The NSW government inquiry into casino giant Crown Resorts started unexpectedly last Friday, as counsel assisting Adam Bell opened the day’s proceedings with an excerpt.
“Mike Johnston has been with me a long time,” he quoted James Packer saying in a recent biography. “He’s a good friend and has also shown complete loyalty to me and my family.”
As Johnston – a trusted lieutenant in the Packer family business empire for almost 20 years and a Crown director for 13 – settled in behind his desk to give three days of evidence via video link, the impassive senior counsel was keen to test that assertion.
“Would you agree that for a long time you’ve shown complete loyalty to Mr Packer?” Bell asked. The response from Johnston was simple and immediate: “Yes”.
The Independent Liquor and Gaming Authority’s (ILGA’s) unprecedented probity inquiry into the $6 billion casino group has over 36 days of hearings laid bare how Crown went into business with alleged members of Asian crime syndicates, its failure to stop money laundering at its casinos, and how its thirst for profit led to 19 employees being arrested and jailed in China four years ago.
Revelations about these failures by The Age, The Sydney Morning Herald and 60 minutes last year is what sparked the inquiry. But last Friday’s opening gambit by Bell went to the heart of a different question that has long hung over Crown, one the company has assiduously avoided until now: just who calls the shots at Australia’s largest casino owner?
And where does the loyalty of Crown’s senior executives and heavyweight board of directors lie – with the publicly listed company or its largest shareholder, James Packer?
The stakes could not be higher for Crown, as it prepares to open the doors to its new casino at Barangaroo, on the banks of Sydney Harbour, in the middle of December. Former NSW Supreme Court judge Patricia Bergin, SC – who made her name as a counsel assisting the landmark Wood police corruption royal commission – will recommend to the NSW government whether Crown is clean enough to keep the licence for its $2.2 billion gambling mecca.
The evidence provided so far has left her less than impressed. Transparency at “debacle levels”, a “terrifying” confusion over who was responsible for anti-money laundering compliance, and risks being taken because of “the pressure to chase profit” are just some of the ways Commissioner Bergin has already described what went on at Crown.
Packer – whose fortune was estimated to be $4.9 billion last year – currently owns 36 per cent of the shares in Crown and was always going to leave his mark on the company. He served as chairman from 2007 until 2015, when he left the board. He rejoined as a director in August 2017 before leaving seven months later amid a battle with mental illness; and is scheduled to give evidence to the inquiry on Tuesday.
Crown chief executive Ken Barton’s evidence to the inquiry did nothing to dispel the notion that while Packer no longer holds a formal position at Crown, fulfilling his needs remains a high priority for the board. The former finance boss, who was elevated to CEO in January to replace executive chairman John Alexander, revealed to the inquiry that he sent Packer almost daily updates on the group’s financial performance.
But when a shareholder asked at Crown’s annual general meeting in October last year whether Packer was “selectively briefed” or received any “special treatment”, Barton answered by describing a services agreement between Crown and Packer’s private company Consolidated Press Holdings (CPH), which Packer is not party to.
Barton, who has styled himself as a reformer ready to improve governance at Crown, denied he had deliberately misled his shareholders but told the inquiry “in hindsight, I could have easily answered the question”.
This flow of confidential information to Packer led to the bombshell suggestion this week of insider trading, after it heard how in May last year Packer demanded Barton send him updated profit forecasts for Crown out to 2022.
Unbeknownst to Barton, Johnston and Guy Jalland – another CPH executive who is also a Crown director – were in the process of selling a 19.9 per cent stake in Crown, almost half Packer’s holding, to Hong Kong’s Melco Resorts for $1.7 billion.
They sent financial forecasts to Melco based on Mr Barton’s numbers along with other confidential company information.
Johnston told the inquiry he understood that in Australia’s insider trading laws, “inside information” meant material that was not generally available and could affect a company’s share price. But he insisted the briefing sent to Melco before they finalised the deal on May 30 was “significantly below the threshold” of being price-sensitive, because the profit forecasts were broadly in line with market consensus forecasts.
In fact, Johnston said, CPH sent the confidential information to Melco to avoid the perception it had engaged in insider trading by selling the shares while armed with information Melco did not have, to Melco’s disadvantage. “It really was out of an abundance of caution,” Johnston said.
On Friday the inquiry was read an email Packer sent to Crown’s then executive chairman John Alexander in November 2018, eight months after Packer had left the board, questioning why he was “on a world trip looking at restaurants”.
“This seems excessive to me,” Packer said, “Do we need an overall cost cutting plan to immediately implement including travel bans for our executives?”
In the same email exchange, Alexander told Packer he needed the board to back him with his own cost cutting measures, to which Packer responded: “I’m over being captain good guy to everyone, go hard my good friend you have my blessing”.
Alexander agreed that Packer was providing some “indirect” instruction to him in the emails, but denied Packer was using a “controlling shareholder protocol” that permitted him communicate with key executives to control management from outside the company.
“There’s an interchange like this but it was not happening on anything like a regular basis,” Alexander said.
High roller high jinks
Testimony provided to the inquiry shows Packer relied heavily on his CPH team to guide and in some cases manage Crown when he was chairman, and that influence has continued after his departure.
Rowen Craigie, Crown’s CEO from 2007 to 2017, told the inquiry that CPH executives Johnston and former Labor powerbroker Mark Arbib – Packer’s media and government relations advisor – attended regular “CEO meetings” that Packer had established as chairman, in which Craigie would brief him ahead of board meetings.
