Casino within a casino: Star’s extraordinary breaches

The operators of The Star casino in Sydney chose deception at almost every turn, even in writing to the royal commission-like inquiry appointed to examine whether they were fit to hold a licence. 

Spoiler: on Tuesday, they were found unsuitable. 

Although there is a deep stream of misconduct and breathtaking negligence to wade through, it is perhaps most revealing to start with the substantial lie told as the inquiry was starting. 

It was October 15 last year when solicitors acting for the Pyrmont casino licensee wrote to the month-old independent inquiry led by Adam Bell, SC. In this letter, the legal representatives told the Bell review that EEIS – a wholly owned subsidiary of The Star implicated in an arrangement to “disguise payments”, allowing customers to gamble without being linked to any casino – was “no longer” a “close associate” of The Star, according to the strict legal definition. Under the regulations attached to New South Wales’s Casino Control Act, close associates of any licensee are necessarily heavily scrutinised as part of any bid for permission to operate or continue running a gambling house in the state.

As such, this was important information, easily checked, and the Bell review did just that by writing to the regulator, Liquor & Gaming NSW, days later. The regulator replied that the company was absolutely still a close associate of The Star and that it had not received any notification required by law that this had changed. 

What really made this ruse so flagrant was that it followed three inquiries and royal commissions in three states into Crown Resorts – the operator of casinos in Melbourne, Perth and holder of a brand new licence for NSW – and was made just five days after damning allegations regarding money laundering and criminal influence at The Star were aired on 60 Minutes. The letter was sent on the day the Finkelstein royal commission into Crown Melbourne delivered its report.

Now, in the face of a powerful investigation into its own conduct with remarkably similar parallels to the Crown inquiries, The Star lied. 

Just what the hell was going on within the ranks of Sydney’s first casino?

While James Packer’s Crown Resorts Limited (CRL) became embroiled in its own scandals, prompted by media reports, The Star and its ultimate parent company, Star Entertainment Group, positioned themselves as the grand old dames of Sydney gambling: safe, stable and considered.  Its most senior managers knew otherwise.

The Bell review found that there was a “deeply troubling culture permeating the ranks of senior management at Star Entertainment, demonstrated by the many facets of the deception involved”. The two most significant include the use of China UnionPay debit cards and its relationship with junket operator Suncity and the allegedly triad-linked financier Alvin Chau. 

The CUP process, devised by The Star using cards it knew were a “means of circumventing Chinese capital flight laws”, was simple: patrons could swipe their CUP cards at The Star hotel but, in reality, use these funds for gambling at the casino. Between July 2013 and March 2020, CUP cards were used by 1307 patrons to the value of more than $900 million. 

“From the outset, the CUP Process was an inherently deceptive and unethical process which disguised as hotel expenses the use of CUP Cards for gambling,” the Bell review states.

“It was originally proposed that CUP transactions take place at the hotel rather than at the casino to sidestep regulatory restrictions. In April 2013, Star Entertainment received external legal advice that to avoid certain regulatory restrictions an amendment should be made to an ICM [internal control manual].

“The Star sought such approval from the Authority [Liquor & Gaming NSW] in May 2013 but did not disclose to the Authority that CUP cards would be swiped at the hotel or its belief that UnionPay’s rules prohibited the use of CUP cards to fund gambling. The Star’s communications to the Authority omitted relevant information and lacked transparency. They were completely inappropriate.”

To facilitate this faux charge, the CUP transactions were documented “on hotel letterhead bearing the patron’s room number and arrival and departure dates”. In some instances, the customer didn’t stay at the hotel, so staff simply billed a “dummy” room. 

There was another issue The Star was keen to overcome. Under NSW law, casinos are forbidden from providing credit. Because the CUP funds took one to two days to clear in The Star’s bank accounts, this ran the risk of establishing a line of credit managers knew was being used to gamble. So, they created a “temporary” cheque-cashing facility. 

At its peak, between $10 million and $20 million a month was being flushed through the casino from CUP card transactions.

In the course of this elaborate fraud, some of the most high-ranking executives at the casino responded to concerns from the merchant, National Australia Bank, in terms that were “false, misleading and unethical”.

“On 7 November 2019 Star Entertainment provided a response to NAB which was brazenly and deliberately misleading,” the review says. “A number of members of senior management contributed to the wording of the email, including the Chief Legal and Risk Officer [Paula Martin] and the [then] Chief Financial Officer of Star Entertainment [Harry Theodore].

“There was a further escalation on 3 March 2020 when NAB forwarded a warning letter from UnionPay to Star Entertainment. The warning letter recorded that UnionPay had been told that the transactions were for accommodation purposes and did not include any component for the purpose of gambling.

“This warning letter was not made known to the Board of Star Entertainment.”

In fact, at “no time while the CUP Process was in operation was the Board of Star Entertainment alerted to any of the risks identified by senior management”. After the Bergin inquiry into Crown Resorts’ Sydney casino licence, a “sanitised” legal briefing was giving to The Star’s directors, which obscured the nature of the arrangement.

Neither this penchant for skirting regulations nor the failure to fully inform the board of the casino were isolated derelictions. Indeed, they were features of a sickly culture at The Star. 

Until November 2019, for example, key managers across the business kept registers of risk on an Excel spreadsheet. It was a haphazard system with scarce detail before the introduction of the Protecht software system. While company managers briefed meetings of the board, providing assurances that operations were within the agreed “risk appetite”, the “underlying risk registers were not provided to the Board”.

One of the more egregious matters exposed by the Bell review is the relationship between The Star and the junket operators Suncity and Iek. In casino terms, a junket operator provides all-expenses-paid trips to high-wealth individuals who, via arrangements with casinos such as The Star, will gamble large sums of money at these establishments.

