Embattled gaming operator Crown Resorts caught a break last week when Australian regulators agreed that its Melbourne casino may continue to do business, despite findings that the operator broke the law, permitted money laundering and dodged its tax obligations.
The break comes with conditions. Crown may operate its flagship casino only under the supervision of a government-appointed special manager who will ensure a climate of reform. And if it doesn’t prove itself worthy in the next two years, its license could be revoked.
In a statement, the Victorian government said, “The special manager will have unprecedented powers to oversee Crown, veto decisions of the board and have unfettered access to all areas of the casino and its books and records. This is an unprecedented step in Australian corporate oversight.”
Losing the Melbourne casino license would be a major blow to Crown, which has already failed to get the permit to run its brand new casino in Sydney.
According to the Wall Street Journal, in the mid-2010s Chinese high rollers routinely evaded Chinese rules on overseas money transfers by patronizing Crown casinos both in Melbourne and in Perth, Western Australia. “They could visit a hotel (and) have Crown put a fake hotel charge on certain credit and debit cards, and then visit the casino to collect their money,” the report stated.
Recently appointed Crown CEO Steve McCann (l.) has vowed to do the heavy lifting necessary to pull the company back from the brink of dissolution. He said in a statement, “We are embracing the challenges ahead of us as we work to restore our reputation and we will get this right. We will be a better Crown.”
Under the government’s direction, billionaire media heir James Packer, Crown’s largest shareholder with 36 percent of the company, must slash his stake to about 5 percent by September 2024. Limiting the ownership of casinos will prevent undue outside influence, while ensuring the independence of the casino operator’s board and senior management.
In a 652-page report, the commission also recommended raising the maximum penalty for breaching casino legislation to AU$100 million (US$101 million) from just AU$1 million. The new legislation also establishes a new body, the Victorian Gambling and Casino Control Commission, to regulate the Melbourne casino.
McCann said, “We are working cooperatively and constructively with the regulatory processes that are underway in Victoria, New South Wales and Western Australia, and firmly believe these processes are accelerating our reform program and helping Crown emerge as a stronger and more transparent company.”
Commissioners didn’t pull their punches in statements about Crown, calling its behavior “disgraceful” and its practices “variously illegal, dishonest, unethical and exploitative.”
But Commissioner Ray Finkelstein acknowledged that revoking its license would have far-ranging effects on the local economy, on innocent employees and on shareholders.
The special manager has been identified as Stephen O’Bryan QC, a former commissioner with the state’s anti-corruption commission. At the end of the next two years, he will prepare a report for the new regulator that will help determine if Crown keeps its license.
It’s been widely acknowledged that the previous regulators share responsibility for the Crown fiasco. “It is the failure of regulation, and the politics that sit behind it, that made the Crown Melbourne debacle possible, and perhaps inevitable,” wrote Forbes. The story said political influence has been “a key feature of its business model. Politically and socially well-connected directors and staff were recruited, clearly with an eye to their ability to influence governments. Their aim, it seems, was to make Crown too big to be regulated. They seem to have succeeded.”
Crown’s second chance is good news for the country’s second largest casino company, Star Entertainment Group, according to JP Morgan analysts. Star has been accused of similar misconduct, and the response of the government to Crown’s woes can be seen as a sign that Star too will enjoy some leniency. “The likelihood of an adverse outcome impacting trading from the NSW public inquiry is low,” wrote analysts Don Carducci and Michael James.
An article in Asia Gaming Brief described Star “as the more well-behaved sibling,” but did not suggest it would evade punishment, depending on the results of its own inquiry. “Crown has already endured two years of having its skeletons dug out of the closet after countless inquiries and royal commissions,” according to AGB. “For the Star, the journey may have only just begun.”
