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  • Writer's pictureHugh McDermott

State regulators the best way to flush crime from casinos

As published in the Australian Financial Review, February 23, 2021.

Handing over gaming regulation to the tier of government that doesn’t have an anti-corruption watchdog makes no sense.

The Bergin report exposed how inaction by Crown Casino permitted serious infiltration and exploitation by transnational organised crime of our largest casino operation.

Legislators must now face what action needs to be taken to stem the growing influence of organised crime in our gaming industry.

Australia has taken the first critical step in responding to this problem – calling it out and refusing to allow it to continue in another casino.

The next step is to focus on the behaviours of criminal syndicates to utilise casinos as part of their money-laundering operations and apply carefully designed regulation and supervision to counter it.

Shifting the deck chairs at state and federal gaming regulators will not help.

What is needed is better state enforcement and adaptive supervision on gaming operations, not a monolith new federal regulator.

The existence of the Bergin report demonstrates that state regulation is working.

It has shown its resistance to regulatory capture, in that a gaming regulator in NSW has been able to take the courageous step of denying a casino licence to a powerful player operating a casino in other states.

It is hard to imagine a single national regulator ever making such a bold call if it had already licensed that operator elsewhere and was subject to the intense lobbying that goes on behind closed doors.

It’s like saying we no longer need state police forces because we have the Australian Federal Police.

The regulatory framework has allowed the NSW regulator to make this decision which in turn has prompted the Victorian government to now announce a royal commission and in turn Western Australia to launch an investigation.

The primary purpose of the introduction of 1970’s reforms to legalise and regulate gaming by state governments was to take control of gaming from organised crime.

The decades prior to gaming legalisation saw criminal syndicates use illegal casino and gaming operations to bankroll their criminal empires.

There is little doubt that until illegal narcotics and drug supply became the main focus, gaming was the primary source of illicit income for organised crime.

Similar legislation and regulation was introduced during this decade to break organised crime’s grip of illegal backyard abortions, prostitution, sly grog production and government corruption. Piece by piece, the business model of organised crime was unravelled.

Since that happened decades ago, organised crime has adapted its business models and infiltrated the holes in the regulatory and supervisory structures of Crown, as described in disturbing detail in the Bergin report.

Other casinos in Australia, it appears at this stage, have not experienced this level of infiltration.

A national regulator would be a mistake. It’s like saying we no longer need state police forces because we have the Australian Federal Police.

Just as the AFP and state police partner effectively on major operations, so do Australia’s gaming regulators.

The national anti-money laundering regulator AUSTRAC supervises the development and compliance of casinos with AML plans, and is able to effectively liaise with state and territory regulators on casino licence conditions and operator due diligence.

Proof is provided by the review undertaken by the Financial Action Taskforce – a branch of the OECD – in 2015 on Australia’s AML controls and supervision.

It named the NSW casino regulator as running extensive due diligence on the suitability of casino operators with ongoing checks on operators and key personnel.

Alongside the supervisory activity of AUSTRAC, it endorsed the effectiveness of this approach. The fact that the international body for AML gave a tick of approval to our system should give us pause before we take a scalpel to our regulators.

A 2013 US study provides empirical evidence of what we all know – a link between casinos and political corruption, with “regulatory capture” leading to softening of gaming regulations after the introduction of casinos.

Crown has been deemed unsuitable to hold a casino licence.

Any casino regulator in Australia must operate within a jurisdiction that has strong controls for identifying, investigating and exposing corruption.

As the weakest anti-corruption controls in Australia are at a federal level, the Commonwealth is the worst place to put a gaming regulator.

The denial by many federal MPs that corruption is an issue, makes it unlikely we will have a strong, effective and independent federal ICAC any time soon.

State or federal legislation can only go so far.

The failure of Crown to identify and fix vulnerabilities in its AML programs while in pursuit of high-rollers with questionable income sources must be laid at the feet of a wilfully blind, profit-at-all-costs board and management.

Added to this lack of governance was inadequate regulatory oversight and enforcement.

The only effective approach to fight organised crime’s infiltration is by well resourced, aggressive state regulation and law enforcement, while co-ordinating with federal and international counterparts.

Like in the 1970s, state governments must once again take the lead in breaking organised crime’s influence on casinos.

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