VCG.0001.0001.0001 Victorian Commission for Gambling and Liquor Regulation Report prepared pursuant to sub-section 24(3) of the Casino Control Act (1991) (Vic) — In respect of: An investigation conducted pursuant to sub-sections 24(1) — (2) of the Casino Control Act (1991) (Vic) into the conviction and sentencing of Crown employees for gambling related offences in the People's Republic of China, in June 2017. allir Victorian Commission for ORIA 11111; 9 !Rata. Gambling and Liquor Regulation cpVipirnonhird. VCG.0001.0001.0001_0002 -"4" 1•1111 f Adiirl, Victorian Commission for Level a, 12 Shelley Street, Rich rr n0 3121 Gambling and Liquor Regulation GPO Box 1949E1, Melbourne VIC 8001 T: 1800 182 457 vcgIrvic.govau 19 February 2021 The Hon Melissa Home MP Minister for Consumer Affairs, Gaming and Liquor Regulation 1 Spring Street Melbourne VIC 3000 Dear Ms Home An investigation into the conviction and sentencing of Crown employees for gambling related offences in the People's Republic of China under section 24 of the Casino Control Act 1991 — report to the Minister. I refer to the above investigation which has been conducted by the Victorian Commission for Gambling and Liquor Regulation (the Commission) under section 24(1) and (2) of the Casino Control Act 1991 (the Act). Section 24(3) of the Act states that the Commission may make a report to the Minister on the results of such an investigation if it thinks it desirable to do so. Accordingly, the Commission's report is submitted herewith. Yours sincerely f Ross Kennedy PSM Chair VCG.0001.0001.0001_0003 Contents PART 1 MATTERS OF CONTEXT AND INTRODUCTION THE "FAILINGS" CROWN ACKNOWLEDGED ON 22 JANUARY 2021 7 Crown's accepted failings do not go far enough THE REGULATORY FRAMEWORK OF THIS REPORT 11 Distinguishing this report from casino reviews and other processes 13 Avoiding "hindsight bias" 14 Affording procedural fairness 15 LIMITED EVIDENCE FROM CROWN'S EMPLOYEES IN CHINA 18 PART 2 THE BUSINESS AND ITS ESTABLISHED REPORTING STRUCTURES 21 SOLICITING "VIPS" FROM CHINA 2.1 Those responsible for Crown's operations in China "on the ground" 24 Messrs Felstead and Craigie's dual roles as both CEOs and directors 26 Mr Craigie's role on the Crown Resorts risk management committee 27 FORMAL REPORTING MECHANISMS NOT ENGAGED 28 RISK MANAGEMENT FRAMEWORK 29 The absence of risk management plans specific to China 30 Mr Chen "never saw" Crown Resorts' risk management policy 32 MANAGEMENT REPORTS 35 OTHER REPORTING MECHANISMS .3.5 CEO Meetings as VIP Working Group meetings (aka CPH Working Group meetings) 39 The potential conflict of interest between CPH and Crown 40 Direct reporting to Mr Packer 41 PART 3 MANAGING THE RISKS IN CHINA "ON THE GROUND" A3 THE PERIOD BETWEEN 2012 AND FEBRUARY 2015 44 "Reception Procedures in the Event of Government Investigations" 44 The "core"19 February 2013 advice and staff concerns in respect of that advice 47 Junket operator detained and information suggesting Chinese laws had changed 49 Mr O'Connor is given "inside information" to "remove all...staff " 50 "Tip from well placed government family" and "risk that might put...staff in" 51 The "double down" strategy "really depends on the risk appetite of the company" 52 A Crown staff member is questioned by police in China 53 THE PERIOD BETWEEN FEBRUARY AND OCTOBER 2015 .54 CHINESE MINISTRY OF PUBLIC SECURITY ANNOUNCEMENT 55 Re-circulation of "Reception Procedures"and proposal to obtain foreign work visas 58 "...too big a risk.. _"to establish an office in China 59 Page 3 of 135 VCG.0001.0001.0001_0004 Senior executives refrain from travelling to China and legal advice to limit travel to mainland China 60 Mr O'Connor and a London-based executive director express concern for staff in China 63 Branding is removed from Crown aircraft 6.4 Mr O'Connor again expresses reservations about travelling to China 64 Risk management advice is sought for the first time 65 Roadshow proceeds despite conflicting legal and risk management advice 66 Mr Chen's instructions about his salary, in the event he is detained 67 MARKETING STAFF FROM OTHER FOREIGN CASINOS ARRESTED IN CHINA 69 External advice and Mr Chen's opinion that the "key question is why them" 70 CHINESE POLICE INTERVIEW TWO FURTHER CROWN MARKETING STAFF 72 Legal advice in both Australia and China 73 ".