REPORT
Review of The Star Pty Ltd
Inquiry under sections 143 and 143A of
the Casino Control Act 1992 (NSW)
VOLUME 2
Report of the Inquiry under section 143 of the Casino Control Act 1992 (NSW)
Published 31 August 2022
© State of NSW through the Inquiry under section 143 of the Casino Control Act 1992 (NSW)
_______________________________________________
CONTENTS
Contents
Volume 1
Chapter 1 Executive Summary
Chapter 2 Previous Reviews of The Star
Chapter 3 Developments in the Casino Landscape in Australia since the 2016 Review
Chapter 4 The Nature of this Review
Chapter 5 The Regulatory Environment
Chapter 6 The Test of Suitability
Chapter 7 Procedural History of this Review
Chapter 8 Governance and Management Structure of The Star and Star Entertainment
Chapter 9 Departures from Star Entertainment during the public hearings and their impact
Chapter 10 Risks of Money Laundering and Criminal Infiltration in Casinos
Chapter 11 Developments in the VIP Casino Market in North Asia and their Significance
Chapter 12 The use of CUP Cards at The Star
Volume 2
Chapter 13 The Star’s Dealings with Suncity since 2016 ........................................................... 1
Chapter 13.1 Introduction ............................................................................................................ 2
Chapter 13.2 The Establishment of Salon 95 .............................................................................. 3
13.2.1 The 2017 Rebate Agreement ................................................................................................ 3
13.2.2 The layout of Salon 95 ......................................................................................................... 4
Chapter 13.3 Knowingly Misleading Liquor & Gaming NSW ................................................... 6
13.3.1 Contemplation of a cage or buy-in desk in Salon 95 ........................................................... 6
13.3.2 The submission to Liquor & Gaming NSW dated 12 October 2017 ................................... 9
13.3.3 Further communication with L&GNSW ............................................................................ 11
13.3.4 The Star’s breach of the Casino Operations Agreement .................................................... 12
Chapter 13.4 The Unauthorised use of the Service Desk in Salon 95 ....................................... 13
13.4.1 The commencement of the service desk: mid-April 2018 ................................................. 13
13.4.2 Large cash payments at the service desk: 18 April 2018 ................................................... 21
13.4.3 The completed risk assessment: 27 April 2018 .................................................................. 23
13.4.4 Chips for cash exchanges at the service desk: 8 May 2018 ............................................... 24
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
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CONTENTS
Chapter 13.5 The Star’s Inappropriate Response to the Unauthorised use of the Service Desk in
Salon 95 ..................................................................................................................................... 28
13.5.1 The first warning letter: 10 May 2018 ...............................................................................28
13.5.2 Mr McGregor calls out Suncity’s conduct in Salon 95: 14 May 2018 ..............................29
13.5.3 “Operation Money Bags”: 15 and 16 May 2018 ................................................................30
13.5.4 Belated reaction from Senior Management: 15 and 16 May 2018 ....................................31
13.5.5 The Service Desk SOP: 23 May 2018 ...............................................................................34
13.5.6 The second warning letter: 8 June 2018............................................................................. 36
13.5.7 The Salon 95 balcony blind-spot footage: 15 June 2018 ...................................................39
13.5.8 Renewal of the 2017 Rebate Agreement: 21 June 2018 .................................................... 40
13.5.9 Inadequate disclosure to the Board of issues in Salon 95: 26 July 2018 ...........................41
Chapter 13.6 The Review of Salon 95 By Mr Stevens in 2019 ................................................. 43
13.6.1 Salon 95 remains in operation: late 2018 to early 2019 .....................................................43
13.6.2 Mr Stevens’ conducts his review: March to May 2019 ..................................................... 45
13.6.3 Mr Stevens’ report on Salon 95: 23 May 2019 ..................................................................45
13.6.4 The email from Mr Tomkins: 24 June 2019 ......................................................................46
13.6.5 Mr Buchanan’s reliance on Mr Stevens’ report ................................................................. 47
13.6.6 Further concerning conduct in Salon 95 in 2019 ............................................................... 47
Chapter 13.7 The Hong Kong Jockey Club Report ................................................................... 48
Chapter 13.8 Those who knew: the dissemination of the Hong Kong Jockey Club Report at Star
Entertainment ............................................................................................................................. 51
Chapter 13.9 Mr Buchanan and Mr Houlihan’s Trip to Hong Kong in July 2019 .................... 57
Chapter 13.10 Media Allegations Concerning Suncity in 2019
................................................ 58
Chapter 13.11 The Star’s Disclosures to the Board in response to the 2019 Media Allegations
................................................................................................................................................... 60
Chapter 13.12 The Star’s Disclosures to the Authority in response to the 2019 Media Allegations
................................................................................................................................................... 65
Chapter 13.13 Suncity moves to Salon 82 ................................................................................. 70
13.13.1 No updated risk assessment ........................................................................................ 70
13.13.2 Suncity moves from Salon 95 to Salon 82: September 2019 ......................................71
Chapter 13.14 Relevant Evidence given to the Bergin Inquiry ................................................. 74
13.14.1 Mr Hawkins’ evidence before the Bergin Inquiry: 4 August 2020 .................................. 74
13.14.2 The correctness of Mr Hawkins’ answers to the Bergin Inquiry .....................................76
13.14.3 Mr Hawkins’ explanation for his evidence to the Bergin Inquiry ....................................78
13.14.4 Conclusions concerning Mr Hawkins’ evidence to the Bergin Inquiry ........................... 78
13.14.4 Ms Arnott’s evidence before the Bergin Inquiry: 3 and 6 August 2020 ..........................80
13.14.5 Disclosure to this Review of the events in Salon 95 ........................................................82
Chapter 13.15 The Evolving Due Diligence Reports of Mr Buchanan ..................................... 82
13.15.1 The 1 October 2020 memorandum ..................................................................................82
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CONTENTS
13.15.2 Mr Buchanan’s meetings with Mr Power and Mr Houlihan ............................................85
13.15.3 Changes between the 1 October 2020 and 24 November 2020 versions ......................... 87
13.15.4 Mr Power’s deletions in the marked up copy ................................................................... 89
13.15.5 Conclusions regarding the evolution of Mr Buchanan’s memorandum ..........................91
Chapter 13.16 The Final Due Diligence Assessments of Suncity and Alvin Chau ................... 93
13.16.1 The question of “good repute” ......................................................................................... 93
13.16.2 The Project Congo memorandum: 16 August 2021 .........................................................94
13.16.3 Further decisions to “Maintain customer relationship” with Mr Chau: 18 August 2021
and 6 December 2021 ................................................................................................................... 96
13.16.4 Withdrawal of Licence issued to Mr Chau: 14 December 2021 ...................................... 98
13.16.5 A most concerning state of affairs ...................................................................................99
Chapter 13.17 Consideration of the Lawfulness of the Service Desk in Salon 95 .................. 100
13.17.1 The legal issues .............................................................................................................. 100
13.17.2 Sections 12, 31 and 32 of the Unlawful Gambling Act 1998 (NSW) ............................102
13.17.3 Section 124 of the Casino Control Act ..........................................................................105
13.17.4 Section 70 of the Casino Control Act ............................................................................115
Chapter 13.18 Conclusions and Recommendations ................................................................ 119
Chapter 14 The end of junkets ..................................................................................................140
Chapter 14.1 Introduction ........................................................................................................ 141
Chapter 14.2 Evidence to the Bergin Inquiry .......................................................................... 141
Chapter 14.3. Star Entertainment’s announcement in September 2020
.................................. 142
Chapter 14.4 Mr Bekier’s 6 May 2021 email to the Authority
................................................ 142
Chapter 14.5 The intentions of senior management ................................................................ 143
Chapter 14.6 The intentions of the Board ................................................................................ 145
Chapter 14.7 Conclusions and recommendations .................................................................... 146
Chapter 15 Misrepresentations to the Bank of China Macau ............................................... 149
Chapter 15. 1 Introduction ....................................................................................................... 150
Chapter 15.2 The Relevant Conduct ........................................................................................ 151
Chapter 15.3 Extent of the Conduct
......................................................................................... 154
Chapter 15.4 The Investigation of the Conduct by Star Entertainment ................................... 156
Chapter 15.5 Conclusions ........................................................................................................ 158
Chapter 16 The Closure of Star Entertainment’s Bank Accounts in Macau and the Response
...................................................................................................................................................... 162
Chapter 16.1 Introduction
........................................................................................................ 163
Chapter 16.2 Establishment of EEIS ....................................................................................... 164
Chapter 16.3 Use of the EEIS Bank of China Hong Kong Accounts ...................................... 165
Chapter 16.4 Closure of The Star’s BOC Macau Accounts .................................................... 166
Chapter 16.5 The Kuan Koi Arrangements ............................................................................. 167
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
iii
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CONTENTS
Chapter 16.6 Activities of EEIS in 2018 and 2019.................................................................. 185
Chapter 16.7 Conclusions ........................................................................................................ 214
Chapter 17 The Conduct of Star Entertainment’s International VIP Team since 2016 ..... 230
Chapter 17.1 Introduction
........................................................................................................ 231
Chapter 17.2 The organisational structure of the International VIP Team in the Relevant Period
................................................................................................................................................. 232
Chapter 17.3. Mr John Chong
.................................................................................................. 232
Chapter 17.4 Mr Marcus Lim .................................................................................................. 236
Chapter 17.5 Mr Simon Kim ................................................................................................... 241
Chapter 17.6 The closure of Star Entertainment’s overseas offices ........................................ 243
Chapter 17.7 Inadequate Supervision and Management of the International VIP Team
........ 243
Chapter 18 The KPMG Reports ............................................................................................... 250
Chapter 18.1 Commissioning of the reports ............................................................................ 251
Chapter 18.2 KPMG’s reports dated 16 May 2018
................................................................. 253
Chapter 18.3 Audit Committee meeting of 23 May 2018 and reaction to KPMG’s reports ... 255
Chapter 18.4 Subsequent meetings with KPMG ..................................................................... 259
Chapter 18.5 KPMG confirms its findings .............................................................................. 261
Chapter 18.6 Implementation of KPMG’s recommendations ................................................. 262
Chapter 18.7 Claiming legal professional privilege for the KPMG reports ............................ 263
Chapter 18.8 Failure to disclose KPMG’s reports to AUSTRAC ........................................... 267
Chapter 18.9 Failure to disclose KPMG’s reports to the Authority ........................................ 268
Chapter 18.10 Failure to disclose KPMG’s reports to the market ........................................... 269
Chapter 19 Star Entertainment’s Practices in Claiming Legal Professional Privilege ....... 276
Chapter 19.1 Introduction
........................................................................................................ 277
Chapter 19.2 Key principles .................................................................................................... 277
Chapter 19.3 Practice in relation to legal professional privilege claims .................................. 277
Chapter 19.4 Conclusions and recommendations .................................................................... 281
Volume 3
Chapter 20 Overall Assessment of Star Entertainment’s AML/CTF Program and associated
processes
Chapter 21 Prevention of Criminal Infiltration
Chapter 22 Gambling Duty Payable by The Star to the NSW Government
Chapter 23 Harm Minimisation and Responsible Gambling
Chapter 24 Controlled Contracts, Gambling Chips and Free Bet Vouchers
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
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CONTENTS
Chapter 25 The Use of Standard Operating Procedures at The Star
Chapter 26 Assessment of the Governance and Culture of Star Entertainment since 2016
Chapter 27 Suitability
Appendices
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
Chapter 13
The Star’s Dealings with Suncity since 2016
2
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
Chapter 13. The Star’s Dealings with
Suncity since 2016
Chapter 13.1 Introduction
1. This Chapter considers The Star’s dealings with the Suncity Group (Suncity) since 2016.
During the Relevant Period, Suncity had various global business interests and was
associated with a number of publicly listed companies in Hong Kong. Suncity’s business
interests included the provision of VIP junket services throughout Asia. Mr Cheok Wa
Chau (also known as Alvin Chau) was the founder of Suncity. Between 2011 and 2016,
and between 2017 and October 2020, Mr Chau held the CCF
1
for, and therefore funded, a
particular junket group of which Mr Kit Lon Iek,
an employee of Suncity,
2
was the junket
promoter (Iek junket).
3
The Star had dealt with junkets funded by Mr Chau since 2011.
4
2.
For the financial years 2017, 2018 and 2019, the Iek junket turned over approximately
$1.29 billion, $2.29 billion and $1.27 billion respectively at The Star by way of non-
negotiable chips.
5
By September 2017, Suncity was The Star’s largest junket customer.
6
On 16 February 2018, the Board of Star Entertainment approved an increase in Mr Chau’s
CCF from $50 million to $80 million.
7
The Iek junket was one of the largest in terms of
turnover with which The Star dealt during the Relevant Period.
3.
An important feature of The Star’s relationship with Suncity was the private and exclusive
gaming room that The Star made available to the Iek junket. That gaming room was called
“Salon 95”. From late 2017, Suncity was the only junket operating at The Star that had its
own, exclusive gaming salon.
8
The events that took place in that salon, many of which
were captured on CCTV footage or recorded in contemporaneous emails and records, were
an important focus of the Review’s investigations and public hearings.
4.
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, those concessions were made belatedly
during closing submissions in the public hearings. By that point, considerable time and
resources had been expended by the Review in investigating these issues. In any event, the
seriousness of the matters pertaining to Suncity and Salon 95 necessitate this Chapter
exploring those issues.
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
Chapter 13.2 The Establishment of Salon 95
13.2.1 The 2017 Rebate Agreement
5. On 30 June 2017, The Star entered into a “Win/Loss Rebate & Exclusive Access
Agreement” with Mr Iek as the junket’s promoter (2017 Rebate Agreement).
9
The
agreement was signed by Mr Chad Barton on behalf of The Star. Clause 6 of the agreement
stipulated that The Star was to provide the promoter “with exclusive access” to a private
gaming salon, namely, “Salon 95 located 1
st
floor of The Darling Hotel, above the Sokyo
bar and restaurant …”. The clause then stated:
Promoter acknowledges and agrees that The Star retains sole operational and
management control of the Exclusive VIP Salon (including the operating hours, who
may access the Exclusive VIP Salon, the conduct of gaming, the operation of the
Cage, provision of food and beverage service and enforcing service standards and
presentation). Promoter may have approved junket representatives present in the
Exclusive VIP Salon (subject to The Star's approval) to assist in customer liaison and
customer service for non-gaming matters. Any operational concerns or issues for
Promoter or its customers will only be raised with The Star's nominated liaison
representative and not with The Star's staff within the Exclusive VIP Salon directly.
(emphasis added)
6. The emphasised passage refers to a “Cage”. That word is undefined but appears to
contemplate a form of cashier’s enclosure located within Salon 95. That is consistent with
the subsequent conduct of Suncity whereby a request was made by junket staff in around
August 2017 to The Star to “set up a cage with two windows and a service counter with
two seats” in the salon.
10
The response of the officers of Star Entertainment in August 2017
is also consistent with the notion that it was at least an open question at that time that there
would be a cage or buy-in desk in the salon.
7. If that is the correct construction, the clause did not make clear how the cage in the salon
would be operated and by whom (i.e. whether by employees of The Star or by junket staff).
However, the clause makes clear that The Star ultimately retained “sole operational and
management control” of the salon. That is emphasised by the following additional
provision of clause 6: “The Star will be responsible for all aspects of the operation of the
Exclusive VIP Salon, at its own cost”.
8. There was little evidence regarding the origins and drafting of the 2017 Rebate Agreement.
However, Mr Micheil Brodie, General Manager of Social Responsibility at Star
Entertainment, gave this evidence:
11
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
Well, I was – I was aware that in Macau, in particular, a common arrangement was
for junkets, more generally – so not even necessarily Suncity, but junkets more
generally were given a bit more unfettered access to particular gaming areas and
particular salons. If you like, there was a capacity in the licensing structure there for
subletting of licensed areas. And so it was – by about 2018, my recollection is that
that had become a fairly common model in Macau casinos, to have some junkets that
were, you know, effectively embedded as – as sublet operators.
And so we needed to be wary that that's not a model that was authorised in New
South Wales, and we would want to be sure that they weren't tracking towards that
kind of activity.
9. Mr Brodie also said that the “North Asian” model included “a right to operate a cage” by
the junket.
12
10. Under clause 1 of the 2017 Rebate Agreement, a minimum monthly “Non-Negotiable
Turnover of A$50m” was required. That clause also included various rates of rebate
depending upon the type of rebate program. Under clause 5, if the minimum monthly
turnover was not met in certain circumstances The Star at its discretion was permitted to
withdraw the “exclusivity provided in clause 6”.
13
11.
Clause 10(y) of the 2017 Rebate Agreement imposed an obligation on the promoter to
comply, and to ensure to the extent it was within his control that his customers complied,
with “all applicable policies and procedures of The Star relating to the use of equipment
and gaming salons, access to the property… and the conduct of gaming…”. This is
consistent with the recognition in clause 6 that The
Star would retain operational control of
Salon 95.
12. Between 30 June 2017 and January 2018, at Suncity’s request “construction works were
undertaken for the installation of Suncity signage and a service desk”.
14
During that period,
Suncity did not operate from Salon 95.
13.2.2 The layout of Salon 95
13. Salon 95 was located on the Rivers level. “Rivers” was the name provided to one of the
areas of The Star Casino where private gaming rooms were located. There were several
such areas.
15
The Rivers area was located above the Sokyo restaurant at the Darling Hotel.
16
14. Within the Rivers area, there were a number of separate gaming salons
17
of which Salon 95
was one. A “satellite cage” was in operation within the Rivers area (Rivers Satellite Cage).
Generally, within a particular zone of VIP salons there existed a cage or cashier facility that
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
managed that particular geographic zone.
18
The Rivers Satellite Cage was distinct and
separate from the service desk in Salon 95.
15. The Rivers Satellite Cage was operated by employees of The Star or Star Entertainment.
There is no suggestion of any wrongdoing by casino employees in the Rivers Satellite Cage.
Due to the proximity between Salon 95 and the Rivers Satellite Cage, it was practical for
employees of the junket in Salon 95 to walk from the salon to the Rivers Satellite Cage to
exchange chips or cash.
16. The following image is taken from a diagram of the Rivers area dated 4 September 2017,
enlarging the layout of Salon 95:
19
17. Salon 95 contained three gaming tables. Clause 6 of the 2017 Rebate Agreement stated
that the gaming tables in the salon were to be “exclusively used for playing baccarat”.
20
18.
Salon 95 had a balcony. The balcony was narrow and from the CCTV footage appeared to
contain outdoor furniture
in the form of a table and four chairs on one side and also another
two chairs and side table close to the door connecting the balcony to the internal salon (at
least as at June 2018).
19.
There was only one surveillance camera on the balcony.
21
The camera had a blind spot
beneath it, which would become material to the later use (and potential misuse) of the
balcony by Suncity employees and patrons.
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
20. The salon also included a stand-alone desk referred to throughout the public hearings as the
“service lounge”. The service lounge was a desk in the open area of the salon. It was
apparently staffed by Suncity employees to field questions and provide general assistance
to the patrons in the salon. The Suncity staff wore black suits with white shirts and black
ties.
22
21. The service desk, on the other hand, was a small office located in Salon 95. It was L-shaped
internally. An internal cupboard was located on the shorter side. The desk was located
opposite the longer side. The CCTV footage showed three or four Suncity staff sitting or
standing along the desk and liaising with customers through the window.
22. There was one surveillance camera within the service desk office located in the corner of
the longer side of the office.
23
There was a blind-spot in the room, as there was no or
limited visibility of the wall of the shorter side of the room where the internal cupboard
was located.
Chapter 13.3 Knowingly Misleading Liquor & Gaming NSW
13.3.1 Contemplation of a cage or buy-in desk in Salon 95
23. From the middle of August 2017, there were internal communications between casino
officers, and between casino officers and Suncity representatives, regarding the installation
of a cage or buy-in desk in Salon 95.
24
One email dated 9 August 2017 from a
representative of Suncity to Mr Michael Whytcross, who was the General Manager –
Financial and Commercial at Star Entertainment, stated:
25
Confirmed salon 95 is the proposed location.
Please kindly continue progressing to setup a cage with 2 windows and a service
counter with 2 seaters.
24. The same day, Mr Whytcross forwarded the Suncity email to Mr Damian Quayle, stating:
26
Please see below from Suncity.
Are you able to pass me on to someone who may be able to assist in progressing this
request (i.e. CAD designs).
From there we can look to quantify cost etc and next steps but at face value doesn’t
seem to be too onerous.
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
25. In his evidence, Mr Whytcross confirmed he understood “what Suncity wanted” and that
he had passed on those instructions to Mr Quayle “in Sydney so that Sydney could do what
Suncity wanted”.
27
26.
On 10 August 2017, Ms Beata Ofierzynski, a Business Improvement Manager – Gaming
at The Star, sent an email to Mr Whytcross stating:
28
From what I gather in the email trail below, you are looking to add a cage w ith 2
windows and a service counter with 2 seaters in Salon 95?
Will this just be a buy in desk or fully enclosed cage? In regards to the service
counter, will a desk suffice?
In addition, could you please confirm you would like to keep 3 tables in the salon
before we engage our property service team?
27. The same day, Mr Whytcross replied:
29
My preference would be for a buy in desk to minimise cost and disruption rather than
a fully enclosed cage. The service counter will need to be better quality than a desk
we have in storage and would envisage needing locked cupboards also.
28. Mr Whytcross accepted that in his email of 10 August 2017, he was “directing Sydney to
put in a cage”. He said: “Yes. I was following the request from Suncity”.
30
29.
Further emails were exchanged regarding Suncity’s request and the layout of Salon 95. On
15 August 2017, Mr Whytcross sent an email to Mr Marcus Lim, Mr John Chong, and Mr
Saro Mugnaini, stating:
31
Salon 95 in the Rivers (far right as you walk in) has been identified by YM and the
Suncity International Team as the preferred l ocation which would not disrupt Leong
Wa Fong (however turnover from them is still not strong and I feel this needs to be
revisited).
Through Damian Quayle / David Croft I am waiting for some layouts / designs for
the Suncity request which was “setup a cage with 2 windows and a service counter
with 2 seats”. I am expecting this today / tomorrow however the key for them is
being able to set up a computer and have their systems to talk back to Macau.
30. Mr Whytcross was examined upon his email of 15 August 2017. He understood that “cage
was being distinguished from service counter” which was being requested by Suncity staff,
who were requesting both a cage and a service counter.
32
31. Also on 15 August 2017, Ms Ofierzynski sent Mr Whytcross a further email stating:
33
Attached is a drawing for Salon 95 inclusive of new cage/buy in desk in addition to
desk with 2 seats. We had to remove the dining table to accommodate the buy in
desk.
7
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
Please let me know your thoughts....
32. The same day, Mr Whytcross responded stating:
34
From previous experience I would expect Suncity to request further details of the
cage/buy in and separate service desk (i.e. height, drawer space). Is this level of
information available?
To the extent it is not (or may take further time), I would look to share the file you
sent with them as a first step to get feedback.
33. Mr Whytcross confirmed in his evidence that he was referring to his previous experience
at “Crown”, “when they had an exclusive Suncity room”.
35
However, he could not recall
whether Suncity had operated a cage in the “Suncity room” at that casino.
36
34.
The above email chain shows that it was being contemplated that Salon 95
would include
a cage or buy-in desk, and further, such a proposition did not appear to be controversial, at
least to the parties to those emails who were representatives of The Star and Star
Entertainment.
35.
Mr Graeme Stevens, the Regulatory Affairs Manager employed by Star Entertainment at
the time,
37
who was not party to the August 2017 email chain above, accepted that such
conversations were taking place in the business about the cage in Salon 95 and it was the
intention of the business to accommodate Suncity’s request for some sort of buy-in desk in
Salon 95.
38
When shown that correspondence from August 2017, his evidence as to his
state of knowledge was as follows:
39
Q: And all I want to ask you here is, was it – were you aware of such
conversations taking place in the business about the cage in Salon 95 and
its particulars, how it was going to be set up?
A: Yes.
Q: And were you aware of the intention of the business to accommodate what
clearly was a request in the contemplation of Suncity that it would be able
to have some sort of buy-in desk in Salon 95?
A: Yes.
Q: Mr Stevens, y ou told me earlier that you understood that the agreement with
the Sun city junket didn't permit the junket to operate a cage i n Salon 95;
correct?
A: Correct .
Q: So should I understand that these emails - and I appreciate you were not a
party to them, but you would regard these emails as inconsistent with your
understanding of what was permitted under that agreement with Suncity?
8
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
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Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
A: Yes.
…
Q:
But I think your evidence was that
you too were aware, as at August 2017,
that
it was being contemplated by The Star and/or Suncity that there would
be a cage, and it would have some sort of buy-in desk?
A: Yes.
36. Mr Stevens said that his understanding of the 2017 Rebate Agreement was that it did not
permit a cage in Salon 95.
40
That evidence of Mr Stevens’ understanding is inconsistent
with clause 6 of the agreement and, further, the surrounding circumstances by which the
conduct of the staff of Suncity, The Star and Star Entertainment in or around August 2018
indicated that the existence of a cage or buy-in desk was not controversial.
13.3.2 The submission to Liquor & Gaming NSW dated 12 October 2017
37. On 12 October 2017, Mr Stevens made a submission on behalf of The Star to L&GNSW
via an email the subject of which was “Submission COA Lease Terms Approval -The Star
Salon 95 building works”.
41
The covering email (copied to Mr Whytcross) stated:
42
The Star is proposing to make some minor changes to the Junket Operators office
located in The Rivers Gaming Salon 95.
The purpose of these changes is to create a more customer friendly environment by
installing a service desk in the salon and service window in the wall of the junket
Operator’s office.
Due to the nature of these works we believe that the COA Lease terms require owners
consent from ILGA, which I understand to have been delegated to L&G. Please find
attached the formal submission and plans of the work.
If you have any questions or require the submission in another format please let me
know.
38. The attachments to the email included several diagrams and images of the proposed
changes to the service desk in Salon 95.
43
Relevantly, one image showed how the proposed
change was to install a window in the service desk which would face the gaming tables in
the salon.
44
Importantly, the email attached a formal submission also dated 12 October
2017, which relevantly stated:
45
Reason for Submission
To enable the junket operators who use Salon 95 to provide better service for the
junket participants, The Star proposes to open a service window into the wall of the
junket operator’s office. The Authorities approval for this work is required under the
provisions of the Casino Operations Agreement Lease terms. The Star therefore
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
Review of The Star Pty Ltd, Inquiry under sections 143 and 143A of the Casino Control Act 1992 (NSW)
requests the consent in writing from the Authority as required by clause 5.16 of the
Casino Operations Agreement Lease terms.
Details of Changes from Previous Approval
Minor building works to allow the insertion of a service window into t he interior
wall of the Junket Operator office. Installation of a service desk adjacent to the
Junket Operator’s office.
Newly Introduced Feature(s) / Function(s)
The purpose of these changes is to create a more customer friendly environment by
installing a service desk in the salon and service window in the wall
of the Junket
Operator’s office.
39. Mr Stevens accepted that nowhere in the submission was there any reference to the cage or
buy-in desk in Salon 95.
46
Mr Stevens accepted that the submission was misleading and
that he had knowingly misled the regulator in the following evidence:
47
Q: Thank you. You would agree with me, Mr Stevens, that this submission is
misleading?
A: It - it - it doesn't detail that the junket operator was receiving cash from the players
as to facilitate their buy-in - the junket operator was subsequently used to buy in
to their rebate program with us. So - so it's not a fulsome explanation from that
perspective.
Q: It was misleading, wasn't it, Mr Stevens?
A: Correct .
Q: And you knew at the time of sending the submission to the regulator that there was
- it was in the contemplation of there to be a cage and/or a buy-in desk in that
room?
A: Not a contemplation of a cage, but a contemplation that they would be - the players
would be providing funds to the junket operator to - to participate within the junket.
Q: And you knew at the time of sending the submission that you had not included that
additional information in the submission?
A: Yes.
Q: So you knowingly misled the regulator?
A: Yes.
40. This was serious misconduct. The Star Entities accepted that it “constituted grossly
inappropriate and unethical conduct on the part of Mr Stevens”.
48
The Star Entities also
accepted that Mr Stevens was the Regulatory Affairs Manager and therefore the “primary
point of liaison between The Star and The Authority”.
49
The Star Entities accepted that Mr
Stevens should have corrected his submission to L&GNSW, particularly in circumstances
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where Mr Stevens was aware of the cash transactions taking place at the service desk as at
May 2018.
50
41. The misconduct was aggravated by the two facts that:
first, Mr Stevens was the Regulatory Affairs Manager and thus had an important
role in facing and dealing with the regulator on behalf of The Star – as Dr Pitkin
and Ms Lahey said in their evidence, it is “devastating” for the confidence that the
regulator can have in The Star when a senior compliance executive knowingly
misled them;
51
and
secondly, the knowingly misleading conduct was in relation to something as serious
as potential cage operations – something which goes to the very heart of the lawful
gambling for which The Star holds its casino licence.
13.3.3 Further communication with L&GNSW
42. During his initial examination, Mr Stevens referred to a further communication he had with
the regulator regarding the submission for the installation of a window in the service desk.
52
On 21 November 2017, a representative of L&GNSW sent an email to Mr Stevens stating:
53
As mentioned in my voice messages, we require further clarifications in regard to
the “better service” being provided to the junket participants as a result of the
proposed changes for Salon 95. This includes a description of the current service
being provided in Salon 95, and what “better services” will provided once the
proposed structural changes are approved and completed.
43. Mr Stevens responded the same day, stating:
54
To understand what we mean by ‘better services’ let me first explain the service and
operation of a junket.
The junket operator/representative is the person who ‘buys in’ on behalf of the all of
the junket. They are the ones who draw the funds down and purchase rebate chips
for use in the program. When the operator receives the chips they then provide t hose
chips to the players, who will then return them to the junket operator. The operator
is the person who then ‘rolls them over’. This is the e xchange of prem ium chips for
non neg chips at the gaming table. At the completion of the junket it is the operator
who then presents all of the chips back to the casino for redemption. As part of the
above processes the junket operator keeps records of which players have given or
returned chips to them. The players may have provided their own funds to play or be
using the junket operator’s funds. Sometimes the junket operator will share some or
all of the rebate earnt through gaming with the players. The records kept by the
operator enables them to keep track of what players have received chips and
therefore owe funds to
the operator and what chips they
have then
provided back to
the operator.
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The junket operator will also receive requests for food, air fare, accommodation and tours
etc from the players which may subsequently be relayed to us.
Currently this provision of chips and the return of those chips takes place either at the
gaming table
or in the Junket Operators office. If it
is at
the table then
there is a lack of
privacy for the player, particularly when there are other players present.
When
it
is
in the office, this takes place in
a fairly enclosed space where there may be other
documentation or records on display which the junket operator does not want the players
to see.
By installing
the desk and service window we are creating a more professional
environments for these transactions to occur.
44. The L&GNSW representative responded to Mr Stevens’ email later that day stating:
55
Thank you for your clarification. I note from our phone conversation that Salon 95
is allocated to the Suncity Group, a junket operator. I also note that the proposed
changes are being considered by the Star at the request of the Suncity Group.
45. Mr Stevens was recalled as a witness and was examined in relation to the above
communications. Mr Stevens accepted that his further email to L&GNSW was misleading,
in failing to disclose that it was proposed that cash transactions or cash/chip exchanges
would occur in Salon 95,
56
but he denied knowingly misleading the regulator on this
occasion.
57
46. It is unnecessary to explore the plausibility of this denial. The result of this further
communication was that, for a second time, the regulator was misled as to the nature of the
transactions proposed to occur at the service desk in Salon 95.
58
13.3.4 The Star’s breach of the Casino Operations Agreement
47. A further question arises whether Mr Stevens’ submission dated 12 October 2017 to
L&GNSW constituted a breach by The Star of the Casino Operations Agreement. Under
paragraph 3 of Schedule 3 of the Amended Casino Operations Agreement, The Star as a
contracting party gave the following warranty:
59
(All information true): All information given at any time and every statement made
at any time by the Contracting Party to the Authority or its employees, agents or
consultants in connection with this Agreement and any Transaction Document is and
will be true in any material respect and is and will not by omission or otherwise be
misleading in any material respect.
48. The Star also provided a similar warranty under paragraphs 1(b) and 7(c) of Schedule 1 of
the Amended Compliance Deed.
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49. The Star Entities accepted that Mr Stevens’ submission of 12 October 2017 to L&GNSW
“sought the Authority’s consent for the purposes of clause 15.16 of the ‘Casino Operations
Agreement Lease Terms’”, and therefore “Mr Stevens’ email and submission constituted
statements made or information given on behalf of The Star in connection with the Casino
Operations Agreement”. The Star Entities conceded that it was open to the Review to find
that The Star breached the warranties under paragraph 3 of Schedule 3 of the Casino
Operations Agreement and under paragraphs 1(b) and 7(c) of Schedule 1 of the Amended
Compliance Deed.
50. Mr Stevens’ misleading communications to the Authority concerning the proposed use of
the service desk in Salon 95 constituted a breach by The Star of its warranty under the
Casino Operations Agreement.
Chapter 13.4 The Unauthorised use of the Service Desk in Salon 95
13.4.1 The commencement of the service desk: mid-April 2018
An important issue is raised regarding the “Suncity Cage”: 12 March 2018
51.
On 12 March 2018, Mr Wallace Liu, Assistant Vice President of VIP International
Operations at The Star, wrote in an email to Mr David Aloi (emphasis added):
61
As Suncity is using salon 95 as junket salon, their manager TK inquire what amount
of cash limit from patrons can they deposit into Suncity Cage without any AML
requirement?
Junket doesn’t want to cause any AML issue, however this is a very import part of
their business.
Can you advise who I can check with if you are not sure. Thank you in advance.
52. It appears that Mr Wallace Liu’s email had followed a meeting and discussion which Mr
Anthony Lui, Senior Vice President of International Marketing at Star Entertainment, had
had with representatives of Suncity around that time.
62
The minutes of Mr Anthony Lui’s
meeting with Suncity showed various requests that the junket had made “prior to their fix
junket room soft opening”, which included requests regarding cash deposit limits under a
sub-heading titled “CAGE” such as “Cash deposit: How much of cash limit they can
receive from patron by law”.
63
53. The same day, Mr Aloi forwarded Mr Wallace Liu’s email to Mr Oliver White and stated
further:
64
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I would assume Sun City would have an AML program in place prior to setting up a
cash desk in the Rivers salons. Wouldn’t that be one of the requirements for The Star
allowing them to transact on property?
54. The same day, Mr White forwarded Mr Liu and Mr Aloi’s emails to Mr Power and Mr
Stevens stating:
65
Please see the email below.
Have you been consulted at all in relation to this, as this is the first time I have been
circled in.
Aside from reinforcing to the business that this is not a Cage, only a service desk, it
raises an interesting point around what we are willing to permit SunCity to do at their
service desk. I would have thought that they should not be handling cash payments,
but if they are, then of course they will need to be AML/CTF compliant.
Can we get together to discuss this and the best way forward.
Mr White’s advice: 13 March 2018
55. On 13 March 2018, Mr White responded to Mr Aloi and Mr Liu’s queries and wrote in his
email to them:
66
As an initial point, I should point out that Sun City have a service desk in Salon 95
– they do not operate a cage and have no authority to operate a cage. A cage may
only be operated by the casino operator, i.e. The Star Sydney in this instance.
In relation to the activities of the service desk, whilst Sun City’s representatives are
permitted to assist their customers with their service requests, any transactions
involving cash must only take place at The Star Sydney’s cage. Accordingly, if one
of Sun City’s customers wishes to make a cash payment, they must do this at The
Star Sydney’s cage in accordance with The Star Sydney’s applicable policies and
standard operating procedures (which I note means that the individual making the
payment must attend the cage in person to make the payment). Sun City’s service
desk may handle usual junket operator/representative transactions involving chips
only.
On the basis that Sun City’s service desk does not and will not in future handle any
cash transactions, you should not need to worry about AML/CTF requirements
which may apply to Sun City’s operations, as opposed to those of The Star Sydney.
If you become aware that Sun City are handling cash transactions, please let me,
Saro Mugnaini and Micheil Brodie know as soon as possible – please send an email
to me including “Privileged and confidential” in the ti tle and seek my advice on any
incidents, including any details that are known.
56. Mr White’s advice of 13 March 2018 was at odds with the initial understanding of those
involved in the establishment of Salon 95, as shown in the August 2017 email
correspondence considered above. Mr White’s email made it clear that Suncity was not to
operate the service desk as a casino cage, the junket had no authority to operate a cage and
thus no cash transactions could take place at the service desk.
