Crown Royal Commission Submissions Raised Questions about Directors’ Duties

In a damning closing submission in the Royal Commission into Crown Melbourne Limited (Crown), counsel assisting Adrian Finanzio SC said the company was unfit to hold a casino licence.

The Royal Commission’s most senior lawyer went on to outline how Crown management and its culture had put profit ahead of integrity, regulation and the law. He concluded that Helen Coonan, the current chair, and Xavier Walsh, chief executive, were not suitable to lead the onerous reform and remediation work that lies ahead. The evidence before the inquiry raises serious questions about directors’ duties as the board had, effectively, allowed a listed entity to operate in breach of its regulatory obligations for at least a decade.

The Royal Commission report is not due to be published until October 15, 2021. In his final recommendations, the Commissioner has the option to keep the licence in place, extended the licence for a limited period to allow Crown to “get their house in order” or appoint a supervisory “compliance monitor” within the organisation.

Putting profit first

In his closing submission, Finanzio indicated that the evidence before the inquiry revealed “illegal and highly inappropriate” conduct by the casino operator, including money laundering, tax violations and courting business from overseas junket operators that were connected to organised Asian crime operators. Senior management made little effort to ensure there was compliance with the law, he said. 

“Crown became a place where its banks were actively used for the purpose of laundering money, and where enormous values of cash were likely carried by money mules, serving criminal interests, who would walk in off the street with translucent plastic bags and place [the money] into circulation through the casino,” Finanzio said.

Even Crown’s lawyers have conceded that its accounts were used for money laundering and that it deliberately underpaid the Victorian Government tax of about A$480 million and that its overseas operations were infiltrated by organised Asian crime gangs.

The evidence before the inquiry indicates there was a systematic breach of its own responsible gambling codes and, in particular, a failure by Crown senior management to be candid and transparent with the gambling regulator.

Finanzio went further than the New South Wales “Bergin Report”, in finding that Coonan and Walsh were not suitable to lead the reform of the company. In fact the culture of Crown management was to put profit ahead of integrity and the law.  It is interesting that this departs from the Bergin Report, where Coonan, won favourable comments.  Obviously, Finanzio SC in Victoria has seen a very different set of facts.

‘Cone of silence’ from regulators

One of the issues that has emerged from the inquiry was that Crown Casino inspectors who worked for the regulator, the Victorian Commission for Gambling and Liquor Regulation, that had oversight of Crown’s operations, were ignored or silenced when they reported criminal activity. It is alleged that senior management within the regulator “stone walled” investigations when they reported criminal activities and that this inaction may have given Crown senior management a false sense of security in skirting around laws.

Directors’ duties: Corporate governance

The difficult issue for Commissioner Finkelstein, is that the illegal conduct as summed up by Finanzio permeates the whole organisation. There was a culture of side-stepping the law and regulation that appeared to emerge from the top and penetrate the whole organisation. Additionally, on the board, a lot of the directors and even independent directors had in the past been connected to either James Packer (the major shareholder), or indirectly with the Packer family.

The Corporations Act 2001 imposes a number of fiduciary duties on individuals who are appointed as directors of companies. These obligations include a duty to act in good faith and for a proper purpose (Section 181) and a duty to act with reasonable care and diligence (Section 180) in the exercise of powers and the discharge of duties. “Reasonable” in this sense means, the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the same circumstances.

What would be concerning is that already Bergin SC had found that most of the board were not suitable to continue on as directors and after that report, most of the directors resigned. However, Helen Coonan and Xavier Walsh escaped only to be condemned by the Crown inquiry in Melbourne that revealed more serious and prolonged links to money laundering.

It appears surprising that the board and senior management at Crown, many of whom have served on the board since 2011, were not aware of the money laundering and the intentional tax underpayment scheme to the Victorian Treasury.  Perhaps the most apt observation of the Crown board was from Justice Bergin SC, who stated that the board was collectively “recklessly indifferent” to the risks of the casino operation, where hundreds of millions of dollars were able to be laundered and casino staff organised junkets with organised crime gangs. There were no directors appointed to the board who had direct experience in compliance, regulation and anti-money laundering when that was an essential skill, given the nature of the casino business.

The question that many shareholders will be asking, and perhaps federal regulators (such as the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Securities and Investments Commission (ASIC), is whether the directors acted in good faith, in the best interests of the corporation and with care and diligence. The request by Justice Bergin SC (NSW Inquiry), for the removal of most of the board, and the final submissions by Mr Finanzio SC (Victorian Inquiry) for the removal of the chairperson and the CEO, goes some way to answering the question.

Option to appoint a monitor or extend licence

The inquiries in Western Australia, New South Wales, and Victoria paint a damning picture of Crown’s operations in every state. The inquiries also highlight the ineffectiveness of state-based gaming regulations. Commissioner Finkelstein does not only have a legal question, but an economic one, as Crown employs more than 15,000 people in Victoria and 35,000 Australia-wide. If Crown were to lose its licence in Victoria, many of these jobs could be at risk. 

One of the options for the Commissioner is to insist on a new board with expertise, but also appoint an oversight committee or a monitor (consisting some regulatory experts) for an extended period to oversee the board and the running of the casino going forward. The Commissioner also has the option to extend the licence for a limited period giving time for Crown to get its house in order.

The Royal Commission report will be released on October 15, 2021.

This article first appeared on Thomson Reuters Regulatory Intelligence.

Related:
Crown should lose gaming licence due to systemic compliance failures: laundering probe
Transaction monitoring must sit at heart of AML compliance, says top enforcement lawyer

Niall Coburn is senior regulatory intelligence expert, Asia Pacific. He joined Thomson Reuters in 2013 from FTI Consulting where he was managing director for investigations in Australia. A barrister, he is a former senior specialist adviser to the Australian Securities and Investments Commission and director of enforcement at the Dubai Financial Services Authority. He was part of an international team that wrote the regulatory and financial market laws and rules for the Dubai International Financial Centre. He has more than 20 years’ experience in financial markets regulation. In 2002, he was awarded an ASIC Australia Day Honour Medal for his work in corporate investigations. He has written a book on corporate investigations and insolvent trading and has been a regular commentator for the Australian Financial Review. Niall is a Barrister of the High Court of Australia and holds a Bachelor of Arts in Economics and law degrees from University of Tasmania, a master’s degree in law from Melbourne University and a Diploma of Business Administration from Mt Eliza Business School. He also appears regularly as a commentator for ABC television in relation to financial investigations and corporate collapses and is a commentator in the Australian Financial Review.

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