Spinning the Crown casino inquiry
Friday 24th January 2020
The problem is that Melco's biggest shareholder is a company that's banned from investing in Crown. And there could be a lot of losers from this inquiry, which means the spinning of the facts is intense.
On Friday, Crown announced executive chairman and chief executive John Alexander was stepping down as part of a shock reshuffle.
Crown, Melco and CPH have assembled a formidable legal team to contest any adverse finding in the inquiry. They include Rowena Orr, SC, fresh from the banking royal commission, acting for Crown; and Jeremy Stoljar, SC, of the trade union royal commission, acting for Melco.
The transcript of the inquiry's opening addresses by the two counsels assisting, Adam Bell, SC, and Naomi Sharp, SC, took three days before it was released on Friday - perhaps a hint of the legal jousting going on behind the scenes over every phrase.
The public hearings will begin on February 24 with an examination of reports of money laundering and criminal involvement in junkets, which were published by The Age and The Sydney Morning Herald in July 2019. Later in the year, Commissioner Patricia Bergin, a former NSW Supreme Court judge, will turn to the ticklish questions of whether Crown is in breach of licence conditions.
Bell's address made it seem simple. Clause 2.4 of the 2014 VIP Gaming Management Agreement that governs Crown's casino licence at Barangaroo bans any associate of Lawrence Ho's father, Stanley Ho, from having any direct or indirect shareholding in Crown.
This applies to a list of 59 people and companies defined in the agreement as associates of Stanley Ho.
Casino regulators around the world have for decades variously choked, cavilled or made signs of the cross in response to any suggestion that Stanley Ho is involved in a casino project, because of his alleged links to violent Chinese triads. Stanley Ho has always denied those links and has never been charged with a criminal offence.
MGM Mirage lost its New Jersey casino licence after it partnered with Lawrence's elder sister, Pansy Ho, in a Macau casino.
Lawrence has always made the clear point that his father has no links to or control over Melco. But the NSW Management Agreement's list of banned Stanley Ho associates includes a British Virgin Island company, Great Respect Ltd, which holds 20.44 per cent of Melco International.
How much control Stanley Ho has over Great Respect is unclear. Regardless, it's on the banned list. This means, on the face of it, that Melco can't own shares in Crown.
What were Lawrence and James Packer, let alone the Crown board, thinking?
Crown says it is off the hook because it didn't have the power to stop the share sale.
More remarkably, Crown says that Clause 2.4 was written to cover its Macau casino partnership with Melco, in which Crown and Melco both held 34 per cent. After Crown sold out in 2016, it claims that it reached an in-principle agreement with officers with the NSW Liquor and Gaming division to delete Clause 2.4 from the management agreement.
There was also in-principle agreement to drop the requirement that Crown should notify the regulator of any shareholding by a Stanley Ho associate.
That's a figurative 'get out of jail' card, which means it's not just Crown, CPH and Melco under the spotlight. Bergin will also be scrutinising the government's administration of the sector.
Whether an unwritten agreement is actually binding remains to be seen. It's hard not to think that when Lawrence Ho and Packer did their deal, they ignored the uncertainty and trusted in their ability to talk regulators around in talks behind closed doors -because that's what they had done in the past.
Two factors hyper-charge this issue. The first is just how much Lawrence Ho needs the Crown deal to go ahead.
The real appeal in this deal is not just Crown's three Australian casinos. It's the credibility that it offers Ho. The approval that Ho was confident of receiving from Australian regulators was bankable. He would use it to bolster his application for a mega-casino in Japan, with plans for the US and Europe next on the agenda.
The Crown stake would help Lawrence finally escape the shadow of his father, cementing his 15-year rise from running a Macau company that operated clubs with poker machines and restaurants, to a casino giant with a global footprint.
It's not something to walk away from easily.
The second factor is Sydney's history of public versus private casino inquiries.
In 2012, the Independent Liquor & Gaming Authority (ILGA) vetted Melco after Crown bought 10 per cent of Echo Entertainment, which operated Sydney's Star casino.
That vetting was used in an inquiry in 2014 into the awarding of the Barangaroo licence. It was all behind closed doors. Even the list of banned Stanley Ho associates was kept out of the public eye.
In 2015, casino administration became even lighter, with a reconstructed ILGA that has eight board members (before November it was only six) and no employees. Its work is done by the Department of Liquor and Gaming.
The ILGA board includes former Henry Davis York chairman Phillip Crawford, ex-McGrathNicol partner Murray Smith, another insolvency expert in Stephen Parbery and lawyer Nicky McWilliam, the wife of Seven legal counsel Bruce McWilliam.
But Sydney has a deeper history with casinos regulation, from the police commissioner who gambled at the illegal casino at the Double Bay Bridge Club in the 1960s; the casino licence that George Herscu's Hooker Corporation and US giant Harrah's won in 1986, only to be withdrawn over probity issues; to the firestorm of allegations that triggered an inquiry after the 1994 award of a casino licence to Leighton Holdings and US operator Showboat.
That inquiry, at which CPH executives argued vehemently that the licence should be withdrawn on probity issues, forced Leighton to sell down its stake. But Showboat was cleared.
Kerry Packer was never one to take defeat easily. Perhaps it's an apocryphal tale, that in the following state election a Packer associate helped see Liberal MP Anne Cohen, the minister responsible for the independent Casino Control Authority which ruled against Packer's bid, lose her seat. Casino wars are so Sydney.