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57. Mr White’s advice was based upon cash payments only permissibly taking place at “The
Star Sydney’s cage in accordance with The Star Sydney’s applicable policies and standard
operating procedures”. This appears to be the first occasion on which any objection was
taken by The Star or Star Entertainment to the proposed cage in Salon 95. Mr White
correctly recognised the fact that operating a cage may constitute casino operations and
give rise to AML/CTF implications.
58.
The same day, Mr Brodie forwarded Mr White’s email to Mr McWilliams.
67
Mr
McWilliams was responsible for signing off on the ultimate risk assessment (which would
be prepared by Ms Arnott with Mr Brodie’s guidance).
59. It appears that Mr Mugnaini requested a meeting with “TK”, who was a representative of
Suncity, to discuss Mr White’s advice.
68
Suncity push-back after being denied a cage: 28 March 2018
60. On 20 March 2018, a further meeting took place with Suncity at which the message was
communicated: “even with a service desk they cannot do any cash transaction”.
69
In other
words, Mr White’s advice had been communicated to the junket operator.
61. On 28 March 2018, Mr Mugnaini sent the following email to Mr White:
70
Legal Advice Required
I met with Sun City’s rep’s yesterday.
They asked us to review the below decision and see if we allow them to operate as
in Crown which is.
1. Suncity Reps accept cash from their players (same as occurs between junkets and
players today)
2. Suncity will collect KYC (Photo ID)
3. Suncity makes a deposit to Star Cage each 24 hrs with a breakdown of all
transaction copies of ID’s in a list format.
4. Any large transactions ($100K and above) will require additional
KYC such as
required source of funds documentations.
The above approach I would suggest meets our AML/CTF reporting obligations.
62. Mr Mugnaini’s email was in response to Mr White’s email of 13 March 2018 referred to
above. Evidently, Suncity were still pressing to be able to handle cash from patrons.
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63. The same day, Mr White responded to Mr Mugnaini indicating that he would “consider”
the email and “come back” with a response.
71
Mr White gave evidence that he understood
that Mr Mugnaini was asking him to reconsider his advice of 13 March 2018 and whether
there was “a legal way for Suncity to handle cash at the service desk”.
72
64. On 31 March 2018, Mr Mugnaini sent a further email to Mr White stating:
73
bringing you on discussions on the following:
Points 1 & 3.
- Suncity in-house staff now wish to apply for a Junket Rep license without Police
clearance. Police Clearance to be requested and submitted in 2-3 months.
- Cash handling at the service desk. As per my email seeking further advice on this
matter on the 28 march.
65. The same day, Mr White responded to Mr Mugnaini stating:
74
I will respond separately to the email chain re he first point.
On the second point, I have copied Micheil Brodie as this relates to AML/CTF. Until
Micheil has provided clearance, they cannot handle cash at the service desk.
The Star seeks to accommodate Suncity’s renewed request
66. On 6 April 2018, Mr Brodie sent an email to Mr Lim stating:
75
An action that flows from our conversations about what Sun City can do when
operating at the Sydney property is for my team to conduct an AML risk assessment.
The objective is to review the operational structure and determine the suitability of
the risk and control framework for this service.
Could you advise who in your
team can
give
us a detailed picture of the arrangement
with Sun City and
the day to day
flow of activity. I envisage that it will only need an
hour or so of discussion and some review of what we write up for confirmation.
This will let us get a clear and pragmatic picture of the process and set realistic risk
ratings.
67. The same day, Mr Lim responded to Mr Brodie’s email stating:
76
…
Could you send us the full questions prior to the meeting and we can have them
answered and send back to you and we could conduct the call.
There is a real urgency to have this up and running asap as all sun city marketing
collateral states their room is up by 1st april in sydney.
Alvin chau (CEO of sun city) has a direct influence with our partners CTF and FE.
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68. The same day, Mr Brodie responded to Mr Lim stating “Just to be clear the risk assessment
does not need to slow down the implementation of the arrangement”.
77
Mr Brodie was
examined on this email. His evidence was:
78
Q: Was there some haste at this time in getting the risk assessment done?
A: No, I think that's - I think that's a reference to the fact that these - that the
risk assessment we were doing would not impede the work that they planned
to do in terms of providing Suncity access to the room and some of the other
activity around that. But I wouldn't have allowed the conduct of the risk
assessment to be d one anything other than at the pace that it n eeded to be
completed at.
69. Further on 6 April 2018, Mr Lim then emailed Mr Mugnaini and Mr Whytcross (copied to
Mr Hawkins) stating:
79
How can we get the Junket room to be operational as soon as possible?
Alvin Chau will be making a trip to Sydney towards the end of the month.
70. Mr Hawkins responded stating:
80
Let’s set up the call with Michael Brodie and Paul McWilliams when I am in HK.
Is there a project plan around opening of the room? Clear actions and ownership?
71. Mr Whytcross responded to Mr Hawkins stating (emphasis added):
81
…
Following the installation of Suncity equipment the room is operationally ready
however a further concern was raised around cash collection at the service desk
(however I understood this to be addressed following a discussion with Micheil
as per the attached).
Assuming there is no AML concerns from Micheil and that the risk assessment can
be done concurrently I do
not see why implementation cannot occur immediately.
Will coordinate
for a call when you are in HK.
72. Mr Mugnaini responded stating he would “chase for formal approval on the handling and
have a final position by Thursday”,
82
to which Mr Lim responded “Who are we awaiting
for formal approval?”.
83
On 7 April 2018, Mr Mugnaini responded that they were waiting
on approval from Mr White from legal and Mr Brodie from compliance.
84
On 9 April 2018,
Mr Mugnaini sent a further email to Mr Lim stating:
85
Following actions as an outcome of the meeting:
-AML/CTF risk assessment as new product to be conducted.
17
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This will provide guidelines for the o peration to ensure we are compliant.
- Controls and recommendations will be issued in writing as a suitable solution. We
should have this by Thursday.
73. The same day, Mr Lim responded: “Let’s get the room operational by Thursday”.
86
74. If that deadline was met, then Salon 95 would have been operational by 12 April 2018. It
is not clear precisely when the room began operating, but it is likely that it was around the
middle of April 2018 and certainly by 18 April 2018 given CCTV footage produced from
Salon 95.
75. The email correspondence shows that there was pressure being applied by Mr Lim to have
the salon operating as soon as possible, including by reference to Mr Chau (a major source
of business) and his connections to Star Entertainment’s joint venture partners Chow Tai
Fook and Far East Consortium. The evidence suggests that the risk assessment was not
rushed to allow the room to open, but Salon 95 proceeded to open before the risk
assessment was completed.
76. The Star Entities conceded that it was not appropriate for the service desk to operate before
Mr McWilliams had provided his approval.
87
Ms Arnott’s recommendations of 13 and 16 April 2018
77. Ms Arnott had principal carriage for preparing the risk assessment.
88
Her evidence was that
in early April 2018 Mr Brodie had requested that she perform such an assessment.
89
The
assessment was to identify “money laundering and other risks that may lead to non-
compliance with the Casino Control Act”.
90
The first draft was prepared by 11 April
2018.
91
78.
On 12 April 2018, Ms Arnott had circulated a draft risk assessment to Mr Mugnaini and
Mr Brodie copying in Mr McWilliams.
92
The same day, Mr Mugnaini forwarded a copy
of the draft risk assessment to Mr Hawkins, Mr Lim and Mr Whytcross, and stated in the
email “For today’s meeting”.
93
On 12 April 2018 Mr Mugnaini also forwarded Ms Arnott’s
email to Ms Angela Huang of Star Entertainment asking her some questions about the
“controls” and to follow up with Ms Arnott.
94
It appears that two chains of emails then
emerged from Mr Mugnaini forwarding Ms Arnott’s email twice. This led to two important
responses from Ms Arnott clarifying the way her controls were to be understood.
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79. On 13 April 2018, Mr Whytcross sent an email to Ms Arnott in which he stated (emphasis
in original):
95
As discussed just now, understand the risk assessment document was for internal
purposes only.
As we ran through, and in terms of feeding this information back with Suncity (for
reference Marcus is due to speak with Alvin Chau this evening) would recommend
we proceed on following approach:
• Current identity check process is to continue unchanged;
• Cash received at the Suncity Service desk to be deposited into The Star
cage on a daily basis – Separately we can ma nage internally over the initial
period to determine if this is reasonable / p ractical;
• Customers can not receive cash in exchange for chips in the same
transaction;
•
Cash received at the Suncity Service desk cannot be used to settle with
patrons. Any settlement must be at the cage.
80. Mr Arnott explained that these were not controls proposed by Mr Whytcross, but rather she
believed that he was “clarifying the information that would have been communicated to
him around controls, making sure he understood it appropriately before relaying it to
Suncity”.
96
81.
Mr Brodie stated in his evidence that this was a “kind of stage summary” of the controls.
97
He explained that while the controls were limited, this was because putting “some things
in place right away and then once we’d completed the process of the risk assessment, then
we were able to determine a more holistic set of controls”.
98
82.
Ms Arnott responded to Mr Whytcross’ email the same day, stating:
99
I have discussed with Micheil and we are happy to proceed with this communication
to Sun with a minor amendment to point 2. Can this please read “Cash received at
the Suncity Service Desk to be deposited into The Star cage at least on a daily basis.”
If they receive an very large deposit or a significant number of small deposits it
would be good if they could clear that cash more quickly.
The reasonably practicable control here is to avoid the situation where a patron
demands that the Sun staff provide cash that is being held at the service desk. It could
be very difficult for Suncity staff to refuse if a patron is aware that cash is held for
long periods. I agree that testing the adequacy of this control via surveillance and the
cage in the first instance is the right approach.
83. Mr Brodie confirmed that this was “the first round of controls that were communicated to
Suncity”.
100
Ms Arnott said that requiring Suncity to deposit the cash received at The Star
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cage “was an effective control for stopping them from acting as a cage, the idea that the
money flows through to The Star cage and isn't held for a long period of time”.
101
84. On 13 April 2018, Ms Huang and Ms Arnott exchanged several emails. Late on 13 April
2018, Ms Huang sent an email to Ms Arnott stating:
102
Can I ask if some of the controls are new? I don't have access to intranet from home
so not sure if they are.
Also just having a quick glance at the document, I think we are basically saying to
Suncity that players must be added prior to the junket with indicated fund on the
front money summary before they can be
disbursed with chips. Any winnings must
be paid out to
them once partials have been done to
indicate t
hat th
ey money
disbursed is the winnings from the program.
Basically ensuring that we have
visibility of all players, player action and meeting
AML/CTF laws.
85. On 16 April 2018, Ms Arnott responded to Ms Huang’s email stating:
103
The controls are mostly new, the first one relating to the collection of ID from SGR staff is
existing (I believe) but the rest will be new.
We are basically asking for the following:
• That Sun City staff do not exchange cash for chips (or vice versa)
• All cash be taken to the cage as soon as practicable after it is received
• Cash received cannot be given to patrons as winnings. It must be banked
• Settlements and partial settlements must occur at the cage and the Junket
rep can distribute the funds to relevant patron.
We are also recommending a position that will prevent patrons being added to
junkets once they have started (so no month long junkets where people are added
and removed as they arrive and leave) but this is now being discussed separately.
Just for your info – I spoke to Michael Whytcross on Friday night because Marcus
was meeting with the Suncity reps. I will forward that email chain to you as it may
be helpful.
86. Mr Brodie explained that Ms Arnott’s communications above to Ms Huang were to ensure
the “first line of defence” were also aware of the controls.
104
Ms Arnott explained the
importance of each bullet point in her evidence:
105
“That Sun City staff do not exchange cash for chips (or vice versa)” – according to
Ms Arnott “that would be offering a designated service for the exchange of cash
for chips”;
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“All cash be taken to the cage as soon as practicable after it is received” – according
to Ms Arnott this was because “the control should be that the money is banked with
the cage so it can be allocated to the junket”;
“Cash received cannot be given to patrons as winnings. It must be banked” –
according to Ms Arnott “that's the reverse of the original designated service, which
is that you - they should not be exchanging chips for cash. So the money had to all
flow to the cage and then back out again (indistinct) winnings”; and
“Settlements and partial settlements must occur at the cage and the Junket rep can
distribute the funds to relevant patron” – according to Ms Arnott “that is a casino
cage function”.
87. As at 18 April 2018, the risk assessment was not yet finalised and Mr Brodie was still
liaising with Ms Arnott regarding its content.
106
This is important because concerning
CCTV footage from Salon 95 had begun to emerge from at least 18 April 2018. It appears
that only a “summary” of Ms Arnott’s controls had been communicated to Suncity at this
point.
88. In any event those controls, which had been considered by Mr Brodie, acted as a halfway
house between, on the one hand, seeking to prevent the service desk from operating as a
casino cage, while, on the other hand, permitting the junket to handle cash at the service
desk.
89. It appears that by 18 April 2018, The Star had acceded to Suncity’s request to engage in
cash transactions (at least of some kind) at the service desk in Salon 95. In doing so, The
Star did not follow the advice from Mr White’s email of 13 March 2018. At a minimum,
The Star was courting significant risks by taking that course. It should not have done so.
13.4.2 Large cash payments at the service desk: 18 April 2018
First piece of CCTV footage of 18 April 2018 (large sums of cash)
90.
On 18 April 2018, footage of cash transactions at the service desk of Salon 95 was captured
on CCTV.
91.
A truncated
version of that footage was played during the examination of Mr Angus
Buchanan.
107
The footage depicted a black bag with a blue trim being collected from the
balcony of Salon 95 and taken into the service desk through the side door by a man in a
21
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black suit. The bag was opened in the service desk room and many bundles of cash (holding
a collection of $50 notes in each) were removed from the bag. The money was then counted
through a money counter and piled on the service desk, and then placed in a drawer
underneath the desk. The footage then depicted a person who was not in the room, handling
some of the money that had been placed on the desk.
92.
Mr Buchanan, after being shown the footage, agreed that the footage was “completely
contrary” to any instructions that Mr White had given in his email of 13 March 2018.
108
Mr Buchanan also accepted that it appeared that Suncity was engaging in “very similar
activity to a cage”.
109
93. Ms Arnott, who was also shown the footage during her examination,
110
gave evidence that
the footage concerned her on the basis that it showed “large sums of cash that’s coming
into the room that’s not associated with a customer directly, or at least not that we can
see”.
111
The footage was therefore concerning to her due to the volumes of the cash being
depicted.
94. However, Ms Arnott gave evidence the footage did not “necessarily” show non-compliance
with the controls she recommended.
112
This is likely to be because her controls envisaged
that cash would be deposited at the service desk.
Second piece of CCTV footage of 18 April 2018 (further large sums of cash)
95. Some further truncated footage from 18 April 2018, depicting a different incident, showed
a man in a black suit removing a bag from the balcony of Salon 95 and taking it into the
salon. The bag was taken into the service desk room. Numerous bundles of cash were then
removed from the bag.
113
Mr Buchanan agreed that the second piece of footage from 18
April 2018 depicted “very large amounts of cash being taken into the enclosed rooms in
Salon 95”.
114
96. This further footage was shown to Ms Arnott during her examination. Ms Arnott gave
evidence that the footage concerned her for similar reasons to the first footage of 18 April
2018.
115
Again, the second piece of footage of 18 April 2018 did not directly breach Ms
Arnott’s recommended controls. Rather, this was a further instance of large sums of money
being handled in a concerning manner by non-casino staff. This was also contrary to Mr
White’s advice of 13 March 2018.
CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
13.4.3 The completed risk assessment: 27 April 2018
97. On 27 April 2018, Mr McWilliams signed off on Ms Arnott’s risk assessment for the
service desk in Salon 95.
116
The following risks were identified:
117
When considered in respect of both AML law and NSW Casino law the risks relating
to the Sun City service desk activities are:
- the accidental provision of a designated service by Sun City without
appropriate AUSTRAC registration or structures in place; and
- that operations of the casino could be (or be perceived to be) conducted by
a person other than the casino operator which is prohibited under the Casino
Control Act; and
- the operation of ‘super junkets’ where unrelated parties are added to an
overarching junket agreement rather than each group of people being treated
as an individual junket.
98. Those risks were ones with serious consequences. In particular, the first risk envisaged an
entity operating within the casino performing a designated service while not being
compliant with the AML/CTF Act, including the obligation to have an AML/CTF program.
The second risk envisaged the operation of an unlicensed casino within The Star Casino in
Sydney. That risk was a real and material one in circumstances where Suncity employees
were handling cash and chips at the service desk while holding no licence to do so.
99. The “controls” that were proposed by Ms Arnott and approved by Mr McWilliams
included:
118
- Players may not be accepted in to junkets until they have undergone
appropriate identity checks by an employee of The Star Entertainment
Group. The employee will sight an appropriate identity document (such as
a passport) and record details, including the customers address, in the CMS
prior to guests being signed onto Suncity junket programs. These identity
checks will meet with The Star Entertainment Group’s requirements for
KYC under the AML/CTF Program.
- Cash accepted from players must not be retained at the Sun City Service
Desk or be provided to patrons as cash dispersals. Cash received must be
deposited into the Sun City
Front Money account (or exchanged for a
chip
purchase voucher) at the Star cage as soon as practicable after it has been
received from the junket participant.
-
Customers will not be able to provide cash and receive chips in
the same
transaction.
-
The junket operator may not provide chips to players that have not been
received from the casino cage in exchange for cash or as a result
as of a CCF
draw down. If the Sun City
Service Desk
draws down an excess of chips
from the cage, these may be provided to the patrons. The provision of chips
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will not be performed in the same transaction or receipted together with the
acceptance of cash.
- Upon settlement (or partial settlement) of a junket, staff from the Sun City
Service Desk must exchange chips for cash at The Star cage and then
disperse cash to players. Sun City may not draw down (or retain) an excess
of cash to provide directly to players at other times.
100. These controls appear to have built upon the “summary” Ms Arnott had provided in her
emails of 13 April 2018 and which appear to have been communicated to Suncity. The risk
assessment concluded that it was “possible for the Sun City Service desk to operate in a
compliant fashion without significant compromise to the customer experience”.
119
In
circumstances where the risk assessment facilitated cash transactions in Salon 95, and was
contrary to Mr White’s advice of 13 March 2018, it is difficult to understand the basis and
reasoning of the risk assessment.
13.4.4 Chips for cash exchanges at the service desk: 8 May 2018
The Star’s surveillance staff start sounding the alarms
101. From early May 2018 onwards, the level of concerning activity in Salon 95 escalated. On
3 May 2018, Ms Arnott sent an email to Mr Wayne Millett and Mr Brodie stating:
120
Surveillance say that the suncity service desk is behind a little window and that
patrons do not have access to the area. They are seeing Sun staff bring in cardboard
boxes (that look like they were originally photocopy paper boxes) containing cash to
the service desk area on a semi regular basis. I have asked to find out what the source
of the funds that are being brought in are.
102. The following day, on 4 May 2018, Ms Arnott received correspondence from Ms Hunt of
the Surveillance Team regarding CCTV footage of activities in Salon 95 stating:
121
We haven’t forgotten about you but so far we are finding it hard to track that money
you asked about back to an owner. We have bookmarked times where it may of
interest to you but the cash seems to be brought in by Sun City staff. If you want to
have a look at the Suspect Transaction footage to make a determination on if you
need us to go further and what direction you may want us to go?
103. Ms Arnott gave evidence in her witness statement to the Review that she reviewed CCTV
footage on or about 4 May 2018.
122
Ms Arnott also explained she communicated with Mr
Kevin Houlihan at the time about the footage she had reviewed because Mr Houlihan “was
investigating the unusual transactions into the room ... to identify if there was any illegal
activity occurring”.
123
Indeed, Ms Arnott had emailed Mr Houlihan regarding footage she
had “held out”.
124
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104. On 5 May 2018, Ms Leoni Augustus sent an email to Ms Arnott stating:
125
A review is ongoing. We have exported footage for a number of bags with large sums
of cash, mostly $50 notes bundled with elastic bands. The footage is for different
days from 14
th
April – 21
st
April. Also 1
st
May and 4
th
May. Origin of bags is yet to
be found. The earlier days unfortunately we do not have footage for. There is also
bookmarked footage of large transactions as requested.
105. On 6 May 2018, Ms Arnott was copied into a further email regarding CCTV footage, this
time from Mr Ryan Patterson, Acting Surveillance Duty Manager:
126
I have had zero luck in finding the origins of these money bags. I have only reviewed
the red suitcase from April 17. I reviewed C2966 back 24 hours using the motion
sensor and do not see any red suitcase arriving, I also reviewed C2911 back 2 hours,
and again no red suitcase has been delivered. Unfortunately I wasn’t able to dedicate
too much time to it, due to staffing levels and all the action around from the Baccarat
tournament. We will start to lose footage in Pit 95 in about 36 hours from now.
106. Ms Arnott indicated that she read Mr Patterson’s email about the time it was sent and that
the email suggested another incident of 17 April 2018 involving a red suitcase (i.e. which
was in addition to the two instances of 18 April 2018).
127
Mr Patterson’s email is consistent
with Salon 95 being operational as at 17 April 2018.
107. On 7 May 2018, Mr Wayne Willett sent an email to Mr Brodie and Ms Arnott stating:
128
Below is more cash paid out to a patron by Sun City. LIU has no history of junket
play or known links with Sun City.
108. That email is important as it shows that Salon 95 was also being used by individuals who
were not recorded junket participants. That fact, in and of itself, raises serious AML/CTF
concerns around KYC. It was in addition to the large sums of cash being received at the
service desk, as depicted in the 18 April 2018 CCTV footage.
Evidence of chips exchanged for cash at the service desk: 8 May 2018
109. On 8 May 2018, there was CCTV footage captured from Salon 95 in which a transaction
involving the exchange of chips or gaming plaques for cash at the service desk.
129
Ms
Arnott, after being shown the footage during her examination before the Review, gave the
following evidence:
130
Q: Now, do you agree that what this footage depicts are chips or plaques being
exchanged for cash at the enclosed office in Salon 95?
A: Yes.
Q: Does this concern you in any way?
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A: Yes, it does.
Q: And why is that?
A: Because it’s an exchange of chips for cash, which is not supposed to occur
one-for-one at that desk.
…
Q: But you do agree it depicts something that is in direct breach of the controls
that were imposed on the Salon 95 room at that time?
A: Yes, I do.
110. The 8 May 2018 footage showed chips or gaming plaques being exchanged for cash at the
service desk. As Ms Arnott accepted in the evidence quoted above, the 8 May 2018 footage
showed a breach of her controls. Further, as Ms Arnott conceded (while making clear the
question is complicated),
131
the footage may well have depicted the Suncity staff
performing a designated service.
111. It should be interpolated that it is by no means clear that Ms Arnott’s controls were
themselves acceptable: Ms Arnott's evidence that there should not have been a “one-for-
one” exchange of “chips for cash” does not explain what was occurring in substance. If
patrons were depositing large amounts of cash in Salon 95, they would presumably have
expected to receive chips to gamble with as a result – at least at some stage, whether directly
or indirectly. It is unclear from Ms Arnott’s controls how deposits and issuing of chips
would be accounted for and reconciled, to ensure that junket play was taking place, not
unlicensed casino operations. This was a particular concern in circumstances where, as
noted above by reference to Mr Willett’s 7 May 2018 email,
132
Salon 95 appears to have
had non-junket participants being paid cash by Suncity.
112. On 8 May 2018, Mr Josh Coon, VIP Gaming Manager Table Games, sent an email to
gaming managers at The Star relevantly stating:
133
In simple terms, this desk cannot do ‘cash for chips’ exchanges or vice versa in the
same transaction. The guest can give their cash to the desk; however will need to
receive their chips at the table via a CPV or a Suncity Rep bringing the chips to the
table. Should the guest wish to cash out or settle, this must be done at the Cage.
Should you see any transactions that are not compliant, please report to your TGM
immediately.
113. The same day, Mr Tony Breidi, GLDP Gaming Manager Table Games at The Star, sent an
email to Mr Hugh Fraser and Mr Chum Mo stating (emphasis added):
134
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FYI Last night in Salon 95, the guest had finished play and took his chips (unknown
amount) to the Suncity desk. The reps then took the chips and gave the guest cash
(unknown amount).
Surveillance Daniel Cho was notified and has reported it and kept the footage.
114. On the same day, Mr Mike Bovan, VIP Gaming Manager Table Games, also emailed Mr
Fraser and Mr Mo stating:
135
This morning at 09:32 we had similar incident. The guest walked in the Salon 95 and
did transaction on the Suncity desk. Soon after this he left the salon. Looks like
$100K plaque has been exchanged for $100K cash.
I have asked surveillance to retain the footage.
115. On 8 May 2018, Mr Mugnaini sent an email to Mr Anthony Lui (copied to several
individuals including Mr Whytcross, Mr Hawkins and Mr Lim) stating:
136
Can you pls remind Suncity they must not exchange chips for cash at the Service
Desk.
Can you pls confirm you have reminded Sun city on this requirement.
116. On 8 May 2018, Mr Lui responded to Mr Mugnaini (also copying in several individuals
including Mr Whytcross, Mr Hawkins and Mr Lim) stating:
137
I had reminded them this afternoon. As well as both Amy and Simon just met them
in Salon 95 to confirm they acknowledge chips exchange to cash is prohibited in
their salon.
117. On 9 May 2018, Mr Whytcross forwarded that email chain to Mr Hawkins.
138
118. On 10 May 2018, Mr Mugnaini sent Mr Hawkins an email stating:
139
As directed yesterday a meeting was held between The Star management and Suncity
staff yesterday. See below confirmation email.
This is in addition to a strong message delivered 24 hrs prior under my instruction
(see attached email).
I’ve reached out to Andrew Power this morning and will advise when the next step
is complete.
119. Mr Mugnaini attached to his email to Mr Hawkins the email correspondence regarding the
“reminder” to Suncity not to “exchange chips for cash at the Service Desk”.
140
120. The CCTV footage and the above emails suggest chips for cash exchanges occurred on
more than one occasion, and in one case this included an exchange of a $100,000 plaque
for $100,000 in cash at the service desk. This raises the question of whether this was
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
evidence of the service desk engaging in cage operations. Such instances were a clear
breach of Ms Arnott’s “controls”.
121. This was in addition to evidence of large sums of money being deposited at the service desk
in a concerning manner (in sports bags, suitcases and cardboard boxes), and also non-junket
participants using the service desk.
122. By 8 May 2018, it is clear that Suncity staff were using the service desk to receive large
sums of cash, engage in chips for cash transactions, and transact with individuals who were
not junket participants. That conduct was not authorised and it follows that The Star did
not have adequate control of Salon 95. This was an entirely unsatisfactory state of affairs.
Chapter 13.5 The Star’s Inappropriate Response to the Unauthorised use of the
Service Desk in Salon 95
13.5.1 The first warning letter: 10 May 2018
123. It was against the backdrop described above that Mr Hawkins on behalf of The Star sent a
“warning letter” to Mr Iek.
141
The letter was also translated.
124. The English component of the letter stated:
142
Dear Mr Iek
Exclusive Salon – operation of service desk
I am writing to re-iterate the restrictions notified to you in April 2018 regarding the
operation of the service desk in Salon 95 at The Star, Sydney (Service Desk).
Please note that:
• the Service Desk must not operate a cash float – any cash received at the Service
Desk must be deposited with The Star, Sydney Cage. Likewise, any payments you
make to your customers in relation to programs must be drawn from The Star,
Sydney’s Cage;
• in addition to the point above, the following transactions must not take place at the
Service Desk:
- exchange of cash for chips; and
- exchange chips for cash; and
• the Service Desk is for the exclusive use of your customers – individuals who are
not your customers should not seek services from the service desk;
Compliance with the points above is extremely important and non-compliance will result
in The Star, Sydney terminating your use of the Service Desk.
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The team from The Star, Sydney will liaise with your team in Sydney to assist with any
operational questions in relation to the points above.
125. Mr Hawkins accepted that it was “a big problem for the casino operator … if some other
organisation is operating a pseudo cage in its casino … [b]ecause that other organisation is
not licensed to operate a casino”.
143
Mr Hawkins also accepted that the warning letter failed
to bring a stop to the pseudo cage operations in Salon 95 and that the warning letter “was
not an effective control”.
144
126. Mr Hawkins did not seek to notify the Authority about the warning letter or the events
which had led to it.
145
127. Mr Brodie recommended that Mr Hawkins sign the letter.
146
Mr Brodie confirmed that the
point of the letter “was to communicate that Suncity had to comply with the procedures
that had been instituted by The Star”.
147
128. Mr Hawkins said that he did not direct the salon to be shut down as at 11 May 2018 because
there were still “a number of initiatives in place to correct the situation”, but he conceded
that the process took too long.
148
13.5.2 Mr McGregor calls out Suncity’s conduct in Salon 95: 14 May 2018
129. On or around 11 May 2018, Mr Power, Mr Hawkins, Mr McWilliams and Mr Brodie had
a meeting to discuss the situation in Salon 95 and the occurrence of cash transactions.
149
Mr Power’s file note of the meeting, which he recorded in an email he sent to himself on
15 May 2018, relevantly stated:
150
We understand that
During which cash for chip transactions
Reports that staff have observed
Salon 95
The Casino Control Act regulated the operation of the casino, including
On [date] an email was sent detailing the confines of Suncity’s operations and
expressly prohibited such transactions.
We will write further to you in relation to this incident once we have completed our
enquiries, however, we now seek from you an unequivocal assurance that such
conduct will cease immediately and there will be no repeat of the conduct.
AP to communicate with Investigators that no further emails etc
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
AP to review footage
130. When shown his file note during his examination, Mr Power explained that he expected
that he would have been giving legal advice to the business, including whether The Star
was meeting its “obligations” including to report matters to AUSTRAC and obligations
under the Casino Control Act.
151
131. Mr Power referred to an email he had sent to Mr Hawkins about “conduct” that had
occurred in Salon 95 and “the potential risks and steps that needed to be taken”.
152
Mr
Power said:
153
I believe the risks that I advised in relation to were whether or not the Casino Control
Act had been breached; whether or not any AML obligations arose out of the conduct
in that room; and whether the actions that needed to be taken by The Star - any
obligations arising on The Star as a result of that.
132. On 12 and 14 May 2018, emails were exchanged between surveillance staff to Mr Power
and Mr Houlihan regarding a cash transaction in “Pit 95” regarding a particular patron.
154
133. On 14 May 2018, in a separate email chain, Mr McGregor sent an email to Mr Power, Mr
Houlihan and Ms Judd in relation to a $45,000 cash transaction in Salon 95, stating:
155
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. I’m going to call it out early, SunCity is operating a business model
under our noses which is problematic for the SEG with regards to AML/CTF Laws.
134. Mr McGregor was clearly and unequivocally identifying the severity of the AML/CTF risks
posed by the service desk being operated as a pseudo cage in Salon 95. The Star Entities
accepted that Mr McGregor’s email was “obviously very concerning”.
156
135. Subsequent correspondence from Mr McGregor shows that he was further investigating the
issue and seeking answers from Suncity, and he was keeping Mr Power and Mr Houlihan
updated.
157
13.5.3 “Operation Money Bags”: 15 and 16 May 2018
136. Mr McGregor investigated the $45,000 transaction in Salon 95, and also subsequent
transactions. He recorded his findings in a memorandum titled “Operation Money Bags –
Legal Summary” dated 15 May 2019 on the first page and 16 May 2018 on the sixth and
final page.
158
The opening summary states:
159
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Summary: Operation Money Bags was commenced by the Investigations Team of
The Star Pty Limited (The Star) on 14 May 2018 after becoming aware that a non-
promoter customer had walked away from the Pit 95 Host Desk with AUD $45,000
in cash on the afternoon of the 12 May 2018.
137. The memorandum discloses other investigations Mr McGregor undertook on 15 and 16
May 2018 in relation to other transactions in “Pit 95”.
138. On 16 May 2018, Mr McGregor viewed further CCTV footage of other incidents. Two
examples show substantial sums of cash being brought into Salon 95 in unusual ways: one
was through a “red suitcase”, the other in a “blue eski”. Mr McGregor described the footage
in these two instances. Mr McGregor’s summaries of the CCTV footage disclose
substantial sums of cash being brought into the salon, counted by Suncity staff, bundled
and often placed back in the bag from which the cash was removed.
160
139. The concluding summary in the memorandum states:
161
Summary: I don’t have names attached to some of the above incidents/transactions
as those names weren’t available to me at the time of preparing this information note.
On many occasions I don’t have a dollar value of the transactions either although
they clearly exceed $10,000 AUD. It should be noted that on many occasions the
cash appeared in The Rivers and Pit 95 in suitcases, backpacks and other carriers,
which visually can’t be attributed to an owner/promoter’s customer and it is not
known which amounts were ultimately attributed to whom.
140. The subsisting issue of the casino operator having difficulty in connecting large sums of
cash entering Salon 95 with the junket’s patrons shows that there were clear and obvious
money laundering risks in the way Suncity staff were utilising the service desk.
13.5.4 Belated reaction from Senior Management: 15 and 16 May 2018
141. Mr Hawkins, at that time the Managing Director of The Star, was aware of the
investigations and review of CCTV footage taking place with respect to Salon 95 in early
to mid-May 2018. He had been sent emails on 15 May 2018 from Mr John Lomax, General
Manager Asset Protection, regarding requests from investigators seeking CCTV footage.
162
142. On 15 May 2018, Mr Hawkins also received an important email from Mr Power, then the
General Counsel for The Star, with the subject “Salon 95 and the IEK junket group”.
163
The
email alerted Mr Hawkins to the “Legal and Regulatory Risks” following Mr Power’s
review of “available footage and reports received from gaming staff”. Mr Power stated in
his email:
164
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Legal and Regulatory Risks: In my opinion, the junket group’s conduct has
exposed The Star to an unacceptable level of risk and constitutes a breach of the
agreement, of applicable laws or otherwise amounts to casino operations. In
particular –
1. Cash for chip (and vice versa) transactions taking place at the service desk;
2. Withdrawal of cash (terms unknown) by non-junket participants at the service
desk and other locations (including retail).
Equally, concerns are also held around –
1. Reporting requirements arising from the services offered and compliance with
AML reporting requirements
2. source of funds and presentation of large quantities of cash into salon 95
3. Retention of documents relating to transactions
4. Reports by other junket groups that large quantities of cash had been sourced from
the “Suncity Group” (presumed to be the IEK junket).
Finally, there are also a suggestion that one of the junket’s staff was an excluded
patron who was present in the salon 95 (a blue line area).
143. Mr Power’s suggested “Next steps” recommended the cessation of cash transactions at the
service desk “until such time as we have prepared a clear list of permitted activities and
prohibited acts”.
165
Mr Power explained in his evidence what he meant by “unacceptable
risk”:
166
Q: And what was that unacceptable level of risk?
A: Well, I think it – the way that it was expressed in the email there, it's a risk
around AML; it was a risk around the Casino Control Act and what
constitutes “casino operations”; and then there was an element of whether
or not it was a breach of the agreement or not.
144. Mr Power explained that his reference to “the agreement” may have been to the
“arrangements that had been put in place in relation to that service desk”.
167
Mr Power was
then asked about whether he had any concern about whether it was possible that money
laundering was occurring in Salon 95. His evidence was:
168
A: Look, at this point in time, which is in the days that followed the initial report, I
think the way that you've just described it – they were concerns that the conduct
we’d observed could be money laundering.
Q: And these concerns were very serious concerns on your part, were they?
A: Yes, they were.
145. When examined on Mr Power’s email advice, Mr Hawkins’ evidence was:
169
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Q: In view of the fact that your general counsel was advising you at this time that
there was an unacceptable level of risk, wasn’t the only appropriate course for you,
as managing director and head of the international rebate team, to direct that the
room be shut down then and there?
A: My consideration at the time was that we still had the ability to get the room
operating the way it needed to. I took on board the next steps that Mr Power had
outlined and, at that – at that time, felt that the actions being taken were enough to
bring about activities in the room that we would expect to be compliant with how
we operate the property.
146. On 16 May 2018, Mr Hawkins sent an email to Mr Bekier forwarding Mr Power’s advice
in relation to Salon 95.
170
Mr Hawkins’ email to Mr Bekier states “FYI as discussed”.
171
Mr Hawkins’ evidence as to what he had discussed with Mr Bekier was:
172
Q: What did you discuss with Mr Bekier about this matter?
A: I don't recall it specifically, but I think it just would have been an update on the
matters and the steps being proposed moving forward. That's all I --
Q: May we take it that he did not suggest to you that the room be shut down?
A: I – I don't recall that being presented.
Q: Well, had he done that, you would have done it, wouldn't you, that is, shut down
the room?
A: Yes.
Q: And may we take it he did not tell you to alert the regulator to this situation?
A: I – I don't recall if he guided on that. I'm not sure.
Q: Well, had he provided that guidance, may we expect that you would have taken
steps to alert the regulator at this time?
A: Yes.
