Devastating revelations about breakdowns in anti-money laundering and junket controls at Crown Resorts played out at a contentious annual general meeting late last week at which shareholders voted strongly against the re-election of three of the company’s directors.
On the heels of a scathing inquiry by regulators in New South Wales that has the future of the company’s A$2.2 billion Crown Sydney twisting in the wind, it was only the voting clout of James Packer’s controlling 36 percent of the stock that saved the trio Guy Jalland, Jane Halton and John Horvath from being shown the door.
Halton was rejected by 24.8 percent of shareholders at the October 22 gathering, which was held virtually. Horvath was rejected by 31.3 percent. Jalland, Packer’s second in command as chief executive of the tycoon’s Consolidated Press Holdings, was voted down by 41.4 percent.
Significantly, more than one-third of shareholders also voted down the executive remuneration report, a “first strike” under Australian corporate law that could result in the ouster of the entire board if it fails by a vote of 25 percent or more at next year’s meeting.
Taking the hint, Horvath, Crown’s deputy chairman and the longest-serving of the three, plans to retire, the company said. So will John Alexander, another long-time director who decided not to seek re-election. Both have had close ties to Packer. Horvath was personal physician to Packer’s father, the late Kerry Packer, who founded the family media empire and Crown Resorts. Alexander was a top executive with the media group and was named executive chairman after Packer resigned the position and quit the board in 2016. He resigned as chairman in January in the wake of an explosive series of reports in the national media exposing how the company ran the VIP business at its flagship Crown Melbourne casino in league with junkets with alleged criminal ties and with lax cash controls potentially rife with money laundering.
Horvath and Alexander were among a parade of Crown executives and directors who have been grilled during hearings this month before the New South Wales Independent Liquor & Gaming Authority, which has responded to the media reports with an investigation into the company’s suitability to keep its Crown Sydney license.
Much of the media spotlight was trained on Macau junket giant Suncity, whose parent company trades on the Hong Kong Stock Exchange and whose chairman, Alvin Chau, was identified in a 2017 AUSTRAC report to Crown as a “foreign politically exposed person” who had a “substantial criminal history,” which, according to a 2016 report by investigators acting on behalf of Crown, included one-time membership in the Macau branch of Hong Kong’s notorious 14K triad.
Despite this information Crown contracted with Suncity to operate a private VIP gaming room at Crown Melbourne where 2017 footage leaked by Tasmanian independent MP Andrew Wilkie showed tens of thousands of dollars in cash being taken from a bag and exchanged for chips and where a separate Crown audit discovered $5.6 million in unreported cash stored in a cupboard, prompting the company to ban Suncity from operating its own cash exchange desk.
Suncity closed the room, and one at Crown Perth, late last year after the media reports came out.
Chau currently is barred from entering Australia.
In two days of testimony before the ILGA last week, Crown Chairwoman Helen Coonan, an attorney and former senator and government minister, conceded the company had “enabled” money laundering at Crown Melbourne but blamed it on “ineptitude” rather than the company deliberately “turning a blind eye” to criminals banking illicit cash at the property.
She said also the company had suspended all dealings with its junket operators as of last month, effectively cutting off upwards of one-third of its gaming revenues, although with Crown Melbourne under Covid-19 closure the potential impacts aren’t likely to be felt for a while.
In her AGM address, Coonan, who succeeded Alexander in January, said that should those relationships be resumed it will be only after “extensive consultation with regulators regarding significantly enhanced due diligence processes.”
Australia’s financial crimes watchdog AUSTRAC, in the meantime, has launched its own probe into Crown’s compliance, or lack thereof, with the country’s anti-money laundering and counter-terrorism financing laws.
“We have some serious concerns, and junkets are certainly one of those concerns,” AUSTRAC Chief Executive Nicole Rose said.
Packer, who no longer holds an official position with the company, testified earlier this month from his super-yacht in the South Pacific and came in for sharp criticism for his 2019 attempt to unload a chunk of CPH stock to Melco Resorts & Entertainment, Crown’s former casino partner in Macau. The $1.7 billion deal, amounting to 19.9 percent of Crown’s equity and reportedly negotiated by Jalland, could have violated the terms of the Crown Sydney license because of Melco’s ties Macau casino tycoon Stanley Ho, who died earlier this year and was persona non grata in Australian gaming for his reputed relationships with criminal organizations in China and Hong Kong.
Executives and directors also have been hammered with questions about a disastrous 2016 affair in China in which 19 Crown staffers were jailed for violations of the country’s prohibitions on recruiting its citizens to gamble.
“What we have heard in the inquiry reflects poorly on the board as a whole,” said Louise Davidson, chief executive of the Australian Council of Superannuation Investors, a powerful advisory group to the country’s fund giants. “A number of long-serving directors should be considering their position in light of what has emerged.”
In her AGM address, Coonan “unreservedly apologized” to shareholders for the breakdowns in governance and risk management and promised more independent directors and a restructuring of senior management to make room for a new department of Compliance & Financial Crimes and the appointment of new heads for Culture & Human Resources, Internal Audit and VIP Operations.
“In all of its history, Crown has never faced adversity like we are now,” she said. “But I’d like to reassure all our investors, stakeholders and staff that the board is determined and willing to learn from the past.”
Surprisingly enough, that past has claimed only one C-suite casualty to date: Barry Felstead, CEO-Australian Resorts, a key player in the VIP trade who also was implicated in the 2016 China fiasco and will be stepping down the end of this year.
Ken Barton, the longtime CFO who was promoted to chief executive in January, appears to have emerged unscathed from revelations of his involvement in several bank accounts that were used for hundreds of suspicious transactions and which he sought to keep open even after banks wanted them closed over money laundering concerns.
In her testimony before the ILGA, Coonan expressed disappointment in what she termed Barton’s poor judgment in connection with the accounts. She also voiced her confidence in him as the executive most qualified to right the ship.
“I think that Mr. Barton has shown a keen appreciation of the need for change,” she said. “He’s the best person to drive those (changes) together with the board’s supervision.”
The hearings also have laid bare a history of rampant insider dealing which the board has since sought to address by terminating a pair of extraordinary agreements with CPH: one that paid CPH executives for consulting services and a “controlling shareholder protocol” that allowed Crown executives to routinely share confidential company information with Packer, including privileged information about profit forecasts that also were provided to Melco during the abortive share-sale negotiations.
“The confidential board-approved process of providing daily financial reporting to CPH is something we have not seen before in an ASX200 company and we hope that we never see it again,” Davidson said.
According to news reports, the consulting agreement netted CPH executives $3.5 million in 2018-19 and $1.2 million in the latest financial year, including payments to Crown director and CPH Finance Director Michael Johnston for work that involved probity checks on Crown Melbourne’s controversial junket partners and then reviewing that work in his role as a board member.
It was Supreme Court judge Patricia Bergin, who is heading the ILGA inquiry and is due to report her findings in February, who last week called Crown Sydney’s scheduled December 14 opening into question for the first time, asking Halton whether Crown had considered “that it may be perhaps inappropriate to open a casino which is the subject of a suitability inquiry?”
“I’m very aware that your report is due in February,” Halton replied. “In terms of that delaying the opening, no, that’s not something I’m aware of having been discussed.”
“I’m not talking about the opening of the building and the opening of the restaurants and all the other wonderful aspects,” Bergin continued. “Has any thought been given to the propriety or good sense whichever you wish in proceeding to open a casino at a time when there is an inquiry into the suitability of the licensee?”
“Not that I’m aware of, commissioner,” Halton said, “no.”
