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Melbourne Royal Commission deems Crown too big to fail despite unsuitability for casino licence

Business News Australia 26th October 2021  |  The Victorian Royal Commission has determined Crown Resorts (ASX: CWN) engaged in "illegal, dishonest, unethical and exploitative" conduct and is unsuitable to hold a casino licence in the state, but Crown Melbourne's economic contribution is too significant for its doors to be shuttered and pokies switched off.

Building on the findings of the Bergin Inquiry, the Royal Commission uncovered further failures in governance, risk management and responsible service of gaming.

These included "grave, ongoing legal breaches and misconduct that contravened not only Australian laws but the laws of other countries", often with the knowledge of Crown executives, and consistent patterns of non-cooperation with the regulator with instances of bullying, providing false or misleading information, and delaying the investigatory process.

The Royal Commission also found tax breaches that were instigated by or undertaken with the knowledge of multiple senior staff, which were then intentionally concealed from the regulator for fear of being caught out.

However, it concluded the immediate cancellation of the licence is not in the interests of the Victorian community due to the real risk of significant harm to the Victorian economy and to innocent third parties, and a belief the company will reform itself in order to be suitable to hold a licence in the future.

"Rather, the Royal Commission recommends that Crown be permitted to continue operating under the oversight and direction of a Special Manager for two years while it attempts to undertake a comprehensive reform agenda to make it suitable," stated a Victorian Government backgrounder on the findings released this morning.

"In total, the Royal Commission makes 33 recommendations as part of this agenda, including in relation to the powers of the regulator and its inspectors, the obligations and structure of the casino operator, the prevention of money laundering at the casino, unpaid casino tax, penalties and the responsible service of gaming.

"The Royal Commission recognises that Crown has already embarked upon a significant reform program led by people of good will and skill. The Royal Commission considers that a reform program delivered under these conditions is likely to succeed, and if it does, will benefit Victoria."

The Victorian Government has accepted all the Royal Commission’s findings, but it will also take them a step further with tough new measures and stringent oversight of the casino operator to "ensure the failures exposed by the Royal Commission never happen again".

"The Casino and Gambling Legislation Amendment Bill 2021 being introduced today commences the critical reforms required to ensure the casino is operated in accordance with the highest standards of integrity," the government stated.

The onus will be on Crown to clearly demonstrate why its licence should not be cancelled by the regulator, based on the report of a new Special Manager to be established through the bill - a role with "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".

The costs of establishing and implementing the Special Manager will be recovered from Crown.

"This is an unprecedented step in Australian corporate oversight," the government said.

Stephen O’Bryan QC is to be appointed as the Special Manager overseeing the casino operator, subject to the passage of the Bill.

Mr O’Bryan was Victoria’s first Independent Broad-based Anti-Corruption Commissioner and will bring integrity and accountability to the casino’s operations. He will begin preparatory work immediately.

Importantly, the bill seeks to completely remove – rather than just amend – the restrictive provisions introduced by the previous Liberal Government that stop the state from making changes to the regulatory arrangements without having to pay compensation to Crown.

The Victorian Government has highlighted the following key ways it will go beyond the Royal Commission's recommendations to:

  • completely remove, rather than amend, the restrictive provisions that stop the State from making changes to the regulatory arrangements for the casino without having to pay compensation. This will afford government flexibility in its approach to casino reform into the future to ensure the failings of the past do not reoccur;
  • provide that Crown’s licence will be automatically cancelled at the end of the period of Special Manager oversight unless the regulator is clearly satisfied that Crown is suitable to continue operating the Melbourne casino. The onus will be on Crown to clearly demonstrate through its operations and the progress on its reforms why its licence should not be cancelled. Unlike the Royal Commission’s recommendation, Crown’s licence will be presumed cancelled unless there is a decision otherwise; and
  • increase the maximum possible penalty under the Casino Control Act 1991 from $1 million to $100 million to make sure there are meaningful consequences for breaches of the law. This reflects the Royal Commission’s recommendations that the penalties under the Act are wholly inadequate. The Royal Commission recommended that the fine for disciplinary action should be increased to at least $10 million.

Hearings have also begun this week for the Perth Casino Royal Commission, with a final report on Crown Perth's suitability to hold a casino licence expected to be delivered in March 2022.