“I think Mr Packer welcomed their input and wanted them exposed to the Crown management team and the CEO reports, so they would be in a better position to advise him,” Craigie said.
As chairman in 2013, Packer embedded Johnston into the then-struggling VIP internal high-roller team, holding regular meetings with the unit’s senior executives, along with other CPH executives Brad Kady and Steve Bennett.
Barry Felstead, Crown’s executive of Australian Resorts who remains responsible for the VIP business, told the inquiry that this “CPH VIP Working Group” was created to “brainstorm and work out ways to run the business” and consider “any potential opportunities we may have to grow the business”.
This CPH VIP group endorsed the strategy in 2015 to aggressively pursue the Chinese high-roller market, and partner with “junket” tour operators to bring them to Australia. Some of these junkets, the inquiry has heard, are linked to Asian criminal syndicates and have attracted the attention of law enforcement officials and the anti-money laundering regulator AUSTRAC.
Through the CPH VIP group Johnston was privy to information about what was going on in the Crown high-roller business, which never made it to Crown’s senior executives or the rest of the board, with disastrous consequences.
Bell put to the inquiry that Johnston was the only Crown director who knew “two important facts” in the lead up to the 2016 arrests of Crown’s staff in China, which wiped more than $1.3 billion from its market value and triggered the shareholder class action currently underway in the Federal Court.
The first fact was that Chinese authorities announced in early 2015 a crackdown on foreign casinos luring its citizens to gamble abroad. The second was that in mid-2015, Chinese police detained and questioned a Crown employee on suspicion of organising illegal gambling tours in Wuhan.
Johnston said he didn’t raise the detention with other members of Crown’s board because he did not think it was a “serious issue”, and was being dealt with by Crown’s Chinese lawyers. “With the benefit of hindsight”, he said, should have raised it.
Felstead also knew about these red flags signs but only raised them in the CPH VIP group, and not with Crown’s board or its then CEO, Rowen Craigie.
That prompted Bell to tackle Mr Packer’s influence head on and ask: “Did you see your loyalties, in respect of the VIP international business, as being primarily owed to Mr Packer and the CPH group, rather than to the board of Crown Resorts?”
“No,” said Mr Felstead. “My focus has, in terms of reporting, in terms of VIP and every business unit, has always been to Mr Craigie. There were instances where I should have told him things, I completely accept that, but I was under no illusion that Mr Craigie was my boss at all times”.
Ishan Ratnam, a “special assistant” to Packer as chairman who described himself as the billionaire’s “butler, host and personal assistant” while also running Crown’s Capital Golf Club was also privy to some of this information.
In February 2015, Ratnam emailed Matthew Csidei, who was Packer’s one-time right hand man responsible for managing the billionaire’s various yachts and properties, asking “what are your thoughts on us losing the [Crown] logos” on Crown’s fleet of private jets used to ferry Chinese high-rollers to Australia in light of the Chinese government crackdown. Csidei, who worked for CPH not Crown, replied: “Great idea. Get rid of them”.
Who’s calling the shots?
The inquiry heard that after the 2016 China arrests, Johnston then joined a three-person committee with Felstead and Crown legal boss Joshua Preston responsible for the final probity approval and review of all junkets Crown worked with.
Asked why Johnston, a non-executive Crown director, was making decisions that were ostensibly a job for management, Johnston gave a response that appeared to astonish even the unflappable Bergin: like much of what he did at Crown, he did the work as an CPH executive. Packer’s private company would then charge Crown for the hours under a services contract. (Crown paid $3.5 million to CPH under this agreement in 2018/19 and $1.2 million last financial year, according to its annual report).
“You were then sitting on the board that was reviewing the work that you’d done?,” Bergin asked. That was correct, said Johnston, although the work was first reviewed by the risk committee – which he had recently joined. He said it had been proposed that he will step off the junket review committee.
The fact Johnston and Jalland could face, in Bergin’s words, “some difficulty with all the hats that you are wearing and identifying which role you’re behaving in” was also examined in CPH’s sale of Crown shares to Melco last year.
A major focus of the inquiry is whether CPH’s sale of Crown shares to Melco violated Crown’s NSW licence because it gave an indirect interest in Crown to Macau casino pioneer Stanley Ho, who is banned due to alleged organised crime links.
(Melco and CPH agreed not to proceed with the second half of the transaction after the ILGA launched its inquiry, and sold the first 9.99 per cent parcel of shares it acquired in April. Stanley Ho died a month later, aged 98).
Jalland, who negotiated the sale, agreed with counsel assisting Bell that at the time he was “thinking only of the benefits which you perceived this transaction would bring to CPH… and ultimately to Mr Packer.”
“You understood,” Bergin inquired, “as a director of Crown you had an obligation not to do anything to harm it… correct?”
Jalland agreed but said he did not believe the deal presented any risk to Crown because there was nothing to suggest Stanley Ho had an indirect interest in Melco, controlled by his son Lawence.
“But with the burden that was on you to look after Crown… and your obligation to CPH to get the deal done, do you not accept it could be perceived as a presence of conflict?” Bergin continued. “I accept it could be perceived that way, yes,” Jalland said.
At least some of Crown’s minority investors are already alive to the issue. Australian Shareholder Association director Geoff Bowd said the inquiry’s evidence had raised concerned about corporate governance, “particularly that which relates to Consolidated Press Holdings’ influence on the Crown Resorts board, specifically pursuing the personal interests of James Packer”.
“Guy Jalland is up for re-election [at Crown’s AGM next month] and we will certainly be bearing in mind his testimony when considering our vote.”
Business reporter at The Age and Sydney Morning Herald.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.