147. Mr Bekier accepted he read the email “at the time”, including Mr Power’s email to Mr
Hawkins.
173
Mr Bekier’s evidence as to the discussion was as follows:
174
Q: What did you do once that view from a senior lawyer was made known to you?
A: Well, I had spoken to Greg – or Greg raised this issue with me prior to this email,
and he had given me assurance that the rectification would be in hand. And so from
my point of view, you know, the first line of defence was dealing with a risk that,
as Andrew points out, if not managed, is unacceptable. And I had no
communication from the risk team that they held any concerns. So I – you know,
once we had had that conversation, I trusted that this issue had been managed –
resolved.
Q: Were you made aware that at this time, both the AML team and the investigations
team were investigating concerning cash transactions within Salon 95 or involving
Suncity staff?
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A: No.
148. Mr Power’s email of 15 May 2018 was also forwarded on 16 May 2018 to Ms Martin, Mr
White and Mr Houlihan.
175
149. Mr Power’s recommendation in his 15 May 2018 email to Mr Hawkins to cease cash
transactions at the service desk should be acknowledged. However, by 15 May 2018 it
should have been obvious to The Star that allowing cash transactions at the service desk
was a serious mistake and courted significant risks, including significant risks of money
laundering.
13.5.5 The Service Desk SOP: 23 May 2018
150. Instead of shutting down Salon 95, The Star elected to develop a set of SOPs for the service
desk. The document was titled “Salon 95 Service Desk Processes” (Service Desk SOP).
It also appears that external legal advice was provided on the draft of the SOP from an
“AML perspective”.
176
The final version of the Service Desk SOP is dated 23 May 2018.
177
151. The Service Desk SOP contained nine “Standard Operating Procedures”. The critical and
relevant aspect of the Service Desk SOP is the attempt to prevent cash for chips (and vice
versa) transactions. Relevant “Key Principles” included:
178
4. only provide chips received from the Casino cage to junket participants
5. only provide cash received from the Casino cage to junket participants at settlement,
partial settlement or cash out
6. cash transactions are only to take place at the Casino cage or Salon 95 service desk. No
cash transactions are permitted anywhere else on The Star Entertainment Group property.
7. perform each transaction from the appropriate drawer
8. the Buy-In Drawer shall only contain cash collected from junket participants for buy-ins.
9. the Settlement Drawer shall only contain cash collected from the Casino cage required
to be provided for settlement, partial settlement or cash-out
10. the Expenses Drawer shall contain a maximum of $25, 000 AUD in cash. The cash
contained in the expenses drawer shall only be used to cover incidental expenses which
may occur and are not related to buy-in or settlement activity.
11. at no time will chips be given to junket participants at the Salon 95 service desk. Chips
are only to be provided to junket participants at gaming tables.
12. only provide to junket participants buy-in, settlement and cash out services at the Salon
95 service desk
13. deposit cash into the casino cage front money account no later than 2 hours after receipt
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14. a junket participant must have recorded activity in the Casino Management System
within no more than forty-eight (48) hours of the time of the service being provided by the
Salon 95 service desk
15. there will be no cash storage provided for any junket participant at the Salon 95 service
desk. Any cash storage must be at the casino cage
16. only provide cash received from the casino cage to junket participants e.g. expense
reimbursement
152. Quite clearly, the principles envisaged cash transactions taking place at the service desk in
Salon 95. The solution in the Service Desk SOP to the above-described issues was to
prevent the exchange component of the transaction, which in theory, would have meant
that the authorised main casino cage (or a satellite cage) was still overseeing the cash and
chips distribution in the salon.
153. There were obvious shortcomings in the Service Desk SOP. For example, “Standard
Operating Procedure 3 – Buy In Drawer Transactions” required that if a junket participant
deposited cash at the service desk the junket representative was required to:
179
5. Secure the cash into the buy-in drawer until such time as the cash can be transferred to
the Casino cage.
6. Provide the junket participant with a copy of the deposit receipt
7. Ensure that cash deposits are made to the Casino cage no later than 2 hours after receipt
of the cash from the junket participant.
8. Keep accurate records of transactions relating to the contents of the buy-in drawer.
9. There will be no cash storage provided for any junket participant.
10. At no time will chips be given to junket participants at the Salon 95 service desk.
154. The effectiveness of those requirements was wholly or substantially dependent upon
compliance by junket staff, who, unlike employees of the casino operator working in an
authorised cage, were not licensed as special employees under the Casino Control Act.
180
There appeared to be no safeguard to ensure performance other than contractual incentives
under the 2017 Rebate Agreement. This is in circumstances where the Service Desk SOP
was never provided to the Authority.
181
155. An important feature of the Service Desk SOP was SOP 4 which detailed the process by
which chips were to be exchanged for cash. Service Desk SOP 4 relevantly stated:
182
When a junket participant wants to cash out or is departing from the junket, the junket
representative shall:
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1. prepare all detail required for the player to settle, partially settle or ‘cash out’ their
account as requested
2. collect any remaining premium or non-negotiable chips belonging to the junket
participant
3. count the chips which are being deposited for the settlement
4. document the value of chips being deposited for the settlement
5. secure the program chips being deposited for settlement in the buy-in drawer
6. transport the premium and non-negotiable chips to the Casino cage. (The Casino
cage employee shall ensure that the cash out is completed in accordance with The
Star Entertainment Group Cash Out Policy. For the cash out to be completed at the
Casino cage, the records in the Casino Management System (CMS) must support
the cash out request details. When the Casino cage employee is satisfied that
requirements have been met, they shall issue required cash out amounts to the
junket representative.)
7. Return to the Salon 95 service desk with the Casino cage issued cash
156. Service Desk SOP 4 made clear that “one-for-one” transactions could not take place at the
service desk by which chips were exchanged for cash by junket staff. This is consistent
with Ms Arnott’s evidence as to her concerns in relation to the 8 May 2018 CCTV
footage.
183
It also exemplifies the problem with Mr Coon’s email of 8 May 2018 wherein
he stated that it appeared that “$100K plaque has been exchanged for $100K cash”.
184
157. Before the finalisation of the Service Desk SOP, there was no formal operating procedure
or written document governing Suncity’s use of Salon 95 and the service desk.
185
This
meant the service desk was operating between the middle of April 2018 to around 16 May
2018 without any specific operating procedure in place (save for the summary of Ms
Arnott’s controls). The implementation of the Service Desk SOP was purely a reaction to
the extreme risks which had been identified since April 2018 in relation to the service desk.
13.5.6 The second warning letter: 8 June 2018
Further concerning transactions
158. The problems in Salon 95 continued throughout the rest of May 2018. In late May 2018,
there were emails from cashier staff at The Star raising concerns as to cash deposits, and
the manner of those deposits, occurring in connection with the Iek junket.
186
159. On 29 May 2018, Mr Mike Anthony, a Cash Services Duty Manager at The Star, sent an
email to “STAR AML” (addressed to Mr Willett) indicating that with respect to a particular
transaction that “Cash is presented in a black square paper bag and majority is sealed in a
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thick clear bag with bundles of $50’s in $5k lots rubber banded”.
187
That email was
forwarded by Mr Willett to Mr Brodie (copied to Ms Arnott).
188
Mr Brodie then forwarded
the email to Mr Power stating: “FYI – Some follow up to do but this seems very
concerning”.
189
160. On 30 May 2018, Mr Peter Kerr the Cash Services Supervisor at The Star, sent an email to
“STAR AML” in relation to a large deposit that was “brought over in a green ‘Artic Zone’
cooler bag” by a junket representative. The bag contained a substantial amount of
money.
190
161. This further correspondence of 29 and 30 May 2018 indicates that cash was still being
brought into Salon 95 by means such as paper bags and cooler bags after the same practices
had been uncovered in the middle of May 2018, and after the first warning letter had been
issued. This was also in circumstances where only days earlier the Service Desk SOP had
been provided to Suncity.
The second warning letter
162. The second warning letter, though dated 5 June 2018, was delivered to Suncity on or around
8 June 2018.
191
Mr Hawkins signed the letter on behalf of The Star. The second letter was
also translated. The English component of the letter stated:
192
Dear Mr Iek
Exclusive Salon – operation of service desk
Further to my letter of 1 May 2018, I am writing as a result of further noncompliance in
Salon 95.
On 23 May 2018, Mr Saro Mugnaini provided your junket representatives in Sydney with
written processes to be complied with by your junket representatives present in Salon 95
and across The Star, Sydney property (the Processes). The Processes were communicated
to [named individuals].
On 29 May 2018, I understand that certain material Processes were not followed. The Star
views this breach very seriously and I note that any further breaches of the Processes will
result in The Star terminating the use of the service desk for your junket representatives in
Salon 95 and may result in The Star reviewing your exclusive access to Salon 95.
Mr Saro Mugnaini will liaise again with your junket representatives present at The Star,
Sydney around the Processes, but it is your responsibility to ensure that all junket
representatives are aware of their obligations under the Processes and comply with them
fully at all times going forward.
163. The reference to the incident of 29 May 2018 in the second warning is not clear. It may
have been the incidents referred to in the correspondences of 29 and 30 May 2018 to which
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reference has been made. In any event, the second warning letter shows that the Service
Desk SOP, which was recorded in the letter as having been provided to the junket
representatives on 23 May 2018, had been ineffective.
164. Mr White and Mr Power both gave evidence in relation to the second warning letter such
that they considered it a “weak” response given the pseudo cage operations taking place in
Salon 95. Mr White called it “extremely weak” and Mr Power accepted that it “could be
viewed as a weak letter – a weak response”.
193
Mr Hawkins was asked whether “looking
back on [the decision] now” he accepted “that it was a weak response to the problem”. Mr
Hawkins’ evidence was:
194
A: I think the first letter that was sent was sent quite quickly when I engaged in
oversight of that business. And based on what I know now, I accept that.
Q: And looking back on it now, would you accept that this was a circumstance where
business goals took priority over compliance goals?
A: I think the – you know, the relationship with the junket was maintained and, from
my point of view, I don't think there was necessarily any pressure applied to
anyone else to continue that. So I think from a collective perspective, you know,
the incorrect action holistically was probably taken. But, you know, the junket
contribution in the scheme of things is far, far smaller than our local business is. I
think it was just a matter of wanting to maintain the relationship and trying to get
the area rectified to a compliance state as quickly as possible.
Q: I understand that this was a collective decision and you were a part of a collective
decision. And I understand that you took certain action at the time. But bearing in
mind that you accept that it was a weak response, looking back on it now, would
you accept that it indicated that business goals were given priority by the
organisation over compliance goals?
A: With the information I’ve subsequently been provided about the matters in the
room, I accept the response was not appropriate. And I think the potential divisions
of accountability within the organisation didn't assist with ultimately the position
that we should have taken.
165. The Star Entities conceded that “[t]he response was inadequate and inappropriate” and they
agreed with Counsel Assisting’s submission that the second warning letter “was not
commensurate with the level of risk that was being presented at that time”.
195
The further
concession was made that the evidence supported a finding that Mr Hawkins and others
should have “entertained real doubt that Suncity could or would ensure that its staff
complied with The Star’s requirements”.
196
Those concessions were properly made.
166. By early June 2018, the evidence which had emerged from Salon 95 of cash transactions
and the manner by which cash was being brought into the salon should have resulted in a
decision to close Salon 95 and notify the Authority of what had occurred. There was no
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other reasonable course to take given the severity of the risks that had been identified in
Ms Arnott’s risk assessment of 27 April 2018.
167. Instead, a decision was made to permit Salon 95 and the service desk to continue. While
Mr Hawkins must bear a good deal of the responsibility for that decision, this was not
simply a case of poor judgment by a single individual. The decision to continue with Salon
95 should be seen as a collective decision by the senior management of The Star, which
reflected a culture in which business goals were given undue priority over regulatory and
AML/CTF risks.
13.5.7 The Salon 95 balcony blind-spot footage: 15 June 2018
168. On or around 8 June 2018, Ms Arnott provided an “ECDD Plan” which she had prepared
to Mr Houlihan and Mr Brodie which referred to observations that Suncity junket
representatives at the Salon 95 service desk were supplying large volumes of cash to junket
representatives unconnected to Suncity.
197
The Suncity staff in Salon 95 appeared to be
showing an increasingly brazen disregard for the rules sought to be imposed by The Star.
169. On 15 June 2018, CCTV captured further disturbing footage in Salon 95.
198
The balcony
on Salon 95 only had one camera which was located high up on the side wall of the balcony.
The angle of the camera, which faced out onto the balcony, was such that it had no visibility
of any activity directly beneath the camera.
170. The CCTV footage from 15 June 2018 showed Suncity staff leaving Salon 95 and
proceeding to walk to the Rivers reception. The staff collected what appeared to be 7
bundles of cash comprising $100 bills and returned to Salon 95. Upon re-entering the salon,
one of the Suncity staff members went to the balcony and walked to the spot beneath the
camera next to the wall. A second staff member communicated with a person in a black
hooded jumper in the salon, who then followed the second Suncity staff member to the spot
beneath the camera on the balcony.
199
171. All three men were out of sight for a short period of time. Momentarily, one Suncity staff
member can be seen taking a white bag that was already on the balcony before returning to
the area underneath the camera.
200
A short time later all three men emerge from beneath
the camera, with the man in the black hooded jumper now holding the white bag.
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172. A shortened clip of the footage was played during the examination of Mr Stevens.
201
Mr
Stevens gave the following the evidence when asked whether there would be any legitimate
reason for those individuals to congregate beneath the camera in its blind-spot:
202
Q: Yes. Seeing that footage, is that - in your experience as regulatory affairs manager
at the casino, does that footage concern you?
A: Yes.
Q: Why does it concern you?
A: Because it appeared the individuals took cash from a casino cage, then went and
met up with somebody else off camera and then came back in. That there was –
there was no indication that they were out there smoking or talking for any period
of time, and we don’t know what happened underneath that camera.
173. It is not suggested that Mr Stevens viewed the footage at the time the events took place in
June 2018. However, other individuals at The Star did view the footage. On 18 June 2018,
Mr McGregor emailed Ms Judd, Mr Power and Mr Houlihan in an email titled “Salon 95 –
latest reported observation 15/06/2018”. Mr Power and Mr McGregor exchanged further
emails that day about the incident. Mr McGregor noted that the CCTV footage on the Salon
95 balcony was insufficient and suggested that the Suncity staff were “testing” the blind-
spot to see if The Star responded to such activity.
203
13.5.8 Renewal of the 2017 Rebate Agreement: 21 June 2018
174. Even though The Star was aware of the serious problems with Salon 95, it proceeded to
renew the 2017 Rebate Agreement with Mr Iek through the execution of a further “Win/loss
Rebate & Exclusive Access Agreement” between The Star, The Star Entertainment Qld
Limited and Mr Iek (2018 Rebate Agreement).
204
175. The 2018 Rebate Agreement was signed by Mr Barton on behalf of The Star Entities. As
with the 2017 Rebate Agreement, the new 2018 Rebate Agreement retained in clause 6 the
Promoter’s entitlement to exclusive access to Salon 95. The clause then states (emphasis
in underline added):
205
Promoter acknowledges and agrees that The Star, Sydney retains sole operational
and management control of the Exclusive VIP Salon (including the operating hours,
who may access the Exclusive VIP Salon, the conduct of gaming, the operation of
the Cage, provision of food and beverage service and enforcing service standards
and presentation). Promoter may have approved junket representatives present in the
Exclusive VIP Salon (subject to The Star's approval) to assist in customer liaison and
customer service for non-gaming matters. The Promoter's junket representatives will
conduct all activities in the Exclusive VIP Salon, including at the service desk
provided in there ("Service Desk") in accordance with The Star's required processes
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from time to time ("Processes"). The Star retains the right to audit the Promoter's
activities at the Service Desk in accordance with the Processes at any time. In the
event that The Star finds non-compliance with Processes, in addition to its right
under clause 10(n)(v), The Star may restrict the activities permitted at the Service
Desk or remove the availability of the Service Desk at its complete discretion.
176. Notably, the clause still retained reference to a “Cage” which suggests a continued
contractual contemplation of a cage existing in Salon 95.
206
Under clause 1 of the 2018
Rebate Agreement, the minimum monthly “Non-Negotiable Turnover” increased from
A$50m to A$100m.
177. The Star Entities conceded that the 2018 Rebate Agreement should not have been renewed
“absent fully informed consideration of the matter by the Board”.
207
13.5.9 Inadequate disclosure to the Board of issues in Salon 95: 26 July 2018
178. The Star Entertainment Board met on 26 July 2018. The meeting was attended by directors
and senior management. A paper styled “The Star Entertainment Group Limited –
Managing Director & CEO Report – May 2018” (May 2018 Report) was taken as read at
the meeting.
208
179. The May 2018 Report was 27 pages in total. On pages 21 and 22, six bullet points appeared
under the sub-heading “11.2 Projects & Commercial Matters”.
209
On page 22, the fourth
bullet point stated:
210
• Salon 95 Service Desk: In May, concerns emerged around certain activities
undertaken at the junket service desk in Salon 95. At present functions at
the service desk are limited pending the roll out of detailed processes for the
junket representatives in that salon. It is expected that training will be
completed by 8 June, with regular on-going compliance monitoring
following resumption of services at the service desk
180. The minutes record that Mr Bekier “spoke to the key points of the papers, noting also that
the preliminary FY18 results will be addressed in conjunction with the FY19 Budget
presentation”.
211
181. During the public hearings, Mr Bekier was not asked to explain why the May 2018 report
took the form that it did. However, in his witness statement dated 4 February 2022, Mr
Bekier gave evidence of his state of mind at the time of the entry into the 2018 Rebate
Agreement. He stated:
212
[32] … At around that time, I became aware that a breach concerning a cash
transaction in the Salon had been investigated. My understanding was that the breach
was a one-off mistake, and that it had been addressed. My recollection is that Suncity
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were going to be spoken to, reminded that no cash can be dealt with in the Salon,
and warned to ensure future compliance. Beyond that general understanding, I do
not recall being made aware of the May 2018 and June 2018 warning letters.
182. If this was Mr Bekier’s state of mind at the time he prepared the May 2018 report, and it
remained his state of mind when he reported to the Board on 26 July 2018, then his
understanding was materially deficient. The effect of Mr Bekier’s evidence is that he was
unaware that there had been a significant number of cash transactions in Salon 95, including
cash for chip (and vice versa) exchanges, or that the Service Desk SOP specifically
contemplated cash transactions at the service desk.
183. Irrespective of Mr Bekier’s particular state of mind, viewed as a collective report by
management to the Board, the report in the May 2018 Report was deficient and misleading.
It did not report on the activities and concerns arising from those activities that had been
taking place in Salon 95.
184. Mr Heap, Mr Bradley, Dr Pitkin, Ms Lahey and Mr O’Neill all agreed in their examinations
that the statement in the May 2018 Report as to the situation in Salon 95 was an inadequate
disclosure of the issue to the Board.
185. Mr Heap gave the following evidence:
213
[W]hat clearly sat beneath this reference was a – was a matter that clearly had to
come to the Board so that the Board could form a view and, if necessary, make a
decision. My – my disappointment is that the way that it was framed, it … it was a
needle in a haystack. It was a – … it put the obligation on the Board to find that and
go looking for it. And I’m not resiling from the fact that that is, of course, part of the
Board’s responsibilities. But – but the board should not have to work against
management to find these things; it should be assisted by management to find these
things.
186. Mr Bradley described the report as “totally inadequate in terms of describing what had
occurred”
214
and “meant to mislead the Board”.
215
Mr Bradley said that “[i]t’s extremely
disappointing and frustrating” that the information concerning Salon 95 which was known
by management was not disclosed at the meeting
216
and that he felt “misled”.
217
187. Dr Pitkin also said that she felt “misled” regarding the inadequate disclosure in the May
2018 Report of the issues in Salon 95, and that she found it “very distressing” that senior
management attended the meeting and the material information “did not come out”.
218
188. Ms Lahey agreed that the disclosure was “completely inadequate”
219
and said she was
“disappointed” at the level of disclosure and she agreed that she felt “misled”.
220
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189. Mr O’Neill gave evidence that he did not consider the disclosure of the activities in Salon
95 in the May 2018 Report was an adequate briefing to the Board, that it would have been
“preferable” that the activities in Salon 95 to have been “elevated”, and that ‘for
identification purposes, Salon 95 … needed the extra descriptor of “Suncity private
saloon”’.
221
190. Mr Hawkins said in his evidence that the disclosure regarding Salon 95 in the May 2018
Report was “a limited assessment of the matters that had occurred”.
222
On the contrary, as
has been found, it was deficient and misleading.
191. The serious misconduct in Salon 95 should have been brought directly and promptly to the
Board’s attention in a full and frank manner so that all directors could consider the issue.
A number of directors gave evidence that the correct approach at that time would have been
to shut down Salon 95 immediately.
223
Dr Pitkin said:
224
I think I would have insisted that the services in Salon 95 be suspended immediately,
that the regulators be advised immediately and there to be an investigation into how
this had happened. And the investigation would have then been broadened into
whether Suncity Group was an appropriate entity to be associated with.
192. Similarly, Ms Lahey said:
225
Well, I think we would have closed that junket room down immediately, and we
would have wanted to have an explanation from the staff involved from Mr Bekier
down about why this was happening and why it was allowed to happen, in
contradiction of, you know, the Casino Control Act, in contradiction of the – the
regulator’s need to know and the Board’s need to know.
193. Instead, because of the deficient disclosure to the directors of Star Entertainment by senior
management, the directors were not given the opportunity to take such action.
Chapter 13.6 The Review of Salon 95 By Mr Stevens in 2019
13.6.1 Salon 95 remains in operation: late 2018 to early 2019
194. It is not clear whether the cash transactions at the service desk in Salon 95 continued
between July 2018 to early 2019. During this period, however, Suncity persisted with
requests for further privileges in Salon 95.
195. On 31 August 2018, Ms Amy Lim, Vice President of VIP International Operations at The
Star, sent an email to Mr Stevens relaying requests from Suncity for “new signage” in Salon
95.
226
On 5 September 2018, Mr Stevens responded stating:
227
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While I understand that there is an existing sign which this will replace, I have a
concern that this room is now beginning to look like the Suncity Casino and not The
Star. I have discussed the matter with Andrew Power and he will be raising this with
Oliver White.
196. This concern from Mr Stevens was pertinent. Mr Buchanan agreed that one of his concerns
in 2020 from the materials that he had seen was that it appeared, at least on occasions in
2018, that an organisation with links to the triads had been running “a casino within a
casino”.
228
At least in the period from late April to late May 2018, Suncity junket staff
were conducting cage operations at the service desk in Salon 95, within the boundaries of
The Star Casino.
197. It appears that The Star acceded to Suncity’s new signage request, with Mr Whytcross
confirming the same in an email dated 23 October 2018, which also confirmed Mr Stevens’
approval of the request.
229
198. On 28 November 2018, Mr McGregor provided a further memorandum titled “Salon
95/Sun City & Related matters” addressed to Mr Houlihan.
230
The memorandum disclosed
that NSW Police had conducted a separate investigation into “several people associated
with Salon 95 and the Sun City Group”. The outcome of the investigation was that a list
of people would be subject of an exclusion order under section 81 of the Casino Control
Act. That list of people included patrons, and persons described as Suncity junket
representatives and Suncity staff members.
231
199. On 10 January 2019, Ms Lim sent an email to Mr Stevens relaying a further request from
Suncity “to place bottled water, ashtray and lighters with Suncity’s logo in Salon 95”.
232
200. On 11 January 2019, Mr Stevens responded to Ms Lim’s email, stating (emphasis in
original):
233
Yes it is a business decision and there is no regulatory impediment. However the risk
around the operation of a dedicated room like this is at what stage does it look like
we are no longer in charge of the room and it belongs to Sun City. Having the sign
at the service desk and a service kiosk is one thing but when we then expand that
material through the room, in my view this level of branding gives that impression.
I strongly recommend against us doing this.
Should the regulator form the view that this is Sun City's room and not ours it will
mean they are probably a Close Associate and for that they need a L&G probity
assessment. It may also mean that the Sun City Room is materially significant to our
business and we need a controlled contract in place.
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201. No action was taken by The Star to raise with the Authority Mr Stevens’ concerns that
Suncity might have become a close associate or that the Rebate Agreement with Mr Iek
might be a controlled contract.
13.6.2 Mr Stevens’ conducts his review: March to May 2019
202. Mr Stevens and the Assurance Manager Gaming Operations, Mr Will Kumarasinghe,
“conducted a review of Suncity’s adherence to the procedures required for the operation of
the Service Desk in Salon 95”.
234
Mr Stevens stated that Mr Brodie requested that the
review be undertaken.
235
203. Mr Stevens sent an email on 19 March 2019 to Mr Mugnaini and Ms Lim requesting a copy
of the records kept by Suncity as required under the Service Desk SOP.
236
Mr Stevens
wrote that “no logs relating to the Buy-In Drawer or the Settlement Drawer were ultimately
provided as Suncity was not performing the relevant transactions at the Salon 95 Service
Desk”.
237
204. The steps that Mr Stevens undertook during the conduct of his review included:
238
matching the junket representative list held by Suncity with the list held by The
Star;
physically inspecting the cash box in the service desk to ensure it held no more than
$25,000;
some spot checks of CCTV footage;
reviewing two incident reports neither of which related to the handling of cash;
checking the Protecht system for any reports in the incident register relating to
Salon 95; and
speaking with the Gaming Manager and Assistant Gaming Manager regarding their
awareness of any dealings with cash in Salon 95.
13.6.3 Mr Stevens’ report on Salon 95: 23 May 2019
205. The final version of Mr Stevens’ report was dated 23 May 2019.
239
It was a two-page
document addressed to Mr Power. The report gave a rating of “Satisfactory”. The report
stated:
240
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The overall control environment was satisfactory and representative of good
practices. However, the agreed upon procedures require changes as the SOP did not
reflect the actual operational model that was agreed with Suncity in May 2018. Some
of the changes that have taken place are strengthening the internal controls but were
not documented. Overall, there was commitment by the International VIP business
unit and Suncity Service Desk Team to achieving compliance with the spirit of the
Agreed Upon Procedures.
206. Mr Stevens’ report concluded:
241
The International VIP business unit and Suncity Service Desk Team responded
positively to the review conducted by Regulatory Affairs which was appreciated and
the areas for improvement were advised. There was no evidence of the practices that
raised a concern around the operation of the room in 2018 continuing and the Star
now has an effective level of oversight of the operation of the room.
13.6.4 The email from Mr Tomkins: 24 June 2019
207. During his examination, Mr Stevens was taken to an email dated 24 June 2019 from Mr Ian
Tomkins to Ms Arnott to which Mr Stevens was copied.
242
Mr Tomkins is a Senior
Regulatory Manager who reported to Mr Stevens. The subject of Mr Tomkins’s email was
“Salon 95” and referred to recent CCTV footage of incidents in Salon 95.
243
208. There were two sets of bullet points in the email. The first set of bullet points referred to
CCTV footage of four incidents which took place on 20, 25, 30 and 31 May 2019. The
second set of bullet points referred to CCTV footage of three further incidents which that
took place on 9 and 22 May 2019. The incidents described at the Salon 95 service desk
included money being stored in a computer cupboard, money being placed into envelopes,
and envelopes presumed to be full of money being provided to other persons.
209. Following the bullet points, Mr Tomkins wrote:
244
To me and immediately, no bags should be permitted in that office. Also despite that
we know the money is leaving the cupboard, there was no way of knowing how the
money is getting into the cupboard unless it is being secreted in the male coat pockets
via smaller amounts. Any envelopes should be substituted with see through plastic
folders for use in there.
There was some obvious movements of on occasion three persons going into the
cabinet with the door shut in such a confined space and appeared ridiculous.
To deter this- if the computer cupboard is our property – why cannot this be locked
and force them into other overt activity.
There needs to be another camera on the balcony. It would appear activity occurs
beyond camera range which is obvious to them. It also makes it hard to track where
they go or cash coming in and being removed from bags out there.
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210. While some of the events depicted in the email post-dated Mr Stevens’ report (the events
of 25, 30 and 31 May 2019), there were three events which fell within the period of Mr
Stevens’ review (the events of 9 and 22 May 2019). The concerns raised by Mr Tomkins
in his email contradicted Mr Stevens’ conclusion that:
245
There was no evidence of the practices that raised a concern around the operation of
the room in 2018 continuing and the Star now has an effective level of oversight of
the operation of the room.
211. Mr Stevens accepted that the conclusion in his report was “highly problematic” and the
“business may have relied on that conclusion and not taken the appropriate measures to
respond to risks and, in fact, matters that were happening on the ground that needed to be
addressed as a matter of urgency”.
246
13.6.5 Mr Buchanan’s reliance on Mr Stevens’ report
212. Mr Stevens’ failure to qualify his written report in light of the information subsequently
provided to him by Mr Tomkins had adverse consequences for the casino operator.
213. In his 7 January 2021 memorandum,
247
Mr Buchanan relied upon Mr Stevens’ report in
support of the option of continuing to do business with Suncity and Mr Chau. After citing
Mr Stevens’ report, Mr Buchanan stated in his memorandum that the audit found Suncity
staff were compliant and The Star had effective oversight of the operation of the salon.
248
Mr Buchanan’s memorandum relied upon Mr Stevens’ report to state that comfort could be
taken that Suncity were capable of operating compliant junket programs.
249
214. If Mr Stevens had qualified his earlier report, Mr Buchanan may have provided a different
analysis in his 7 January 2021 memorandum which referred to and relied upon Mr Stevens’
report.
13.6.6 Further concerning conduct in Salon 95 in 2019
215. In an email dated 22 July 2019, Mr Brodie notified Mr Hawkins and Ms Martin of the NSW
Police Commissioner’s decision to exclude from The Star six individuals associated with
Suncity.
250
216. In an earlier memorandum dated 5 June 2019 prepared by Mr McGregor, details of further
investigations he performed in late May 2019 were disclosed.
251
The memorandum
suggested that the six exclusions were linked to the events of 2018 in Salon 95. Mr
McGregor also detailed events taking place in Salon 95 in late May 2019. Mr McGregor
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stated that “[i]t appears that Sun City associates bring cash into Salon 95 concealing it in a
few ways and that this concealment has thwarted casino surveillance’s efforts to track its
source and or arrival time”.
252
Mr McGregor further stated:
253
The balcony area adjacent to Salon 95 is used by them as a storage area with several
items of luggage kept there today. In the past, the presence of these bags was
indicative of covert cash movements into and out of Salon 95. I recommend that
these items be cleared out of the area to open the view of CCTV cameras and allow
better monitoring.
…
CCTV coverage should be extended to include additional cameras which will
decrease the number of current blind-spots.
217. Mr McGregor’s memorandum provides further evidence that as at May 2019 there were
still significant problems with Suncity’s conduct in Salon 95. The CCTV blind spot on the
Salon 95 balcony continued to be used in this period for covert purposes.
218. The Star Entities conceded that in light of Mr McGregor’s investigation reports, Mr
Stevens’ review should have been “withdrawn or corrected so as to avoid the possibility
(which ultimately transpired) that any reliance would subsequently be placed on it”.
254
Chapter 13.7 The Hong Kong Jockey Club Report
219. It emerged during the public hearings that a number of officers of Star Entertainment had
a copy of a Hong Kong Jockey Club Report (HKJC Report) which had been prepared in
April 2018.
255
220. The Hong Kong Jockey Club is the regulator of racing in Hong Kong. Mr Buchanan
previously worked at the Hong Kong Jockey Club as an Executive Manager of Anti-Bribery
and Integrity Assurance. Mr Buchanan was a participating author of the HKJC Report.
256
221. The HKJC Report was accompanied by a one-page memorandum from the “Director of
Security & Integrity” and was addressed to the CEO and others at the Hong Kong Jockey
Club.
257
The memorandum stated:
258
The attached report from Angus Buchanan's team is an update of our monitoring of
Suncity Group, the Macau casino junket operator that has expanded into diverse
other businesses including the horse racing industry.
We have considered Suncity Group a threat to the Club since we became aware of
the expansion of the organisation and the interest of some of the principals in horse
racing. Our monitoring started in 2012 and since then we have not only developed a
good understanding of the group but also successfully excluded a number of related
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persons from membership of the Club (which is detailed in the report) as well as
horse ownership through the Horse Ballot.
…
Suncity clearly involves a number of criminal enterprises, although the business lines
are so diverse that these are well hidden in more obscure legitimate businesses. Given
the known criminality and also the background of the main principals in triad
societies we continue to see Suncity as a threat to the Club and I recommend
continued monitoring to ensure that we exclude related persons from membership,
horse ownership, and race sponsorship.
222. The purpose of the HKJC Report was identified in paragraph 1 as being to “provide both
an update and overview of Suncity Group’s business operations, key personalities and links
to organised crime both in Hong Kong and overseas”.
259
The executive summary stated:
260
Suncity Group is one of Macau’s largest VIP junket operators and was founded by
Alvin Chau Cheok Wa in 2007. Alvin Chau, who has a long history of operating VIP
rooms, established the initial Suncity Group VIP room in Wynn Macau casino in
2007. He is alleged to be a member of the Macau faction of the 14K triad society and
follower of former 14K leader Wan Kuok Koi (aka “Broken Tooth Koi”). It is
suspected the Suncity Group also has connections to Charles Heung Wah Keung, a
senior office bearer of the Sun Yee On triad society.
Cheng Ting Kong, Chairman and Executive Director of Sun International Resources
Ltd. is Alvin Chau’s major business partner who was primarily brought in to Suncity
Group to assist with the acquisition of new investments. Cheng and Alvin Chau have
eleven common directorships in Hong Kong. Cheng is believed to be a member of
the 14K triad society in Hong Kong. Intelligence sources report that Cheng is
involved in illegal bookmaking, drug trafficking and large scale money laundering
activities.
223. The HKJC Report addressed the topics of “Links to organised crime” and “Money
laundering”.
261
It stated:
262
Links to organised crime
Alvin Chau was reported to be a 14K triad member and follower of Wan Kuok Koi
who was jailed for triad-related crimes in 1999. Wan Kuok Koi was released from
prison on 1 December 2012. Alvin Chau is also reported to have associations with
Cheung Chi Tai, Lin Cheuk Chiu and Herbert Liu Kee Chan, all of whom are known
to have triad related associations.
Prior to launching the Suncity Group VIP rooms Alvin Chau was reported to be
Cheung Chi Tai's representative at the Grand Neptune VIP Club. Cheung Chi Tai is
reportedly a leader of the Wo Hop To triad society and an investor in the Neptune
Group which is one of Macau's largest junket operators.
Money laundering
…
In February 2016, a cyber-attack was made against the Federal Reserve Bank of New
York during which USD 101 million was stolen from the accounts of the Bangladesh
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Bank. USD 20 million was traced to Sri Lanka and was recovered. USD 81 million
was traced to the Philippines but only USD 18 million was subsequently recovered.
Alvin Chau was reported to be the recipient of an estimated USD 18 million and
Chang Lai Fong, of Macau junket operator Gold Moon Group, the recipient of a
similar amount. To date, no charges have been laid as the FBI continues with their
investigation. Lawyers for the Suncity Group indicated they will submit a report to
the Philippines Senate once they have accounted for the funds.
224. Further, in relation to Mr Cheng the HKJC Report stated:
263
Links to organised crime
According to intelligence in October 2013, Cheng is a member of the 14K triad
society in Hong Kong. The source reported that Cheng is a follower of 14K triad
member Li Wai Ki, alias “Ko Lo Ki”, who is serving a prison sentence in Dongguan
City.
The intelligence also suggests that Cheng is involved in a number of criminal
activities such as illegal bookmaking, money laundering and other criminal
activities. The source stated that Cheng conducts illegal bookmaking through
Shilong City and Dongguan City, Guangdong Province, China. The illegal
bookmaking is allegedly managed by a local triad member nicknamed “Lo Keung”.
The same intelligence source also suggests that Cheng holds an interest in triad
controlled casino vessels through 14K triad member, Shing Sai Wing, alias “Dau Fi
Wing”. Cheng is reported to have provided financial support to Shing.
225. The HKJC Report found that Suncity posed “major risks” including:
264
• Suncity key personalities have demonstrated links to numerous triad
societies and organised crime figures. Both Cheng Ting Kong and Alvin
Chau are reportedly members of factions of the 14K triad society. Other
Suncity entities are connected to known triad figures such as Wan Kuok Koi
and Li Wai Ki. Triad societies are sophisticated criminal networks that
facilitate, as well as benefit from, the proceeds of crime. Triad societies also
typically operate in other businesses which generate large volumes of cash
for a number of reasons, primarily in order to assist these criminal groups
with the laundering of their proceeds of crime.
• Reliable intelligence indicates that Cheng is an Australian law enforcement
person of interest due to money laundering and drug trafficking activity
which he reportedly orchestrates from Hong Kong.
