, however, it is simply impossible to sustain a finding of present suitability.
- At its most basic, Crown Melbourne’s submission is that, despite the obvious seriousness of its past misconduct, it can be trusted to implement the changes required to achieve a satisfactory level of operation.
- This submission places too little weight upon the gravity, extent and recency of its misconduct than the facts would reasonably permit. Crown Melbourne’s conduct is of the most egregious kind and it involved systemic and repeated failings in relation to a wide range of activities.
- Without unduly going over ground covered elsewhere, it is only necessary to mention the facilitation of money laundering and the association with people connected with organised crime to show the gravity of the misconduct. It is also impossible to forget the indifference Crown Melbourne displayed to the wellbeing of its customers vulnerable to gambling harm; and that it underpaid millions of dollars of casino tax because it was thought the underpayment could be hidden from the regulator.
- The submission also fails to acknowledge sufficiently that Crown Melbourne is in a position where it has no choice other than to undertake the most thorough review and implementation of appropriate reforms. It has not embarked upon that course voluntarily.
- Last, the submission pays insufficient regard to the fact that, according to the evidence given by its own experts, Crown Melbourne’s reform program is far from straightforward, far from simple and far from complete. This is, at least in part, the result of the magnitude of wrongdoing, the problems Crown Melbourne must address and the size of the task involved to remedy them.
- Achieving real and sustainable change in organisational behaviour from the kind of culture that has existed at Crown Melbourne for a decade or more presents significant challenges in and of itself.
- Properly understood, the evidence makes plain that the reform program is in its very early stages. It may or may not be successful. And, if successful, it may take considerable time to achieve.
- It would be wrong to say, and the Commission does not say, that it is impossible for Crown Melbourne to achieve the reforms it proposes. On the contrary, it is quite possible that, with the required dedication, reform will be achieved.
- But that is not the test. The Casino Control Act requires that a licensee be suitable to conduct the business of a casino. The test is not that the licensee might become suitable at some future point.
- When regarding the extent of the misconduct that has occurred over the past 10 years, the seriousness of that misconduct and the harm that misconduct caused, to now hold Crown Melbourne to be suitable on the basis that it has begun a serious and earnest reform program would be to undermine a central element of the licensing framework.
- The evidence, when considered and weighed, only admits of one conclusion: Crown Melbourne is not a suitable person to continue to hold its casino licence.
- In light of this finding, there is no need also to consider whether it is in the public interest for Crown Melbourne to hold its casino licence.
1 Casino Control Act 1991 (Vic) s 9(1).
2 Casino Control Act 1991 (Vic) s 20(1).
3 See VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4–6; VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 49; VCGA, Third Triennial Review of the Casino Operator and Licence (Report, June 2003) 33.
4 Casino Control Act 1991 (Vic) s 9(2).
5 See the discussion in Chapter 2.
6 Casino Control Act 1991 (Vic) ss 9(2)(a)–(b).
7 Casino Control Act 1991 (Vic) s 9(2)(g).
8 In Re Bally’s Casino Application (1981) 10 NJAR 356, 393.
9 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 337 , citing Prothonotary of the Supreme Court of New South Wales v Da Rocha  NSWCA 151, .
10 In Re Mayers and Casino Surveillance Authority (1993) 29 ALD 585.
11 NSW Bar Association v Thomas (No 2)  18 NSWLR 193, 206.
12 See, eg, Legal Services Board v Bourozikas  VSC 382; Law Institute of Victoria v Gough (Unreported, Supreme Court of Victoria, Hansen J, 10 February 1995) 14; Petracaro v Commissioner of Consumer Affairs (1994) 62 SASR 387.
13 See, eg, Tsaganas v Building Practitioners Board (No 2) (Review and Regulation)  VCAT 2151; Victorian Building Authority v Tsaganas  VSCA 248; Stasos v Tax Agents’ Board (1990) 21 ALD 437.
14 See Chapter 4.
15 In the Matter of Wynn MA, LLC, Massachusetts Gaming Commission, 30 April 2019.
16 Submission 49 University of Western Australia Law School, 17 May 2021, 5.
17 Submission 49 University of Western Australia Law School, 17 May 2021, 7.
18 Exhibit RC1545 Article: The Organization of Corporate Crime: Introduction to Special Issues of Administrative Sciences, 2018.
19 Exhibit RC1545 Article: The Organization of Corporate Crime: Introduction to Special Issues of Administrative Sciences, 2018, 38.
20 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Final Report, February 2019) vol 1, 412.
21 Exhibit RC0970 Bergin Report Volume 2, 1 February 2021, 338 .
22 Bergin Inquiry Transcript (Rose), 25 February 2020, 170–1.
23 ICM Agriculture Pty Ltd v The Commonwealth (2009) 240 CLR 140, 162 .
24 ICM Agriculture Pty Ltd v The Commonwealth (2009) 240 CLR 140, 162 .
25 Casino Control Act 1991 (Vic) s 3 (definition of ‘public interest’ or ‘interest of the public’).
26 Cf Comalco Aluminium (Bell Bay) Ltd v O’Connor (No 2) (1995) 131 ALR 657, 681.
27 VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4–6. An extract of David Habersberger’s advice is set out in VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000) 54–5 (at Appendix 3) and in Appendix H of this Report.
28 VCGA, First Triennial Review of the Casino Operator and Licence (Report, June 1997) 4. An extract of Ms Crennan’s advice is set out in VCGA, Second Triennial Review of the Casino Operator and Licence (Report, June 2000), 49–54 (at Appendix 3) and in Appendix H of this Report.
29 Exhibit RC1600 Article: The Path of the Law, 1897.
30 Exhibit RC1609 Article: The Internal Point of View in Law and Ethics: Introduction, 2006, 1145.
31 Exhibit RC0263 Email chain between Matt Sanders and Jason O‘Connor et al, 11 September 2012, 2.
32 Exhibit RC0818 Email from Peter Herring to Joshua Preston, 5 June 2018, Annexure d, 3 .
33 Transcript of Richard Murphy, 29 June 2021, 2888.
34 Transcript of Richard Murphy, 29 June 2021, 2889.
35 Exhibit RC1616 Article: Moral Counseling, 2006, 1317, 1333.
Reviewed 25 October 2021