The junket operators receive a kickback, the casino profit.

On June 30, 2017, both Suncity and Iek entered into a rebate agreement with The Star regarding a private VIP room called Salon 95. This agreement included the use of a “cage” in the room which, in casino parlance, refers to the tightly controlled space where gambling chips are exchanged for cash, or vice versa, and other tokens or free bet vouchers are handled. At issue, however, is that only casino licensees can operate a cage. Junket operators most certainly cannot.

Although The Star knew it had an agreement for a “cage” with the junket, the then regulatory affairs manager Graeme Stevens admitted “he knowingly misled L&GNSW” because he “knew that a buy-in desk was contemplated for Salon 95”.

In any case, Suncity did what it wanted with the space. Essentially the junket operator was running a casino within the casino.

The first breach was identified on April 27, 2018, when a risk assessment concluded Suncity made an “accidental provision of a designated service … without appropriate AUSTRAC registration or structures in place”.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the national body with regulatory and investigatory powers regarding anti-money laundering and counterterrorism financing legislation. In May, Star Entertainment employees “became aware of cash paid to a patron by Suncity in Salon 95, where the patron had no history of junket play or known links with Suncity”. A day later, on May 8, 2018, CCTV footage from Salon 95 showed gaming plaques being exchanged for $100,000 in cash. There were “multiple such incidents” recorded that day, according to internal emails.

On May 14, Star Entertainment investigations manager Andrew McGregor emailed superiors at the company to ring the alarm about Suncity after becoming aware of a $45,000 transaction in Salon 95.

“Today’s activities with SunCity have been very strange, we have an entity within our four walls which is totally non-compliant to reasonable requests for basic information,” he wrote. “I’m going to call it out early, SunCity is operating a business model under our noses which is problematic for the [Star] with regards to AML/CTF Laws.”

However, Suncity was allowed to continue operating.

“On 15 June 2018, CCTV footage appeared to show Suncity staff taking a large amount of cash from a casino cage, entering Salon 95, meeting someone off camera on the Salon 95 balcony and engaging in covert behaviour on the balcony in a blind spot of the CCTV cameras,” the review says. “These matters were not reported to the Board of Star Entertainment.”

In fact, the Bell review calls a report that was given to the board “deficient and misleading” and noted that it provided no detail about what was actually happening in the business. Later, in Hong Kong, Star executives were told by the Australian Federal Police that Suncity was the subject of “continued interest” and received confirmation of a warning by a new employee, Angus Buchanan, that Suncity founder Alvin Chau had “ongoing connections with triads and the facilitation of organised crime”.

When media reports about Suncity’s criminal elements and Crown Resorts began in late July 2019, the casino regulator wrote to The Star to check on its own relationship with the junket operator. Star Entertainment’s group general counsel, Andrew Power, emailed in response: “[a]s for allegations relating that Crown was wilfully blind to the criminal activity of key business partners, we remain comfortable that The Star’s processes are robust”.

Power was one of the early executives who knew about the litany of issues with Suncity. Indeed, he had written to Star’s chief casino officer, Greg Hawkins, in May a year earlier, saying the junket had “exposed The Star to an unacceptable level of risk”.

Despite this, the regulator was shooed away. It was not until Alvin Chau was arrested by Macau authorities late last year that Star ended its relationship with the man.

Before authorities closed Bank of China Macau Branch accounts that were being used as a gambling haven, The Star was running another scheme where it concocted “false documentation … to disguise deposits by patrons as deposits of The Star”. 

“The process involved a Star Entertainment staff member attending the BOC Macau when a patron deposit was being made and providing to bank representatives various letters on letterhead of The Star and other subsidiaries of Star Entertainment, which deliberately conveyed the false impression that the deposit was made by The Star rather than a patron,” the Bell review says. “This practice revealed a complete disregard of ML/TF obligations by senior employees.”

When Macau banks became reluctant to deal with foreign casinos following a corruption crackdown, the subsidiary, EEIS, was “activated” by The Star. The “principal purpose” of this was to disguise payments and later arrangements with a junket operator, Kuan Koi. These arrangements were so opaque and the money laundering risks so extreme that they “cannot be overstated”, according to the Bell review. EEIS, the subsidiary that Star lawyers attempted to convince review counsel was no longer a “close associate”, was at the centre of all these arrangements. 

The Star’s board had no idea. 

What Australians have seen first with Crown and now The Star is a culture where casino operators are willing to hoodwink regulators by almost any means. A pattern of deception is deployed in the pursuit of profit and is only abandoned at the last possible moment in the face of extraordinary independent reviews that have more power and greater resources than any single investigation by the regulatory authorities. Even then, the attempt at covering their tracks can last for as long as the casino operators thinks it has hope.

“While The Star Entities made significant concessions regarding The Star’s relationship with Suncity during the Relevant Period, which included severe errors of judgement with respect to Salon 95 and Suncity’s service desk operations,” the Bell review says, “those concessions were made belatedly during closing submissions in the public hearings.”

There have been four inquiries into Crown and The Star in the past 18 months. Crown continues to operate its casinos in Melbourne and Perth and received conditional approval to begin gaming in Sydney’s Barangaroo development in June. 

Like the problem gamblers they court – The Star had a policy that allowed people to gamble for 24 hours straight before being forced to change – the business is built on the addict’s curse: one last chance. 

The Star – along with its associated companies – was found unsuitable to hold a casino licence, like Crown, but it has time to respond and change. Starting with chief executive Matt Bekier, some 15 managers and executives have resigned from The Star which, as an entity, holds the casino licence.