226. The HKJC Report concluded:
265
Due to the reasons detailed above, it is assessed that Suncity Group’s controlling
entities, Cheng and Alvin Chau, would pose tangible criminal as well as reputational
risks to the Club, and indeed racing integrity in Hong Kong, should they, or their
associates, become Members and horse owners. Accordingly, the role of the Security
and Integrity Department, in vetting Membership applications, is key to protecting
the Club through identifying potential Suncity Group associations and preventing
their access to Membership.
227. Those conclusions, in particular of “tangible criminal as well as reputational risks”, were
extremely serious conclusions.
266
Mr Heap said of them:
267
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[I]t goes to our very licence. We have an obligation under our licence not – to ensure
the casino remains free of criminal influence. It’s – it’s fundamental information to
the board, and to management for that matter, in – in determining who we should
have associations with at the casino.
228. Mr Buchanan said that when he started work at Star Entertainment in May 2019, he had
the same opinion of Suncity as quoted above from the HKJC Report.
268
Chapter 13.8 Those who knew: the dissemination of the Hong Kong Jockey
Club Report at Star Entertainment
229. On 12 June 2019, Mr Buchanan sent an email entitled “HKJC Sun City Report” containing
the HKJC Report in four separate attachments. The recipients of the email were Ms Martin,
Mr White, and Mr Houlihan.
269
The email stated:
Please find attached a copy of the 2018 Sun City report my intelligence team
compiled whilst I was with the Hong Kong Jockey Club.
It is a comprehensive report and was prepared due to the potential threat Sun City
posed/poses to the integrity of racing in Hong Kong.
I suspect certain aspects of the report may be of interest to The Star.
…
Given the confidentiality of the report, would appreciate if the document is not
distributed beyond this group.
230. When asked why he provided a copy of the report to his colleagues, Mr Buchanan’s
evidence was:
270
Q: You did, of course, provide a copy of this report to The Star, didn't you?
A: I did, and the reason I did that was I was still compiling a report on due
diligence procedures and having to potentially improve them. That was just
after I joined. And this report was based as an example of what a mature
due diligence area could provide. And that was - there was a co-interest in
the Suncity Group, and that was why it was provided.
231. When asked whether he had discussed the HKJC Report with any of the email’s recipients,
Mr Buchanan said:
271
Ms Martin acknowledged on passing that she had received it. Mr White, no. And Mr
Houlihan – we discussed it previously, as I referenced yesterday, when we went to –
we went to the Hong Kong Jockey Club – I think it was July 2019, and we discussed
it prior to meeting with them and during the meeting.
232. Mr Buchanan explained that he and Mr Houlihan went to Hong Kong in July 2019, at which
time they met with representatives of the Hong Kong Jockey Club.
272
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233. Mr Houlihan’s evidence was that he read the HKJC Report and he discussed it with Mr
Buchanan.
273
Mr Houlihan accepted that he read the HKJC Report carefully.
274
However,
Mr Houlihan was surprisingly dismissive of the findings in the HKJC Report on the basis
of a lack of “direct evidence”. He gave these answers to questions from Counsel
Assisting:
275
Q: But didn't it contain information about Suncity that was of – that was of –
clear and direct relevance to Star Entertainment?
A: When I read this report, there was no direct evidence that led me to this
“criminal enterprises” as defined by Mr Martin in that comment.
Q: Well, you’ve got a conclusion of the director of security and integrity at the
Hong Kong Jockey Club that Suncity clearly involves a number of criminal
enterprises.
A: Which they continue to monitor. Correct.
Q: Well, what evidence are you looking for here, Mr Houlihan?
A: Something more than somebody's commentary in a document. In the
document supplied to me by Mr Buchanan, I did not see any direct evidence
or any direct correlation to Suncity's involvement in criminal enterprise.
234. Mr Houlihan did not even accept that the HKJC Report had information which was relevant
to him at the time. When asked why, he said this:
276
Because this is, as I said before, a report completed by Mr Buchanan on behalf of
the Hong Kong Jockey Club. We had our own reports around this time as well that
may have been contradictory to this report.
235. Mr Houlihan accepted that no further due diligence on Suncity or Mr Chau was undertaken
by Star Entertainment at the time he received the HKJC Report.
277
236. Ms Arnott also had a copy of the HKJC Report. Her evidence was that she was not sent a
copy from Mr Buchanan, but rather she “was given a paper copy … [p]robably sometime
in 2019”. Ms Arnott was provided a copy from either Mr Power or Mr Houlihan.
278
She
carefully reviewed the HKJC Report.
279
Ms Arnott also had “concerns” about the HKJC
Report due to its reliance on secondary sources. She gave this evidence:
280
Q: Ms Arnott, you have said twice now that you had concerns with the Hong
Kong Jockey Club report. What were your concerns about?
A: Exactly this, Mr Bell. So the 14K triad membership is linked to Next
Magazine, which is not necessarily a particularly authoritative source. And
the next sentence reads as if to say that the next reference indicates that
Alvin Chau was a follower of Broken Tooth Koi, who was jailed in 1999.
But that next reference is a BBC article which states that – it is an article
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about Broken Tooth being arrested in 1999 but doesn't have any reference
to Alvin Chau being related to him at that point. And there were numerous
points through this report where I found that there were things that were
opinion being placed very close to things that were fact in an effort to make
them look like they were – should be read together. And I found that to be
concerning at the time.
237. In subsequent answers Ms Arnott gave this evidence:
281
Q: And I take it you were extremely concerned when you read this?
A: Well, again, Mr Bell, the problem I have with this report is I don’t know
whether or not – how much of a link Alvin Chau had to it because, as we’ve
previously stated, there were a number of occasions where there – I'm
certain that there was $101 million stolen from banks in Bangladesh, and it
has been stated here that Alvin Chau was reported to be a recipient of it. But
with no charges laid by the FBI and no referencing to give information about
how you can see Alvin Chau linked to it or what report it was that links him
to it, it’s difficult to assess the validity of – of the statement.
Q: So just so I am clear, was your reaction when you read this to reject it
because you weren’t satisfied with the source material? Or was it a matter
which you regarded needed to be investigated further?
A: It was – some of it was I didn't – I didn't consider the source material to –
to be relevant or helpful. And there are some elements of it that I probably
should have investigated further. But – but it was – there were – yes, I did
have concerns about it, but – for that reason.
238. Mr White confirmed he read the main body of the HKJC Report.
282
He had a poor
recollection of the report generally, saying at one point that he was “having a bit of a mental
blank about [the report]”.
283
239. Mr Power said that he was aware of the HKJC Report through references in the media.
284
He gave the following evidence:
285
Q: When do you say you first became aware of this report?
A: I don't recall when I first became aware of it. I have a recollection – vague
recollection that there was references to it in the media at some stage. But
whether I became aware of it at the time it was referenced in the media or
whether I read that in various reports later on, I can’t – can’t say when I first
became aware of it. But I certainly – I don’t believe I’ve ever read the Hong
Kong Jockey Club report.
240. Mr Power said that he had never read the report nor had he ever received a copy.
286
Mr
Power said that the first time he became aware that The Star had a copy of the HKJC Report
“would have been in the course of one of Mr Buchanan’s reports in relation to Suncity”
which Mr Power said he received “[a]t the end of 2020, beginning of 2021”.
287
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241. Mr Power also gave evidence that Ms Martin did not make him aware that she held a copy
of the HKJC Report when preparing the board paper dated 15 August 2019,
288
or when
preparing the response to L&GNSW’s letter of 8 August 2019.
289
242. Ms Martin recalled that she had received an email from Mr Buchanan providing her with a
copy of the HKJC Report.
290
Ms Martin had a poor recollection of the report. She did not
recall when she read it.
291
The most that Ms Martin was prepared to accept was that she
had read the HKJC Report prior to giving her evidence (i.e. “prior to today” on 13 April
2022).
292
She did, however, say that she recalled looking at some sections of the HKJC
Report in discussions with Mr Buchanan which had occurred in the weeks after 12 June
2019.
293
She thought she may have read “certain sections at the time that Mr Buchanan
was talking to me about that had more relevance to The Star in our circumstances”.
294
243. Ms Martin recalled discussing with Mr Buchanan that Suncity was of interest to law
enforcement in connection with money laundering activities.
295
She also recalled speaking
to Mr Buchanan about any link between Suncity and triads, but she said that the discussion
with Mr Buchanan was more specific to individuals and Mr Chau “rather than Suncity in
general terms”.
296
244. Ms Martin said that she discussed the HKJC Report with Mr Houlihan.
297
She did not
recall discussing the report with Mr White.
298
In relation to Mr Power, Ms Martin said that
she recalled discussing some aspects of the report with him in 2020 but she could not be
sure about 2019.
299
245. The Star Entities conceded that the HKJC Report “raised extremely serious concerns about
the probity of Mr Chau and Suncity – it suggested ongoing connections with the triads and
the facilitation of organised crime by Suncity”.
300
246. An objective review of the HKJC Report indicates that it contained very important
information, including information from both public sources and Australian law
enforcement sources, identifying that Suncity and Mr Chau had links to Chinese organised
crime and were unsuitable business associates of The Star or Star Entertainment. Indeed,
not all references in the report were to secondary sources.
247. Mr Bekier said that he had read the HKJC Report prior to giving his evidence. He
concluded that it was a “very good report”, which assembled a lot of evidence “to paint a
picture of somebody we shouldn’t be doing business with”.
301
He said that “what the Hong
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Kong Jockey Club report does really well is it pieces together essentially public information
and paints what I think is quite a compelling picture”.
302
248. Mr Heap indicated in his evidence that he had read the HKJC Report in his preparation for
giving his evidence to the Review.
303
Mr Heap gave this evidence:
304
Q: Are you aware of Mr Bekier's evidence that the Hong Kong Jockey Club
report is a very good report which assembles a lot of evidence to paint a
picture of somebody we shouldn't be doing business with?
A: I wasn't aware of that evidence, but I would agree with it.
Q: Would you agree that if the board had received either a copy of the Hong
Kong Jockey Club's report or at least a briefing on it – a thorough briefing
on its contents, the board should have stopped doing business with Suncity
and Alvin Chau?
A: Yes, I would agree with that.
249. Mr Heap said that the issues raised in the HKJC Report about Suncity went “to our very
licence” and The Star’s obligation to ensure that The Star Casino remains free of criminal
influence.
305
250. Mr Bradley, Dr Pitkin, Mr Sheppard, Ms Lahey and Mr O’Neill all gave evidence to similar
effect.
306
251. There was a clear disconnect between the evidence of the directors of Star Entertainment
and the evidence of the members of the legal, investigations and compliance teams who in
fact were provided with the HKJC Report. While some of the information in the HKJC
Report was sourced from media articles, that was no justification for regarding the
information which it contained as irrelevant or insufficiently “direct”. So far as the HKJC
Report relied on secondary sources, that meant, at the very least, that the information
needed to be reported internally and that further urgent investigations were necessary. The
response of the members of the legal, investigations and compliance teams of Star
Entertainment who read the HKJC Report represented, at the very least, a fundamental
failure to appreciate the seriousness of the issues and conclusions in that report.
252. The existence and contents of the HKJC Report were disclosed in the media in August
2019. Mr Bekier’s evidence was that he “asked around” for the report as soon as it was “in
the media”.
307
He said that he asked Mr Buchanan, who said he had a copy of the report
but was not at liberty to provide a copy “because it was IP of the Hong Kong Jockey
Club”.
308
According to Mr Bekier, Mr Buchanan did not disclose to him that he had
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provided a copy of the report to Ms Martin, Mr White and Mr Houlihan.
309
Nor did any of
those individuals, or Ms Arnott, inform Mr Bekier that they had as copy of the HKJC
Report.
310
253. In his email of 12 June 2019, Mr Buchanan had stated that “[g]iven the confidentiality of
the report, [he] would appreciate if the document is not distributed beyond this group”.
311
It may be that the group who received the HKJC Report at that time felt constrained not to
breach confidentiality or to disclose that they had received the report from Mr Buchanan.
254. However, even allowing for the fact that Mr Buchanan may not have been authorised to
distribute the HKJC Report to officers of Star Entertainment, the information contained in
the HKJC Report and the substance of the concerns and allegations about Suncity could
have been provided to a wider audience internally without breaching any obligation of
confidence or disclosing that a copy of the HKJC Report was held or had been provided by
Mr Buchanan.
255. One way or another, the information in the HKJC Report needed to be escalated within Star
Entertainment’s risk management systems and databases. Mr Bekier and the rest of the
directors of Star Entertainment needed to know the serious information contained in the
HKJC Report immediately, given the significance of Star Entertainment’s relationship with
Suncity, and to allow them to determine an appropriate response in light of the risks.
256. When Mr Bekier was asked whether he was aware that certain individuals at The Star and
Star Entertainment held a copy of the report by 12 June 2019, he visibly shook his head as
he gave his answers. Mr Bekier’s evidence was:
312
Q: And you’re aware now, aren’t you, that, in fact, Angus Buchanan, Paula
Martin, Kevin Houlihan and Oliver White held a copy of that report by 12
June 2019?
A: I’m aware of that now.
Q: Were you shaking your head then?
A: I’m agreeing with you, but I was – you know, I was aware of the report and
I was – I’m aware now that some of our people had access to the report. If
I was shaking my head, it was because, you know, I had been – I and others,
I know, had been trying to get that report.
Q: When were you first made aware of this report?
A: In the – that the report existed?
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Q: No. When were you first made aware that The Star, in fact, held a copy of
this report?
A: In my review of the court papers.
Q: You mean the papers before Mr Bell’s review?
A: Yes. Sorry. Those – yes, the papers in front of Mr Bell.
257. The fact that only a small group of officers and employees of Star Entertainment held a
copy of the HKJC Report in an “unofficial” capacity caused material problems with risk
management at The Star and Star Entertainment. It led to a siloing of important information
as to the probity of Suncity and Mr Chau as business associates of The Star. This meant
that senior leaders at The Star and Star Entertainment were not aware of important risks
which the business was taking by continuing to deal with Suncity and Mr Chau.
Chapter 13.9 Mr Buchanan and Mr Houlihan’s Trip to Hong Kong in July 2019
258. In July 2019, Mr Buchanan and Mr Houlihan travelled to Hong Kong.
313
Ms Martin
authorised the trip.
314
Mr Bekier also had to approve the trip.
315
259. On 17 July 2019, Mr Houlihan sent Ms Martin an email with a “general update” on the
Hong Kong trip and a meeting with the Hong Kong Jockey Club.
316
He commented on the
club’s access to intelligence and how it was “of great interest to what we need”.
260. Mr Buchanan prepared a document titled “Brief Synopsis of Hong Kong and Macau Based
Meetings” (Hong Kong Briefing Note).
317
The Hong Kong Briefing Note recorded that
on 16 July 2019, a meeting occurred with officers of the Hong Kong Jockey Club.
318
261. The Hong Kong Briefing Note also recorded that on 18 July 2019, a meeting took place
with the Australian Federal Police – Overseas Liaison.
319
There is the following
notation:
320
During the meeting, we discussed Suncity including their attempts to legitimise their
business and mask their criminal antecedents. It was apparent the Suncity group
continues to be of interest to the AFP both domestically and offshore.
262. Although Ms Martin could not recall if Mr Buchanan gave her a copy of the Hong Kong
Briefing Note and could not say if it was likely that she received a copy from Mr Buchanan,
Ms Martin agreed that it was most likely that Mr Buchanan “took me through” the Hong
Kong Briefing Note.
321
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263. The information which Mr Buchanan and Mr Houlihan obtained in Hong Kong in July
2019 and which was communicated to Ms Martin referred to the criminal connections of
Suncity and the continued interest of Australian law enforcement in its activities. This
information, in conjunction with the HKJC Report, should have emphasised that Suncity
was an unsuitable business associate for The Star and Star Entertainment and should also
have been communicated to the senior leadership of Star Entertainment.
Chapter 13.10 Media Allegations Concerning Suncity in 2019
264. On 27 July 2019, The Sydney Morning Herald and The Age published an article titled
“Gangsters, gamblers and Crown casino: How it all went wrong”.
322
The article listed
junkets with which Crown Resorts dealt, including Suncity.
323
Suncity was described as
“Macau’s biggest and most successful junket operator”.
324
265. On 28 July 2019, Channel 9 broadcast a story in the 60 Minutes program called “Crown
Unmasked”.
325
The program featured a segment on Suncity in which it was stated:
326
In a secret report obtained by us one of the world’s largest bookmakers the Hong
Kong Jockey Club reveals its own deep mistrust of Suncity which has always denied
any wrongdoing.
266. It was stated that the Hong Kong Jockey Club had “black banned” Suncity and this was
contrasted with the approach taken by Crown Resorts, which was said to have “rolled out
the red carpet”.
327
It was reported that Crown Resorts had paid Suncity “tens of millions
of dollars”, flown the junket’s VIP gamblers to Australia “on private jets”, helped Suncity
get visas for these individuals, and “providing the junket with its very own high roller room
at Crown Melbourne”.
328
267. On 16 August 2019, the Sydney Morning Herald and The Age published an article entitled
“Suncity to shut its Australian casino high-roller rooms after reports of crime links”.
329
The
article reported Suncity’s “retreat” from the Australian casino market. The article stated:
330
The world’s biggest recruiter of high-roller Chinese gamblers, Suncity, is
dramatically scaling back its Australian operations after revelations of its alleged
links to organised crime.
Star Entertainment, Australia’s second largest casino operator, on Friday said a
mutual decision had been reached with Suncity “in the last 10 days” to shut down
Suncity’s fixed high-roller room inside The Star's flagship Sydney casino.
And sources with knowledge of the situation have confirmed that Suncity’s fixed
high-roller room at the Crown casino in Melbourne’s Southbank will also be closing
as a result of the company's retreat.
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268. The article reported the following in relation to Suncity’s operations at The Star:
331
“The fixed room of Suncity will be discontinued here,” Mr Bekier said on Friday of
The Star casino. “They had a small fixed room. That room is being closed.”
Star’s announcement comes after Crown’s high-profile board of directors took out
public advertisements backing the company’s relationship with Suncity and other
junket operators.
The decision to shut down its fixed gaming salons and withdraw its staff follows
revelations by The Age, Sydney Morning Herald and 60 Minutes that the head of
Suncity, Alvin Chau, had been barred from entering Australia by the Department of
Home Affairs.
Mr Bekier would not comment on the extent to which Star, Australia's second-
biggest casino company, would continue to have dealings with Suncity following the
closure of the room.
When asked last week why The Star was still using Suncity, Bekier replied: “Why
not?”
“Suncity is the largest junket operator in the world and we work in a very prescribed
and lawful way with junkets that are credible and have been approved, in some states,
by the regulators.”
269. The article also made reference to the HKJC Report, stating:
332
Leaked reports from the Hong Kong Jockey Club obtained by The Age,
Sydney Morning Herald and 60 Minutes reveal club officials were briefed by
“Australian Law Enforcement” in May 2017 about their concerns about Suncity.
Among the concerns was suspected “large-scale money laundering activities”.
The report also states that “Suncity Group's controlling entities ... pose tangible
criminal and reputational risks to the [Hong Kong Jockey] club and indeed racing
integrity in Hong Kong.”
Suncity key personalities have demonstrated links to numerous triad societies and
organised crime figures, said the intelligence report.
270. The 16 August 2019 article is material to a number of issues before the Review:
The “fixed room of Suncity” referred to by the quotation attributed to Mr Bekier
was Salon 95.
There is no reference in the article to the fact that Suncity was to operate from a
new gaming salon, namely, Salon 82 (which is addressed later in this Chapter).
The report records Mr Bekier providing a response of “Why not?” to the question
of any continuing relationship with Suncity.
The article makes reference to the HKJC Report as a document containing
conclusions that Suncity was linked to organised crime.
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271. On 17 August 2019, Mr Peter Jenkins sent an email copying this article to Mr Bekier, Mr
Theodore, Ms Martin and Mr Hawkins.
333
Mr Bekier agreed that he made the comments
regarding the shutting down of the “fixed room” and that he made no mention of the fact
that Suncity had instead been allocated a new private gaming room.
334
His evidence was
that Salon 82 was not to have the “special privileges” of Salon 95, including no service
desk.
335
272. In relation to the “Why not?” comment regarding continuing to deal with Suncity, Mr
Bekier’s evidence was that this “[p]robably was not my finest moment”.
336
His explanation
for the comment was:
337
I was – you know, in 2019, I was in a world where I thought that we’re doing the
appropriate due diligence on Suncity. I was in a world where I believed that Suncity
was operating in a legal way with us and that we had good control over their
operations. And it’s on that basis that I said, “Well, it’s legal for us to operate with
these junkets. Why would we not do that?” Now, with what I know now, that looks
stupid.
Chapter 13.11 The Star’s Disclosures to the Board in response to the 2019
Media Allegations
273. Following the July 2019 media allegations, Star Entertainment’s management formed a
focus group of senior leaders from operational areas, finance, compliance, legal and
regulatory to monitor the media and assess unfolding information, update risk assessments
on areas of potential vulnerability, act on recommendations arising from a review of the
Crown allegations and coordinate responses to regulator inquiries.
338
274. On 29 July 2019, Ms Arnott, Mr Houlihan and Mr Brodie provided Ms Martin with a
summary of information relating to patrons and others adversely named in the media
reports.
339
Also on 29 July 2019, Mr Whytcross sent Mr Hawkins player profile summaries
of a number of people named in the media reports.
340
It was noted that Salon 95 had been
established in early 2018 “as a permanent area for Suncity patrons”.
341
A summary was
provided of Suncity revenue since FY15.
342
No reference was made to the various issues
of concern in Salon 95.
275. Ms Martin emailed Mr Brodie and Mr Whytcross, copying Ms Arnott, Mr Power, Mr
Houlihan and Mr Hawkins on 8 August 2019.
343
She stated that arising from the Board’s
Audit Committee meeting the previous day, the directors had requested that a paper be
presented to the Board regarding the media allegations, and that Mr Bekier would review
it prior to submission.
344
As Mr Sheppard explained in evidence, the Board wanted to
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understand whether the allegations levelled against Crown Resorts could also be levelled
against Star Entertainment.
345
276. On 12 August 2019, Mr Brodie emailed a draft board paper together with attachments to
Ms Martin advising that they had been prepared with the assistance of Ms Arnott and Mr
Whytcross.
346
Ms Martin forwarded this draft to Mr Power, Mr Houlihan and Mr White
on 13 August 2019 and said “I am doing substantive eds on the paper so probably best to
discuss with me before you do any substantive edits”.
347
Ms Martin sent a further draft of
the paper to Mr Hawkins on 14 August 2019, copying Mr Brodie, Mr Whytcross and Ms
Arnott, and wrote in the covering email:
348
Here is the proposed draft of the Board paper. Attachment 2 is still being finalised,
but will be a stripped back version of the detailed table prepared for your reference
ahead of the Board call on 30 July. (I have the pen on that currently.)
The initial draft was prepared by Micheil B and Michael W and I have added to the
background and streamlined some of the content.
Please let me know if you have any comments / concerns on the draft before we
finalise it this afternoon.
277. The board paper was tabled at the meeting on 15 August 2019, and Mr Hawkins and Ms
Martin spoke to it.
349
The paper commenced by referring to the focus group that had been
established, outlined the inquiries received by that date from regulators and advised on the
current status of Star Entertainment’s AML/CTF Program and risk framework review.
350
The paper identified a series of current key processes “which reduce risk in respect of
junkets” and stated that “[a]ll of the people adversely identified in the Crown allegations
(Attachment 2) are the subject of a risk rating review for the purposes of The Star’s
AML/CTF Program”.
351
278. The board paper also said that action areas as part of a risk mitigation plan associated with
the recently approved AML/CTF Program included enhanced procedures for reviewing and
approving new junket operators and representatives, as well as an updated AML/CTF risk
assessment of Suncity, including consideration of enhanced compliance assurance
procedures. The board paper identified that Suncity and Mr Simon Pan were both “junket
operators” who had been adversely named but with whom Star Entertainment continued to
deal.
279. The first attachment to the board paper summarised allegations made against Crown
Resorts and The Star. One allegation identified was that:
352
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Crown was wilfully blind to the criminal activity of key business partners.
Particularly Junket Operators. This included claims related to Hong Kong Jockey
Club ban on Suncity.
280. The key risk/vulnerability identified in relation to this allegation was:
Failure to identify and cease trading with criminals might expose a casino to
exploitation related to a range of criminal activity.
281. The existing process of The Star identified in relation to this allegation included:
353
– The Star has detailed cease to trade policies embedded in the AML/CTF
Program. These protocols see The Star considering banning people on a
monthly basis.
…
– Junket operator approval process includes criminal history checks and other
background checks in country.
282. There was no disclosure in the board paper of:
the fact that various members of senior management held a copy of the HKJC
Report and it contained serious adverse information about Mr Chau and Suncity
including that they were linked to organised crime and suspected of money
laundering;
that Mr Houlihan and Mr Buchanan had met with the Hong Kong Jockey Club and
the AFP in July 2019 in Hong Kong in relation to Mr Chau and Suncity and that
the AFP had confirmed that that Suncity and Mr Chau were of continuing interest
to it at that time;
the multiple incidents of concerning cash transactions in Salon 95 until at least in
or around June 2019 and suspicions of Suncity involvement in money laundering
at the casino;
Suncity’s repeated breaches of controls imposed by The Star in relation to Salon 95
and its lack of cooperation in The Star’s investigations;
the fact that the NSW Commissioner had excluded six people associated with
Suncity from the casino in July 2019, and there were criminal investigations on
foot;
354
and
that no risk assessment had been conducted of Suncity and Alvin Chau in light of
the media allegations.
355
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283. Ms Martin knew of each of the above matters as did various other senior managers who
helped prepare the board paper. Mr Hawkins was also aware of a number of these matters
although not that The Star held a copy of the HKJC Report. The clear impression with
which a reader would have been left upon reading the board paper and its annexures was
that there was no problem with The Star or Star Entertainment continuing to deal with
Suncity and Mr Chau.
284. The minutes of the 15 August 2019 board meeting do not suggest that any further
information relevant to the risks of continuing to deal with Suncity or Mr Chau was
conveyed by management at the meeting. The minutes record:
356
Management spoke in particular to the corporate history of Suncity, specific
allegations made in relation to them, and the changes that Suncity is making in
relation to their business across Australian jurisdictions.
285. Mr Sheppard said that the failure to disclose that senior managers had a copy of the HKJC
Report was a material omission.
357
Mr Heap also said that matter should have been
disclosed to the Board.
358
Mr Sheppard considered this to be a failure of the risk
management framework.
359
Mr Sheppard said material information was missing from the
board paper and that it failed to equip the Board to understand whether there were problems
at The Star similar to those that the media reports alleged existed at Crown Resorts.
360
286. The Star Entities accepted in closing submissions that it was a matter of very serious
concern that not one of the people at the board meeting who was in possession of the HKJC
Report made that fact known to the Board when it sought a briefing in relation to the media
allegations.
361
That is clearly correct.
287. Ms Martin said in evidence that she did “not necessarily” think it would have been useful
for the Board to know that The Star held the HKJC Report.
362
Ms Martin did not agree that
the omission of the facts of Mr Houlihan and Mr Buchanan visiting the Hong Kong Jockey
Club and their discussions with the AFP about Suncity and Mr Chau in June 2019 meant
that the Board was not briefed with important information about the allegations insofar as
they related to Suncity and Mr Chau.
363
Ms Martin’s evidence on this issue is discussed in
Chapter 26.
288. Ms Arnott, who at that time was the Group Manager AML/CTF and Financial Crime, saw
a draft of the board paper and had the opportunity to comment upon it.
364
Ms Arnott agreed
in evidence that the Board was not provided with all information relevant to assessing the
probity of Suncity and Mr Chau.
365
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289. The Star Entities described the 15 October 2019 board paper as “distinctly misleading”.
366
Irrespective of senior managers’ subjective intent in that regard, this was undoubtedly the
outcome.
290. On 15 October 2019, further allegations were made about Crown Resorts in the media
including CCTV footage depicting very large amounts of cash being brought into the
Suncity room at Crown Melbourne in an Aldi shopping bag.
367
Dr Pitkin gave evidence
that the CCTV footage was discussed at a board meeting and that she had a “very clear
recollection of the Board hearing from Mr Hawkins in detail on, particularly, allegations
around the fixed room and Suncity at Crown”.
368
Dr Pitkin said:
369
So the board was very concerned to understand whether what appeared in that CCTV
footage, which was cash in a fixed room in exchange for chips – was that happening
at Star? And the board was assured a number of things: firstly, that it wasn't;
secondly, that that couldn't happen at Star because all cash transactions occurred at
The Star cage and all of the junket players – AML and CTF procedures under our
program were followed.
And I recall Mr Hawkins talking to the differences in the regulatory regimes between
Victoria and Sydney. I also recall Mr Hawkins saying that this wasn’t a reflection on
Suncity as a whole and that it was most likely, you know, not only the differences in
the regulatory regime where cash transactions could happen in a salon in Crown, but
also that if anything had been done in breach of the Crown licence, it was most likely
an inappropriate junket representative rather than it being a reflection on Suncity as
a group.
291. Dr Pitkin said that she was misled and felt that conduct was hidden from the Board.
370
Likewise, Ms Lahey gave evidence that upon raising this footage at a board meeting Mr
Bekier gave assurances that such conduct was not occurring at The Star.
371
She feels she
was misled.
372
292. On 24 September 2019, Ms Arnott provided a report to the Board’s Risk and Compliance
Committee entitled “Anti-Money Laundering/Counter Terrorism Financing Program
Update”.
373
By this time, in addition to Ms Arnott’s other duties, she was the AML/CTF
Compliance Officer, and accordingly had a role in bringing to the attention of the Board
any non-compliances with the AML/CTF program.
293. Ms Arnott’s paper referred to the media allegations and the 15 August 2019 board paper.
Ms Arnott wrote:
374
The Star has reviewed the junket operators and customers referred in the media for
relevance. Action has been taken where necessary to manage risk associated with
individual customers.
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294. No mention was made of the fact that Suncity was operating in Salon 82 (as addressed later
in this Chapter) or of the multiple concerns held in relation to Suncity by that time.
295. Ms Arnott agreed that by this time she considered that transactions had taken place in Salon
95 which were indicative of money laundering.
375
She said she did not refer to this in the
paper because Salon 95 had been closed,
376
and she thought it had been reported to the
Board through “other channels” but could not be sure one way or the other.
377
In retrospect,
Ms Arnott accepted that she should have reported these matters to the Board.
378
Chapter 13.12 The Star’s Disclosures to the Authority in response to the 2019
Media Allegations
296. On 29 July 2019, L&GNSW wrote to The Star noting that the media reports questioned the
suitability and conduct of some junket operators and their representatives.
379
The letter
stated:
380
I am writing to request that The Star undertakes a risk assessment of its practices and
procedures which mitigate against the types of issues raised in the media reports, and
reports the findings to Liquor & Gaming NSW. Specifically, I request that the Star
details what steps it takes to ensure that only suitable operators and representatives
operate junkets in its casinos.
I also request that The Star reviews any current associations or arrangements with
junket operators or related individuals to ensure the suitability of any existing
relationships.
297. Clearly enough, L&GNSW appears to have been concerned to establish the suitability of
the junkets with which The Star dealt and any risks they may present.
298. On 31 July 2019, Mr Power emailed L&GNSW in response to its 29 July 2019 letter,
requesting that a meeting take place.
381
He wrote: “[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”.
382
No mention was made of recent incidents
involving Suncity and Salon 95.
299. By letter dated 8 August 2019, L&GNSW replied to Mr Power, stating that:
383
[A]s a more immediate action I seek your response particularly in relation to those
specific individuals and entities that have been named in recent media reports
stemming from the ‘Crown Unmasked’ joint investigation by 60 Minutes, The Age
and the Sydney Morning Herald.
Liquor & Gaming NSW seeks to understand what, if any, ongoing association the
Star has with those named individuals or entities, and what, if any, ongoing risks
may arise as a result of ongoing associations.
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…
I now request more specific information relating to the entities and individuals
named in the media reports. For this purpose I have attached a list of names at
Annexure 1.
Specifically, I request that The Star:
• Advises whether any of the entities or individuals listed at Annexure 1 are
or have been authorised as Junket Operators, Promoters or Representatives
with The Star.
• Advises what, if any, steps have been taken to mitigate ongoing risk relating
to individuals or entities listed at Annexure 1 that are authorised as Junket
Operators, Promoters or Representatives with The Star.
• Advises whether any of the individuals listed at Annexure 1 have attended
The Star as a participant in a junket arrangement.
• Advises of what, if any, steps have been taken to mitigate ongoing risk
relating to individuals listed at Annexure 1 who have attended the Star as a
participant of a junket arrangement.
• Details its current investigation and assessment criteria for the authorisation
of Junket Operators, Promoters or Representatives and Junket participants.
• Details its current approach to ongoing monitoring of authorised Junket
Operators, Promoters or Representatives and Junket participants.
• Details its risk rating methodology used for ongoing due diligence checks
on authorised Junket Operators, Promoters or Representatives and Junket
participants.
• Provides a copy of its updated AML Program.
300. Annexure 1 relevantly identified Suncity (and its subsidiaries) as well as Mr Chau.
301. It took around one month for Star Entertainment to respond to L&GNSW’s inquiries and
on 6 September 2019, Ms Natasha Mann from L&GNSW emailed Mr Power seeking
advice on when a response would be provided.
384
Mr Power replied the same day advising
that a response would be provided the following week.
385
302. On 10 September 2019, Mr Power signed a letter in response on behalf of The Star (10
September letter).
386
Although the letter was signed by Mr Power the draft response had
been widely circulated within management ranks and had been approved at the highest
levels of management. The 10 September letter commenced by noting:
387
The Star Entertainment Group (The Star) is a top 100 ASX listed company with a
strong culture of compliance, a record of self-reporting and a proactive strategy for
engagement with regulatory authorities and law enforcement agencies.
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303. In answer to question 1, the 10 September letter stated that Suncity was not a junket
operator or promoter at The Star but had a “relationship” with junket operator Mr Iek. The
letter also stated that Mr Chau was not a junket promoter or representative and had not
engaged in premium or junket play at The Star. However, the 10 September letter noted
that Mr Chau held the CCF which funded Mr Iek’s junkets and was the CEO of Suncity.
304. Question 2 had asked what, if any, steps had been taken to mitigate ongoing risk relating
to individuals or entities listed at Annexure 1 that were authorised as Junket operators,
promoters or representatives. In this respect, the 10 September letter made no mention of
Mr Chau, Suncity or any of the steps that had been taken to manage Suncity in relation to
the operation of Salon 95. Technically, they were not operators, promoters or
representatives. Moreover, the 10 September letter made no mention at all of any of the
events of concern in or connected to Salon 95 or that the NSW Police Commissioner had
excluded a number of persons associated with Suncity, and that criminal investigations
were afoot.
388
305. The 10 September letter adopted a highly technical approach. Because L&GNSW had
asked a question specifically about junket promoters and representatives, and Mr Chau and
Suncity did not fit those descriptors, the 10 September letter made no mention of them.
This was despite the fact that it was well understood within The Star, and was noted in the
10 September letter, that Mr Chau was the funder of the Suncity junket. As The Star Entities
conceded, the response was “narrow, technical and inappropriate”.
389
It was highly
inappropriate for a casino operator to adopt such a narrow and technical approach to
answering the inquiries of the regulator.
306. However, the 10 September letter went further than that. It was misleading. A document
may be misleading through express words, silence or implication. Representations must
be understood in their complete context. Conduct is misleading if it has “a tendency to lead
into error”.
390
It was abundantly clear that L&GNSW was concerned about the suitability
of The Star’s business partners, including Suncity, and was concerned to ensure that The
Star was taking appropriate risk management steps. Fairly read in the context of the 29
July 2019 and 10 August 2019 requests, a reasonable person in the position of the regulator
would be misled into thinking it need not be concerned with The Star’s association with
Mr Chau and Suncity. Mr Power agreed in evidence that it was “pretty clear” that
L&GNSW wanted to understand what ongoing risks might arise as a result of ongoing
associations with Mr Chau and Suncity.
391
The 10 September letter stands in stark contrast
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
to Mr Power’s 15 May 2018 email to Mr Hawkins that the conduct of the junket with which
they were associated had exposed The Star to an unacceptable level of risk,
392
as well as
his admitted discomfort about the activities of Suncity in Salon 95 at the time of the
response.
393
307. A number of people were involved in the preparation of the 10 September letter. On 14
August 2019, Mr Power emailed Mr Houlihan, Ms Arnott and Mr White a draft response,
stating:
394
This response is still needing some work, in particular, those areas highlighted green.
Please provide any changes in mark-up and distribute to the group for discussion.
