Stakes are high as inquiry tosses up whether Crown Resorts is fit to hold a NSW casino licence

As a casino operator, Crown Resorts knows a thing or two about high stakes.

But what’s unfolding at the New South Wales Independent Liquor and Gaming Authority inquiry into the suitability of Crown to hold the high-roller casino licence at Barangaroo in Sydney is enough to make even a seasoned gambler sweat.

Allegations of money laundering through cash accounts operated by Crown, bags of cash being deposited in the high-roller room, and organised crime links within Crown’s junket partners that recruit high rollers are a daily occurrence.

Witness after witness has acknowledged failings in Crown’s anti-money laundering regime. The inquiry has seen videos of cash being handed over in the high-roller rooms of Crown Melbourne, and been told about major banks refusing to deal with accounts associated with the Perth and Melbourne casinos because of concerns about structured cash deposits apparently designed to avoid reporting requirements.

When these allegations were first publicly aired by the Nine media group last year, Crown hit back hard, running a full page ad disputing the claims and branding it a “deceitful campaign”. But now that too could come back to haunt Crown.

Related: Crown casino inquiry told James Packer given secret financial forecasts before share sale

At stake in the inquiry is whether Crown Resorts, an ASX-listed company, remains a suitable enterprise to hold a casino licence in NSW.

But it is also unearthing evidence that will again ignite questions about the corporate governance of Crown – long a concern for investors.

James Packer, the company’s major shareholder who lives in the US and is rarely seen these days, will give evidence by video link next week.

So will Crown’s high-profile directors who include former Liberal senator Helen Coonan – now Crown’s chair – former public servant, Jane Halton, and former AFL boss, Andrew Demetriou.

Money laundering, junkets and high rollers

This week Crown’s mild-mannered bespectacled chief executive, Ken Barton, who was elevated to the top job in January after nearly a decade as the company’s chief financial officer, has been the centre of attention.

Barton has faced a barrage of questions about practices within Crown Melbourne that expose the casino to allegations of turning a blind eye to money laundering.

“Isn’t it right that in the Suncity room, Crown turned a blind eye to the prospect of money laundering taking place at that cash desk?” counsel assisting the inquiry, Naomi Sharp SC, asked.

“I’m not – I’m not familiar with what the activities were at the cash desk in that period,” Barton replied.

“But you’re the CEO of this organisation and you’re coming here today to explain to this inquiry why, firstly, you were suitable to remain a close associate of the Sydney licensee and, secondly, why Crown Resorts is suitable to remain a close associate of the Sydney licensee. Do you understand?” she asked.

“I understand that,” Barton replied.

Crown eventually closed Suncity’s cash desk after it discovered $5.6m of cash stored in a cupboard in March 2018. Such an inordinate amount of cash, its top anti-money laundering officer Joshua Preston said, set “money-laundering alarms ringing”.

The commissioner presiding over the inquiry, former supreme court judge Patricia Bergin SC, has been unable to hide her feelings.

“The irresistible conclusion is that nothing works. This went on for years,” she said.

“This went on from ’13, ’14, ’15, ’16 through to ’19 and nobody – and now Mr Barton is seeing things for the first time in this inquiry. This, in effect, has really reached the debacle level.

“It is very, very troubling. I mean, Mr Barton has made a lot of concessions but at the moment it is just extraordinarily troubling.”

Governance, disclosure and directors’ duties

There have been other revelations that raise serious questions about statements made to shareholders.

The inquiry was played a recording of Crown’s October 2019 AGM, during which shareholder activist Stephen Mayne asked the group’s independent directors to explain what information Crown shared with Packer, including if he was “selectively briefed” or received any “special treatment”.

Barton, then Crown’s chief financial officer, answered on their behalf by explaining that Crown shared information with Packer’s private company, Consolidated Press Holding (CPH), to provide some services to the group under a long disclosed agreement.

However, he did not tell the meeting Packer was not allowed to receive company information under that agreement, nor did he mention that a separate “controlling shareholder protocol” was put in place for sharing information with Packer in 2018, after he resigned as a Crown and CPH director.

The inquiry heard Packer received daily briefings under the protocol.

“Why didn’t you just tell the truth?” Bergin asked Barton. He agreed in hindsight it might have been better.

The briefings that Packer received included draft financial results.

So what’s at stake?

Bergin has been asked by the NSW authority that issued the high-roller casino licence to inquire into whether the licensee, Crown Sydney, remains suitable to operate a high-roller casino at Barangaroo.

Bergin makes a recommendation to the Independent Liquor and Gaming Authority, which in theory, makes an independent determination on what to do.

The options include do nothing, impose conditions on the licence or direct that actions be taken to ensure the licensee becomes suitable by, for instance, changing the board or key personnel.

Or Bergin could reach for the nuclear option and revoke the licence altogether.

That option, almost unthinkable when the inquiry began, has loomed into prospect, as the allegations of money laundering and other serious breaches of gambling laws mount up.

Since the inquiry, the terms of a financial deed between the NSW government and Crown, signed in 2014 when Mike Baird was premier, has also come to light.

Under the deed, Crown is entitled to claim compensation worth 10.5 times the estimated negative financial impact from almost “any action” the NSW government takes which changes, or has the effect of changing, its licence.

Crown can claim the same compensation for any government action which has a material negative impact on its “assets, liabilities, properties ... operating results, operations, reputation or prospects”, the deed says.

The minimum compensation payable is $200m.

This could mean that if conditions are placed on the licence that have a financial impact – such as banning Crown dealing with junket operators in future – the taxpayer could be up for a $200m-plus payout.

For this reason alone, the NSW government is likely to have some input in what the regulator does.

But the deed does allow the government to cancel or revoke the licence where there is a finding that the licensee is “no longer suitable” under the provisions of the Casino Control Act.

Crown executives have announced that Barangaroo in Sydney will open ahead of the planned February 2021 date and will open in December.

This will focus the minds of politicians on the implications of any finding by Bergin.

Crown is promising that the casino and six-star hotel complex will be a major employer and a significant driver of tourism – if and when foreign tourists are again able to enter Australia.

One possible option, which was suggested to Guardian Australia by experts in gaming law, is to revoke the licence and reissue it with more stringent conditions.

But could the NSW government again simply hand the licence to interests associated with Packer or Crown, without calling for expressions of interest as it did in 2012?

Whatever happens, a new licence or a substantially constrained one, is likely to reopen the whole debate about the viability of a high-roller casino after Covid-19.

The issue of poker machines at the second casino would most likely surface again.

Consequences, consequences

Bergin’s terms of reference also invite her to recommend to the NSW government on the effectiveness of the Casino Control Act.

But in practical terms there may be major constraints to changing the casino laws that cover both Crown and Star.

The Crown deed restricts the state from taking any action, including the amendment or introduction of legislation or regulations that either changes its licences or has a material effect on its profits, except in some very minor areas such as parking fees or laws that apply to all businesses in NSW.

Related: Crown casino inquiry chair tells CEO money laundering allegations 'extraordinarily troubling'

Bergin was also interested in how important junkets were to Crown. When she was told that high rollers contributed just 7% towards Crown’s profits, she suggested: “Why don’t you just stop dealing with them?”

However, high rollers from overseas are likely to be a much more important part of the Sydney casino’s business and banning junkets could have a major impact.

Asic declined to comment on the testimony and evidence emerging during the inquiry.

“As a matter of course, Asic is always able to review both disclosure and trading around any significant events and announcements, and often does,” it said. “It would be inappropriate to comment further.”’