Crown Resorts Believed Chinese Operations Were Legit Prior to ‘Gambling Crimes’ Arrests

Posted on: November 16, 2020, 03:34h. 

Last updated on: November 16, 2020, 04:36h.

Philip Conneller @casinoorgphilc Read More
Expertise: Gaming Business, Regulation, Tribal Gaming.

The Crown Resorts board did not believe it was breaking Chinese law when 16 of its staff members were imprisoned in China in 2016. This was despite warnings a year earlier that a crackdown against recruiting Chinese citizens to gamble overseas was imminent in the People’s Republic.

Crown Resorts
Crown Resorts employees (with facemasks) arriving at their trial in Shanghai in June 2017. (Image: Associated Press)

Lawyers for the Australian casino giant told a licensing suitability hearing in New South Wales Monday that its Chinese VIP marketing strategy was based on legal advice. Crown believed that a 2005 ruling by China’s highest court protected it from prosecution.

Rule of Law?

On 11 May 2005, the Supreme Court and the People’s Procuratorate (Prosecutor General) jointly issued The Interpretation for Trial of Criminal Cases Concerning Gambling. This clarified the illegality of online wagering, as well as other gambling-related infractions.

As related to Crown’s marketing operations, the court said it is illegal to:

Organize more than ten Chinese citizens to engage in gambling activities overseas and obtain a commission and/or introducer fee in return.  

This would appear to criminalize junkets that take a commission for recruiting VIPs to gamble abroad. But while the casino did business with junkets operators, in this instance, no middleman was involved to collect a commission, because the company was marketing directly to potential players, which is why Crown thought it was in the clear.

Because of western perspectives and because of the legal advices which made clear the textual interpretations of the law, senior executives made the assumptions that there was the rule of law in China,” Crown’s lawyer, Neil Young QC, told the inquiry.

“Accordingly, that mistake should not be judged severely. It was a bona fide and honest mistake,” he added.

Crown License at Stake

This was the 52nd day of hearings into Crown’s suitability to hold a license in New South Wales. At stake is the A$2 billion ($1.46 billion USD) Crown Sydney, which the company plans to open next month.

The inquiry has been examining whether Crown turned a blind eye to casino money laundering in Australia in the pursuit of profit. It has focused in particular on the company’s relationship with junket operators and Chinese high rollers.

Lawyers assisting an inquiry have recommended Crown be found unsuitable for licensing, arguing the China incident alone was sufficient grounds to revoke its license.  

The inquiry has heard from several witnesses that warnings about China prior to the arrests went unheeded by Crown executives, and that the Chinese team had been living in fear of feeling a “tap on their shoulder.”

Disgruntled Shareholders

The inquiry also learned that the operator has never held an internal review into the scandal because it is facing a class-action lawsuit from disgruntled investors and was worried it would harm its defense.

The 2016 arrests caused Crown’s share price to plunge, wiping more than A$1.3 billion off its market value. Sixteen of 19 employees detained received prison sentences of between nine and ten months. All were released by late 2017.

Lawyers assisting an inquiry have accused Crown of “disastrous failures” of corporate governance and risk management in relation to the incident.

The inquiry’s chair, Patricia Bergin, will submit her recommendation on the operator’s suitability to the state regulator by February 1.