@Skye Arnott, I would appreciate any assistance you can give us, but in particular
can you please focus your contribution to telling our story in the final 2 questions
about risk ratings and the new program.
308. Ms Arnott emailed back to Mr Power her contributions to the draft on 16 August 2019,
395
which related to providing details of AML/CTF processes at Star Entertainment.
396
On 19
August 2019, Mr Power forwarded this email to Mr White.
397
In response, Mr White made
substantial amendments and added some questions.
398
Later on 19 August 2019, Mr Power
circulated the latest draft to Mr Stevens and Mr Brodie, copying Ms Arnott and Mr White.
He said they would meet shortly to discuss the draft and, in the meantime, welcomed their
comments.
399
309. On 27 August 2019, Mr Power circulated a further draft to Ms Arnott, Mr White, Mr
Stevens, Mr Houlihan and Mr Brodie, and requesting that they add any further information
or clarifications.
400
On 27 August 2019, Mr David Smart, the Cashier Services Manager,
provided some additional information in relation to named individuals, and following from
that Mr Power requested a meeting to finalise the answers and expressed concern that some
information he was receiving was “conflicting”.
401
On 6 September 2019, Ms Arnott
emailed Mr Power some further amendments relating to AML/CTF processes.
402
310. Documents show that both Mr Bekier and Ms Martin approved the letter before it was sent.
The Review was only made aware of the existence of these documents when Mr Power
referred to them in his written closing submissions. The documents show that on 7
September 2019, Mr Power emailed a draft to Ms Martin advising that he was being
“chased” for a response, requested any feedback, suggested changes or corrections and
asked whether he should circulate the draft to anyone else internally.
403
Ms Martin replied
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by email on 9 September 2019, copying in Mr Hawkins, Mr Jenkins, Ms Arnott, Mr
Houlihan, Mr Brodie and Mr Stevens. Ms Martin wrote:
404
This response looks comprehensive to me and is well-positioned in the first section.
I have a couple of minor points to run by you, and will give you a call around
lunchtime to discuss.
Given the Board focus on this correspondence from L&GNSW, I think that the draft should
be provided to Matt for review before it is submitted.
311. It is not known what feedback Ms Martin gave to Mr Power. In oral evidence, Ms Martin
said she had no recollection of reviewing Mr Power’s letter before it was sent.
405
The
emails noted above show that she did in fact do so. Further, by the time of reviewing the
draft response Ms Martin was aware of significant problems relating to Salon 95 and
Suncity, and had also been provided with the HKJC Report by Mr Buchanan.
312. As suggested by Ms Martin, on 9 September 2019 Mr Power emailed a draft to Mr Bekier
and copied Ms Martin, Ms Arnott, Mr Stevens, Mr Houlihan, Mr White and Mr Brodie. Mr
Power stated that the letter “has been reviewed internally but given the subject matter, we
were wanting your comments before sending it off”.
406
Mr Bekier replied (copying in the
same group of people) stating:
407
Thank you, this is fine with me. It reads well.
Paula, we [should] put this correspondence in the appropriate section of the Board
portal and provide a verbal update at the Board.
313. It is unknown whether the letter was placed in the Board portal and whether a verbal update
was provided to the Board.
314. By letter dated 5 August 2022 the Review invited any further submissions from The Star
Entities, Mr Bekier and Ms Martin in relation to the documents and the 10 September letter
to L&GNSW.
315. The following response was received from The Star Entities:
408
From the documents referred to in your letter and above, it appears that Ms Martin
received at least two drafts of the response, and discussed the response with Mr
Power on at least two occasions. Ms Martin was asked for “feedback about the
proposed approach” over a week before the response was sent. The correspondence
was self-evidently important, as indicated by Ms Martin’s reference to “Board focus”
and her suggestion that the response be shared with Mr Bekier before being sent. …
Ms Martin was familiar with a number of important matters concerning Suncity. In
those circumstances, The Star and TSEG submit that that Ms Martin can fairly be
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
described as one of the staff responsible for the approach adopted by the 10
September 2019 response, albeit that she was not its principal author.
As for Mr Bekier, he approved the response a little over an hour after receiving it.
The email sent to him by Mr Power suggests that he had not been shown any prior
draft or asked to comment on the proposed approach. Mr Bekier had less familiarity
than Ms Martin with matters concerning Suncity. In those circumstances, while Mr
Bekier approved the response, The Star and TSEG make no submission that he could
fairly be criticised for its narrow, technical and inappropriate nature.
316. Mr Bekier’s submissions were to a similar effect in relation to his conduct.
409
317. Ms Martin’s submissions, by contrast, were at pains to note that these matters had not been
put to her and that “Ms Martin has not been afforded an opportunity to provide any further
evidence in relation to the 7 to 9 September 2019 email chains referred to in the Power
Submissions”.
410
That was the very point of communicating the materials to Ms Martin on
5 August 2022. Ms Martin’s submissions did not identify any further evidence which she
wished to provide or why there might otherwise be unfairness. Ms Martin submitted of the
10 September letter that there was nothing “actually incorrect in its contents”.
411
318. The Star Entities’ submissions concerning the conclusions which should be drawn about
the involvement of Mr Bekier and Ms Martin in the 10 September letter are accepted.
Chapter 13.13 Suncity moves to Salon 82
13.13.1 No updated risk assessment
319. By 21 August 2019 Star Entertainment had decided to continue the business relationship
with Suncity with an “improvement team” to oversee the relationship.
412
In an “Agreed
Tasks” document of that date,
413
Ms Arnott was tasked with performing a risk assessment
(the target date was originally recorded as December 2019, but was amended to March
2020), cash buy-in control (the target date was November 2019, but recorded as
completed), customer source of wealth improvement (the target date was November 2019,
and had been partly completed), and improving OCDD and ECDD source data (the target
date was December 2019).
320. Despite the cage operations conducted by Suncity at The Star in 2018, the two warning
letters sent in 2018, the concerning cash transactions which were observed to be continuing
to occur in May and June 2019, the HKJC Report held by a number of senior officers in
risk, legal, compliance and investigation areas, the intelligence received from the AFP in
July 2019, the arrests in NSW of several people associated with Salon 95, the media
allegations concerning Suncity in July and August 2019 and the concerns expressed by the
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Authority in correspondence in July and August 2019, no updated risk assessment of
dealing with the Suncity junket had been conducted by The Star or Star Entertainment since
the initial inadequate risk assessment in April 2018.
321. Despite the tasks allocated to Ms Arnott on 21 August 2019 no further risk assessment was
conducted by The Star or Star Entertainment on Suncity or Mr Chau until Mr Buchanan’s
due diligence reports began to evolve in October 2020. Those reports are discussed later
in this Chapter.
322. The failure of The Star Entities to conduct any further risk assessment of Suncity and Mr
Chau by at least the second half of 2019 in light of the knowledge then held by the risk,
legal, compliance and investigations teams is inexcusable and wholly inconsistent with the
casino operator’s obligations to manage the risks of criminal infiltration and money
laundering.
323. Ms Martin was examined on whether she was aware of any risk assessment having been
completed on Suncity and Mr Chau in the second half of 2019. Ms Martin’s evidence was
difficult to understand:
414
My recollection is that there was a risk assessment on different aspects - I'm not
trying to be difficult, but there was a risk assessment on their operations - is my
recollection - including a salon. And then there was another reference to due
diligence on them as well. So there was a list of activities, some of which related to
risk assessments.
…
So I'm aware of some assessments that were completed against information on
Suncity and Alvin Chau from the interactions Mr Buchanan and the AML team and
Mr Houlihan had on some of the information. So I am referring to those as updated
assessments or due diligence in the form of enhanced customer due diligence that
were initial steps. There was then later and separately - and I'm not sure it was
completed in 2019 - further due diligence. We were --
324. The Star Entities acknowledged that Ms Martin could not give an explanation for why a
risk assessment “did not occur as a matter of urgency” by July 2019.
415
325. A call was made during Ms Martin’s examination for any risk assessment performed on
Suncity and Mr Chau in the second half of 2019. No documents were produced.
416
13.13.2 Suncity moves from Salon 95 to Salon 82: September 2019
326. Instead of performing a risk assessment, in early September 2019 The Star moved Suncity
to a new private gaming salon called “Salon 82”. The new salon was located in the
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“Sovereign Lakes VIP area” on level 17 of The Star Grand.
417
In Salon 82, Suncity did not
have a service desk or fixed signage but it was able to display the Suncity logo from TV
monitors.
418
327. According to Mr Hawkins, from the time that Suncity commenced using Salon 82 to March
2020, “there were no other premium players or junket groups who used Salon 82 during
this time”.
419
Mr Hawkins was not aware of any compliance issues with Salon 82.
420
328. On 13 August 2019, Mr Lim had sent Mr Hawkins the following email with the subject
“Sun city arrangements” (copied to Mr Whytcross, Ms Heidi Huang and Ms Silvia Mui)
stating:
421
By way of final confirmation.
1) will exit the fixed room on their own accord.
2) business will carry on as usual like every other junkets
Silvia and myself have convened with Alvin and our relationship is still good and
business will not be impacted. I have stated to having the exiting deal remain with a
3 months review which is October.
We have managed to de risk ourselves while maintaining a good relationship to
ensure the business is not impacted.
Heidi, we shall remove their logos off of the room by the end of this month latest.
Please work with Silvia for details. Facilities must take this as priority once the date
is confirmed.
Thank you all, this is a good outcome.
329. On 29 August 2019, Ms Mui sent an email to Mr Lim and Ms Heidi Huang (copying others)
titled “Macau Suncity Meeting 28/8”. The email included:
422
I just had a meeting with Suncity today with Alan Iek and Sandra Cheong, who are
the senior representatives of Suncity.
We indicated that from September 1st, we will move their fixed room (Salon 95) to
a Salon in Lakes 17th. After we allocate a new Salon for Suncity, Johnny Hui will
take pictures of new Salon for Mr. Alvin Chau to be notify.
I have also stated that we hope there will be no brand logo in the new Salon and
suggested that they can put it on the TV screen, or put the brand ads like a name sign
on the tables, and also being advise not to wear any company badges on staffs
uniforms as well.
330. After the exchange of further emails, Ms Mui circulated the following email dated 30
August 2018 to the same individuals summarising the agreement with Suncity regarding
the closure of Salon 95 and the new Salon 82:
423
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Here is the conclusion of Suncity, notified by Mr. Alvin Chau.
1. Effective from 1/ Sept 00:00, Salon 95 will officially move to Salon 82, and Salon
95 will return to us immediate.
2. Salon 82 will not have signage of SC, but will put TV screens on.
3. They will fill up Salon with branded amenities like ash trays and lighters.
4. If in needs, we will assign extra Salon for them for special VIPs
5. If there are no guest, shall discuss with Ops team about closing tables.
6. SC staffs was approved not to wear badges while on shift.
7. Complimentary room for SC (RM#810), they wish to request one more room.
8. Settlement SOP stays the same as it was.
9. Since TT funds from Macau to Australia is not as smooth and easy as it was, so in
future for SC paying outstanding funds, maybe we have to collect money from their
Macau JK cage.
10. The key contact person for Australia business of SC is —[named person].
331. Ms Arnott was asked about the risks of dealing with Suncity in Salon 95:
424
Q: Isn’t it right that in 2019, the operations of Salon 95 were extremely high
risk, from a money laundering perspective?
A: They were certainly high risk. I - having not done the risk assessment in
relation to that, I - yes, they are - they were high risk.
Q: And isn’t it right that on the information available to you in 2019, you could
have no confidence at all that Suncity was complying with the controls that
had been imposed by Star Entertainment?
A: No, but when - no.
Q: So you agree with me?
A: I agree that they weren't complying with the controls in 2019. No.
Q: And you could have no confidence that they were capable of complying?
A: With those controls? No.
332. No doubt there was a perception at The Star and Star Entertainment that the risk exposure
of continuing the relationship with the Suncity as at August or September 2019 was reduced
due to the cessation of the service desk arrangement in Salon 95 and the move to Salon 82.
However, the circumstances dictated that the casino operator needed to rigorously assess
the propriety of continuing any business relationship with Suncity at that point.
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333. Mr Bekier was asked about his comment “Why not?” recorded in The Sydney Morning
Herald and The Age in response to being asked whether The Star would still be “using”
Suncity. Mr Bekier explained in his evidence that he made the comment on the assumption
that appropriate due diligence had been performed regarding Suncity.
425
That assumption
was incorrect.
Chapter 13.14 Relevant Evidence given to the Bergin Inquiry
334. The Bergin Inquiry commenced on 14 August 2019. The Bergin Inquiry was not concerned
with The Star, as the sole existing casino licensee in NSW at the time. That inquiry was
solely focused upon Crown Sydney and its parent company, Crown Resorts. However, two
employees from The Star gave evidence to Commissioner Bergin SC during the public
hearings. Ms Arnott gave evidence on 3 and 6 August 2020,
426
and Mr Hawkins gave
evidence on 4 August 2020.
427
Both witnesses had also provided witness statements to the
Bergin Inquiry.
13.14.1 Mr Hawkins’ evidence before the Bergin Inquiry: 4 August 2020
335. On 4 August 2020, Mr Hawkins’ evidence related to the IRB at The Star. Mr Hawkins was
asked questions in relation to Salon 95. Mr Hawkins gave the following evidence in
relation to whether any cage was operated in Salon 95:
428
Q: Did Suncity staff operate their own cash desk in the Suncity Room?
A: No, they didn’t operate a cash desk; they operated what we call a service
desk.
Q: And at that service desk could cash be exchanged for chips with Suncity
staff?
A: I think they would perform some of what we call the rolling of the non-
negotiable chips may have occurred there, but I expect there wouldn’t have
been cash to chip exchanges happening that desk.
…
Q: [Was] the understanding of Star, if you can speak to that, was that cash
transactions should not occur at that service desk?
A: Yes, that would be right. The service desk was there to assist with general
service of the customers that Suncity may have had playing on various
programs.
Q: Was there – just so we can understand more about the Suncity service desk,
what exactly – what activity was conducted there?
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A: They would – for example, it could be managing tourism-related
experiences for their customers. It could be used to facilitate transportation
arrangements for customers who are in the room. It could be used as a point
for any of the customers who may be visiting Australia for the first time to
interact with one of the staff there to assist them with their guest experience.
…
Q: And that we now know depicted somebody depositing from an Aldi cooler
bag very large bundles of cash on to the Suncity service desk at Crown
Melbourne. Now, that particular activity, could that ever have happened at
the Suncity desk at the Star in Sydney?
A: I would expect not. If it were to occur or the presentation of cash were to
occur there that would be directed to the satellite cage or immediately
picked up by a surveillance team and reported as a suspicious transaction.
Q: I was just going to ask you why wasn’t it appropriate for that kind of activity
to occur at the Suncity desk?
A: Because the desk was established as a service desk, not for a front money
or transaction desk for funds.
336. During his examination before this Review, Mr Hawkins was taken to his evidence before
the Bergin Inquiry.
429
It was suggested to Mr Hawkins that the evidence he gave to the
Bergin Inquiry “was not correct”.
430
Mr Hawkins said: “It was certainly what I recalled at
the time of that questioning”.
431
It was drawn to Mr Hawkins’ attention that at time of
giving evidence before the Bergin Inquiry, he had issued two warning letters to Suncity
“telling them not to engage in cash transactions at the service desk”, which Mr Hawkins
agreed that he had.
432
It was also drawn to Mr Hawkins’ attention that the Service Desk
SOP had been provided to Suncity “that said they could engage in some cash transactions
at the service desk”.
433
Mr Hawkins agreed with that proposition.
434
337. Mr Hawkins then gave the following evidence:
435
Q: Well, you must have known that these answers you gave to Commissioner
Bergin were wrong at the time you gave them?
A: No, that’s not right. I mean, my response to your questions at the time was
what I recalled. I think the witness – the statement that I provided didn’t
specifically cover off any of this questioning. So at the time that you were
providing those questions to me, that is what I recall at that stage.
Q: And, in fact, in between the period when you sent the first warning letter
and the second warning letter to Suncity, the general counsel at Star Sydney,
Andrew Power, had advised you there was an unacceptable risk occurring
in Salon 95, hadn't he?
A: Yes. He had sent that letter, yes.
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Q: So it was clear to you at the time you gave your evidence to Commissioner
Bergin that there had, in fact, been a significant problem with cash
transactions in Salon 95; correct?
A: I accept that that had occurred. But at – at the time, in wanting to respond
without having had prepared for it, I just could not – I didn’t recall that at
the stage. And I recall there was some other interjection occurring at the
time when I was giving the responses, but –
Q: Did you set out to mislead Commissioner Bergin in the evidence you gave
that day to that inquiry?
A: No, absolutely not.
13.14.2 The correctness of Mr Hawkins’ answers to the Bergin Inquiry
338. In evidence before Commissioner Bergin SC Mr Hawkins was directly asked about three
matters pertaining to Salon 95 to the effect of:
436
first, whether cash could be exchanged for chips with Suncity staff;
second, what exactly was conducted at the Suncity service desk; and
third, whether the activity recorded at Crown involving the Aldi cooler bag could
ever have happened at the Suncity desk at The Star Casino.
339. Mr Hawkins’ answers to each of the above questions was:
437
first, Suncity would perform some rolling of the non-negotiable chips but there
would not have been cash to chip exchanges happening that desk;
second, the Suncity service desk could be managing tourism-related experiences
for their customers, facilitate transport, and similar; and
third, that Mr Hawkins would expect that the activity recorded at Crown involving
the Aldi cooler bag could never have happened at the Suncity desk at The Star
Casino.
340. Each of those answers was incorrect.
341. As to the first answer, there were ongoing cash for chip transactions occurring at the service
desk in Salon 95 between April and May in 2018. Mr Hawkins knew of that fact. He had
sent two warning letters, the first on 10 May 2018 and the second on 5 June 2018, to
Suncity.
438
The first warning letter specifically stated that the exchange of cash for chips
was prohibited. The second warning letter did not make express reference to cash for chip
transactions.
439
However, the second letter was sent because the conduct which caused the
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first warning letter to be sent and the Service Desk SOP to be provided to Suncity was
subsisting. Further, on 15 May 2018, Mr Power’s advice to Mr Hawkins had stated:
440
Legal and Regulatory Risks: In my opinion, the junket group’s conduct has
exposed The Star to an unacceptable level of risk and constitutes a breach of the
agreement, of applicable laws or otherwise amounts to casino operations. In
particular –
1. Cash for chip (and vice versa) transactions taking place at the service desk;
2. Withdrawal of cash (terms unknown) by non-junket participants at the service
desk and other locations (including retail).
342. As to the second answer, the service desk’s purpose was not solely limited to “managing
tourism-related experiences for their customers”. Mr Hawkins was asked what “exactly”
went on at the service desk and his answer was incorrect in suggesting that only guest
experience-type interactions took place. The service desk window was utilised by Suncity
staff to receive and provide cash and chips to patrons. While it may well have also had
other purposes that were connected with the customer “experience”, a purpose, about which
Commissioner Bergin SC should have been informed in Mr Hawkins’ evidence was that
the Service Desk SOP specifically permitted cash transactions at the service desk. In fact,
at least between late April and late May 2018, though unauthorised by The Star, the service
desk engaged in cage functions.
343. As to the third answer, there were numerous cash transactions involving large amounts of
cash occurring at the service desk in Salon 95. Indeed, several CCTV footage excerpts
were played during the public hearings during this Review depicting bags of cash being
dropped off at the service desk and then counted by Suncity staff. Mr Power directly raised
the issue of large quantities of cash being distributed through the service desk in his email
of 15 May 2018 to Mr Hawkins. The email relevantly stated:
441
Equally, concerns are also held around –
1. Reporting requirements arising from the services offered and compliance with
AML reporting requirements
2. source of funds and presentation of large quantities of cash into salon 95
3. Retention of documents relating to transactions
4. Reports by other junket groups that large quantities of cash had been sourced from
the “Suncity Group” (presumed to be the IEK junket).
344. Mr Hawkins’ third answer is contradicted by Mr Power’s email. Large quantities of cash
had been deposited into Salon 95.
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13.14.3 Mr Hawkins’ explanation for his evidence to the Bergin Inquiry
345. Mr Hawkins gave the following evidence to the Review as his explanation for his evidence
before Commissioner Bergin SC:
442
Q: Mr Hawkins, are you asking me to accept that when you gave this evidence
to Commissioner Bergin SC in 2020, you had forgotten that there had been
cash for chips exchanges occurring at the Suncity desk in 2018 and large
cash transactions occurring in both 2018 and 2019?
A: Mr Bell, I’m – I’m asking you to accept that at that time, I had been
particularly focused on the statement I’d prepared, which didn’t include this
line of questioning. And my responses then, this was the best of my
recollection. I accept that I clearly was aware of other matters. But at that
point in time, that's what I could recall.
Q: You hadn’t forgotten those matters, had you?
A: I certainly didn’t recall them specifically at the time of this. I hadn’t
researched and improved my level of understanding in terms of responding
to those questions at the time.
Q: So you are asking me to accept, aren’t you, that at the time you gave this
evidence to Commissioner Bergin in 2020, you had forgotten the cash for
chip exchanges that had occurred at the Suncity desk in 2018 and the large
cash transactions that had occurred there in 2018 and 2019; is that the case?
A: I’m asking you to accept that the – the cash for chip transactions, I didn’t
recall at the time. And as guided previously, I was only at the time aware –
now I know of one cash transaction in the room. I wasn’t aware of those
others. I only became aware of that over the last few months.
Q: And are you asking me to accept that you had forgotten that you had issued
two warning letters to Suncity for serious breaches of protocols and
procedures?
A: At the time I was responding to that, I – I didn’t recall that and apply it to
that scenario. So I accept – accept that.
Q: How could you have forgotten those matters, Mr Hawkins, at the time you
gave your evidence on oath to Commissioner Bergin?
A: I think at the time, as I said, I wasn’t necessarily prepared for this line of
questioning. I had been focused on other matters that I was expected to be
asked about. So I hadn’t reviewed or been prepared in any way for those
matters that occurred a couple of years prior.
13.14.4 Conclusions concerning Mr Hawkins’ evidence to the Bergin Inquiry
346. Counsel Assisting made the following submission
443
:
We submit that evidence that Mr Hawkins gave to the Bergin Inquiry, which was
drawn to his attention on day 25, is of considerable concern and that he did not have
a good answer to that when it was put to him. We do submit that he gave false
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evidence to the Bergin Inquiry in relation to not being aware of cash transactions of
concern happening there and, in that regard, we refer to the transcript at day 25 at
page 2807 to 2809
347. In written submissions, counsel for Mr Hawkins submitted that Mr Hawkins’ failure to
refer to issues in evidence to the Bergin Inquiry which had arisen in relation to Suncity was
in no way false or a deliberate attempt to mislead or obscure the truth.
444
This was for three
reasons:
445
Mr Hawkins understood what was sought from him as part of the Bergin Inquiry
was to provide context of the way The Star, as a comparable casino to Crown,
operated at a general level. He did not expect to be required to give evidence on
specific and more granular aspects of The Star’s operations;
Mr Hawkins therefore reasonably focused his preparations for his evidence to the
Bergin Inquiry by reference to proposed topics provided by the Solicitors Assisting
that inquiry. He did not seek to refresh his memory on any other matters; and
Commissioner Bergin SC recognised that Mr Hawkins had not been properly put
on notice of questions in relation to specific matters at The Star and specifically
stated that Mr Hawkins would not be at risk of any adverse comment without such
notice.
348. In relation to the third matter, counsel for Mr Hawkins pointed to the following exchange
between counsel for The Star and Commissioner Bergin SC when Counsel Assisting sought
to revisit questions about the service desk for Suncity:
446
MS RICHARDSON: Sorry. There is also a procedural aspect – a procedural fairness
issue with these questions, in my submission, in circumstances where the Star has
been given specific notice about the subject areas of questioning of these witnesses
and he is now being asked very specific questions about specific customers in
specific rooms, and I apprehend if he doesn’t know the answer to a question, that
might be the subject of adverse suggestion when these witnesses have come along to
answer questions about identified separate subject areas.
COMMISSIONER BERGIN: I think there was notification certainly to Star that the
subject of junkets would be explored. There’s no doubt about that. That is
irrespective of what was covered in the detail of his submission, but he can be asked
this question and I think your point – have I understood you correctly, you’re
concerned about adverse – was it adverse comment that you said?
MS RICHARDSON: Well, in the sense that if the witness doesn’t know the answer
to a particular question, which is in a subject area about which we’ve not had notice
would be the subject of questioning, in circumstances where we were given specific
notice that certain other identified topics, all of which relate to matters at a level of
generality, would be dealt with.
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COMMISSIONER BERGIN : Yes. No, certainly, Mr Hawkins will not be at risk,
neither will Star, of any adverse comment without notice of information to be
provided and answered, so fear not, Ms Richardson.
349. Mr Hawkins’ evidence to the Bergin Inquiry was objectively incorrect. However to find
that Mr Hawkins may have given deliberately false evidence to Commissioner Bergin SC,
which would be a basis to refer the matter to a law enforcement agency under section
12A(2) of the Royal Commissions Act, would be a very serious finding. In light of the
exchange between counsel for The Star and Commissioner Bergin SC extracted above in
relation to how Mr Hawkins’ evidence would be treated by the Bergin Inquiry, it would be
profoundly unfair to make such a finding. No such finding is made.
350. A separate issue is that Mr Hawkins and (more relevantly for present purposes, given that
Mr Hawkins has resigned) The Star had plenty of opportunity to take steps subsequently to
correct the erroneous evidence which Mr Hawkins had given to Commissioner Bergin SC.
That evidence should have been corrected. It was not.
351. The Star Entities submitted that The Star ought not to be criticised for failing to correct Mr
Hawkins’ evidence because Ms Arnott’s evidence to Commissioner Bergin SC did so.
447
Accordingly, it is necessary to consider Ms Arnott’s evidence to the Bergin Inquiry.
13.14.4 Ms Arnott’s evidence before the Bergin Inquiry: 3 and 6 August 2020
352. On 3 August 2020, Ms Arnott gave the following evidence before Commissioner Bergin
SC:
448
Q: Now, did that Suncity service desk have the ability to receive cash deposits?
A: They would accept cash from customers that would be brought through to
the casino cage for the actual buy-in to take place.
Q: Was it possible at the Suncity service desk for somebody to provide cash to
that desk and then have chips given to them at that same desk in exchange?
A: My understanding is that there were some instances of that occurring and
we took steps to make sure that didn’t occur because we thought it was
inconsistent with the way that should be operating.
…
Q: And what steps do you say were taken in relation to those incidents?
A: So we spoke with Suncity and we developed a protocol for them to follow
to say if they wished to maintain a room with us then they would have to
make sure that they complied with all of the relevant – or helped us to
comply with all of our relevant obligations. So if they were accepting cash
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then that – it couldn’t be a direct one for one swap where they provided cash
– took cash from a customer and provided chips because we took the view
that that would in fact be offering a designated service. So they could accept
cash as they would ordinarily from any junket – any junket operator will
accept cash from their customers and then they bring it to the cage as they
ordinarily would and deposit it in the cage. And then once that had happened
they were able to issue chips.
353. On 6 August 2020, Ms Arnott gave further evidence before Commissioner Bergin SC
regarding cash/chip transactions occurring at the “Suncity desk” and she provided an
estimate of the number of such transactions that took place.
449
Ms Arnott was examined
about Mr Hawkins’ evidence on the topic. Ms Arnott gave the following evidence to
Commissioner Bergin SC:
450
Q: Would it surprise you to know that Mr Hawkins gave evidence that cash
was not exchanged at the Suncity desk?
A: So they accept cash and then bring it to the cage. I’m not sure - - -
Q: Yes, so when you say the cage do you mean the cage on the casino floor do
you?
A: Yes, that’s right.
Q: So the exchange takes place within the casino, that’s the Star Casino desk,
even though it’s presented, perhaps, at the service desk of Suncity. Is that
what you’re saying?
A: That’s correct, because at the cage the – and this – at the cage the only
people who are able to transact on the junket operator’s accounts are the
junket operator and the junket representatives, so at some time they – if
they’re bringing cash to the cage to transact they have to have gotten that
cash from somewhere, whether it’s a customer of theirs or from their own
business.
Q: But just let me understand - - -
A: And then they would bring it to the cage.
Q: I’m sorry, Ms Arnott.
A: No, you’re fine.
Q: In respect of the Suncity Room - - -
A: Yes.
Q: - - - when you changed your policy after you found this unsatisfactory
arrangement, it was a requirement that the money that was presented to the
Suncity people had to be brought within the casino cage, that is, the Star
cage. Is that right?
A: That’s correct.
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Q: Yes, I understand. Yes. Thank you.
354. The Star Entities are correct in pointing out that Ms Arnott’s evidence to the Bergin Inquiry
did reveal problems regarding the Salon 95 service desk, including the occurrence of cash
for chip exchanges. Further, the discrepancy between Ms Arnott’s evidence and Mr
Hawkins’ evidence was raised, though perhaps not finally resolved having regard to the
way in which the evidence developed. It is also relevant that the activities at The Star were
not the focus of the Bergin Inquiry’s investigation.
355. Nevertheless The Star was closely monitoring the evidence in the Bergin Inquiry.
451
It
would have been appropriate for The Star to provide a written correction to those assisting
Commissioner Bergin SC to ensure that any misleading impression arising from Mr
Hawkins evidence did not subsist. The Star did not take that course.
13.14.5 Disclosure to this Review of the events in Salon 95
356. A letter from the Solicitors Assisting this Review dated 1 October 2021 to Star
Entertainment requested the following information:
8. Please state all facts, matters or circumstances which The Star considers
may affect the suitability of The Star or any Close Associate in the period
from 28 November 2016 to date (Relevant Period) which have not
previously been disclosed in writing to the Authority.
357. Although a number of matters were identified in answer to that question in the information
response to the Review dated 8 November 2021, The Star Entities accept that The Star did
not address Suncity and should have done so.
452
Chapter 13.15 The Evolving Due Diligence Reports of Mr Buchanan
13.15.1 The 1 October 2020 memorandum
Mr Buchanan’s chronology
358. On 20 January 2020, Mr Buchanan gave evidence that he met with Mr Power, Mr Houlihan
and Mr White regarding the preparation of a chronology of Star Entertainment’s
relationship with Suncity between 2011 and September 2019.
453
It was Mr Buchanan’s
understanding that this was to assist the legal team to provide advice in relation to the
Bergin Inquiry. Mr Buchanan prepared that chronology, which is dated 13 February 2020
(Buchanan Chronology).
454
The chronology was detailed and consistent in many respects
with the narrative regarding the operation of Salon 95 discussed in this Chapter.
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The 1 October 2020 memorandum
359. On 2 September 2020, Mr Buchanan had a telephone conversation with Mr Houlihan who
told Mr Buchanan to provide an “updated due diligence assessment” of Mr Chau.
455
Mr
Buchanan had understood that the instructions for the report had come from Mr Power (and
the instructions were conveyed by Mr Houlihan), and the report was to make a
recommendation about how Star Entertainment “might proceed in its relationship” with
Suncity and Mr Chau.
456
Mr Buchanan described the initial conversation he had with Mr
Houlihan as an “initial briefing”.
457
360. On 1 October 2020, Mr Buchanan completed his first due diligence report titled “Updated
Assessment - Alvin CHAU Cheok Wa (Suncity Group Ltd)” (1 October 2020
memorandum).
458
The report-like memorandum was addressed to Mr Power and was
copied to Mr White and Mr Houlihan. Mr Buchanan referred to the document in his
evidence as “the first draft”.
459
The email subject was “Privileged and Confidential - Draft
Report”.
361. The stated “purpose” of the 1 October 2020 memorandum was:
460
[1] This paper is to assist the Legal team provide advice to the Board on matters
pertaining to both Alvin CHAU Cheok Wa (Mr CHAU) and Suncity Group Ltd
(Suncity) who have repeatedly been referred to during the Independent Liquor &
Gaming Authority’s (ILGA) Bergin Inquiry.
362. The “executive summary” stated:
461
[2] Following widespread media allegations during July 2019, which suggested Mr
CHAU was a triad member with organised crime links, the ILGA established the
Bergin Inquiry in August 2019. Public hearings subsequently commenced during
January 2020. This report provides an assessment of The Star’s commercial
relationship with Mr CHAU (Suncity) and evaluates how effective the Joint Anti-
Money Laundering/Counter Terrorism Financing (AML/CTF) Program has been
during this business engagement.
[3] Taking cognizance of all available information, it is assessed Mr CHAU, as
alleged, was indeed a member of the14K triad group in his youth. Contemporary
information suggests he is no longer an active member and that he has disassociated
himself from his triad antecedents as he attempts to ‘gentrify’ his varied business
interests. However, it is suspected Mr CHAU, and/or his subordinates, retain close
links with triad entities who assist with certain aspects of his VIP junket business i.e.
collecting gambling debts in China etc.
363. The executive summary proceeded to set out some important facts and steps in the course
of Star Entertainment’s dealings with Suncity (also expressing Mr Buchanan’s own
opinions), including:
462
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following a 2014 ABC Four Corners program, “High Rollers, High Risk”, no
reference to the triad related allegations was entered in Protecht, that is, The Star’s
AML/CTF database and risk register (paragraph 4);
in May 2018, an internal investigation was instigated after it emerged that Suncity
were not adhering to the Service Desk SOP (paragraph 5);
during May and June 2018, the Chief Casino Officer issued two warning letters to
Mr Iek. On 21 June 2018, the 2018 Rebate Agreement was signed (paragraph 6).
Mr Buchanan noted here in relation to that decision that “the signing of a new
agreement with Mr Iek, following repeated non-compliance behaviour by his staff,
is questionable from a probity standpoint”;
the comment was made that “Given the serious nature of the non-compliant
behaviour, it is surprising that an official audit/review of Suncity’s operations did
not take place as a matter of urgency. A review subsequently took place some eight
months later” (paragraph 7). Mr Buchanan was critical of the minimal “risk
mitigation measures” undertaken by The Star and then stated “Given the extent of
Suncity’s continued noncompliance, The Star’s response was a somewhat weak and
not proportionate to the risk”;
on 10 September 2019 an “Improvement Team” was established following the
media allegations relating to Crown Resorts and Suncity. Mr Buchanan stated that
this step should have been taken in 2018 “following the 2018 investigation into
Suncity’s suspected money laundering activities at Salon 95” (paragraph 8); and
during the course of The Star’s business relationship with Mr Chau and Suncity,
The Star’s “AML/CTF processes/procedures have strengthened considerably in
recent times” (paragraph 9). He referred to recent improvements such as the
transition from Protecht to TrackVia.
364. Mr Buchanan then concluded the executive summary by recommending that:
463
[T]he business undertakes a review as to the appropriateness of continuing to
maintain a business relationship with Mr CHAU and Suncity. Given the widespread
media coverage, and subsequent negative commentary pertaining to Mr CHAU
during the Inquiry, there is some concern that should The Star continue to engage
with Mr CHAU, it may be construed that the business is willing to ‘turn a blind eye’
to his triad antecedents and purported links to organised crime.
365. At paragraph 34 of the 1 October 2020 memorandum, Mr Buchanan stated:
464
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[34] During 2019, Nine Entertainment Co reported that the HKJC received a Suncity
related briefing from Australian Law Enforcement in 2017. The briefing is alleged
to have referenced Mr CHENG’s i) suspected triad associations ii) purported
involvement in large scale money laundering activities and iii) interest to Australian
Law Enforcement. This reporting is known to be factual.
366. Mr Buchanan concluded the 1 October 2020 memorandum by making the following
recommendations:
465
• That the business undertakes a holistic review as to the appropriateness of
continuing to maintain a business relationship with Mr CHAU and Suncity.
Given the widespread media coverage, and subsequent negative
commentary pertaining to Mr CHAU during the Inquiry, there is some
concern that should The Star continue to engage with Mr CHAU, it may be
construed that the business is willing to ‘turn a blind eye’ to his triad
antecedents and purported links to organised crime. In the current climate,
continuing the business relationship may pose a reputational risk.
• That any future serious AML/CTF related non-compliance is
comprehensively documented in TrackVia. For completeness sake, and
transparency, actions taken to rectify the non-compliance should also be
documented.
• That as a business risk mitigation measure, The Star continues to improve
and expand the AML/CTF work area. To this end, it is suggested the
recently proposed Financial Intelligence Unit would be a major step in
augmenting the business’ financial crime risk capability.
367. The 1 October 2020 memorandum attached the Buchanan Chronology.
466
13.15.2 Mr Buchanan’s meetings with Mr Power and Mr Houlihan
368. Mr Buchanan’s 1 October 2020 memorandum subsequently underwent a process of
amendment due to input and feedback from Mr Power and, to a lesser extent, Mr Houlihan.
Mr Buchanan agreed that he had “changed [his] report very substantially”.
