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AUSTRAC not quite done with Star just yet

Investors in struggling casino operator Star Entertainment (ASX:SGR) did their best to ignore the news yesterday that the company is being sued in the Federal Court by key financial regulator AUSTRAC over claimed breaches of money laundering laws over “a number of years”.

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The shares ended up 0.3% at $2.71, after touching a low of $2.67 when it was made clear pending legal action from AUSTRAC had become something much more serious.

While the regulator did not detail the allegations in a way similar it did for the Commonwealth Bank and Westpac, AUSTRAC did say in a statement it had launched civil penalty proceedings in the Federal Court against the Star for alleged systemic non-compliance with Australia’s anti-money laundering and counter-terrorism financing laws.

AUSTRAC launched an industry-wide casino compliance campaign in 2019 and opened an enforcement investigation into The Star in June 2021, after extensive media reports revealed a long list of claimed breaches of rules and regulations regarding money laundering and the operations of a casino.

State Government-ordered independent inquiries in NSW and QLD found The Star unfit to hold its casino licences earlier this year as well as determining the group had a deep-rooted cultural problem due to poor governance.

In its statement of claim lodged with the Federal Court on Wednesday, AUSTRAC alleged Star recorded a combined turnover exceeding $125 billion from junkets (organised casino-based gambling trips, mostly from Chinese tourists) between November 2016 and October 2020

Over the same period, Star Sydney and Star Qld recorded that junket programs had combined losses exceeding $1.5 billion. The now infamous SunCity junkets recorded turnover of more than $15.5 billion from December 2016 and September 2020, with the players suffering a total loss of more than $150 million.

AUSTRAC did not comment on whether a fine order will be made as the matter is now before the court but said the penalty would be determined by factors including the nature and extent of the contraventions, the circumstances, and whether the conduct arose at the level of senior management or below.

The biggest fine in Australian corporate history was issued by AUSTRAC against Westpac in 2019, following similar anti-money laundering breaches that saw the bank pay $1.3 billion. The Commonwealth Bank of Australia was fined $700 million after similar action in 2017.

AUSTRAC alleges The Star allowed customers to move money through non-transparent payment channels, did not understand or assess the sources of money moving through these channels and failed to consider whether it was appropriate that they continued an ongoing business relationship with high-risk customers.

The statement of claim highlights 43 customers associated with the now-outlawed junkets as well as 38 international customers and 34 domestic customers.

AUSTRAC said it had worked closely with the state and federal regulatory bodies to commence its civil penalty proceedings.

CEO Nicole Rose said their investigation had identified a number of issues including poor governance, failures to manage financial risk, as well as poor anti-money laundering and counterterrorism financing compliance.

“Criminals will always seek to exploit the financial system to launder their money and harm the community. Businesses, as the front line of defence of our financial system and our communities, are often the first to be alerted to criminal activity,” Rose said on Wednesday.

AUSTRAC added The Star’s casinos were “vulnerable to criminal exploitation” and the group’s failure to manage the risks had exposed Australia and the global financial system to the potential of systemic money laundering and terrorism over many years.

The watchdog has alleged extensive mismanagement took place at The Star’s entities including failing to establish an appropriate board framework, failing to conduct due diligence on a range of high-risk customers, and failing to establish a fitting transaction monitoring program to keep track of transactions and identify suspicious activity.

Section 66 of AUSTRAC’s Concise Statement of claim gives a brief hint of what the regulator might be eying in terms of a fine:

“The ML/TF (money laundering/terrorism financing) risk management failures occurred in circumstances where Star Sydney and Star Qld were operating a highly profitable business.

“Between July 2016 and October 2020, Star Sydney and Star Qld made over $1.6 billion in revenue from junkets. By failing to comply with the Act and Rules, Star Sydney and Star Qld avoided expending funds that should have been invested in compliance including on IT, staffing and the development of AML/CTF controls.

“The money saved by Star Sydney and Star Qld by its non-compliance is reflected in its lack of expenditure on risk management and compliance.”

Seeing Star only has a market value of $2.5 billion, a massive fine of that size will cripple the company.

The Star’s new CEO Robbie Cooke said the new management was working to transform the company’s culture and business practices.

“We are committed to improvement but there’s a lot still to do,” he said.

“Our goal is to earn back the trust and confidence of AUSTRAC and all our regulators,” Cooke continued, adding the group is reviewing the watchdog’s statement of claim.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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