Star Entertainment directors not excused in money laundering oversight, Federal Court hears

Federal Court judge Michael Lee has questioned whether Star Entertainment’s board can convincingly argue they were too overburdened to monitor money laundering risks at the troubled casino giant.

Former Star Entertainment board under attack from ASIC.

Federal Court judge Michael Lee has singled out Star Entertainment’s former board for taking generous directors fees while claiming ignorance of alleged money laundering unfolding at the troubled casino giant.

Justice Lee was hearing closing arguments on Monday from Michael Henry SC, counsel for Star’s non-executive directors, in the case bought by ASIC that accuses the board and key executives of breaching their duties to stop money laundering by Asian-based junket operators. Star’s non-executive directors in question received a total of $1.62m in fees in 2017.

Justice Lee said part of the board’s defence was that non-executive directors should not be burdened “by legal obligations to scour hundreds of pages of documents” that could have shed light on the probity of those involved in the junkets.

“The argument is that the imposition of such a burden would render the oversight of business operations by a board impossible,” Justice Lee said.

“That is, we shouldn’t necessarily expect non-executive directors to read material. And yet you say that they read this material and took away a level of comfort.”

The court heard earlier that a report from KPMG prepared for the company in 2017 had highlighted the high risk of using junket operators and the need for better processes.

Former Star Entertainment CEO Matt Bekier and former legal counsel Paula Martin

Star also had a security report revealing that junket operator Qin Sixin had been arrested by Chinese authorities in a Macau casino. Despite that, the board had approved topping up his credit facility in 2017 by $20m. This report included details of Mr Qin’s arrest and extradition to China in 2012 on suspected money laundering charges.

Mr Henry said information provided to the board about Mr Qin’s probity was limited to 10 words in a report, with no evidence any other information had been shared with directors.

Justice Lee said company directors “just can’t keep on saying that, ‘oh well, it’s all too difficult for us to read the material that’s presented to a board’.”

“Do these non-executive directors say, ‘well, don’t give me all the director’s fees? Please don’t give me all my director’s fees because I can’t get through all the work’,” Justice Lee reflected.

“I don’t think that happens. I think they take their director’s fees. What you’re effectively saying is that they can’t be expected to do all the work that the company is expecting them to do, because they can’t be expected to read all the material.

“Well, if that’s the case, then they should be doing something to change the conveyance of information from management to the directors.”

Justice Lee said that even if information provided to a board was difficult and complex “there is no point blaming management for this”. “It is the responsibility of the board to do something about it in order to fulfil their obligations,” he said.

ASIC is suing former Star chief executive Matt Bekier, company secretary Paula Martin, former chairs John O’Neill and Benjamin Heap as well as former high-profile directors Sally-Anne Pitkin, Kathleen Lahey, Gerard Bradley, Wallace Sheppard and Zlatko Todorcevski for alleged breach of money laundering controls.

Mr Henry said the board was entitled to be satisfied Star had procedures in place to ensure high-stake junkets were conducted “properly, honestly and with proper protections.”

He said these procedures included the investigations team at Star undertaking probity checks of junket promoters and persons associated with them.

“With what the board was told on that score, one would walk away as a reasonable director with confidence about what was in place,” he said.

“That was supplemented by what I’ll refer to as internal arrangements, and they were principally a framework of policies and committees established by the board to oversee and supervise the staff’s business.”

Mr Henry said the board was not fully aware of all suspicious transactions unfolding at Star because management were not legally able to inform the board of reports to AUSTRAC, the regulator responsible for preventing, detecting and responding to financial crime.

“Management understood that if the board asked for these reports the answer would be ‘no, I can’t give it to you’,” he said. “There were secrecy provisions in the relevant legislation which prohibits the disclosure of the contents of any suspicious matter report and the breach of those provisions would constitute a criminal offence.”

Justice Lee said he “didn’t know how you would run an organisation if the board were prevented from being given this material”.

“It would be completely nonsensical,” he said.

Earlier, the court heard that Mr Bekier claimed there was nothing on his “radar” about illegal activities including suspicious cash transactions occurring at Star Sydney, despite a warning from one of the company’s top lawyers.

In May 2018 Star casino boss Greg Hawkins forwarded an email to Mr Bekier from in-house counsel Andrew Power, who warned that the exchange of cash for chips in a private gaming room known as Salon 95 exposed the company to money laundering risks.

Originally published as Star Entertainment directors not excused in money laundering oversight, Federal Court hears