467
He agreed
that the changes were “on the basis of conversations [he] had with Mr Power and Mr
Houlihan”.
468
Mr Buchanan denied that Mr Power and Mr Houlihan encouraged or
pressured him to make changes, and instead, his evidence was that they told him to
“shorten” his report and “provide options”.
469
Those options ended up including a choice
between ceasing and continuing the Suncity relationship, and reasons for and against each
“option”.
369. Between June 2020 and December 2021 (while Ms Arnott was on maternity leave), Mr
Power and Mr Houlihan were acting as joint AML/CTF Compliance Officers at Star
Entertainment.
470
Mr Buchanan said that he reported to Mr Houlihan; this was “officially”
from November 2021, but Mr Buchanan explained that in reality he was predominantly
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reporting to Mr Houlihan shortly after he commenced his employment at Star
Entertainment in May 2019.
471
It is also the case that both Mr Power and Mr Houlihan
were Mr Buchanan’s superiors.
472
That relationship is relevant to understanding the
dynamic between them.
370. On 16 October 2020, Mr Buchanan sent a follow-up email to Mr Power regarding the 1
October 2020 memorandum stating:
473
Was just wondering, from your perspective, if my recent report/review adequately
covered the subject matter in question?
If you believe I may be able to assist with other matters relating to the Inquiry, do let
me know.
371. On 19 November 2020, Mr Buchanan met with Mr Power and Mr Houlihan.
474
Mr
Buchanan stated that at that meeting he was asked to “shorten” the 1 October 2020
memorandum.
475
Mr Houlihan denied asking Mr Buchanan to amend his memorandum.
His evidence was that he and Mr Power “made some directions to make a recommendation
as to whether we should cease to deal with, or to continue a relationship with” Mr Chau
and he thought that “there was a discussion about making it more succinct and shorter, but
not to change the context” of the memorandum.
476
372. Mr Power gave evidence that the feedback he provided to Mr Buchanan “was more in the
style of feedback in relation to the report”.
477
Mr Power denied asking Mr Buchanan to
“water down” assertions that Mr Buchanan had made regarding “Alvin Chau and his links
to organised crime” and “Alvin Chau’s links to money laundering”.
478
373. On 25 November 2020, Mr Buchanan sent an email to Mr Power and Mr Houlihan attaching
a “DRAFT – Revised AC SC Assessment” dated 24 November 2020 (24 November 2020
memorandum). The email stated:
479
Please find attached the revised draft of the Alvin CHAU/Suncity related assessment.
Apologies, it took a little longer to compile than initially anticipated.
Again, happy to make any changes/additions as may be required.
374. The 24 November 2020 memorandum was substantially amended from the 1 October 2020
memorandum. A key change in the 24 November 2020 version was that Mr Buchanan
proffered two options to the business in the concluding “assessment” part of his report,
namely, the first option was to cease the relationship with Suncity and Mr Chau, and the
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second option was to continue the relationship.
480
He did not make a recommendation
either way.
375. On 7 December 2020, Mr Buchanan had a further meeting with Mr Power and Mr
Houlihan.
481
At that meeting, Mr Power handed Mr Buchanan a hard copy mark-up of the
document that Mr Buchanan had circulated in his email of 25 November 2020.
482
Mr
Buchanan stated that he discussed with Mr Power the proposed amendments and that Mr
Buchanan was comfortable with those amendments.
483
376. On 8 January 2021, Mr Buchanan sent an email to Mr Power and Mr Houlihan attaching a
further updated version of his memorandum (7 January 2021 memorandum).
484
The
email also attached an updated “ECDD Profile – Alvin CHAU Cheok Wa”.
485
The email
stated:
486
Please find attached the revised Alvin CHAU/Suncity Assessment.
For ease of reference, I have also attached the Updated ECDD Profile.
377. In total, there were three main versions of Mr Buchanan’s memorandum:
the 1 October 2020 memorandum
487
– this version had no direct input from any
other person;
the 24 November 2020 memorandum
488
– this version reflected comments made by
Mr Power and Mr Houlihan at the meeting of 19 November 2020; and
the 7 January 2021 memorandum
489
– this version reflected comments made by Mr
Power and Mr Houlihan at the 7 December 2020 meeting and also the physically
marked-up document provided by Mr Power to Mr Buchanan at that meeting.
13.15.3 Changes between the 1 October 2020 and 24 November 2020 versions
378. It was repeatedly suggested to Mr Buchanan during his examination that he “watered
down” his 1 October 2020 memorandum.
490
Mr Buchanan denied the suggestion on each
occasion, and maintained that the comments and feedback, principally from Mr Power,
were in the nature of shortening the memorandum.
379. A material change between the 1 October 2020 and the 24 November 2020 memoranda
was that several criticisms by Mr Buchanan of The Star and its response to the situation in
Salon 95 were removed. One example of this is the removal of Mr Buchanan’s opinion
that “Given the extent of Suncity’s continued non-compliance, The Star’s response was a
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somewhat weak and not proportionate to the risk” (expressed at paragraph 7).
491
That
criticism was entirely appropriate given that Mr Buchanan was addressing the inadequacy
of The Star’s response to the very concerning breaches by Suncity at the service desk
around the period of May 2018. That opinion and wording did not appear in the 24
November 2020 memorandum.
380. A second example was Mr Buchanan’s opinion in the 1 October 2020 memorandum that
“Given the widespread media coverage, and subsequent negative commentary pertaining
to Mr CHAU during the Inquiry, there is some concern that should The Star continue to
engage with Mr CHAU, it may be construed that the business is willing to ‘turn a blind
eye’ to his triad antecedents and purported links to organised crime”.
492
This opinion and
wording did not appear in the 24 November 2020 memorandum.
381. Mr Buchanan was asked whether the second example, and the removal of his criticism, was
because he knew that The Star may wish to continue in a business relationship with Suncity.
His evidence was:
493
No, it wasn’t that. Honestly, I just – it was to give a couple of – there’s two options
– there were only two options to give. There was one that we continue to deal and
one that we cease the relationship, and that was trying to get supporting arguments
on both sides. Otherwise, as I said earlier, it would just be – the – the options are
cease to deal or continue.
382. Mr Buchanan’s answer alluded to the fact there were two options introduced in the 24
November 2020 memorandum. It is not clear why that change was made. Mr Power’s
evidence (albeit in relation to a later document as part of the “Project Congo” review, which
reproduced the “options approach”, see below) on this question was that he wanted Mr
Buchanan to provide a recommendation, not options. Mr Power’s evidence was:
494
I believe it is a view expressed by Mr Buchanan. I don't – I don't – I don't agree that
it's necessarily intended to mislead. I think it reflects the fact that Mr Buchanan – I
mean, I don't find this particularly helpful, him outlining options. What Mr Buchanan
was asked to do was to provide a recommendation, and I think this reflects the fact
that he was – he was having difficulty with that.
383. Mr Buchanan did not appear to be struggling towards a recommendation in the 1 October
2020 memorandum; he removed the reference to the “concern that should The Star continue
to engage with Mr CHAU, it may be construed that the business is willing to ‘turn a blind
eye’ to his triad antecedents and purported links to organised crime” after receiving Mr
Power’s and Mr Houlihan’s comments on that draft.
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13.15.4 Mr Power’s deletions in the marked up copy
384. Mr Power’s annotated copy of the 24 November 2020 memorandum shows that he
suggested significant deletions.
495
Mr Buchanan gave evidence that he “basically made all
of the changes that Mr Power suggested”.
496
There were several key changes which were
accepted by Mr Buchanan and which were implemented and given effect to in the final 7
January 2021 memorandum.
385. One such example was the deletion of the final sentence in paragraph 13 of the 24
November 2020 memorandum:
497
[13] As way of background, The Star entered into a business relationship with Mr CHAU
and Suncity during 2011. A chronology, detailing the main events that occurred during the
relationship (from 2011 – 2019), was compiled during February 2020 and is attached for
reference purposes (Attachment 1 refers).
386. This had the effect of removing the Buchanan Chronology from the memorandum as an
attachment. That chronology contained important and material information, including the
references to the primary sources and internal emails. The Buchanan Chronology did not
appear as an attachment in the 7 January 2021 memorandum.
387. Another deletion suggested by Mr Power was made to paragraph 36 of the 24 November
2020 memorandum:
498
[36] On 21 June 2018, a Renewal Agreement (Win /Loss Rebate & Exclusive Access
Agreement) was signed between The Star and Mr IEK. It is suggested that a clause should
have been added to this agreement stating future non-compliance would not be tolerated
and may lead to the voiding of the agreement. From an external optics perspective, the
signing of a new agreement with Mr IEK following repeated non-compliance by his staff
is questionable.
388. The equivalent paragraph in the 7 January 2021 version states:
499
[36] On 21 June 2018, a Renewal Agreement (Win /Loss Rebate & Exclusive Access
Agreement) was signed between The Star and Mr IEK.
389. Evidently, the criticism of the entry to the 2018 Rebate Agreement was removed. That
criticism by Mr Buchanan in the 24 November 2020 memorandum was justified and
important.
390. In another series of deletions by Mr Power, criticisms of The Star’s own due diligence
processes and steps were removed. These included the following deletions:
500
[37] No entries in Protecht reference the fact Warning Letters were issued to Suncity in
relation to non-compliance at Salon 95.
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[38] Taking cognizance of the suspected money laundering activity which occurred at
Salon 95, it is surprising an official audit/review of Suncity’s operations did not take place.
It is suggested that a revised risk assessment should have been completed as a matter of
course. No additional ECDD was conducted on Mr CHAU, Mr IEK or indeed any of the
Junket Representatives. AML risk ratings remained the same despite the fact suspicious
money laundering activity appeared to be continuing at Salon 95. [Redacted], the
AML/CTF area appears to have taken no risk mitigation measures
…
[42] The Review found The Star’s existing ECDD methodology did not take account of the
fact the majority of The Star’s Junket Promoters, Representatives, Funders and Participants
come from China, Hong Kong and Macau. Given the demographic of these individuals, the
fact that Chinese language databases were not being utilised as part of the ECDD process
was deemed as being a vulnerability. ‘World-Check’ and ‘Google’ checks, though useful,
were considered as being too narrow in scope when conducting ECDD on Patrons from
Greater China.
[43] Consequently, several Chinese language databases and news aggregator sites were
introduced to supplement the existing ECDD methodology. The databases assist the AML
team in determining more accurate AML/CTF risk ratings based on in-depth due diligence
screening.
[44]The Review found that ECDD related ‘Google’ searches were not being completed as
rigorously as perhaps they should. An example of information having been overlooked on
‘Google’ is the fact The Star was unaware of Mr CHAU’s PEP status until March 2020
when his risk rating was raised to Very High. Mr CHAU had in fact become a PEP during
2013. This information was openly available in ‘Google’ and could have been ascertained
had the correct search parameters been set. Mr CHAU’s PEP status should also have been
identified and promulgated by ‘World-Check’ in 2013 via the automated Transwatch
monitoring system.
…
391. Mr Power’s evidence in relation to some of these deletions was:
501
Q: And at paragraph 42, 43 and 44, which I will have shown to you, you are
also directing the deletion of a criticism of the process, aren't you?
A: If I could just see those paragraphs, please. Apologies, Ms Sharp. Would
you mind repeating the question, please?
Q: What you are doing is deleting from this document criticisms of the process
that The Star had followed in managing Alvin Chau and Suncity?
A: I’m not sure I would agree to that characterisation. I accept that paragraphs
42 and 44, I have suggested the deletion of commentary about the
effectiveness of The Star's AML program historically. But if you take
paragraph 43, I actually think that's an attempt to positively assert that The
Star's AML program has been improved and working more effectively, and
I also suggested that that be deleted from a due diligence report about Mr
Chau.
Q: And Mr Power, to be precise, the amendments that you proposed to
paragraph 44 were to remove Mr Buchanan's criticism of the failure of The
Star to identify Mr Chau as a politically exposed person between 2013 and
2020; is that correct?
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A: I believe that's contained elsewhere in the report, Mr Bell. But I think what
I was trying to take out was the fact it was commentary about whether the
Google searches were effective or not. For me, I didn't regard that as a
matter that went to whether Mr Chau was someone who we could continue
to deal with moving forward.
392. It is clear that by reason of Mr Power’s deletions the final 7 January 2021 memorandum
was shorter. However, the final version omitted many of the criticisms Mr Buchanan had
made which appeared in the 1 October 2020 memorandum and the 24 November 2020
memorandum. The changes emerging from those deletions were substantive.
13.15.5 Conclusions regarding the evolution of Mr Buchanan’s memorandum
393. Mr Buchanan was investigating and reporting on a sensitive subject matter, namely, the
probity of an extremely significant junket, Suncity, and its funder, Mr Chau, and the
appropriateness of the casino operator’s business relationship with them. The investigation
was belated and seems to have only emerged due to developments in the Bergin Inquiry.
The final version of the memorandum did not recommend a cessation of the business
relationship and instead only provided competing “options”.
394. An expression such as “watering down” is colourful, but imprecise. What is undeniable is
that between the 1 October 2020 memorandum and the 7 January 2021 memorandum,
important and substantiated concerns about the deficient processes of assessing the risk
which the Suncity relationship involved were removed. This was detrimental to The Star
Entities because Mr Buchanan’s important and substantiated concerns ought to have made
their way to more senior management and the Board.
395. In closing written submissions on his behalf Mr Power made a number of concessions about
what had occurred:
502
(a) On reflection Mr Power accepts that he should not have provided
handwritten edits or electronic mark-ups and that feedback should have
been confined to suggestions or points raised for Mr Buchanan’s
consideration, as then it would remove doubt about whether the
recommendations of Mr Buchanan were his own.
(b) Mr Power accepts he should have requested Mr Buchanan to include those
comments that were adverse to The Star in respect of historical matters,
including in relation to the adequacy of The Star’s AML program, in a
separate report.
(c) Mr Power accepts that while The Star retained the benefit of the chronology
(through various employees), and so that knowledge was not lost when the
chronology was no longer an attachment to the report, retaining it as an
attachment to the Buchanan Report may have been preferable, and leaving
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it in would have made it more fulsome and in that sense may have assisted
any future readers of that report.
396. Beyond noting these concessions, which were correctly made, it is unnecessary to express
an opinion about how this episode reflects on Mr Power and Mr Houlihan personally. Since
giving evidence to the Review, both Mr Power and Mr Houlihan and have resigned.
397. Mr Buchanan is a senior investigator with substantial investigative and policing
experience.
503
That experience also included the fact that he was a participating author of
the HKJC Report, which gave Mr Buchanan a particular expertise regarding the probity of
Suncity and Mr Chau.
504
As at the date of closing submissions to this Review, Mr
Buchanan remained employed by Star Entertainment as Group Manager Due Diligence and
Intelligence.
398. Counsel for Mr Buchanan made the following submissions in closing:
To the extent that it has been suggested that Mr Buchanan “watered down” the
contents of his reports or findings, the evidence before the Review establishes that
Mr Buchanan did so at the direction of senior personnel at the Star Entertainment
group to which he reported, such as Mr Houlihan and Mr Power.…
In this context, no adverse finding should be made as to Mr Buchanan. He played a
critical role in raising the alarm about Suncity and individuals connected to that
entity. He diligently attended to the task of preparing report directed towards such
matters. The changes to his report were all made at the direction of senior personnel
within his employer to whom he reported. Mr Buchanan did not have a direct
reporting line to the Board (or the Chief Executive Officer). The criticism that rightly
emerges from these events ought be levelled at those senior employees who
interfered in the preparation of the report in the manner they did, and the “workplace
culture” they contributed to fostering.
399. In their closing submissions, The Star Entities also referred to the cultural implications of
this episode. They conceded that it was open to the Review to find:
505
[T]hat it is inherently likely from the progress of those drafts that Mr Buchanan ‘read
the room’ and tailored his report to suit what he perceived to be the desires of others
in the business, even if he was never given an express direction to that effect; and
that the fact this occurred reflects poorly upon The Star’s broader culture.
400. Just as Ms Dudek and Ms Scopel could and should have challenged senior management in
relation to communications with NAB concerning CUP, Mr Buchanan could and should
have resisted making detrimental changes to his report at the instigation of his superiors.
Like Ms Dudek and Ms Scopel, he failed to do so.
401. The most significant lessons from these events are the insights it provides into a culture at
Star Entertainment which did not welcome bad news and in which more junior employees
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felt unable to challenge their superiors. In the context of these events, the dysfunction had
significant adverse consequences for The Star’s capacity to withstand the risks of criminal
infiltration and money laundering.
Chapter 13.16 The Final Due Diligence Assessments of Suncity and Alvin Chau
13.16.1 The question of “good repute”
402. The Star Entities conceded in their written submissions that The Star had applied the wrong
test when assessing whether a person was of “good repute”. The precise submission was
as follows:
506
[C.13] The Star’s assessment process for junket operators and funders did not
appropriately consider whether those persons were not of good repute. Instead, in
the case of Suncity, The Star directed itself to a different (and wrong) question of
whether it had been clearly proven that Mr Chau and Mr Iek were of bad character.
Had The Star directed itself to the correct question, the appropriate answer during
the Relevant Period would have been to cease to deal with Suncity.
[C.14] The failure of The Star properly to address the question of “good repute”
explains a significant number of the failings made in relation to Suncity.
403. That error may well explain how it was that Star Entertainment and its relevant officers
repeatedly considered it appropriate for the relationship with Suncity and Mr Chau. What
was left unclear was how it was that Star Entertainment had misunderstood for such a large
part of the Relevant Period the correct test to be applied.
404. It is necessary here to refer to Commissioner Bergin SC’s observations regarding an
“industry practice” whereby Australian casino operators required a high level of proof of
wrongdoing or criminality before ceasing to deal with a certain individual or entity.
507
As
the Bergin Report acknowledged, a “dilemma” emerges for a casino operator when
determining whether to cease dealing with a particular junket.
508
This is due to mere
“allegations of links to organised crime, as opposed to certainty or real probability”, and if
the operator ceases to deal with a junket then a competitor may “steal a march on them”.
Indeed, as Commissioner Bergin SC observed, “shareholders may well expect the
continuation of business and the prevention of others obtaining a competitive edge”.
509
The
Bergin Report then stated:
510
[124] The fact is that numerous casino operators around Australia were dealing with
Mr Chau and the Suncity Junket including relevantly in New South Wales, The Star.
It is apparent that no casino Regulator in any Australian jurisdiction required or
suggested the cessation of such a relationship. That is of course until the Authority
raised the questions in its Terms of Reference in August 2019. It has been contended
by Crown that in these circumstances, it would be inappropriate to find that Crown
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and/or the Licensee are not suitable when Crown was only doing what every other
casino operator in the Australian jurisdiction was doing.
[125] Crown referred to this as “industry practice”. It is more accurately just a group
of casino operators wishing to deal with lucrative Junket operators who probably
have links to organised crime which cannot be proved beyond reasonable doubt.
[126] However where the object of the Casino Control Act is to prevent any criminal
exploitation or criminal influence, casino operators must not apply such stringent
standards. This is particularly so where the operations of money launderers and
organised criminal groups are sophisticated, agile, flexible and cunning. Casino
operators, at least in New South Wales should have as their first aim to ensure the
protection of the casino from criminal influence. It is simple.
405. Those observations from Commissioner Bergin SC are pertinent to this Review as well.
They provide guidance in trying to understand just how it was that the members of the
investigations and compliance teams of Star Entertainment, at least some of whom had the
benefit of the HKJC Report, did not immediately recommend a cessation of the relationship
with Suncity and Mr Chau. Their approach likely reflected the prevailing attitude in the
industry whereby business interests took precedence over compliance and probity
considerations.
406. This may help to explain why it was that for so long Star Entertainment had misapplied the
appropriate test. However, that is not an excuse. Star Entertainment had the benefit of
observing the evidence in the Bergin Inquiry and thus the opportunity to make any
necessary adjustments to its systems and processes as the evidence emerged from that
inquiry. It failed to do so.
13.16.2 The Project Congo memorandum: 16 August 2021
407. Despite having the benefit of the Bergin Report in January 2021, on 16 August 2021 the
recommendation was made that a relationship with Mr Chau, if managed appropriately,
could be maintained.
408. On 17 August 2021, Mr Houlihan sent Mr Power an email titled “Private and confidential
Congo”.
511
Attached to the email was a document called “Project Congo – High Risk
Customer Review (Phase 1)” (Project Congo memorandum).
512
A spreadsheet was also
attached. The email stated “For discussion in five minutes”.
513
409. Mr Buchanan was the author of the Project Congo memorandum. It was addressed to Mr
Power and copied to Mr Houlihan and Ms Marcela Willoughby. The introduction of the
memorandum stated:
514
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[1] The purpose of this report is to provide the findings of a holistic review
undertaken on Patrons, and non-Patrons, considered by The Star Entertainment
Group (“The Star”) as being ‘high risk’. The twenty-two persons of interest (POIs)
received adverse mention during either the Bergin Inquiry, the 60 Minutes ‘Crown
Unmasked’ programme (2019) or in associated media reporting.
[2] The review’s findings and recommendations, detailed in the accompanying
Project Congo spreadsheet, are designed to assist the business in assessing the
suitability for The Star to continue, or establish, customer relationships with these
individuals.
410. Mr Chau was referred to as a “Non-Excluded POI”.
515
The commentary for Mr Chau
appears to reproduce and repeat the two options included in the 7 January 2021
memorandum. Mr Power agreed with that categorisation.
516
411. Mr Buchanan recommended that The Star could continue a business relationship with Mr
Chau, provided specific risk mitigation processes were in place. The specific
recommendation for Mr Chau was stated as:
517
Taking cognizance of both options, it is recommended that given the robust nature
of The Star’s revised AML/CTF Program coupled with the new structure of the AML
work area, if Patron specific risk mitigation processes are put in place, the business
could safely continue to engage in a business relationship with this Patron.
412. Mr Buchanan gave this evidence relating to the substance of his recommendation:
518
Q: Well, knowing what you knew about Mr Chau and Suncity by April 2021,
should you not have immediately recommended to Mr Houlihan that Mr
Chau's licence be withdrawn?
A: Well, we weren’t doing business with Suncity at that time due to the borders
closing, COVID – the casino was shut for quite some time. And we came
up with the belief that we could manage Mr Chau’s risk on an individual
basis with the new uplifted, enhanced AML program and system.
Q: When you say you came up with that belief, who are you referring to?
A: That would be Mr Houlihan, myself, Mr Power, and we briefed Ms Martin
and Mr Hawkins.
Q: So who made that decision, that his risk could be managed?
A: I proposed it on an individual basis with Mr Chau, and then the decision to
agree with that was Ms Martin and Mr Power.
Q: And, sorry, when did you make that recommendation?
A: I believe that was August 2021. With some stringent risk mitigation
strategies in place.
Q: I suggest that there was no amount of risk management that could have
managed Mr Chau's risk. Do you agree or disagree?
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A: Mr Chau on an individual basis, no, I think we could – we could manage
the risk.
Q: Well, I suggest that was a completely inappropriate conclusion based on the
information then available to you.
A: No, I don't agree.
Q: I suggest the only appropriate course based on the information available to
you was to cease dealing with Mr Chau.
A: With respect to Suncity, I agree entirely. With respect to Mr Chau, we could
have managed the risk.
Q: Mr Buchanan, Mr Chau controls Suncity, does he not?
A: He did.
Q: The only appropriate way to deal with Mr Chau as at April 2021 was to
cease all dealings with him, wasn't it?
A: I don't agree.
13.16.3 Further decisions to “Maintain customer relationship” with Mr Chau: 18 August 2021
and 6 December 2021
413. There is a question whether Mr Buchanan’s recommendation was merely part of assessing
the AML risk and whether the recommendation was thus limited in that regard (i.e. Mr
Buchanan was not considering whether Mr Chau was of “good repute”). This seems to be
supported by a decision made in an out-of-cycle JRAM meeting which took place on 17
August 2021.
519
The decision made at that meeting was recorded in the Board report dated
22 September 2021 as follows:
520
4. High Risk Customer Review
An out of cycle Joint Risk Assessment Meeting (JRAM) was conducted by the AML
team on 17 August to undertake a review of various patrons of interest, focussing on
those persons who were mentioned in the Bergin Report. An assessment was
undertaken under the AML Program as to whether The Star would continue to deal
with these individuals, and whether there are suitable controls in place to address
AML risks.
A further assessment has now commenced as to whether these persons are ‘not of
good repute’ which may be ongoing and necessitate engagement with the NSW
regulator and law enforcement in relation to persons of interest.
414. Even if limited to the AML question, The Star Entities still conceded that Mr Buchanan’s
recommendation “was a serious error of judgment on his part and ought never have been
made”.
521
It was indeed an error of judgment.
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415. In any event, it appears that a decision was made to continue the relationship with Mr Chau.
The AML DD Review Report for Mr Chau (AML DD Review Report) records that Mr
Buchanan provided an “Update” regarding the six mitigation strategies “in the event that a
decision was made to maintain a business relationship with the Patron”.
522
The entry then
records:
523
Over the past eighteen months, a number of comprehensive due diligence
reports/profiles have been prepared with respect to this Patron all of which were
forwarded for your attention. This Review will not repeat the same information
detailed in these reports/profiles.
The last OCDD was conducted during January 2021 shortly before we transitioned
to TrackVia.
Very little new information has been forthcoming during this screening process other
than the fact it has been confirmed, via Dow Jones Risk and Compliance, that the
Patron is no longer classed as being a Foreign PEP. By virtue of his previous status
he will retain a Very High Risk rating.
…
A fuller synopsis of the Patron, and a recommendation as whether we should
consider to continue to do business with this Patron will, of course, be referenced in
the Project Congo Report.
I recommend that should comprehensive and Patron specific risk mitigation
measures be put in place, The Star could, moving forward, safely maintain a
customer relationship with this Patron.
416. A further entry of 18 August 2021 records Mr Houlihan as the “AML Compliance Officer”
responding to Mr Buchanan stating:
524
Thank you for the above information, I note your comments and agree with your
recommendations, however I would request a comprehensive ECDD if we wish to
re-establish a business relationship. I understand we are reviewing a
recommendation to the business for an enhanced Risk Mitigation process for specific
individuals, where this Patron falls within this category and will be subject to
undertake a further risk mitigation process before engaging in any casino related
business relationship, or CCF approvals.
Could you please identify away to record this recommendation against the patrons
account. In light of the above I am satisfied to maintain an active account for this
patron at this time.
417. A “Final Decision” is then recorded for 18 August 2021 at 7:48pm as “Maintain customer
relationship”.
525
It appears that there was no active CCF for Mr Chau at that point.
Nevertheless, there was still a recommendation to a continue a relationship with Mr Chau.
418. The AML DD Review Report recorded an entry from Mr Buchanan from 3 December 2021
where he detailed the reports of Mr Chau’s arrest by Macau police. The entry states:
526
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As you are aware, the Patron was recently discussed at an out of session JRAM
meeting following the completion of Project Congo. Suggested risk mitigation
measures, which would potentially allow the business relationship, were formulated
and are awaiting approval/comment from senior management.
Given the recent Bergin and Finkelstein inquiries, in which the Patron featured
prominently, it is considered likely that the Australian media will pick up on his
arrest. This may well result in negative reporting which could potentially reference
The Star and its business relationship with Suncity.
Suggest no further action requires to be taken at this time.
419. On 6 December 2021, Mr Houlihan is then recorded as responding:
527
Thank you for the updated information and comments. I agree with your
recommendations that at this time we continue to monitor as a result of the
recommendations from Congo and the outcome of the court matters as mentioned in
the media.
For points of reference, I have sought to have Mr CHAU front money account and
CCF closed at this time awaiting the results of the court matters.
420. The decision is then recorded for 7 December 2021 at 8:44pm as “Maintain customer
relationship”.
528
It is remarkable that as at 7 December 2021 those responsible were still
recommending to the business, and apparently deciding, that a customer relationship could
be maintained with Mr Chau.
13.16.4 Withdrawal of Licence issued to Mr Chau: 14 December 2021
421. It was not until 14 December 2021 that a Withdrawal of Licence was issued to Mr Chau.
529
The basis of the decision to issue the Withdrawal of Licence to Mr Chau were the reports
of Mr Chau’s arrest in Macau. As Mr Buchanan stated in his witness statement:
530
[75] On 1 December 2021,1 became aware of media reporting in relation to Mr Chau
having been detained in Macau. In response to these media reports, on 3 December
2021,1 conducted an ECDD review of Mr Chau based on the information available
at that time (STA.3009.0003.0468).
[76] Subsequently, on or around 13 December 2021, I became aware of further media
reporting in respect of Mr Chau, namely that:
Mr Chau had been detained by Macau Police after the Wenzhou People's
Procuratorate in Zhejiang, China issued an arrest warrant for Mr Chau. The
warrant intimated that Mr Chau was suspected of:
i. operating a 'cross-border criminal gambling syndicate' which
arranged for Chinese nationals to gamble at his overseas casinos;
ii. facilitating cross-border capital transfer through the use of
underground banks; and
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iii. arranging for Chinese citizens to take part in cross-border online
gambling activities which is contrary to Chinese law.
Numerous English and Chinese language media articles reported on Mr
CHAU’s detention. (STA.3009.0003.0468)
13.16.5 A most concerning state of affairs
422. The Star Entities submitted as follows in relation to the assessments of Suncity and Mr
Chau:
531
In conclusion, it is open to the Review to find that the recommendation by Mr
Buchanan, and the conclusion by Mr Houlihan, that The Star could continue to deal
with Mr Chau and Mr Iek in accordance and compliance with The Star’s AML
Program showed serious errors of judgement; that the information presented by
Mr Buchanan in support of that recommendation was incomplete and misleading;
that Mr Buchanan’s recommendation that The Star could continue to deal with Mr
Chau and Mr Iek (even if only considering the issue from the perspective of the AML
Program) ought never to have been made; and that it ought to have been obvious to
those involved in Project Congo, including Mr Houlihan, Mr Power and Ms Martin,
that it was impossible for The Star to do business with Mr Chau in future.
423. It should not have taken Mr Chau’s arrest in December 2021 to prompt Star Entertainment
to cease the relationship with him. The relationship with Suncity and Mr Chau should have
been terminated in June 2018 when cage operations and bags of cash were observed in
Salon 95. The delay in terminating the relationship with Mr Chau and Suncity was also
identified by Ms McKern in her report:
532
[2.11.2] Mr. Chau (Chairman of the junket Suncity) raised red flags internally within
Star through behaviour occurring within the Suncity Junket rooms and service desks
as far back as 2018, The Star did not reconsider their relationship with Suncity or
Mr. Chau based on internal findings. Multiple adverse media articles were released
from August 2019 through to 2021. Mr. Chau and Suncity were mentioned heavily
within the Bergin Inquiry and The Age’s Expose into Crowns dealings with junkets.
The Star subsequently raised Mr. Chau’s risk ratings and reviewed him at PAMM
and JRAM meetings but did not exclude or WOL him from the Casino throughout
this period noting they would “further discuss action in regard to Mr. Chau based on
the outcome of the inquiry”. In December 2021 media articles were released
reporting that Mr. Chau had been arrested in Macau for alleged illegal gambling and
money laundering. The Star issued Mr. Chau a groupwide WOL on 16 December
2021.
…
[10.3.3] Adverse media and law enforcement information was available during the
period that Star allowed Suncity and Mr Chau to attend and game. The Star did not
ban exclude or ban Mr Chau from Star when the department of Home Affairs blocked
Mr. Chau from entering Australia or allegations or links to organised crime appeared
in The Age linked to Suncity’s operations at Crown. The Star issued a withdrawal of
license ten months after the Bergin Inquiry report was issued.
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424. Much of the analysis being undertaken by The Star Entities related to the binary options of
continuing or not continuing the relationship with Suncity at given points in time. However
there was also an intermediate option, of suspending business while relevant enquiries
(such as a risk assessment) were being undertaken. That approach would be the same as
the approach taken with a patron who was denied entry pending satisfaction of source of
wealth.
533
Mr Houlihan accepted it was an option that could have been taken with Mr
Xiangmo Huang and other patrons.
534
There is no reason why it could not have been taken
with a junket business such as Suncity.
Chapter 13.17 Consideration of the Lawfulness of the Service Desk in Salon 95
13.17.1 The legal issues
425. It remains for the Review to consider the lawfulness of the service desk’s operation in Salon
95. The Review’s Terms of Reference 2.1 and 2.3 contemplate consideration by the
Review of the extent to which The Star has complied with its obligations under the Casino
Control Act and licence.
426. It is clear from the contemporaneous written materials that Star Entertainment’s employees
and officers were of the opinion that any operation of the service desk in Salon 95 by
Suncity as a cashier’s or buy-in desk would risk causing The Star to contravene the Casino
Control Act. Evidence in that regard included:
Mr White’s email of 13 March 2022 to Mr Aloi and Mr Liu in which he relevantly
stated:
535
As an initial point, I should point out that Sun City have a service desk in Salon 95
– they do not operate a cage and have no authority to operate a cage. A cage may
only be operated by the casino operator, i.e. The Star Sydney in this instance.
Ms Arnott’s risk assessment (signed by Mr McWilliams) dated 27 April 2018
states:
536
When considered in respect of both AML law and NSW Casino law the risks
relating to the Sun City service desk activities are:
- the accidental provision of a designated service by Sun City without
appropriate AUSTRAC registration or structures in place; and
- that operations of the casino could be (or be perceived to be) conducted
by a person other than the casino operator which is prohibited under the
Casino Control Act;
Mr Power’s email to Mr Hawkins dated 15 May 2018 in which he stated:
537
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In my opinion, the junket group’s conduct has exposed The Star to an unacceptable
level of risk and constitutes a breach of the agreement, of applicable laws or
otherwise amounts to casino operations. In particular –
1. Cash for chip (and vice versa) transactions taking place at the service desk;
2. Withdrawal of cash (terms unknown) by non-junket participants at the service
desk and other locations (including retail).
Mr Brodie’s “explicit concerns” in his evidence to the Review, when he said:
538
Well, the explicit concerns were in relation to needing to be sure that there weren’t
chip-cash or cash-chip exchanges going on in that area because there [were] no
licensed staff from Suncity – I mean, New South Wales Casino Control Act
licensed staff, and to allow those things to occur in that space would be in
contravention of a range of – a range of requirements, not least of which being that
exchanges like that are required to occur at a cage and either have chips issues or
a CPB issued. So we were keen to ensure that Suncity didn’t think that they had a
right to operate a cage in that environment as they – as they did in some other
environments in North Asia.
427. Counsel Assisting’s closing submissions, including further written submissions following
the conclusion of the public hearings, identified three general and separate bases on which
it was contended that the cage operations at the service desk in Salon 95 were unlawful:
first, that Suncity’s service desk operations in Salon 95 caused The Star to
contravene sections 12, 31 and 32 of the Unlawful Gambling Act 1998 (NSW)
(Unlawful Gambling Act) because those operations were not made lawful by
section 4 of the Casino Control Act;
secondly, that the service desk was functionally operating as a cage or cashier’s
desk and therefore:
such operations were required to comply with The Star’s ICMs that
regulated cage operations; and
the service desk operations did not, in certain particularised respects,
comply with the relevant ICMs and, accordingly, The Star contravened
section 124 of the Casino Control Act; and
thirdly, that chips for cash transactions took place at the service desk and as such
required The Star’s consent as per sub-sections 70(1)(i) and (2)(c) of the Casino
Control Act, and in the absence of such consent The Star contravened section
70(2)(c) in breach of a condition of its casino licence.
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428. The Star Entities provided written submissions to the Review addressing each of the above
issues. The Star Entities denied any contravention of the Unlawful Gambling Act or the
Casino Control Act resulting from the service desk’s operations in Salon 95.
13.17.2 Sections 12, 31 and 32 of the Unlawful Gambling Act 1998 (NSW)
429. To operate a casino in NSW, it is necessary to have a casino licence. That is because of
the combination of:
the prohibition of organising any “unlawful game” in sections 5 and 12 of the
Unlawful Gambling Act; and
the declaration in section 4 of the Casino Control Act as lawful, “[d]espite the
provisions of any other Act”, the conduct and playing of a game where the game is
conducted and the gaming equipment is provided by a licensed casino operator.
430. Section 25(1) of the Casino Control Act provides that if a casino licence is suspended, “it
is of no effect for the purposes of section 4”, which suggests that section 4 has the operative
effect just described. Similarly, section 7(e) of the Unlawful Gambling Act contemplates
that the Casino Control Act may declare certain gambling to be lawful.
431. More particularly, section 12 of the Unlawful Gambling Act provides:
12 Organising unlawful game
(1) A person must not –
(a) organise or conduct, or assist in organising or conducting, an unlawful game, or
(b) receive a percentage or share from any amount wagered on an unlawful game.
