Latest developments and regulatory reforms in the casino sector in Australia during 2022
Author: Daniel Lovecek - Principal
Systemic issues continued to be identified in 2022 across the casino sector, particularly in relation to Crown Resorts (Melbourne and Perth casinos) (Crown), The Star Entertainment Group (Sydney and Queensland casinos) (The Star) and SkyCity Adelaide (SkyCity) casinos. The casino industry, including regulatory bodies, will remain an area of focus for governments and other stakeholders, and further reforms for the sector are likely, given the number and extent of established and alleged governance and compliance failures.
Review of The Star (Sydney casino)
The much-anticipated findings and recommendations arising from Adam Bell SC’s review of The Star and its Sydney casino were handed down on 31 August 2022.
The terms of reference for the review included an assessment of suitability, an examination of the extent to which The Star was compliant with legislation, licence conditions and related agreements, and an assessment of the administration of systems to ensure that operations were conducted honestly and free from criminal influence or exploitation. The review also assessed, among other things, the implementation and administration of gaming harm minimisation programmes and the management of VIP patrons, high rollers and international patrons at The Star.
In finding that Star Entertainment was not suitable to be concerned in or associated with the management and operation of a casino in NSW, Adam Bell SC cited a number of practices, including:
the use by high roller patrons of China Union Pay (CUP) debit cards to fund gambling, which was in breach of Chinese laws and not appropriately disclosed to banking partners;
permitting the Suncity junket to operate in the casino, including with a cash cage, giving rise to money laundering risks and in breach of casino licence conditions; and
an inappropriate approach to governance and risk.
The review also noted evidence of patrons gambling at The Star for long periods of time, including for more than 24 hours, with no intervention, contributing to a recommendation that carded play be compulsory at The Star for all gambling (requiring that patrons are identified and that their exclusion status (if any) is enforced). The Review also noted that VIP patrons had been offered free alcohol as an inducement to gamble.
At the time of writing, the new NSW Independent Casino Commission has suspended The Star’s licence in response to Adam Bell’s findings and recommendations.
A manager has been appointed, which will enable the casino to remain operational during the licence suspension period and while the Commission determines whether it is likely that The Star can achieve suitability. The Star separately and independently appointed a monitor of its own to oversee the design and implementation of the company’s “renewal programme” for its risk, compliance and culture practices.
External review of The Star (Queensland operations)
In early October 2022, the Queensland government issued its response to a review of the Queensland operations of The Star Entertainment Group conducted by Robert Gotterson AO KC. The review followed the New South Wales review referenced above and received evidence regarding:
The Star’s anti-money laundering processes;
its approach to gambling harm minimisation;
its management of VIP patrons, high rollers and international patrons;
the use of CUP facilities to facilitate gambling by Chinese nationals; and
whether patrons excluded in NSW were encouraged or incentivised to attend The Star’s Queensland casinos.
The Queensland Attorney-General and Minister for Justice subsequently formed the view that The Star is unsuitable to hold a licence in Queensland. On 9 December 2022, it was announced that a range of disciplinary actions would be taken against The Star, including:
Pecuniary penalties totalling AUD100 million to be paid over 12 months.
The appointment of an experienced independent special manager to monitor The Star’s operations in Queensland, with the cost to be recouped from the relevant casino.
The suspension of Treasury Brisbane and The Star Gold Coast’s casino licences for a period of 90 days, the commencement of which is deferred until 1 December 2023.
The deferred suspension of the licences will provide The Star with an opportunity to demonstrate that it has remediated its management and operations and returned to a position of suitability. Should this occur, the Attorney-General and special manager may determine to postpone or rescind the licence suspension.
The government separately announced that, in principle, it supports all 12 recommendations of the Gotterson Review, which include:
amending legislation to allow for the appointment of a special manager to increase supervision and integrity of operations;
instituting periodic investigations into the suitability of all Queensland casinos, paid for by the casino;
requiring casino licensees to pay a supervision levy as a condition of their licence;
introducing a mandatory Code of Conduct for Safer Gambling, with significant fines for non-compliance;
requiring casinos to make reasonable endeavours to exclude persons who are subject to the exclusion directions of Police Commissioners in other states – this recommendation followed findings that The Star has actively encouraged such excluded individuals to gamble at its Queensland facilities; and
implementing recommendations to improve gambling harm minimisation, including mandatory carded play and limits on cash transactions.
Independent review into SkyCity (Adelaide casino)
Following the commissions of inquiry undertaken in NSW, Victoria and WA, the South Australian regulator announced in July 2022 that an independent review would be undertaken into SkyCity, the operator of the Adelaide casino.
The review will investigate, among other things, the suitability of SkyCity to hold the casino licence and the suitability of its parent company to be a close associate of the licensee. A written report of Brian Martin AO QC’s findings is due to be delivered by 1 February 2023.
Crown (Melbourne and Perth casinos)
The recent development in relation to SkyCity and The Star follow an inquiry, established in August 2019 and overseen by former Supreme Court judge Patricia Bergin SC, concerning alleged anti-money laundering/ counter-terrorist financing (AML/CTF) and governance-related shortcomings across Crown’s Melbourne and Perth casinos. That inquiry resulted in a finding that Crown was unsuitable to operate its Sydney Barangaroo casino, and was followed by a Victorian Royal Commission led by Ray Finkelstein AO KC into Crown Resorts, the casino operator and licensee in that state. Crown Resorts operates the Crown casino and entertainment facility in Melbourne, which is one of the city’s most visited attractions for tourists and residents alike, and is a significant employer.