__contributing to an evidentiary pile..."and the limited budget for obtaining advice 75 CHINESE TELEVISION REPORT 77 Risk management and limited legal advice 78 Failure to consider the legal interpretation referred to in the Chinese television report 80 THE PERIOD BETWEEN OCTOBER 2015 AND THE ARRESTS IN OCTOBER 2016 81 Online gambling, transaction limits and others arrested in China 82 Staff in China asked to promote "illegal"online gambling 83 "China jobs should all have a significant risk premium" 83 Mr Chen tells Mr Felstead he has "...taken on the risk of being prosecuted in China" 84 Other casino marketing staff are sentenced to fifteen months imprisonment 84 PART 4 THE CONSEQUENCES OF MANAGING THE RISKS "ON THE GROUND" 86 CROWN'S STAFF IN CHINA HAD NO VOICE 86 ADVICE INADEQUATELY OBTAINED .8.6 No evidence advisers were given the details of Crown's operations in China 87 No evidence advisers were told about Crown's risk management structures or regulatory obligations in Australia 88 The previous relationships between Mr Chen, WilmerHale and Mintz 89 Retaining Americans to advise about China 89 STATEMENTS THAT MAY HAVE HEIGHTENED THE RISKS 90 PART 5 KNOWLEDGE OF THE ACCEPTED RISK ESCALATION EVENTS 93 KNOWLEDGE OF THE MINISTRY OF PUBLIC SECURITY ANNOUNCEMENT 94 Messrs Packer, Alexander and Craigie 94 Mr Johnston 95 Mr Felstead 96 KNOWLEDGE OF THE ARRESTS OF OTHER FOREIGN CASINO MARKETING STAFF .97 Messrs Packer, Rankin, Craigie (and Barton) 97 Messrs Felstead and Johnston (including Mr Johnston's reporting of the arrests) 99 Conflicting evidence about whether Mr Johnston informed the entire board of Crown Resorts 99 Page 4 of 135 VCG.0001.0001.0001_0005 The knowledge of Ms Danziger, Ms Coonan, Mr Demetriou and Professor Horvath 100 Messrs Dixon, Barton, and Neilson 101 Crown's response to the Commission's propositions and the knowledge of those who sat on Crown Resorts' risk management committee 102 Ms Tegoni 103 KNOWLEDGE THAT CHINESE POLICE HAD QUESTIONED CROWN STAFF 103 The Commission's limited understanding of this matter, prior to December 2020 104 Mr Felstead and Ms Williamson 105 The letter confirming employment 105 Mr Johnston 109 Ms Tegoni 111 A further matter related to the questioning 112 KNOWLEDGE OF THE CHINESE TELEVISION REPORT 113 Mr Felstead 113 PART 6 MATTERS ARISING DURING THE INVESTIGATION 115 CROWN'S RESPONSE TO MEDIA ALLEGATIONS 115 LOOKING AT MATTERS "THROUGH THE EYES OF A WESTERNER" 116 CROWN'S APPROACH TO THE INVESTIGATION 118 CROWN'S WORK TO ADDRESS ITS ACCEPTED FAILINGS 123 Confidential Page 5 of 135 VCG.0001.0001.0001_0006 PART 1 MATTERS OF CONTEXT AND INTRODUCTION 1 On or about 13 October 2016, 19 Crown' employees were detained by Chinese police in respect of conduct associated with their employment, by Crown, in the People's Republic of China (China). 2. Eight months later, on 26 June 2017, following pleas of guilty, those employees were sentenced for having contravened a Chinese criminal law which provides that: "Whoever, for the purpose of profit, gathers a crowd to gamble or undertakes gambling as a business shall be sentenced to fixed term imprisonment of three years or less, detention, or surveillance, and shall be subject to a fine."2 3. At least sixteen of the employees were sentenced to terms of imprisonment, of either nine or ten months, and fined. 4. Notwithstanding the pleas of guilty, Crown does not accept that its staff contravened the criminal law of China. It also does not accept that the Commission should interpret the guilty pleas as suggesting that Crown's employees did in fact contravene the criminal law of China, by reason of their employment. 5. Rather, Crown says that: a. the guilty pleas were necessary so that Crown's employees could obtain some certainty about the period of imprisonment and fine that they would receive; b. the executives who were responsible for Crown's business in China had obtained legal advice to the effect that its operations in China were not contrary to the specific Chinese law that the employees were convicted of contravening; and c. on that basis, the guilty pleas, conviction and sentencing should not be relied upon by the Commission as a basis for suggesting that Crown's staff knew that what they were doing was illegal or that Crown employed staff in China to engage in conduct that Crown knew was illegal. 6. Whilst the Victorian Commission for Gambling and Liquor Regulation (Commission) notes that as Crown's position, the Commission also notes that it is not the purpose of this report to determine whether Crown's employees did or did not breach the criminal laws of China. That is an issue for the Courts of China. The relevant Courts accepted the guilty pleas. The purpose of this report is to consider the broader circumstances which preceded the arrests and subsequent convictions, and further In this report the term "Crown" is used for convenience to describe the group of companies that includes Crown Resorts Ltd ACN 125 709 953 (Crown Resorts), Crown Melbourne Ltd ACN 006 973 262 (Crown Melbourne) and the Singapore registered company Crown Resorts Pte Ltd (199407460G) (Crown Singapore) whenever it is unnecessary, by reference to the context in which the term is used, to distinguish any of the individual corporate entities that make up the Crown group of companies.