432. Section 5 of the Unlawful Gambling Act defines an “unlawful game” to include baccarat
(which was the game played in Salon 95).
433. Sections 31 and 32 of the Unlawful Gambling Act provide:
31 Using premises as gambling premises--offence by owner or occupier
A person who is the owner or occupier of any premises must not knowingly allow
the premises to be used as gambling premises.
32 Using premises as gambling premises--offence by operator
(1) The operator of any premises must not knowingly allow the premises to be used
as gambling premises.
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(2) For the purposes of this section, a person is the
“operator” of premises if the person--
(a) is employed by, or is acting for or on behalf of, the owner or occupier of
the premises, or
(b) has the care or management of the premises, or
(c) is, in any manner, conducting a business on the premises.
434. Section 4 of the Casino Control Act provides:
539
4 Gaming in licensed casino declared lawful
(1) Despite the provisions of any other Act or law but subject to this Act, the conduct
and playing of a game and the use of gaming equipment is lawful when the game is
conducted and the gaming equipment is provided in a casino by or on behalf of the
casino operator (that is, the holder of the licence for that casino under this Act).
(2) The Unlawful Gambling Act 1998 and the Community Gaming Act 2018 do not
apply to the conduct and playing of a game and the use of gaming equipment when
the game is conducted and the gaming equipment is provided in a casino by or on
behalf of the casino operator and in accordance with this Act, except to the extent (if
any) that the regulations otherwise provide.
435. To engage section 4 of the Casino Control Act, the relevant “game” is only lawful if two
conditions are satisfied:
first, the “game” must be “conducted” by a licensed casino operator; and
second, the “gaming equipment” must be provided by a licensed casino operator.
436. There is no evidence to suggest that the second requirement was not met in relation to
Salon 95. That is, there is no evidence to suggest that the gaming equipment comprising
the devices and things used for the baccarat played in Salon 95, including the chips, were
not provided by The Star.
437. But as to the first requirement, there is evidence – as Mr Power recorded in his email quoted
above – of there having been “Cash for chip (and vice versa) transactions” taking place in
Salon 95. Of the video footage from Salon 95 in evidence, the 8 May 2018 footage showed
chips being presented at the service desk and cash being provided to the person who
presented those chips in exchange for them. Similarly, Mr Hawkins gave this evidence:
540
Q: But you had been made aware, hadn’t you, of a number of instances where
cash and chips had been exchanged at the Suncity service desk?
A: I had, yes.
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438. Mr Bekier said in his evidence that “[a]ny cash exchange for chips should have been
happening at The Star main cage” and “it appears … there has been a series of
contraventions on that”.
541
439. If the concept of a “game” being “conducted” for the purposes of section 4 of the Casino
Control Act only involves the specific game itself (here, baccarat), then the transactions
referred to by Mr Power and shown in the 8 May 2018 footage would be irrelevant to a
consideration of section 4 of the Casino Control Act because those activities did not involve
baccarat. The Star Entities urged the Review to construe section 4 of the Casino Control
Act in that way.
542
440. However, the concept of a “game” being “conducted” for the purposes of section 4 of the
Casino Control Act could also sensibly be construed by reference to section 70 of the same
Act, which is entitled “Conduct of gaming”. Section 70(1)(c), (1)(j) and (2)(c) of the
Casino Control Act provide for the issuing of chips by or on behalf of the casino operator
for cash and the redemption of chips for cash with the casino operator’s concurrence. The
inclusion of those provisions in section 70, which provides for the conduct of gaming,
suggests that the concept of how a “game” is to be “conducted” in accordance with the
Casino Control Act includes complying with statutory requirements which apply both at
the stages of issuing and redeeming chips for cash. The issuing must be done by or on
behalf of the casino operator, and the redemption must be done with the casino operator’s
concurrence (or at least the particular redemption contemplated in section 70). That is not
to deny that chips may pass from patron to patron, or from junket representative to patron,
after being issued by The Star.
543
But in the overall context of a “game” being “conducted”
for the purposes of section 4, at the time of issue and at the time of redemption those things
must be done in accordance with section 70. And here, as The Star Entities submitted, the
service desk “was not used for activities of the staff of The Star at all”, and it would be
wrong to say that The Star permitted, allowed or concurred with any exchange at the service
desk of cash for chips, or chips for cash.
544
441. The consequences of those facts appear to be:
first, the “game” of baccarat may not always have been “conducted” (at least not in
full) in Salon 95 by The Star in the manner contemplated by section 4 of the Casino
Control Act – instead, the part of the game comprising the issue and/or redemption
of chips was on occasion conducted by Suncity, as acknowledged in Mr Power’s
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email, as could be seen in the 8 May 2018 video footage and as accepted by Mr
Hawkins and Mr Bekier; and
secondly, having regard to the history of the service desk in Salon 95, including Mr
Stevens’ knowingly misleading the regulator, the construction of the room,
allowing Suncity branding and allowing cash to be presented to that service desk
in accordance with Ms Arnott’s controls (even if not intended to be for chips or vice
versa), The Star may have “assist[ed] in organising or conducting” an unlawful
game for the purposes of section 12(1)(a) of the Unlawful Gambling Act.
442. By contrast it does not appear from the available evidence that The Star could be said to
have “knowingly allow[ed]” unlawful gambling in Salon 95 for the purposes of sections 31
and 32 of the Unlawful Gambling Act.
443. A contravention of section 12 of the Unlawful Gambling Act is a serious matter. It is a
criminal offence potentially punishable by a fine or even imprisonment. Having regard
both to the serious consequences of such a finding, and the ambiguity of “playing a game”
in section 4 of the Casino Control Act, no finding is made that there has been as a
contravention of section 12 of the Unlawful Gambling Act.
13.17.3 Section 124 of the Casino Control Act
The relevant ICMs
444. Section 124 of the Casino Control Act requires the casino operator to implement and
comply with internal controls to conduct its casino operations. ICMs are important features
of the casino regulatory framework in NSW. ICMs are required to be approved by the
Authority, and a failure by the licensee to conduct its operations in accordance with an ICM
constitutes a breach of a condition of the operator’s casino licence.
445. Sub-sections 124(1) and (4) of the Casino Control Act were relevantly amended with effect
from 21 December 2018. Those amendments made it an offence for a casino operator to
breach its own internal controls. These amendments to section 124 of the Casino Control
Act arose due to a concern expressed in the Casino Modernisation Review that the previous
form of the provision created uncertainty as to whether the Authority could take
disciplinary action if the operator breached an ICM.
446. Despite that concern, the pre-amendment form of the provision still required the casino
operator to comply with its own ICMs. However, before 21 December 2018 a failure to
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comply with an ICM gave rise to a breach of a licence condition, rather than a contravention
of the Casino Control Act. That distinction is a relevant one for present purposes, given
that Salon 95 was relevantly in operation from April 2018 until August 2019.
447. The following ICMs are relevant:
ICM 5 Casino Cage Operations (effective 13 November 2017) (ICM 5);
545
and
ICM 11 Casino Cage Operations (effective 21 December 2018) (ICM 11).
546
448. An ICM can be breached in one of two ways. First, an ICM may require a SOP to address
a particular risk and the operator could breach that ICM by failing to implement a procedure
that addresses that risk. Second, the ICM may stipulate a prescriptive rule and the operator
could directly breach that rule.
449. Counsel Assisting’s submission was that Suncity was, in practice, operating the service
desk as a “cashier’s cage”.
547
The submission is that the service desk’s operations were
functionally akin to a cashier’s cage and therefore should be held to the standards prescribed
under the relevant ICMs regulating cage operations. Counsel Assisting provided two
schedules, one each in respect of ICM 5 and ICM 11, particularising how The Star breached
each ICM.
450. The Star Entities submitted that ICM 5 and ICM 11 did not apply to the service desk’s
operations.
451. The Star Entities’ first submission was that the service desk’s operations did not satisfy the
definition of a “cage”. After noting that the Casino Control Act does not define the term
“cage”, The Star Entities relied upon the definition of a “cage” in ICM 11,
548
which was set
out in full in The Star Entities’ written submissions and is reproduced below:
549
A casino ‘Cage’ is a secure area within the casino where financial and related
transactions associated with the casino’s gaming operations are conducted. The Cage
is designed and constructed to provide maximum security for cash, customer
financial transactions and staff activities within the casino.
In addition to physical Cage locations, there may also be standalone Cage desks
located in the Private Gaming Areas. These desks are capable of being secured and
have surveillance system coverage and duress alarms to enable all Cage functions to
be performed at these locations.
The Cage maintains custody of assets and inventories, including currency, patron
cheques, gaming chips, gaming plaques, promotional vouchers, forms, documents
and records associated with the operation of the Cage. It also facilitates the secure
approval, exchange, redemption, substitution and consolidation of cheques received
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for the purpose of gaming, as well as the receipt, distribution and redemption of
gaming chips and plaques and other functions associated with the operation of the
Cage.
Collectively, these transactions contribute to a complex operating environment that
requires effective controls, policies and procedures in place to remove opportunity
and motivation for theft or fraud, to promote best practice, to identify mistakes and
anomalies quickly and to take corrective action to minimise loss.
These controls are designed to provide reasonable assurance that the material risks
associated with Cage activities will not occur and adversely affect the integrity of
the casino, its obligation to provide accurate revenue, duty and levy calculations and
the objective to operate in the public interest.
452. The Star Entities submitted that:
550
The service desk at Salon 95 does not meet this description. It was not used to store
cash, chips or other assets in The Star’s possession. It was not used to conduct
transactions to which The Star was a party. It was not used for recording such
transactions. It was not used for activities of the staff of The Star at all.
453. The Star Entities’ second and third submissions were to the effect that The Star did not
permit or allow Suncity to exchange cash for chips at the service, and further, Suncity did
not comply with The Star’s directions “on some occasions in 2018” to cease cash
transactions at the service desk.
551
454. The Star Entities’ fourth submission was that merely because chips are exchanged for cash
at a location in the casino does not render that location part of the casino cage for the
purposes of ICM 5 and ICM 11.
552
455. The Star Entities’ fifth submission was to rely upon the exemption to the “special
employee” regime under the Casino Control Regulation for junket representatives to
submit that, in effect, the exemption permits junket representatives to engage in cage
functions.
553
456. The Star Entities did not otherwise make any submissions addressing the specific alleged
breaches of ICM 5 and ICM 11 as particularised in Counsel Assisting’s two schedules.
The Review’s determination of the issue
457. Under section 124(1) of the Casino Control Act, both ICM 5 and ICM 11 were required to
be approved by the Authority. It is therefore important to keep in mind the primary objects
of the Casino Control Act as provided for in section 4A(1). That provision states:
(1) Among the primary objects of this Act are:
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(a) ensuring that the management and operation of a casino remain free from
criminal influence or exploitation, and
(b) ensuring that gaming in a casino is conducted honestly, and
(c) containing and controlling the potential of a casino to cause harm to the public
interest and to individuals and families.
458. ICM 5 and ICM 11 were prepared with those primary objects in mind. So much is evident
from the “Process Objectives” in ICM 5 and the “Compliance Principles” in ICM 11.
459. Contrary to the first submission of The Star Entities, on those occasions in 2018 when
cash/chip exchanges were occurring at the service desk, the service desk in Salon 95 was
functioning as a cage. Financial transactions associated with the casino’s gaming
operations were being conducted there. In particular, cash was counted and stored in the
service desk area and Suncity staff facilitated the exchange and redemption for cash of
chips which were used for gaming in the salon. This is supported by the CCTV footage
showing the exchange of cash for chips. It also appears to be precisely what Mr Brodie
called the “explicit concerns” in his evidence.
554
460. That risk is what eventuated. This is supported by Mr Hawkins’ evidence. Mr Hawkins
accepted the characterisation that the concerning transactions from early 2018 showed that
the service desk in Salon 95 was being used as a “casino cage”. Mr Hawkins’ evidence
was as follows:
555
Q: And you recall, don’t you, that there were issues in early 2018 about cash
transactions taking place at the service desk in salon –
A: Yes. I'm aware of that.
Q: And what were those issues you recall?
A: They included the exchange of cash for chips at the service desk. And I
think there was representation of a non-junket participant in the room. And
there was also the – a – the identification of a transfer of cash that had
occurred in the room as well.
Q: And what was the problem with this?
A: Well, they weren’t expressly permitted to be occurring at that particular
service desk.
Q: Because isn’t the issue here that the service desk was being used like a
casino cage?
A: Yes. There was transactions identified there that were certainly not
appropriate.
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Q: Because the correct position, isn’t it, that cash should only be exchanged for
chips at the cage?
A: That’s right.
Q: Of the casino operator?
A: Yes.
Q: And vice versa, being chips should only be exchanged for cash at the cage?
A: That's right. Yes.
Q: But you had been made aware, hadn’t you, of a number of instances where
cash and chips had been exchanged at the Suncity service desk?
A: I had, yes.
461. The subjective understanding of Mr Hawkins is of course not determinative. However, Mr
Hawkins has considerable experience in the casino industry, he was the Chief Casino
Officer in NSW from April 2020 and Salon 95 was part of The Star Casino when he was
its Managing Director.
556
Mr Hawkins did not express any disagreement with the
description or characterisation that the unauthorised transactions at the service desk were
in effect the operations of a “casino cage”.
462. Another example of such evidence of Mr Hawkins was as follows:
557
Q: Now, it’s a big problem for the casino operator, isn’t it, if some other
organisation is operating a pseudo cage in its casino?
A: Yes.
Q: Because that other organisation is not licensed to operate a casino?
A: That’s correct.
Q: All right. So it was very important for you to take steps to ensure that there
was no pseudo cage in operation at The Star in Sydney?
A: That’s right.
Q: But it’s right, isn’t it, that even after this letter was sent, we saw – or you
saw examples of a pseudo cage in operation?
A: Yes. After the first letter was issued, there was further issues that occurred
in the room. That’s right.
463. This is frank evidence being given by the Chief Casino Officer who was still employed in
such capacity at the time he gave that evidence. Again, Mr Hawkins’ opinion of whether
the service desk was being used as a “pseudo cage” is not determinative of the question.
However, it shows a very experienced and senior casino executive accepting the
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characterisation of the unauthorised transactions at the service desk as performing cage-
like functions.
464. Mr Bekier gave similar evidence:
558
A: With Salon 95, we – as I understand it now, we let a number
of – we let a behaviour persist that was in contravention of all rules and
regulations that we operate under.
Q: And what do you mean by “in contravention of all rules and regulations”
you operate under?
A: Well, we – you know, we – we only have one main cage. All financial
transactions should have gone through the main cage. Any cash exchange
for chips should have been happening at The Star main cage. And, you
know, it appears from what I’m – I’ve read since that, you know, there has
been a series of contraventions on that.
465. This is a further example of a senior and experienced casino executive explaining how the
cash transactions that took place at the service desk should have taken place at The Star’s
casino cage. Again, this shows that by the service desk accepting and performing such
transaction, it was performing cage functions.
466. Applying the applicable ICM governing cage operations to all areas of the casino which
are performing such cage functions, or more specifically, which are engaging in cage
practices which give rise to the risks identified in the relevant ICM, would appear to be the
correct approach having regard to the objects in section 4A(1) of the Casino Control Act.
467. In these circumstances ICM 5 or ICM 11 should be interpreted to apply to all cage
operations in The Star Casino, including the service desk’s operations. When the service
desk was functioning as a cage, its operations should be held to the standard set by those
internal controls for cage operations.
468. Any “floodgates” rejoinder contending that this analysis means that ICM 5 or ICM 11
would apply whenever one patron privately exchanged chips for cash with another patron
ignores that any such transaction is not an analogue of the service desk and does not in any
sense involve “operations in the casino”, to use the language of section 124 of the Casino
Control Act. The service desk was established at a permanent location in the casino and its
operations were governed by an agreement between The Star and Mr Iek.
469. In relation to the second and third submissions of The Star Entities, it is true that, although
it originally countenanced such operations occurring, at least by April 2018 The Star did
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not approve of the service desk functioning as a cage. It is also true that the operation of
the service desk as a cage was contrary to The Star’s directions. Nevertheless, The Star
knew of the cash transactions taking place. The Star could have elected to shut down the
service desk but chose not to. Moreover, The Star always retained operational and
management control of Salon 95 under clause 6 of both the 2017 and 2018 Rebate
Agreements. That control extended to what was described in both agreements as the
“Cage” in the gaming salon.
470. The unauthorised character of the service desk’s cage operations does not alter the proper
characterisation of those operations: they were cage operations, albeit not sanctioned by the
licensee. It is appropriate in these circumstances to apply the ICMs that were approved by
the Authority to regulate cage operations on casino premises.
471. The fourth submission of The Star Entities ignores the evidence of the nature and scale of
the cash/chip transactions taking place at the service desk, with CCTV footage depicting
large sums of cash being counted at the service desk, and clearly identifying the risks
occasioned by those transactions. The evidence demonstrates the persistent use of the
service desk in an unauthorised manner. The risks identified in ICM 5 (e.g. “Poor
accountability, non-reporting, or errors in the conduct and/or recording of Cage
transactions”) or in ICM 11 (e.g. “Procedures are not in place to maintain the integrity of
the Cage”) were risks that applied to the service desk’s operations. ICM 5 and ICM 11
should be applied to assess whether The Star took appropriate steps to address such risks.
472. In relation to the fifth submission of The Star Entities, it is not accepted that ICM 5 and
ICM 11, which were required to be approved by the Authority, only applied to cage
operations run by the casino licensee. The ICMs are risk-based. If a cage is in operation
on casino premises, then the risks are of the same nature, whether that cage is operated by
casino staff or by junket representatives.
473. The Star Entities have not put forward any compelling reason why ICM 5 and ICM 11
should not be applied to the service desk’s operations. It is also telling that The Star Entities
did not attempt to defend the service desk’s cage operations when tested against the
standards imposed by ICM 5 and ICM 11. Despite that omission, it is necessary to consider
the service desk’s cage operations as against ICM 5 and ICM 11.
474. ICM 5 was effective between 13 November 2017 until 21 December 2018. At the beginning
of the document, ICM 5 provides a “Process Description” which states:
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Procedures within a cashier’s cage for the receipt, storage and disbursement of chips
and cash, redemption and recording of chips and chip inventories and recording of
Cage transactions pertaining to gaming operations.
Procedures and forms for the transfer of chips between a cashier’s cage and gaming
tables and/or gaming areas throughout the casino.
Procedures for the payment and recording of winnings where the winnings are paid
by cash, cheque or in a non-monetary form.
Procedures for the issue of chip purchase vouchers and the recording of transactions
in connection therewith.
475. ICM 5 then sets out “Regulatory Principles” which mirror the primary objects set out in
section 4A(1) of the Casino Control Act. The ICM then sets out “Process Objectives” such
as:
1. To ensure that all Casino Cage assets/inventories are securely stored and are
properly accounted for.
2. To ensure that all Cage transactions are conducted and recorded in an
authorised, accurate and structured manner to ensure proper accountability
of cash and cash equivalents.
3. To ensure that all Cage transactions involving chips are conducted in an
authorised, accurate and structured manner to ensure proper accountability
of chip inventories and chip movements.
4. To complement The Star’s obligations under the Anti-Money Laundering
and Counter -Terrorism Financing Act 2006.
476. ICM 5 then identifies certain “Risks”, which are broadly related to the “Process
Objectives”. Following the “Risks” section, the ICM then provides 39 paragraphs or
internal controls.
477. The following sub-paragraphs in ICM 5(2) are:
2. The Cash Services Manager shall ensure that Standard Operating
Procedures, referred to in Cage Operations SOP Tasks 38, 52 and 53, are in
place to ensure that all gaming machine redeemable tickets/chips/cash/cash
equivalent transactions with patrons or other areas within all Casino Cages,
the secure area which houses the Casino Cashiers and serves as the central
location in the gaming facility for financial transactions associated with the
operation of the casino, are conducted and recorded in a manner that enables
any error or nonconformity to be readily identified and rectified and/or
investigated for fraudulent activity. Systems and processes are to include,
at minimum, the following: (A-G)
a) CCTV coverage of all areas within all Casino Cages to allow colour
recording of chip fills and credits going into and out of all Chip Banks;
b) all transactions are to be performed in designated working areas to ensure
full CCTV coverage;
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…
e) Cage personnel conducting transactions for guests involving exchange or
issuance shall place chip/cash/cash equivalent/gaming machine redeemable
tickets on the surface of the counter, and not pass these value items from
hand to hand. All chips are to be cut down or proven in accordance with
Standard Operating Procedures referred to in Cage Operations SOP Task 38
Exchanging Chips For Cash;
f) all cash received from or issued to a patron is to be counted and displayed
in the designated working area in such a manner as to be readily verified by
Cage personnel, patrons and Surveillance. Surveillance may verify cash
issued via a note counter display at the window location if a counting device
is being used;
g) Cage personnel are required to show “clean hands” (open palms upturned)
prior to and after picking up chip/cash/cash equivalent/gaming machine
redeemable tickets;
478. Counsel Assisting submitted that The Star was required to implement SOPs for the service
desk in Salon 95 in accordance with these sub-paragraphs. Counsel Assisting’s
submissions particularised the way in which the Service Desk SOP did not comply with the
above sub-paragraphs.
479. While the Service Desk SOP had shortcomings, it is clear that the Service Desk SOP was
never prepared as an “official” SOP as developed in connection with an ICM, in this case
ICM 5. It is therefore not found that the Service Desk SOP breached ICM 5 in the ways
particularised by Counsel Assisting.
480. Counsel Assisting also further submitted that the operation of the service desk constituted
a direct breach of ICM 5(24), which stated:
24. Cage personnel are to undertake approved training and be certified for
competency. Training is to include the security features of genuine currency
and cash equivalents and the detection of counterfeit currency and cash
equivalents. (B, D)
…
36. The Cash Services Manager shall ensure that access to Chip Purchase Desks
is to be restricted to cage licensed staff, Security Supervisor and above, and
Assistant Gaming Manager and above only. (A,C)
481. Counsel Assisting particularised the breaches by The Star of each control as follows
(footnotes omitted):
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ICM 5(24): “The Suncity staff in Salon 95 did not hold certificates of competency
as they were not licensed employees, and there is no evidence of any training
undertaken by Suncity staff”; and
ICM 5(36): “It is not clear whether the service desk in Salon 95 was a ‘Chip
Purchase Desk’. If it was, it was being accessed and operated by unlicensed Suncity
employees”.
482. Regarding ICM 5(24), it is the case that the Suncity staff did not hold certificates of
competency and were not licensed as “special employees”. Indeed, The Star Entities’ fifth
submission was that junket representatives were not required to be licensed as special
employees due to the exemption arising under regulation 6(3) of the Casino Control
Regulation.
559
However, it does not therefore follow that ICM 5(24) should be read as also
creating an exception for junket staff who are engaging in clear cage functions as revealed
between late April and late May 2018.
483. ICM 5(24) should be interpreted as effectively making it impossible for an unlicensed third-
party entity to operate a cage at the casino. The ICM should be interpreted as applying to
any part of the casino where there is clear evidence of the performance of cage functions.
There was such evidence, and that was also the view of Mr Hawkins and Mr Bekier.
484. ICM 5(24) is interpreted to have the effect that only individuals who were properly trained
and licensed could permissibly perform such transactions on casino property.
485. It was a very concerning situation whereby Suncity staff were not trained or licensed to
perform the cage functions that the evidence reveals took place in Salon 95 between late
April and late May 2018. It is concluded that in those circumstances, there were
contraventions of ICM 5(24). The Star had an obligation to implement that control with
respect to the service desk and it failed to do so. Indeed, The Star always retained
operational control of the salon.
486. Regarding ICM 5(36), the meaning of “Chip Purchase Desk” in ICM 5(36), as distinct from
general cage functions, is not sufficiently clear to make a finding that the control was
breached. That being said, it seems likely that the service desk was being operated as a
chip buy-in desk between late April and late May 2018, and so there is a very real question
whether ICM 5(36) means that only licensed staff may access such desks. No finding is
made in that regard.
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487. Counsel Assisting also raised for consideration ICM 5(25), which states:
25. Standard Operating Procedures, referred to in Cage Operations SOP Task
3, 13, 38, 39, 40, 41,44, 67, 68, are in place, including regular training, to
ensure that all reporting requirements under the Anti Money Laundering
and Counter Terrorism Financing (AML/ CTF) Act 2006 relating to
threshold transactions, suspicious matters and international funds transfer
instructions (IFTI transactions) are complied with. (B, E)
488. Counsel Assisting submitted that this was a prescriptive rule capable of direct breach by
The Star. That submission is not accepted given that ICM 5(25) seems to apply to SOPs
already in place.
489. ICM 11 was effective from 21 December 2018. Counsel Assisting made further
submissions particularising breaches of the service desk’s operations under ICM 11.
However, there was not sufficiently cogent evidence of the concerns that emerged
regarding the service desk’s operations during the currency of ICM 11. The evidence that
emerged in May and June 2019, while very concerning regarding the existence of cash at
the service desk and covert practices being raised by Mr Tomkins in his email of 24 June
2019, there was no CCTV footage or contemporaneous written materials to support
findings of the service desk’s non-compliant cage operations contrary to ICM 11. In other
words, the evidence did not have the high level of cogency and sheer volume as compared
to the evidence for the period between the middle of April and late May 2018. No finding
is made of breaches under ICM 11.
490. In summary, there is sufficient evidence that from late April to late May 2018, non-
compliant cage operations took place at the service desk in Salon 95 contrary to ICM 5(24).
That was a breach by The Star given that the non-compliance took place on casino property
and in circumstances where The Star retained operational control of Salon 95.
491. The findings of a breach in relation to ICM 5 amount to breaches by The Star of a condition
of its casino licence. This is due to the form of section 124(4) of the Casino Control Act
before 21 December 2018. These were continuing breaches of The Star’s casino licence
that occurred from late April to late May 2018. A recommendation is made below that the
Authority note the Review’s findings of breaches and take such further action as it sees fit.
13.17.4 Section 70 of the Casino Control Act
492. A further provision to consider is section 70 of the Casino Control Act. From 18 May 2010
until 21 December 2018, sub-sections 70(1)(i) and (2)(c) relevantly stated:
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70 Conduct of gaming
(1) It is a condition of a casino licence that the following provisions are complied
with in the casino and the casino operator is to be considered to have contravened
that condition if they are not complied with:
...
(i) during the times the casino is open to the public for gaming the
requirements of subsection (2) are complied with in relation to the exchange
and redemption of chips and chip purchase vouchers issued by the casino
operator.
(2) The requirements for the exchange and redemption of chips and chip purchase
vouchers are as follows:
...
(c) chips or chip purchase vouchers are to be redeemed for a cheque at the
request of the patron (if the patron requests a cheque), or wholly or partly
for money (with a cheque for any balance) if the patron so requests and the
casino operator concurs,
...
Note—
The requirements in subsection (2) are subject to the operation of the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 of the Commonwealth.
493. Counsel Assisting submitted that those sub-sections when construed together had the effect
that:
[I]t was a condition of The Star’s casino licence that any chips for cash transaction
that took place during the times the casino was open to the public for gaming could
only occur upon the patron’s request and with The Star’s concurrence.
494. Counsel Assisting’s core submission was that the evidence showed that chips for cash
transactions took place at the service desk without The Star’s approval. It therefore
followed that such transactions, if taking place without The Star’s “concurrence”, caused
The Star to contravene sub-section 70(2)(c) of the Casino Control Act and therefore breach
the licence condition stipulated in sub-section 70(1)(i).
495. In response, The Star Entities made three submissions. The first was that sub-section
70(2)(c) needed to be read alongside sub-sections 70(2)(a) and (b). From 18 May 2010
until 21 December 2018, those three sub-sections stated:
(a) chip purchase vouchers are to be exchanged for chips at the request of the patron,
(b) chips are to be exchanged for other chips at the request of the patron,
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(c) chips or chip purchase vouchers are to be redeemed for a cheque at the request of
the patron (if the patron requests a cheque), or wholly or partly for money (with a
cheque for any balance) if the patron so requests and the casino operator concurs,
496. The submission was, in effect, that there are words missing from each of these sub-sections,
that is, each sub-section only applies to conduct “by or on behalf of the casino operator”.
The Star Entities contended that sub-sections 70(2)(a) and (b) could only be directed to
exchanges “by or on behalf of the casino operator”. This is because, were it otherwise, the
absurdity would arise that, to use The Star Entities’ example, “the casino operator would
breach its licence condition every time one patron refused another patron’s request to
exchange chips of equal value”. It follows therefore, as the submission went, that sub-
section 70(2)(c) only gave rise to an absolute requirement that The Star redeem chips for
money if two conditions are satisfied, namely, that the patron requests a redemption of
chips for money and the casino operator concurs. It is not clear whether The Star Entities
were submitting that the first condition was that the patron’s request needed to be made to
the casino operator.
497. Relatedly, The Star’s Entities second submission was that sub-sections 70(2)(a), (b) and (c)
of the Casino Control Act only impose positive requirements that ensure certain actions
occur if conditions are met. Those sub-sections, it was submitted, are not prohibitive. The
submissions of The Star Entities took issue with Counsel Assisting implicitly reading into
sub-section 70(2)(c) the word “only”, that is, “chips … are [only] to be redeemed … for
money … if the patron so requests and the casino operator concurs”. The Star Entities
submitted there was no cause for reading the sub-section in that way.
498. The Star Entities’ third submission was that Counsel Assisting’s construction would lead
to absurd results. The Star Entities submitted that it would not be possible for a casino
operator to exclude the possibility that one patron provides another patron with a chip for
cash inside the casino. The Star Entities submitted that on Counsel Assisting’s
interpretation every such occasion would give rise to a breach by the casino operator of a
condition of its licence. The Star Entities contended that this was not consistent with “the
plain statutory purpose” of sub-sections 70(1)(i) and (2)(a)-(c) of the Casino Control Act.
499. These submissions arise in a different context from the question considered earlier in this
Chapter about the concept of authorised “conduct” of a “game” for the purposes of section
4 of the Casino Control Act, as informed by section 70. Instead, the question here is a
specific one as to whether section 70 was contravened.
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500. Sub-section 70(2)(c) applies by virtue of sub-section 70(1)(i), which provides that it is a
“condition” of The Star’s licence that the requirements of subsection (2) “are complied with
and the casino operator is to be considered to have contravened that condition if they are
not complied with”.
501. In that regard the requirement in sub-section 70(2)(c) appears to be a mandatory one, in
relation to the redemption of chips.
502. According to the Oxford English Dictionary, the word “redemption” can mean “[t]he
presentation of something in exchange for a promised money value, esp. the exchange of
trading stamps, coupons, etc., for cash, goods, or services”.
560
There is evidence that this
is what occurred at the service desk in Salon 95: chips were presented in exchange for cash.
503. Reading sub-section 70(2)(c) of the Casino Control Act using that meaning of
“redemption” would mean that there was a breach of section 70 of the Casino Control Act
every time that Suncity staff at the service desk exchanged cash for chips, which was done
without The Star’s concurrence.
504. However that approach to the interpretation of “redemption” would equate the term with
“exchange” whereas sub-section 70(2) of the Casino Control Act clearly treats “exchange”
and “redemption” as separate concepts. It is the “redemption” of chips for money which
must occur with the concurrence of the casino operator.
505. The Oxford English Dictionary also defines “redeem” as “gain or regain possession of
(something) in exchange for payment”. Using the word in this sense more sensibly
connotes the casino operator regaining possession of the chips (i.e. the casino operator’s
own gaming equipment which it has been licensed to issue) in exchange for payment. If
this is the correct interpretation of sub-section 70(2)(c) then Suncity may have been
exchanging chips for cash at the service desk without the redemption of the chips by the
casino operator.
506. A breach of section 70 would be a breach of The Star’s licence, not an offence under the
Casino Control Act and not a criminal offence (cf. the potential contraventions of the
Unlawful Gambling Act addressed earlier). Nonetheless, the ambiguity in sub-section 70
(2) is such that it would be unsafe to make a finding that the sub-section was breached when
chip for cash exchanges were occurring at the service desk in Salon 95. It is noted that the
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Amendment Act will now make the position much clearer in future. It includes the following
new provision:
[57] Section 70(1AA)–(1AD)
Insert after section 70(1)—
(1AA) A casino operator must not allow the issue of chips for gaming in the casino
other than—
(a) between a casino employee and a patron, and
(b) at a gaming table or in a casino cage.
Maximum penalty—1,000 penalty units.
(1AB) A casino employee must not issue chips for gaming in the casino other than at a
gaming table or in a casino cage.
Maximum penalty—100 penalty units.
(1AC) Subclauses (1AA) and (1AB) do not apply to chips issued for use—
(a) in a tournament, or
(b) for training purposes.
(1AD) The regulations may provide for matters relating to the issue of chips in casino cages.
507. Had section 70(1AA) of the Casino Control Act been in force in 2018, it would have been
a clear breach of the provision by The Star in connection with the cash for chip exchanges
in Salon 95.
Chapter 13.18 Conclusions and Recommendations
508. The Star Entities ultimately accepted many of the shortcomings exposed by the Review’s
investigation into the Suncity relationship. Indeed, The Star accepted that “its dealings
with Suncity involved significant errors of judgment on the part of its employees and
involved significant cultural issues in an important segment of the organisation”.
561
509. While The Star and Star Entertainment were no doubt let down by various employees in
relation to Suncity during the Relevant Period, responsibility for the shortcomings and key
errors of judgement ultimately rests with the casino operator and its parent company given
the obvious cultural problems that provided the context for many, if not all, of those flawed
decisions. There was a culture at The Star and Star Entertainment that prioritised perceived
business interests over compliance. A by-product of that culture was senior management
failing to appreciate the importance of transparency in dealings with the Authority (and its
many regulatory manifestations and agents), and that failure even spilled over into senior
management’s less than candid dealings with the Board of Star Entertainment. The
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governance and cultural implications of The Star’s dealings with Suncity are considered
further in Chapter 26.
510. The knowingly misleading submission of 12 October 2017 by The Star’s chief liaison
officer to L&GNSW as to the intended purpose of the installation of the window at the
service desk is devastating for the confidence that the Authority and the NSW public can
have in The Star.
562
The supply of misinformation to the regulator on a subject that was to
become so marred with controversy throughout the Relevant Period (i.e. the operation of
the service desk in Salon 95) only exacerbates the seriousness of the conduct.
511. All individuals involved in the process which led to the emergence of Suncity’s ability to
handle cash at the service desk in Salon 95 must bear some responsibility for that
occurrence. Indeed, the fact that the salon and the service desk began operating before the
risk assessment was completed, in a context of pressure being exerted by the junket and
particularly some individuals in the VIP business to have the room open for business by
the middle or late April 2018, is not something that the casino operator should have
facilitated.
512. The Star and Star Entertainment ultimately bear responsibility for the emergence of what
became a cash desk in Salon 95, which gave rise to serious money laundering risks. Both
pieces of CCTV footage of 18 April 2018 showed large sums of cash coming into Salon
95, and the CCTV footage of 8 May 2018 showed “one-for-one” chips for cash transaction
taking place over the service desk. The contemporaneous emails and written records also
showed that non-junket participants may have been using the service desk. By early May
2018, the service desk was clearly engaging in functions that should have been performed
within the secure confines of the casino-run cage.
513. The Star’s response to that situation whereby many, if not all, of the risks identified in Ms
Arnott’s risk assessment of 27 April 2018 had been realised, was inappropriate. The service
desk should have been shut down once the concerning reports first emerged in late April
2018. It should have been a simple decision for the operator. Instead, on 10 May 2018 a
mere warning letter was issued by Mr Hawkins. That decision was a commercially
convenient one. It allowed The Star to continue receiving the revenue Salon 95 was helping
it secure, while also giving rise to the perception that some action was being taken in
response to severe and obvious risks. A seriously worded letter was not enough.
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514. Mr McGregor’s 14 May 2018 email sounded the siren that Suncity was “operating a
business model under our noses which is problematic for the SEG with regards to
AML/CTF Laws”, and on 15 May 2018 Mr Power frankly advised Mr Hawkins of the
“unacceptable risks” the casino operator was taking in allowing the operation of the service
desk in Salon 95, including potential breaches of the Casino Control Act.
515. However The Star instead elected to issue the Service Desk SOP which sought to impose a
hybrid service desk model which allowed cash transactions but attempted to prevent the
desk from being abused as an unauthorised cage. That hybrid model depended on the
compliance of a third-party junket which had already shown poor compliance, to put it very
mildly.
516. Sure enough, further concerning transactions emerged from Salon 95 in late May 2018. The
necessary course of action for the casino operator was to terminate the service desk
privilege. Instead, in what was a weak and disproportionate response, a further warning
letter was delivered to the junket on 8 June 2018. A second seriously worded letter was
obviously inadequate to deal with the gravity of the situation.
