The $400 million sting that could snuff out Star for good

The adage “you do the crime you do the time” springs to mind when listening to Star Entertainment’s protestations that if stung with a legal fine of $400 million for money laundering, it will go broke.

And its no idle threat from the casino operator, which narrowly escaped bankruptcy two months ago after a US-based white knight (Bally’s) agreed to lead a rescue mission that involved injecting $300 million into the business.

Star has so far only received $100 million, just enough to keep the doors open for a few months, with the rest to come later.

Will Star be fined out of existence?Credit: Sam Mooy

So, Star simply doesn’t have a lazy $400 million lying around even as the financial transaction regulator, AUSTRAC, asks a federal court judge to throw the book at the casino operator. According to AUSTRAC, $400 million is the appropriate penalty for Star’s alleged serious and systemic non-compliance with Australia’s anti-money laundering and counter-terrorism financing laws.

While Star argues a fine of that size is oppressive and AUSTRAC brands it appropriate, both parties might be correct.

AUSTRAC feels it is on solid ground – its position guided by its agreed settlement a few years ago with Crown Resorts on a $450 million fine for similar breaches of the law. The regulator maintains that Star’s parlous financial state is due to other factors – which is correct but effectively academic.

If the aim of AUSTRAC’s action is to provide a deterrence to others, then a fine of the magnitude it is seeking would certainly hit the mark.

A fine of $400 million will certainly jeopardise Star’s current rescue plan.

In Crown’s case, the AUSTRAC matter never saw the inside of a courtroom – the parties settled. So strictly speaking there is no precedent, but the settlement did serve as a template of sorts for the financial crime regulator.

The twist to the tale is that if the federal judge determines Star behaviour warrants a $400 million fine, and the casino group financially fails, then the fine is likely never going to be paid. And that will ultimately be the federal government’s loss because that is where the money would have landed.

Given Star says that a financial penalty of as low as $100 million will place it under serious strain, while AUSTRAC reckons $400 million is a fair starting point – there’s clearly a yawning gap between the two parties.

With their respective bargaining positions are so far apart, one would question whether Star and the regulator were ever in a position to reach a settlement. And Star might be better off chancing its luck with the judge, who might be willing to work out an instalment plan for the payment of the fine.

A fine of $400 million will certainly jeopardise Star’s current rescue plan – one which will see Bally’s and Australian hotelier Bruce Mathieson inject cash into the casino operator and become its largest shareholders.

Shareholders are yet to vote on this deal and it requires regulatory approvals.

And while Crown’s owner Blackstone is a very large private equity group, Bally’s is a relatively small outfit with a number of second and third-tier casinos dotted mostly around the US. Whether Bally’s and Mathieson have the stomach and the resources to financially double down on their Star bet remains to be seen.

That said, both Bally’s and Mathieson knew the AUSTRAC action was coming so they were not blindsided. You would have to imagine they have a contingency plan.

Both the NSW and Queensland governments have been firm that they will not bail out the casino owners but could intervene and provide help to keep them open if Star goes under.

But after enjoying a brief moment of calm, the walls are closing in again for Star. The future of its Queensland and NSW casinos hang in the balance and the 8000 or so staff that work at the three properties endure another anxious wait.

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