Shortcuts / 18 February 2021

Crown’s Casino Woes

Crown Resorts is in the news after an inquiry launched by NSW’s gaming regulator found it unfit to operate a newly built casino in Sydney after allegations of money laundering emerged in 2019. In this episode of Squiz Shortcuts, we take a look at the company’s history, its major shareholder James Packer, what came out at that independent inquiry, and what it all means for Crown.

To start with the basics… What is Crown?
Crown Resorts is Australia’s largest casino operator – some Squizers might have dined at its restaurants, stayed in its hotels or put a few bucks over the tables at its Melbourne and Perth establishments. It’s a publicly listed company on the Australian Stock Exchange, but there’s one name that’s strongly associated with the company – and that’s Packer.

That name does sound familiar…
That’s not surprising, seeing as it’s a pretty well-known name in Oz. Until recent years the Packer family were strongly associated with Australia’s media sector. Kerry Packer was a dominant figure on Australia’s business landscape controlling big slabs of Australia’s most successful magazines, as well as commercial TV network Nine.

So how does Kerry’s son James fit into the picture?
James took the reins of the family business in 1998 and started making investments in the casino and gaming sector. Kerry Packer died in 2005 after a string of health issues, and with traditional media revenues in decline, James made some big changes to the Packer family business.

What were those changes?
Kerry was a high rolling gambler and there are some epic stories about his love of casinos and winning and losing millions of dollars at a time. So it wasn’t a huge surprise when his son James doubled down on gaming.

At that time the Packer family’s company – Publishing and Broadcasting Limited or PBL – had holdings in both media and gambling. What James Packer did was divide the company into media and gaming assets. That’s when Crown was created and it was quickly listed on the stock exchange with Packer retaining a large shareholding. And he sold the media business including Nine in 2009 for $7.5 billion.

What are Crown’s assets?
At the time of the company’s launch, Crown had casinos in Melbourne and Perth, and a 41.4% stake in Melco casinos in Macau. Crown also had big stakes in casinos in the UK, the US, and Canada. And there was a dream of building a casino in Sydney…

Which turned into the Barangaroo development?
You got it. In 1994, Kerry Packer had missed out on a bid to build a casino in his home city of Sydney. So at Barangaroo, James Packer hoped to succeed where his father had failed and he talked quite emotionally about fulfilling his father’s vision of a Packer-owned – or part-owned – casino in the harbour city.

What about some of Crown’s less successful business ventures?
Crown lost hundreds of millions of dollars on a Las Vegas venture, and that was abandoned. A proposed casino in Sri Lanka’s capital Colombo was also shut down after the election of a new government. And Crown ran into some legal troubles in 2017 when its online betting platform – EasyBet – was fined for advertising that offered inducements for NSW residents to gamble.

So what’s the deal with the money laundering allegations?
In mid-2019, a joint investigation by The Age, the Sydney Morning Herald and 60 Minutes aired allegations that money was being laundered through Crown’s casinos in Melbourne and Perth by some of Asia’s most powerful organised crime syndicates, or triads, including a notorious group called ‘The Company’.

It alleged Crown had gotten into business with junket operators who were backed by these mobs as part of its program to attract high rollers – who are big spending gamblers who are carefully looked after by the casino operators during their stay – from China to its venues. So effectively, the claim goes that Crown effectively paid members of these syndicates to help it generate millions of dollars in revenue, and in turn, the mobs used Crown-linked bank accounts and high-roller rooms to launder its funds.

So basically these mobs took the cash they got from selling drugs and other crimes and put it in Crown’s bank accounts?
That’s right, and with that money, they gambled at Crown’s casinos in Melbourne and Perth, had a nice time at the resorts, and the claim goes they then took the balance out. That’s money laundering because their dirty cash was ‘washed’ through Crown’s bank accounts, and they get clean money when they take it out.

But this wasn’t necessarily new news in 2019?
No, in 2013, the Federal Police arrested licensed Crown junket operator, Roy Moo, for drug money laundering, and he was jailed. Then in 2014, similar money laundering allegations were raised by ABC TV’s Four Corners program. And in 2016, Crown’s employees based in China became the target of Beijing’s anti-corruption crackdown in 2016 and 19 current and former Crown employees were detained.

So how did Crown respond to the money laundering allegations?
The claims were fiercely denied. In fact, Crown even ran a series of ads in Australian newspapers in which they outlined how adamant they were that the accusations were wrong.

