The former head of the Australian Criminal Intelligence Commission (ACIC) has warned the market is edging towards a tipping point as excessive regulation and taxation push players towards the black market.
Speaking at Sydney’s Regulating the Game conference on Tuesday (11 March), Michael Phelan, who served as CEO of the ACIC between 2017 and 2022, told attendees that a “happy equilibrium” must be found to protect both players and operators.
He said: “The issue is that if the market or taxation gets to a point beyond the equilibrium – if you get to a point where you tax the industry so much and you overregulate – then people will look to other markets to go to and we’ve seen that happen in [the Australian tobacco] industry where regulation falls off a cliff and you have zero visibility.”
Phelan cited Australia’s growing “tobacco wars” which has seen stringent regulations and excises applied to tobacco products, leading to organised crime groups flooding the market with illegal products.
Similarly, Phelan warned that heavy-handed regulation could force gambling in the country down the same dangerous route.
“We’ve already seen [illegal] poker games opening up in Victoria, and Victoria Police have made a couple of arrests in relation to that,” he explained.
“Regulators need to understand and take note of the commercial aspects of the business that we’re seeking to regulate, and one of the keys is to actually know the market really, really well – to understand the consequences of taking certain actions and be careful of that.
“We’ve seen some of Australia’s largest professional gamblers in recent years move offshore, either to the Hong Kong market or somewhere else.”
Visibility crucial to effective oversight
Reflecting on his experience with the ACIC, Phelan stressed the need for law enforcement agencies to have visibility of the gambling sector, something that is complicated by black market involvement.
The unregulated gambling industry can often be seen as an easy target for crime groups due to a lack of KYC and AML protocols that are a hallmark of the regulated market.
According to Phelan, AU$64bn is laundered in Australia each year through various methods.
“I have zero visibility on any of that if it’s done in a warehouse that’s been hired for a week to run a casino or if the exchange of money is done in a McDonald’s carpark, which is what happens when you bet with an offshore site. All that leads to an environment that is not healthy,” he explained.
“One of the ways to get rid of the risk is for everybody – governments and regulators and operators – to get together and work out what the happy equilibrium is. What is a sustainable level of gambling in this country?
“It’s about making the market viable because without the market being viable, we don’t have any visibility, and we don’t see what’s going on.”
Aus government faces opposition backlash
Australia’s gaming industry appears to be on the brink of significant reform as the country’s Labor government faces increasing pressure from opposition parties to implement the recommendations of the Murphy Report, including a ban on gambling advertising – reducing the visibility of the sector amongst consumers.
Independent Senator for the ACT, David Pocock, previously called for the influence of the gambling industry to go under the microscope as it is “astonishing” that no action has been taken on the report, which was submitted by the late MP Peta Murphy in 2023.
However, Phelan urged the government to reconsider the rising regulatory costs of operating in Australia and the level of taxation levied on casinos.
His comments come at the same time as the Australian casino operator, The Star Entertainment Group, faces significant financial difficulty, fuelled in part by rising regulatory costs and a decline in player volumes.
Earlier this month, The Star confirmed that its shares have been automatically suspended from trading on the Australian Securities Exchange after it failed to publish its 1HFY25 report.
“The question for regulators is where is the point at which you get to keep [players] in the Australian market and when they get to go,” he concluded.
“Eventually, there is a tipping point where people leave the legitimate market and go for the unlawful market with all the inherent risk.”
