Crown faces board purge, forensic audit to regain suitability

The Crown has slipped but will it fall

Crown Resorts will need to overhaul its board of directors and carry out a full audit of its operations as the very minimum requirements to become suitable to hold a license in Sydney and in the meantime its Barangaroo casino will remain closed.

The long-awaited report into whether Crown should be allowed to keep the license for its $2.2 billion property in Sydney following an investigation into anti-money laundering practices was released on Tuesday by the New South Wales government. 

The two-part, 768-page report by Patricia Bergin will not be easy on the eyes for the Melbourne-based operator, with Bergin finding Crown Sydney as not a “suitable person” to hold the Sydney Barangaroo casino license.

However, the report highlights steps that would make Crown a suitable person to hold the license – such as a full purge of the Crown board, as well as a “full and wide-ranging forensic audit” of accounts to “ensure that its operations are free from criminal influence or exploitation.”

“We expect that the conversion to suitability will at a minimum include implementing the actions recommended by the report, including a restructure of the Board and a full forensic audit, said Kelly Amato, Director, South East Asia Industrials at Fitch Ratings speaking to Asia Gaming Brief.

“Crown has already begun implementing a number of the measures, including forming compliance and financial crime department. But we expect these measures will probably go further to address the concerns around corporate culture which were highlighted throughout the inquiry, and this will probably include increasing prioritization of and education around compliance with regulations within Crown, as well as greater co-operation and ongoing dialogue with regulatory authorities to actively manage risks.”

In the matter of whether the disposal of shares held by Consolidated Press Holdings (CPH) in Crown Resorts to Melco in 2019 constituted a breach of the Barangaroo license or any other regulatory agreement, the company was cleared by Bergin of any wrongdoing.

Further recommendations of the report include the establishment of an Independent Casino Commission (ICC) as a specialist casino regulator to “meet the extant and emerging risks for gaming and casinos.”

“The ICC has the powers of a standing Royal Commission comprised of Members who are suitably qualified to meet the complexities of casino regulation in the modern environment.”

This would include giving the ICC power to pursue any disciplinary action with respect to casino licensees and giving them the power to enforce rules under the Casino Control Act over that of any other government or authority.

There are also a number of recommendations to amend certain parts of the Casino Control Act, with the aim of combating money laundering. Most notably, there is a recommendation to prohibit casino operators in New South Wales from dealing with junket operators.

“The recommendation to prohibit junkets in NSW would have a negative impact on VIP revenues at the two Sydney casinos, particularly from Chinese VIPs where direct promotion of gaming activities is prohibited,” said Amato.

“However, the stable domestic mass-market gaming operations are the main source of strength of gaming operators in Australia, which has been highlighted by the resilience of the businesses as pandemic restrictions are relaxed in Australia, while international border closures have left VIP turnover at close to zero. Even with open international borders, VIP has historically made up a smaller proportion of Australian gaming operators revenues than domestic, it is inherently more volatile and operates at a lower margin than the domestic business and these characteristics would limit the impact of any decline in VIP revenues for the operators.”

“We expect that Crown will work with the NSW authorities over the next few months as it embarks on a process to remediate the deficiencies identified by the inquiry and convert itself to a suitable person,” concludes Amato.

“We wouldn’t expect that it would be able to open its gaming operations in Sydney until these issues are resolved, however it has already been able to open its non-gaming facilities at its Sydney property and we expect that it will continue to operate these in the meantime, while also dealing with operations in Melbourne and Perth amidst changing social distancing restrictions.”

According to the local press, Customer Service Minister Victor Dominello, who oversees gambling regulation in NSW said he welcomed the Bergin report saying his office will consider its recommendations “very carefully” before providing a formal response.

A similar response has been heard from WA regulators, who, according to WA Today, said they won’t consider the NSW report until it meets in two weeks’ time.

Amato notes that the Victorian regulator has already brought forward its seventh casino review required under the legislation – which is due to be completed in 2021. It has also issued Crown Melbourne with a show-cause notice in October 2020 as to why disciplinary actions should not be taken in relation to alleged non-compliance with its Internal Control Statement for junket operations, she said.