The Victorian Royal Commission found that Crown had, among other things:
underpaid state gaming taxes;
allowed what was purported to be money for hotel services to be used for gambling;
permitted customers to gamble for a prolonged period; and
failed to co-operate as required with the Victorian gambling regulator.
A “special manager” was appointed to oversee Crown’s operations and to report to the Victorian regulator at regular intervals on Crown’s performance against reform efforts. Following the conclusion of the two-year review period, the regulator will make its decision as to whether it is “clearly satisfied” that Crown has returned to suitability, having regard to the reports from the special manager.
Similar findings were made by a Western Australian Royal Commission established in March 2021 to examine Crown Perth and its suitability to continue to hold a casino gaming licence in that jurisdiction. The commissioners, Neville Owen AO, Lindy Jenkins and Colin Murphy PSM, also examined the regulatory framework in Western Australia for casino gaming and assessed the performance of the Gaming and Wagering Commission, the regulatory body with responsibility for monitoring Crown Perth’s compliance. A final report with findings and recommendations was presented in March 2022 and tabled in Parliament. Crown was found to be unsuitable to hold a gaming licence in Western Australia but, rather than its licence being revoked, the Royal Commission proposed a number of changes that Crown Perth must undertake. These are significant reforms.
Fallout
The significant findings of the various reviews and Royal Commissions involving the casino sector, coupled with intense media and investor scrutiny, have led to significant leadership and regulatory change, with the promise of more reforms to follow. For example, Crown Resorts has replaced its entire board and senior executive team since mid-2019, and has been acquired by real estate and private equity funds managed by Blackstone.
Of note, the Casino and Liquor Legislation Amendment Bill 2022 (Vic) has recently been passed, granting enhanced powers to Victoria’s casino regulator, the Victorian Gambling and Casino Control Commission (VGCCC). The legislation incorporates some of the recommendations from the Royal Commission into Crown Melbourne, with key changes including the following:
casino inspectors have been given greater access to casino records and surveillance equipment;
casino staff are now required to assist inspectors in accessing and operating surveillance equipment monitoring the gaming floor;
the powers of the VGCCC in relation to gambling harm minimisation have been enhanced;
the VGCCC can now take action against Crown Melbourne for a single breach of the Code of Conduct; and
liquor regulation has been transferred to the Department of Justice and Community Safety to provide for greater regulatory focus.
These reforms are in addition to legislation passed in 2021 that increased the maximum penalty the VGCCC can impose for disciplinary action from AUD1 million to AUD100 million. At the time of writing, significant fines of AUD80 million in relation to Crown Melbourne’s use of CUP facilities and totalling AUD120 million in relation to breaches of responsible gambling requirements over an extended period of time have been levied by the VGCCC.
The Star in Sydney has been fined AUD100 million by the NSW Independent Casino Commission.
Legislation to address Royal Commission recommendations passed through the Western Australian Parliament in September 2022 in the form of the Casino Legislation Amendment (Burswood Casino) Act 2002 (WA). The legislation provides the Minister and Gaming and Wagering Commission with greater powers to implement the recommendations, significantly increases maximum penalties for non-compliance to AUD100 million and provides for an independent monitor to oversee remediation processes within the casino. Similar changes are anticipated in relation to casino legislation in New South Wales and Queensland.
The Australian financial crimes regulator, AUSTRAC, has commenced proceedings in the Federal Court against Crown Melbourne and Crown Perth for alleged serious and systemic non-compliance with AML/CTF laws, and at the time of writing, had commenced civil penalty proceedings against the Star Pty Limited and The Star Entertainment QLD Limited.
Furthermore, on 7 Dec 2022, AUSTRAC commenced civil penalty proceedings in the Federal Court against SkyCity for alleged serious and systemic non-compliance with Australia’s AML/CTF laws following an enforcement investigation. The investigation was a result of a proactive, industry wide compliance campaign by AUSTRAC that began in September 2019.
AUSTRAC’s allegations are extensive and include that SkyCity:
Failed to appropriately assess the money laundering and terrorism financing risks it faced, including the likelihood and impact of those risks, and to identify and respond to changes in risk over time.
Did not include in its AML/CTF programs appropriate risk-based systems and controls to mitigate and manage the risks to which SkyCity was reasonably exposed.
Failed to establish an appropriate framework for Board and senior management oversight of the AML/CTF programs.
Did not have a transaction monitoring program to monitor transactions and identify suspicious activity that was appropriately risk-based or appropriate to the nature, size and complexity of SkyCity.
Did not have an appropriate enhanced customer due diligence program to carry out additional checks on higher risk customers.
Did not conduct appropriate ongoing customer due diligence on a range of customers who presented higher money laundering risks.
SkyCity’s ineffective approach to its AML/CTF program is claimed to have left it vulnerable to criminal exploitation.
At this time, Australia’s corporate regulator – the Australian Securities and Investments Commission (ASIC) – has not yet pursued any actions against relevant casino directors for potential breaches of Australian corporate law. This remains a potential development in relation to the more recent casino reviews.