When did the NSW’s gaming regulator get involved?
While all the allegations piqued the interest of the Independent Liquor and Gaming Authority, it wasn’t until mid-2019 – when Hong Kong gambling giant Melco Resorts agreed to pay James Packer $1.76 billion for a 19.9 per cent stake in Crown – that the regulator launched an unprecedented public inquiry on 14 August 2019 to look into all of this. It was pretty bad timing for Crown, as its $2.2 billion Barangaroo development in Sydney was well and truly under development.

That’s all very awkward… So what’s the relationship between Crown and Melco?
Melco is owned by a very prominent family from Hong Kong – the Hos. Now, Packer has a long history with 45yo Lawrence Ho, who has been described as being like a brother to James. And the pair have a long history together, having operated a casino joint venture in Macau for 12 years. So when James Packer said he wanted to sell down his 37% share in Crown to free him up to deal with other aspects of his life, like his mental health, it wasn’t surprising to many that it was Melco who he would sell more than half of his stake to.

So why did the NSW government only get involved after the sale to Melco?
Well the regulators of casino operators take a keen interest in who owns and runs them. They have to be considered suitable to hold a licence because of concerns about what can happen in the dark corners of gambling – which is why the government doesn’t hesitate to take licences off operators who don’t meet their standards. So that’s why it was concerns about Melco that was the straw that seemed to break the NSW Government’s back when it came to Crown.

What were those concerns?
The NSW regulator was concerned by the potential change in ownership of Crown because Lawrence’s father, Stanley Ho and a number of associated individuals and companies connected to Melco, were banned from holding a licence in NSW because of a longstanding allegation of links to organised crime. The issue was Packer had told the NSW regulator that Melco would have no involvement with the casino, so there was a breach of trust there. The attention and objections saw Melco bow out of the deal with Packer early last year.

But the inquiry still went ahead?
Yep, and that’s because there were still those money laundering allegations that needed to be looked into. Between January and December 2020, Crown’s directors were brought before Commissioner Patricia Bergin to testify to the inner workings of Crown and its processes to comply with the law.

And what did James Packer say?
He video conferenced in from his yacht parked off the Caribbean somewhere and he talked candidly about his conduct as the company’s biggest shareholder. Most concerning was Packer’s admission that he unduly influenced the executive ranks to behave in ways that led to a toxic culture, and contrary to the law.

What did the inquiry have to say about that?
Packer’s admission led Commissioner Patricia Bergin to recommend that he sell a lot of his shares – this time to someone suitable. She also identified a lot of other issues with the way Crown was being run.

She said there were “core problems” with Crown corporate governance and risk-management. But the biggest issue is what Bergin said was Crown’s culture of “corporate arrogance”. The report says that “One of the difficulties for Crown was its unjustified belief in itself and its unwillingness to entertain the prospect that there was any force in any of the media allegations.”

Ouch… So what were the inquiry’s recommendations?

Across 800 pages the inquiry made recommendations to the NSW Independent Liquor and Gaming Authority, including that it was not fit to open the Sydney casino while it was run by the same people with the same processes.

And now the report’s been handed down, it’s all over?
Not quite… The regulator’s now picked it up and already said if there are significant changes to the way Crown’s run – including the resignations of the CEO Ken Barton and some board directors and improvements to its processes, there’s a chance it will get the casino licence. Barton has left as have the board members the report said weren’t up to the job. But Crown had hoped to open the casino in the coming weeks, and that’s extremely unlikely with more information about how they will ensure they’re compliant with money laundering laws required. That will mean an audit of its operations by authorities.

What about Crown’s other businesses?
There’s pressure on Victorian and Western Oz regulators to also look at Crown’s casino licences there. And AUSTRAC, the money laundering regulator, is investigating the company’s transactions. So there could be sanctions there.

Squiz recommends:

Watching: James Packer’s 2019 interview with Sunday Night’s Mike Willesee. It’s a candid interview with the late, great journo about growing up rich, his friendship with Tom Cruise, and his father Kerry. 

Reading: The troubled birth of Crown Casino (The Age). It’s a fascinating look into the complicated web between the big business names, the government and the casino operations.

Get the Squiz Today newsletter

It's a quick read and doesn't take itself too seriously. Get on it.