National regulation unlikely to occur despite Bergin recommendations

The Crown has slipped but will it fall

The report to the New South Wales Independent Liquor and Gaming Authority of the Bergin Inquiry into the suitability of Crown Resorts and its in-scope associates, in connection with its Barangaroo casino licence, has energised the discourse regarding the regulation of gaming in Australia.

In particular, it has suggested that a uniform national regulatory model could be adopted “to afford greater protection for casino operators to the disadvantage of the organised criminals and money launderers”. In theory, a good idea, but here’s why it likely won’t happen.

The Australian Constitution reserves to the federal government the power to make national laws in respect of only a few nominated industries, such as banking, insurance and fisheries. It also enables national laws related to “the influx of criminals”, though this is closer to the exclusive federal jurisdiction of national border control than it is to the functioning of enterprises operating within Australia.

It is not unprecedented for the states to cede certain legislative powers to the Commonwealth; for example, the states have the power to impose income tax, but since 1942 income tax has been legislated and collected by the Commonwealth, which re-distributes that revenue by way of grants to the states. This has resulted in a vertical fiscal imbalance, as the states must fund schools, hospitals and essential services from a revenue source that they do not control, and a grant mechanism which bears no direct relationship to taxes collected from their residents and enterprises.

A means of lessening reliance upon re-distributed tax revenue from the Commonwealth has been various state taxes, such as stamp duty on certain transactions, payroll and land taxes, and gaming taxes. Casinos have become major contributors to state development, infrastructure, employment, tourism and tax revenue. Victoria has developed a close symbiotic relationship with Crown, effectively trading off more prescriptive regulation for enhanced investment and tax revenue.

Casino licences in Australia are privileges granted by the states, not by the Commonwealth. The states are very unlikely to surrender the power to determine who will qualify for the award of such a privilege, or disciplinary powers over their casino licensees to a federal regulator. In similar vein, they are almost certain to reject any empowerment of a regulator, state or federal, which has unfettered power to disregard agreements that they may be a party to which may limit the regulator’s power, or its ability to make a decision regarding a casino licence. Such subjects have a keen political edge to them, especially in states which host monopoly casino licensee’s operations, being Victoria, South Australia, Western Australia and Tasmania.

Assuming a national model would require a national regulator, where would it be based? Would it have branches in each state and territory? Who would comprise the Board, and who would appoint it? How would it be funded, given any extension to it of the powers of a standing Royal Commission, as Bergin suggests, and the support of a dedicated full-time workforce would likely make it a much more expensive regulatory cost overlay on an industry which is destined to shrink if the report’s recommendations re junkets and the prevention of money laundering are adopted beyond New South Wales.

An alternative model to a national regulator administering national legislation might be to have existing state regulators re-purposed and resourced to administer a national casino control Act. This presents two threshold issues. First, Australia is renowned for its competitively federalist model of government. The states often take any opportunity which may be offered to them to use what might be termed “legislative arbitrage” in order to compete for investment.

Secondly, what should go into an omnibus gaming law? Forget junkets; it is unlikely that any state will oppose the blanket ban proposed in the report. What about credit? Should it be allowed, and if so to whom and why? Should the body be subject to oversight, and if so, by what body? Should it be excluded from the jurisdiction of the Ombudsman in each state? Should it be exempted from responding to Freedom of Information requests? Should the states agree to exchanging information under Memoranda of Understanding that may be concluded by the national regulator and other regulatory bodies internationally?

While the Australian state jurisdictions have learnt from each other, and developed largely similar regulatory regimes and laws, it would be expecting rather too much for them to cede their sovereignty to either legislate or regulate their casinos. While there have been examples of the Australian gaming regulators working together to achieve some uniformity, such as developing an Australasian Gaming Machine Standard, even that limited commitment is conditional; each state retains certain of its own provisions in Schedule B to the Standard.

Staying with the theme of a good idea but unlikely to happen is the Bergin recommendation that suitability assessments of licensees and close associates should require the subject of such an assessment to provide “clear and convincing evidence” of their suitability. The provenance of this recommendation is a Massachusetts law that requires an applicant to “establish its individual qualifications for licensure” by clear and convincing evidence.

Massachusetts is a comparative newcomer to commercial casino operations. It passed its Expanded Gaming Act in 2011, and has since licensed two casino operations, which opened respectively in 2018 (MGM Springfield) and 2019 (Encore Boston Harbour). Its licensees, MGM and Wynn, have been licenced in Nevada for decades. Imposing a statutory onus to “prove” suitability in their case is arguably unnecessary, but for the fact that both companies also control subsidiaries holding casino concessions in Macau. Presumably they were able to provide clear and convincing evidence that their link to Macau did not compromise their suitability to hold a licence in Massachusetts.

David GreenPlacing a statutory onus to prove suitability upon an applicant is akin to reversing the presumption of innocence upon which the criminal law in Australia is founded. Perhaps this is justified by the fact that casino licences are granted as privileges, and not by right. Whether it really adds anything to the quality of regulation is doubtful, as evidenced in Massachusetts itself, which imposed a US$35m fine on Wynn in 2019 for failing to disclose sexual misconduct allegations against its founder and former CEO, Steve Wynn. Such a result might even be seen as an embarrassment for the regulator, given its inferred acceptance prior to licence grant of “clear and convincing” evidence of suitability on the part of the company.

* David Green is a gaming lawyer and founder of NewPage Consulting.