Crown case to change face of Australia casino regulation

Crown Resorts will hear in the next two weeks whether it will be allowed to keep its Melbourne casino license following a series of inquiries that will change the face of regulation in Australia.  

The Commissioner of the Victorian Royal Commission into Crown Melbourne was due to hand down its report to the Governor of Victoria on 15 October 2021. The Royal Commission, which began in February this year, is assessing whether Crown Melbourne is a suitable person to continue to hold a casino licence in Victoria, whether it is in the public interest for Crown to continue to hold that licence, as well as the suitability of Crown Melbourne’s associates (including Crown Resorts Ltd). 

A separate Royal Commission into Crown Perth is being conducted in Western Australia with its report due to be handed down in February 2022.

The Victorian Royal Commission followed an inquiry into Crown Resorts by the New South Wales Independent Liquor and Gaming Authority (the Bergin Inquiry) which found in February that Crown Resorts was not a suitable person to be associated with Crown Sydney. The Bergin Inquiry also found, among other things, that Crown Resorts facilitated money laundering through its casinos and entered into or continued commercial relationships with junket operators who had links to organised crime groups. 

In accordance with the recommendations of the Bergin Inquiry, the NSW government recently announced that it will set up a new independent casino regulator. 

The Victorian Royal Commission was convened to respond to the findings of the Bergin Inquiry.

Far-reaching impact

Unsurprisingly, the potential impact of the Report on Crown Melbourne (and the Crown Group) is substantial. The Terms of Reference of the Victorian Royal Commission state that the Commission may make any recommendations that it considers appropriate arising out of the inquiry. 

If the Royal Commission finds that Crown Melbourne is not suitable, or that it is not in the public interest for Crown to continue to hold its casino licence, the Commission has been requested to enquire into and report on what action would be required for Crown Melbourne to become suitable.

Counsel Assisting the Commission has submitted that it would be open for the Commission to recommend that Crown Melbourne’s licence be cancelled or, alternatively, to make less severe recommendations noting that “the seriousness of Crown’s conduct to date must be a central, important and weighty factor in any finding or recommendation the Commission might reach.”

In the event that the Royal Commission concludes that Crown should be “given a chance to redeem itself”, Counsel Assisting submitted that Crown should not be permitted to implement its reforms unsupervised. In particular, it was submitted that supervision could be effected through implementing measures that exist already under Victoria’s casino legislation, through the appointment of a monitor in a manner similar to that contemplated in casino legislation in NSW, or through amendments to the relevant law. 

Under Victorian legislation, a finding that Crown is not suitable to be a casino licensee would enliven powers for the VCGLR to commence disciplinary action against Crown, which may result in cancellation or suspension of the casino licence, the issue of a letter of censure, variation of the terms of the licence or the imposition of a fine (which cannot exceed one million dollars).

Harm to third parties

In the view of Counsel Assisting, the less severe consequences of censure, fine or possibly suspension are directed at infractions, indiscretions and less minor breaches, whereas cancellation is intended to apply in circumstances where the failings are “so grave that cancellation of the casino licence is the only appropriate course.”

It has been acknowledged by both Counsel Assisting and Crown that a complete revocation or cancellation of Crown Melbourne’s licence would be highly disruptive and would have the potential to cause significant harm to many third parties who had no involvement in the misconduct of the licensee. For instance, it was noted by Crown that cancellation “would impose great financial losses not only [on] shareholders in Crown who are well resourced and well known, but also on tens of thousands of small shareholders” as well as over 10,000 employees, the vast majority of whom “were of course not complicit in the misconduct evidenced in this Commission”.

It is therefore likely that any cancelation would provide for a period of adjustment – for instance, adequate time to conduct an application process for a new licensee. If Crown were given the opportunity to re-apply at a later date, this would likely provide Crown with incentive to implement an effective reform program.

In Crown’s view, the Commission’s focus should be on making a recommendation as to the public interest as opposed to a recommendation which attempts to punish Crown or to deter future misconduct. In the view of Crown, it is not in the public interest to recommend that Crown Melbourne be “stripped of its licence and broken up when the path to suitability is clear, is embarked upon and where there can be absolute assurance that there will be no deviation from that path by virtue of the safeguards of an independent monitor or supervisor which Crown accepts ought to be appointed in any event.”

Crown to face ongoing scrutiny

What is ultimately recommended by the Royal Commission will be established once the Commission’s report is made public. Whatever the outcome, any recommendation by the Commission

will need to be practical, effective and efficient to address the issues raised in the inquiry and the financial impact on Victoria. 

What is clear is that the regulation of casinos in Australia has fundamentally changed. It is already clear that laws will be introduced in New South Wales and Victoria that will result in a specialist casino regulator. Further, the regulatory environment applicable to casinos and potentially other gambling operators will become much more prescriptive.

However, the most material consequence of the inquiries involving Crown is on Crown itself. Even if the Victorian authorities allow Crown to continue to operate the Melbourne casino (having taken into account the recommendations of the Victorian Royal Commission), the manner in which casino businesses can be conducted will be significantly altered. Although we expect that there will be a number of recommendations made as to various elements of its business (for example, the conduct of junkets and the exercise of controls to prevent excessive gambling), we expect that regulators and the media will continue to monitor the activities of Crown closely to determine whether the lessons of the various inquiries have been learnt.

* Jamie Nettleton, is a partner at law firm Addisons and Brodie Campbell is a solicitor with the same firm.