517. Evidence of disturbing activities continued to emerge from Salon 95, as was seen in the
troubling balcony blind-spot footage of 15 June 2018. The misguided approach of the
casino operator was rounded off when in late June 2018 the rebate agreement with Mr Iek
was renewed, with the agreement acknowledging the continuation of the Salon 95 service
desk privilege rather than its cessation.
518. Those errors of judgment all occurred in an environment where the Board of Star
Entertainment was not told the full story. The May 2018 Board report buried the concerns
of Salon 95 in oblique language, and so Salon 95 was allowed to continue for the rest of
2018 and well into 2019. Based on the evidence given by the non-executive directors, all
of whom were shown to be genuinely dismayed by the extent of the revelations from Salon
95, it is likely that they would have taken appropriate action and at the very least directed
the immediate closure of Salon 95 pending a full-scale investigation into the relationship
with Suncity.
519. On 23 May 2019, Mr Stevens completed an “audit” of Suncity’s compliance with the
Service Desk SOP. Mr Stevens gave Suncity a “Satisfactory” rating and concluded that
the concerning events of 2018 were no longer occurring. Mr Stevens’ conclusions were
almost immediately discredited with further disturbing transactions in Salon 95 uncovered
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by Mr Tomkins in late June 2019, which were corroborated by Mr McGregor’s
investigations into the salon at that time. These further revelations serve to highlight the
enormity of the risk the casino operator was taking in continuing to confer to Suncity the
service desk privilege and how those risks were still being realised as late as May and June
2019.
520. As it was, Mr Stevens knew of those further instances of non-compliance by the junket,
and yet he did not amend the findings of his 23 May 2019 audit. That failure led to other
members of the business, such as Mr Buchanan, relying on the report to support the ongoing
relationship with Suncity and Mr Chau.
521. It was in June 2019 that certain officers of Star Entertainment came into possession of the
HKJC Report. That was timely for in late July and in August 2019, Star Entertainment’s
main competitor, Crown Resorts, came under close scrutiny from the media for its dealings
with Suncity. The media’s allegations against Suncity were supported by the information
raised in the HKJC Report and also, critically, the decision taken by the Hong Kong Jockey
Club based on that information. Instead of senior management of Star Entertainment
electing to give appropriate weight to the report and advise against the continuation of the
relationship with Suncity, the report was unjustifiably dismissed by certain officers.
522. In August and September 2019, senior management had the opportunity to be frank and
candid with the Board and the Authority about the serious issues with the past and ongoing
dealings with Suncity and Mr Chau. The 15 August 2019 Board paper did not disclose the
possession of the HKJC Report within Star Entertainment. The response to L&GNSW in
the 10 September 2019 did not reveal the concerning cash transactions from Salon 95 and
was not a transparent communication. These were two instances of less than candid
communications with two very important bodies, namely, the Board of Star Entertainment
and L&GNSW performing a regulatory function of the Authority.
523. All the while, in September 2019 Suncity moved from Salon 95 into Salon 82 without the
casino operator performing any risk assessment to test the appropriateness of maintaining
the relationship in the face of the media squarely calling into to question Suncity and Mr
Chau’s probity. This was a further instance of perceived business interests prevailing over
compliance objectives.
524. In late 2020, further controversy emerged with Mr Buchanan’s preparation of a due
diligence report into Suncity and Mr Chau. Mr Buchanan’s original draft of the 1 October
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2020 memorandum contained frank and substantiated criticisms that did not appear in the
subsequent 24 November 2020 or 7 January 2021 versions. The interventions to delete
criticism of Star Entertainment had the effect of depriving the business of Mr Buchanan’s
frank and unedited assessment of Suncity and Mr Chau. This represented a breakdown in
Star Entertainment’s due diligence processes and highlighted a cultural problem.
525. In August 2021 Mr Buchanan made a recommendation as part of “Project Congo” that a
relationship with Mr Chau could be managed, albeit with stringent risk management
processes in place. That recommendation was accepted by Mr Houlihan. The decision to
continue a relationship with Mr Chau was at the very least a misapplication of the “good
repute” test which The Star should have understood as applicable by that time.
526. A finding has also been made in relation to Salon 95 that what took place at the service
desk was a breach of ICM 5(24) and therefore a breach of The Star’s casino licence by
virtue of section 124 of the Casino Control Act at that time. Even if that finding is wrong,
The Star courted the risk of that contravention.
527. Recommendation: It is recommended that the Authority note and take such action as it
sees fit in relation to the Review’s finding of The Star’s breaches of ICM5(24) in
connection with the cage operations in Salon 95 in 2018.
528. Recommendation: It is recommended that the Authority note and take such action as it
sees fit in relation to the Review’s finding of The Star’s breaches of its warranties under
paragraph 3 of Schedule 3 of the Casino Operations Agreement and paragraphs 1 (b) and 7
(c) of the Amended Compliance Deed in connection with Mr Stevens’ misleading
submission to L&GNSW in 2017 concerning the proposed services to be provided at the
Service Desk in Salon 95.
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Endnotes
1
Exhibit A-509 (STA.3009.0005.0055).
2
Exhibit B-15, (STA.3009.0005.0061).
3
Exhibit A-378, para [48], [49(a)], [80] (INQ.002.004.0109 at .0118 - .0120, .0125).
4
Ibid para 49-50 at .0120.
5
Ibid para [48] at .0118.
6
Exhibit B-435 (STA.5002.0003.1476 at .1491); Hawkins: Day 22, T2538.11-15.
7
Exhibit B-645 (STA.3008.0004.0531 at .0531); Exhibit C-34 (STA.5002.0004.0874).
8
Exhibit A-378, para 122 (INQ.002.004.0109 at .0130).
9
Exhibit B-383 (STA.0006.0002.0405).
10
Exhibit B-412 (STA.3008.0004.0697 at .0703).
11
Brodie: Day 21, T2391.4-15.
12
Brodie: Day 21, T2383.1-9.
13
Exhibit B-383 (STA.0006.0002.0405 at .0415).
14
Exhibit A-378, para [103] (INQ.002.004.0109 at .0127).
15
Stevens: Day 7, T689.9-12; Exhibit A-378, para [31] (INQ.002.004.0109 at .0113).
16
Stevens: Day 7, T689:11-12.
17
Stevens: Day 7, T689:11-12.
18
Hawkins: Day 22, T2547.44-2548.13.
19
Exhibit D-5 (STA.3023.0001.0628).
20
Exhibit B-383 (STA.0006.0002.0405 at .0419).
21
Stevens: Day 7, T759.18-22.
22
Buchannan: Day 5, T481.24-31; Stevens: Day 7, T740.4-8.
23
Stevens: Day 7, T712.11-14 (Stevens).
24
Exhibit B-412 (STA.3008.0004.0697).
25
Ibid at .0705.
26
Ibid.
27
Whytcross: Day 10, T1097.10-36.
28
Exhibit B-412 (STA.3008.0004.0697 at .0703).
29
Ibid at .0702.
30
Whytcross: Day 10, T1098.14-19.
31
Exhibit B-412 (STA.3008.0004.0697 at .0709).
32
Whytcross: Day 10, T1096.29-38..
33
Exhibit B-412 (STA.3008.0004.0697 at .0701).
34
Ibid.
35
Whytcross: Day 10, T1098.34-1099.14.
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36
Whytcross: Day 10, T1099.4-5.
37
Exhibit A-1322, para [3(e)] (INQ.002.004.0021 at .0021)
38
Stevens: Day 7, T690.16-691.11.
39
Stevens: Day 7, T691.31.
40
Stevens: Day 7, T686.46-687.1.
41
Exhibit F-65 (STA.3417.0078.6717); Exhibit F-66 (STA.3417.0078.6718); Exhibit F-67
(STA.3417.0078.6719); Exhibit F-68 (STA.3417.0078.6720); Exhibit F-69 (STA.3417.0078.6721);
Exhibit F-70 (STA.3417.0078.6722); Exhibit F-71 (STA.3417.0078.6723); Exhibit F-72
(STA.3417.0078.6724); Exhibit F-73 (STA.3417.0078.6725); Exhibit F-74 (STA.3417.0078.6726).
42
Exhibit F-65 (STA.3417.0078.6717).
43
Exhibit F-65 (STA.3417.0078.6717); Exhibit F-66 (STA.3417.0078.6718); Exhibit F-67
(STA.3417.0078.6719); Exhibit F-68 (STA.3417.0078.6720); Exhibit F-69 (STA.3417.0078.6721);
Exhibit F-70 (STA.3417.0078.6722); Exhibit F-71 (STA.3417.0078.6723); Exhibit F-72
(STA.3417.0078.6724); Exhibit F-73 (STA.3417.0078.6725); Exhibit F-74 (STA.3417.0078.6726).
44
Exhibit F-68 (STA.3417.0078.6720).
45
Exhibit F-74 (STA.3417.0078.6726).
46
Stevens: Day 7, T693.8-10, T696.47-48, T697:1-20
47
Stevens: Day 7, T697:44-45, T698:1-25.
48
Star Entities’ Written Submissions dated 21 June 2022, para [C.26].
49
Ibid.
50
Ibid para [C.29].
51
Pitkin: Day 32, T3561.41-45; Lahey: Day 33, T3650.28-32.
52
Stevens: Day 7, T692.20-25.
53
Exhibit F-75 (STA.3418.0014.8070 at .8071).
54
Ibid at .8070.
55
Ibid.
56
Stevens: Day 8, T906.8-48-T907.9.
57
Stevens: Day 8, T907.46.
58
Stevens: Day 8, T907.13-46.
59
ILGA.001.007.2907 at .2973.
60
ILGA.001.007.0500, para 1(b), 7(c) at .0547, .0550.
61
Exhibit B-2209 (STA.3412.0053.6455 at .6457).
62
Exhibit R-4 (STA.3410.0046.2621); Exhibit R-5 (STA.3410.0046.2623).
63
Exhibit R-5 (STA.3410.0046.2623).
64
Exhibit B-2209 (STA.3412.0053.6455 at .6457).
65
Exhibit Q-14, (STA.3009.0004.0067, at .0068).
66
Exhibit B-2209 (STA.3412.0053.6455 at .6456).
67
Exhibit Q-13, (STA.3403.0002.1988 at .1988).
68
Exhibit Q-12 (STA.3419.0003.1708 at .1708).
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69
Exhibit Q-15 (STA.3410.0018.6375 at .6375).
70
Exhibit B-705 (STA.3412.0019.5757 at .5757- .5758).
71
Ibid at .5757.
72
White: Day 16, T1749.24-29.
73
Exhibit B-706 (STA.3008.0004.0671 at .0672).
74
Ibid at .0671-.0672.
75
Exhibit Q-18 (STA.3410.0018.6023 at .6028-.6029).
76
Ibid at .6027-.6028.
77
Ibid at .6028-.6029.
78
Brodie: Day 21, T2386.15-23.
79
Exhibit Q-18 (STA.3410.0018.6023 at .6026).
80
Ibid at .6025-.6026.
81
Ibid at .6024-.6025.
82
Ibid at .6024.
83
Ibid.
84
Ibid at .6023-.6024.
85
Ibid at .6023.
86
Ibid.
87
Star Entities’ Written Submissions dated 21 June 2022, para [C.33].
88
Arnott: Day 13, T1406.5-9
89
Exhibit-1, para 25 (INQ.002.004.0241 at .0245).
90
Exhibit F-147, para 6 (INQ.002.004.0272 at .0273).
91
Exhibit B-727 (STA.3415.0002.6723).
92
Exhibit B-732 (STA.3410.0051.8577 at .8578 - .8579).
93
Ibid at .8578.
94
Exhibit B-735 (STA.3435.0146.6688 at .6689-.6690).
95
Exhibit B-732 (STA.3410.0051.8577 at .8577 - .8578).
96
Arnott: Day 13, T1409.45-1410.3.
97
Brodie: Day 21, T2386.46-48.
98
Brodie: Day 21, T2387.1-7.
99
Exhibit B-732 (STA.3410.0051.8577 at . 8577).
100
Brodie: Day 21, T2387.31-36.
101
Arnott: Day 13, T1410:25-27. See also Exhibit B-735 (STA.3435.0146.6688).
102
Exhibit B-735 (STA.3435.0146.6688 at .6688-.6689).
103
Ibid.
104
Brodie: Day 21, T2387.5-11.
105
Arnott: Day 13, T1411.14-1412.3.
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106
Exhibit Q-19 (STA.3415.0003.2542 at .2542)
107
Exhibit F-87 (INQ.020.001.0001); Buchanan: Day 5, T484.37 - T487.38.
108
Buchanan: Day 5, T487.34-38.
109
Buchanan: Day 5, T487.47-48, T488.1.
110
Arnott: Day 13,T1412.15 to T1415.40.
111
Arnott: Day 13, T1415.4-5.
112
Arnott: Day 13, T1415.23-26.
113
Exhibit F-88 (INQ.020.001.0003).
114
Buchanan: Day 5, T490.17-20.
115
Arnott: Day 13, T1418.10-13.
116
Exhibits B-744 (STA.3419.0003.6801); Exhibit B-745 (STA.3419.0003.6802).
117
Exhibit B-745 (STA.3419.0003.6802).
118
Ibid at .6803.
119
Ibid.
120
Exhibit C-216 (STA.3427.0037.5057 at .5057).
121
Exhibit B-762 (STA.3428.0061.3767).
122
Exhibit A-1, para 28 (INQ.002.004.0241).
123
Arnott: Day 13, T1422.47-1423.2.
124
Exhibit B-762 (STA.3428.0061.3767).
125
Exhibit B-764 (STA.3008.0006.4452).
126
Ibid.
127
Arnott: Day 13,T1424.15-1425.10.
128
Exhibit B-765 (STA.3008.0006.4461).
129
Exhibit F-98 (INQ.020.001.0002); Arnott: Day 13, T1426.5-8.
130
Arnott: Day 13, T1426.5-31.
131
Arnott: Day 13, T1426.46-1427.17.
132
Exhibit B-765 (STA.3008.0006.4461).
133
Exhibit B-769 (STA.3411.0024.7383 at .7387).
134
Ibid at .7386.
135
Ibid at .7385-.7386.
136
Ibid at .7384.
137
Ibid at .7383-.7384.
138
Ibid at .7383.
139
Exhibit B-774 (STA.3411.0025.5203).
140
Exhibit B-775 (STA.3411.0025.5205 at .5205).
141
Exhibit B-773 (STA.3008.0003.0049).
142
Ibid.
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143
Hawkins: Day 24, T2742.46 to T2743.34.
144
Hawkins: Day 24, T2743.43-47, T2744.1.
145
Hawkins: Day 24, T2744.3-12.
146
Exhibit B-778, (STA.3412.0103.4123 at .4125).
147
Brodie: Day 21, T2389.18-22.
148
Hawkins: Day 24 T2746:11-34.
149
Exhibit B-787 (STA.3412.0004.6632).
150
Ibid.
151
Power: Day 17, T1847.25-44.
152
Power: Day 17, T1848.9-17.
153
Power: Day 17, T1848.31-35.
154
Exhibit C-48 (STA.3427.0009.2741 at .2742); Exhibit C-48 (STA.3427.0009.2741).
155
Exhibit C-49 (STA.3427.0018.3096).
156
Star Entities’ Written Submissions dated 21 June 2022, para [C.42].
157
Exhibit C-49 (STA.3427.0018.3096, at .3096).
158
Exhibit B-805 (STA.3412.0018.7211 at .7211).
159
Ibid.
160
Ibid at .7214 - .7216.
161
Ibid at .7215-.7216.
162
Exhibits B-783 (STA.3411.0010.3415); Exhibit B-788 (STA.3411.0025.3743).
163
Exhibit B-790 (STA.3411.0010.3560).
164
Ibid.
165
Ibid.
166
Power: Day 17, T1851.37-42.
167
Power: Day 17, T1852.11-12.
168
Power: Day 17, T1852.44-1853.8.
169
Hawkins: Day 24, T2747.5-14.
170
Exhibit B-790 (STA.3411.0010.3560).
171
Ibid.
172
Hawkins: Day 24, T2747.45-T2748.23.
173
Hawkins: Day 24, T2746.36-41.
174
Bekier: Day 27, T3106.30-45.
175
Exhibit C-53 (STA.3427.0018.4222 at .4222).
176
Exhibit Q-24 (STA.3014.0001.0143, at .0143-.0144).
177
Exhibit B-1313 (STA.3415.0033.0872).
178
Ibid at .0873.
179
Ibid at .0874.
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180
Stevens: Day 7, T684.31-35.
181
Stevens: Day 7, T723.9-14.
182
Exhibit B-1313 (STA.3415.0033.0872 at .0875).
183
Arnott: Day 13, T1426.5-31.
184
Exhibit B-769 (STA.3411.0024.7383 at .7387).
185
Stevens: Day 7, T723.24-35; T724.14-19.
186
Exhibit B-824 (STA.3008.0006.4459); Exhibit C-234 (STA.3427.0037.5125).
187
Exhibit B-824 (STA.3008.0006.4459).
188
Exhibit Q-25 (STA.3412.0020.5990 at .5990).
189
Ibid.
190
Exhibit C-234 (STA.3427.0037.5125 at .5125).
191
Exhibit B-863 (STA.3008.0004.0199).
192
Ibid.
193
White: Day 16, T1750.34-35; Power: Day 17, T1879.15-18.
194
Hawkins: Day 24, T2750:5-36.
195
Star Entities’ Written Submissions dated 21 June 2022, para [C.62].
196
Ibid para [C.63].
197
Exhibits B-869 (STA.3415.0006.1901); Exhibit B-870 (STA.3415.0006.1902).
198
Exhibit F-106 (INQ.020.002.0002).
199
Ibid.
200
Ibid.
201
Ibid; Stevens: Day 7, T733:16 - T740:47.
202
Stevens: Day 7, T740.10-47.
203
Exhibit B-890 (STA.3412.0001.3771 at .3773).
204
Exhibit B-903 (STA.0006.0001.0531)
205
Ibid at . 0536 - .0537.
206
Ibid.
207
Star Entities’ Written Submissions dated 21 June 2022, para [C.70], see also para [C.71]-[C.76].
208
Exhibit B-1011 (STA.5002.0004.1047 at .1049).
209
Exhibit B-753 (STA.5002.0004.1675 at 1695).
210
Ibid at .1696.
211
Exhibit B-1011 (STA.5002.0004.1047).
212
Exhibit A-72, para 32 (INQ.002.004.0066 at .0070)
213
Heap: Day 30, T3367.47-48; T3368.1-7.
214
Bradley: Day 32, T3505.35-36.
215
Bradley: Day 32, T3506.6.
216
Bradley: Day 32, T3506.26-32.
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217
Bradley: Day 32, T3506.43.
218
Pitkin: Day 32, T3569.10-48, T3570.1-13.
219
Lahey: Day 33, T3655.30-34.
220
Lahey: Day 33, T3656.14-19.
221
O’Neil: Day 36, T3897.34-3898.5-11.
222
Hawkins: Day 24, T2751.20-39.
223
Heap: Day 30, T3367.9; Bradley: Day 32, T3504.20-21; Pitkin: Day 33, T3566.37-41; Lahey: T3654.20.
224
Pitkin: Day 32, T3566.37.41.
225
Lahey: Day 33, T3654.39-43.
226
Exhibit B-1084 (STA.3412.0057.1655 at .1655).
227
Ibid.
228
Buchannan: Day 5, T535.29-.36
229
Exhibit B-1124 (STA.3008.0004.0603 at .0603).
230
Exhibit B-1185 (STA.3008.0004.0617).
231
Ibid.
232
Exhibit B-1232 (STA.3008.0004.0503 at .0504).
233
Ibid at .0503.
234
Exhibit A-1322, para 13 (INQ.002.004.0021 at.0022).
235
Ibid.
236
Ibid para [15] at .0023; Exhibit B-1337 (STA.3009.0004.0135 at .0138).
237
Exhibit A-1322, para 15 (INQ.002.004.0021 at.0023).
238
Ibid para [18] at .0023 - .0024.
239
Exhibit B-1492 (STA.3009.0004.0005).
240
Ibid at .0005.
241
Exhibit B-1492 (STA.3009.0004.0005 at .0006).
242
Stevens: Day 7, T752.43-47.
243
Exhibit B-1437 (STA.3418.0011.0621).
244
Ibid.
245
Exhibit B-1492, para 37 (STA.3009.0004.0005 at .0006).
246
Stevens: Day 7, T760.18-26.
247
Exhibit B-2779 (STA.3412.0054.3083).
248
Ibid at .3087; Stevens: Day 7, T766.4-30.
249
Exhibit B-2779 (STA.3412.0054.3083).
250
Exhibit C-84 (STA.3427.0037.3741 at .3741).
251
Exhibit G-673 (STA.3412.0042.8585); Exhibit G-675 (STA.3427.0018.3538); Exhibit G-677
(STA.3428.0057.2735).
252
Exhibit G-673 (STA.3412.0042.8585 at .8587); Exhibit G-675 (STA.3427.0018.3538 at .3540); Exhibit
G-677 (STA.3428.0057.2735 at .2737).
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523 Exhibit G-673 (STA.3412.0042.8585 at .8588 - .8589); Exhibit G-675 (STA.3427.0018.3538 at .3541 -
.3542); Exhibit G-677 (STA.3428.0057.2735 at .2738 - .2739).
254
Star Entities’ Written Submissions dated 21 June 2022, para [C.92].
255
Exhibit C-79 (STA.3427.0037.3870); Exhibit C-80 (STA.3427.0037.3882); Exhibit C 81
STA.3427.0037.3896; Exhibit C-82 STA.3427.0037.3910).
256
Buchanan: Day 4, T444.7-445.27.
257
Exhibit C-79 (STA.3427.0037.3870).
258
Ibid at .3870.
259
Ibid para [1] at .3874.
260
Ibid para [2]-[3] at .3874.
261
Ibid para [37]-[40] at .3880 - .3881.
262
Ibid para [37]-[38], [40] at .3880 - .3881.
263
Exhibit C-80 para [54]-[56] (STA.3427.0037.3882 at .3883).
264
Ibid at para [110] at .3894.
265
Ibid para [111] at .3894
266
Heap: Day 30, T3376.39; Bradley: Day 32, T3513.19; Pitkin: Day 32, T3573.10; Lahey: Days 33, T3660.41
267
Heap: Day 30, T3378.12-16.
268
Buchanan: Day 4, T428.5.
269
Exhibit C-78 (STA.3427.0037.3869); Exhibit C-79 (STA.3427.0037.3870); Exhibit C-80
(STA.3427.0037.3882); Exhibit C-81 (STA.3427.0037.3896); Exhibit C-82 (STA.3427.0037.3910).
270
Buchanan: Day 5, T460.36-43.
271
Buchanan: Day 5, T463.45-48, T464.1.
272
Buchanan: Day 5, T464.3-7.
273
Houlihan: Day 10, T1157.30 - T1159.10.
274
Houlihan: Day 10, T1159.8-10.
275
Houlihan: Day 10, T1162.17-33.
276
Houlihan: Day 10, T1165.32-36.
277
Houlihan: Day 10, T1165:38-45.
278
Arnott: Day 13, T1459.10-14.
279
Arnott: Day 13, T1459.40-47.
280
Arnott: Day 13, T1470.8-20.
281
Arnott: Day 13, T1472.3-22.
282
White: Day 16, T1756.40 - T1757.8.
283
White: Day 16, T1757.23.
284
Power: Day 17, T1885.39 to T18863.
285
Power: Day 17, T1887.38-45.
286
Power: Day 17, T1886.46-T1887.36, T1887:40-T1888.11, T1895:38-41, T1896.1-29, T1896.37-1897.12,
T1901.27-35, T1901.43-T1902.15, T1935.46-T1936.1; Power: Day 18, T1966.35-42.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
287
Power: Day 17, T1896.14-22; Power: Day 18, T1968.29-38.
288
Power: Day 17, T1909.26-1910.21.
289
Power: Day 17, T1933.42-45.
290
Martin: Day 20, T2237.20-24.
291
Martin: Day 20, T2237.26-T2338.48, T2241.23-T2242.33, T2243.26-33.
292
Martin: Day 20, T2238.9-16.
293
Martin: Day 20, T2241.36; T2242.8-10
294
Martin: Day 20, T2242.1-6.
295
Martin: Day 20, T2248.12-28.
296
Martin: Day 20, T2249.13-31.
297
Martin: Day 20, T2244.37-45, T2251.35-38.
298
Martin: Day 20, T2251.40-42.
299
Martin: Day 20, T2251.44 - T2252.9.
300
Star Entities’ Written Submissions dated 21 June 2022, para [C.97].
301
Bekier: Day 27, T3115.26-43.
302
Bekier: Day 27, T3118.9-18
303
Heap: Day 30, T3376.47-T3377.1.
304
Heap: Day 30, T3377.13-24.
305
Heap: Day 30, T3378.1-16.
306
Bradley: Day 32, T3513.27 - T3514.7, T3514.30-34; Pitkin: Day 32, T3573.22-37; Lahey: Day 33,
T3661.27-42; Sheppard: Day 34, T3708.1-27; O’Neill: Day 36, T3903.37 - T3904.25.
307
Bekier: Day 27, T3114.26-28.
308
Bekier: Day 27, T3115.5-13.
309
Bekier: Day 27, T3115.15-18.
310
Bekier: Day 27, T3115.20-24.
311
Exhibit C-78 (STA.3427.0037.3869).
312
Bekier: Day 27, T3113.43-T3114.19.
313
Exhibit G-689 (STA.3427.0017.3604); Martin: Day 20, T2256.13-20.
314
Martin: Day 20, T2236.44-48, T2239.36-T2240.2, T2256.26-32.
315
Martin: Day 20, T2256.30-36.
316
Exhibit G-688 (STA.3428.0034.2978).
317
Exhibit G-689 (STA.3427.0017.3604); Martin: Day 20, T2254.47-T2255.4.
318
Exhibit G-689 (STA.3427.0017.3604).
319
Exhibit G-689 (STA.3427.0017.3604 at .3606).
320
Ibid at .3607.
321
Martin: Day 20, T2255.30-34.
322
Exhibit B-1466 (INQ.016.001.0552).
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
323
Exhibit B-1466 (INQ.016.001.0552 at .0563).
324
Ibid.
325
Exhibit B-1470 (INQ.016.001.1339); Exhibit B-1471 (INQ.016.001.1340); Exhibit B-1472
(INQ.016.001.1341); Exhibit B-1473 (INQ.016.001.1342); Exhibit B-1474 (INQ.016.001.1343); Exhibit
B-1475 (INQ.016.001.0590).
326
Ibid.
327
Ibid.
328
Ibid.
329
Exhibit B-1545 (INQ.014.001.0162).
330
Ibid at .0162.
331
Ibid at .0163.
332
Ibid at .0164.
333
Exhibit B-1556 (STA.0015.0001.0294).
334
Bekier: Day 27, T3112.12-23.
335
Bekier: Day 27, T3112.25-29.
336
Bekier: Day 27, T3113.5.
337
Bekier: Day 27, T3113.15-20..
338
Exhibit B 1538 (STA.5002.0005.2241 at .2242).
339
Exhibit B-1476 (STA.3415.0001.0139).
340
Exhibit B-1478 (STA.3417.0005.8904); Exhibit B-1479 (STA.3417.0005.8905).
341
Exhibit B-1479 (STA.3417.0005.8905 at .8906).
342
Ibid at .8906 - .8907.
343
Exhibit B-1501 (STA.3402.0003.5166 at .5167).
344
Ibid.
345
Sheppard: Day 29, T3330.15-19.
346
Exhibit B-1514 (STA.3402.0007.8388 at .8388 - .8389).
347
Ibid at .8388.
348
Exhibit B-1528 (STA.3402.0007.8355).
349
Exhibit B-1542 (STA.5002.0005.1428 at .1430 - .1431).
350
Exhibit B-1538 (STA.5002.0005.2241).
351
Ibid at .2244.
352
Ibid at .2245.
353
Ibid at .2245 - .2246.
354
Exhibit B-2193 (STA.3009.0003.0025 at .0029, .0030, .0034); Exhibit G-675 (STA.3427.0018.3538 at
.3538, .3540); Exhibit G-689 (STA.3427.0017.3604).
355
Martin: Day 21, T2329.42-2340.3.
356
Exhibit B-1542 (STA.5002.0005.1428 at .1432 - .1431)
357
Sheppard: Day 34, T3714.11-14.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
358
Heap: Day 30, T3383.6-13.
359
Sheppard: Day 34, T3714.34-37.
360
Sheppard: Day 34, T3714.39-T3715.1.
361
Star Entities’ Written Submissions dated 21 June 2022, para [C108].
362
Martin: Day 20, T2276.43-T2277.13.
363
Martin: Day 20, T2291.23-30.
364
Arnott: Day 14, T1584.24-31.
365
Arnott: Day 14, T1584.7-10.
366
Star Entities’ Written Submissions dated 21 June 2022, para [C105].
367
Exhibit B-2803 (STA.3412.0004.5443 at .5688 to .5689); Pitkin: Day 32, T3578.15-22.
368
Pitkin: Day 32, T3576.37-39.
369
Pitkin: Day 32, T3576.45 -T3577.10.
370
Pitkin: Day 32, T3577.23-30.
371
Lahey: Day 33, T3642.35-3643.16.
372
Lahey: Day 33, T3643.36-39.
373
Exhibit B-1714 (STA.5003.0004.1529); Exhibit B-1716 (STA.5003.0004.0784).
374
Exhibit B-1714 (STA.5003.0004.1529 at .1530).
375
Arnott: Day 14 T1600.40-43.
376
Arnott: Day 14 T1601.1-6.
377
Arnott: Day 14 T1601.29-47.
378
Arnott: Day 14 T1602.26-31.
379
Exhibit B-1538 (STA.5002.0005.2241 at . 2244, .2250).
380
Ibid at .2250.
381
Exhibit B-1672 (STA.3008.0004.0667 at .0668).
382
Ibid.
383
Exhibit B-1538 (STA.5002.0005.2241 at .2251 - .2252).
384
STA.3427.0038.1948 at .1948.
385
STA.3412.0138.2696.
386
Power, Day T1917.43-45, T1918.4-11.
387
Exhibit B-1669 (STA.3002.0009.0298 at .0300).
388
Exhibit B-2193 (STA.3009.0003.0025 at .0029, .0030 and .0034); Exhibit G-675 (STA.3427.0018.3538 at
.3540); Exhibit G-689 (STA.3427.0017.3604).
389
Star Entities’ Written Submissions dated 21 June 2022, para [C113].
390
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 651 [39]
per French CJ, Crennan, Bell and Keane JJ.
391
Power: Day 17, T1920.17-30.
392
Exhibit B-790 (STA.3411.0010.3560).
393
Power: Day 17, T1915.33-36, T1917.29-31.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
394
Exhibit B-1531 (STA.3402.0003.4879).
395
Exhibit B-1546 (STA.3402.0003.5807).
396
Exhibit B-1547 (STA.3402.0003.5808).
397
Exhibit B-1557 (STA.3402.0003.4935).
398
Exhibit B-1564 (STA.3402.0003.5093); Exhibit B-1566 (STA.3402.0003.5099).
399
Exhibit B-1564 (STA.3402.0003.5093).
400
Exhibit B-1586 (STA.3402.0003.5139).
401
Exhibit B-1590 (STA.3402.0003.8726 at .8726).
402
Exhibit B-1655 (STA.3412.0055.7773); Exhibit B-1662 (STA.3412.0055.7862).
403
STA.3412.0138.7346.
404
Ibid.
405
Martin: Day 20, T2292.32-T2293.22.
406
STA.3412.0138.2716.
407
Ibid.
408
Star Entities’ Written Submissions dated 10 August 2022, page 2.
409
Matthias Bekier Written Submissions dated 10 August 2022, para 10.
410
Paula Martin Written Submissions dated 10 August 2022, para 2-3.
411
Ibid, para 10.
412
Exhibit A-1196, STA.3402.0003.6606.
413
Ibid at .6606-.6607.
414
Martin: Day 20, T2264.4-33.
415
Star Entities’ Written Submissions dated 21 June 2022, para [C.102].
416
Martin: Day 21, T2329.42-2340.3.
417
Exhibit A-378, para [104] (INQ.002.004.0109 at .0128)
418
Exhibit B-1642 (STA.0015.0001.0124); Exhibit B-1664 (ILGA.005.001.0259); Exhibit B-1525
(STA.0015.0001.0271); Buchanan: Day 5, T520.6-37
419
Exhibit A-378, para [107] (INQ.002.004.0109 at .0128).
420
Ibid para 118 at .0129.
421
Exhibits B-1525 (STA.0015.0001.0271).
422
Exhibit B-1642 (STA.0015.0001.0124 at .0126).
423
Ibid.
424
Arnott: Day 13, T1456.28-47.
425
Bekier: Day 27, T3113.15-20.
426
Exhibit L-1 (ILGA.001.001.0001); Exhibit K-2 (ILGA.001.001.0246).
427
Exhibit H-380 (ILGA.001.001.0133).
428
Ibid at .0150-.0151.
429
Hawkins: Day 25, T2807.14 - T2808.42.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
430
Hawkins: Day 25, T2808.40-42.
431
Hawkins: Day 25, T2808.40-42.
432
Hawkins: Day 25, T2808.44-48.
433
Hawkins: Day 25, T2808.48-T2029.5.
434
Hawkins: Day 25, T2809.6.
435
Hawkins: Day 25, T2809.8-35.
436
Exhibit H-380 (ILGA.001.001.0133).
437
Ibid.
438
Exhibit B-733 (STA.3008.0003.0049); Exhibit B-863 (STA.3008.0004.0199).
439
Exhibit B-863 (STA.3008.0004.0199).
440
Exhibit B-790 (STA.3411.0010.3560).
441
Ibid.
442
Hawkins: Day 25, T2809.37 - T2810.29.
443
Counsel Assisting’s Oral Submissions: Day 37, T3984.17-.22
444
Greg Hawkins Written Submissions dated 21 June 2022, para [31].
445
Ibid para [32]-[35].
446
H-380 at T901.5-27 (ILGA.001.001.0133 at .0202).
447
Star Entities’ Written Submissions dated 21 June 2022, para [C.166].
448
Exhibit L-1 at T825.33-45, T826.16-29 (ILGA.001.001.0001 at .0126 - .0127).
449
Exhibit K-2 at T1038.23-1040.4 (ILGA.001.001.0246 at .0259 - .0261).
450
Ibid T1041.37-1042.30 at .0262 - .0263.
451
Power: Day 17, T1939.4-8 ; Power: Day 18, T1956.1-4, T1968.11- 27; Martin: Day 20, T2213.9-21,
T2252.14-15.
452
Star Entities’ Written Submissions dated 21 June 2022, para [C.156].
453
Exhibit A-83, para 27 (INQ.002.004.0001 at .0005).
454
Exhibit A-85, STA.3002.0005.0015.
455
Exhibit A-83, para 36, 61 (INQ.002.004.0001 at .0006 and .0010).
456
Ibid para 37 (INQ.002.004.0001 at .0006).
457
Buchannan: Day 5, T525.43-48.
458
Exhibit B-2603 (STA.3002.0005.0001).
459
Buchannan: Day 5, T525.22-38.
460
Exhibit B-2603 (STA.3002.0005.0001 at .0001).
461
Ibid.
462
Exhibit B-2603 (STA.3002.0005.0001 at .0001 - .0002).
463
Ibid, para [10] at .0002.
464
Ibid, para [34] at .0005.
465
Ibid, para [85]-[86], at .0013.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
466
B-2603 (STA.3002.0005.0001); Exhibit B-2604 (STA.3002.0005.0015); Exhibit B-2605
(STA.3002.0005.0026).
467
Buchannan: Day 5, T536.6-9.
468
Buchannan: Day 5, T536.6-14.
469
Buchannan: Day 5, T536.16-35.
470
Exhibit A-1186 (INQ.002.004.0090 at . 0090) See also Written Submissions of Kevin Houlihan dated 21
June 2022 at para [46].
471
Buchannan: Day 4, T427.47-428.48.
472
Written Submissions of Angus Buchanan dated 21 June 2022, para [14].
473
Exhibit B-2624 (STA.3427.0006.7124).
474
Exhibit A-83, para 40 (INQ.002.004.0001 at .0006); Houlihan: Day 11, T1245.29-36. Power: Day 18,
T1964.21-25.
475
Buchannan: Day 5, T537.9 - T538.10.
476
Houlihan: Day 11, T1245.40 - T1246.15.
477
Power: Day 18, T1965.11-12.
478
Power: Day 18, T1965.23-31.
479
Exhibit B-2704 (STA.3009.0003.0492); Exhibit B-2705 (STA.3009.0003.0493); Exhibit B-2706
(STA.3009.0003.0503); Exhibit B-2707 (STA.3009.0003.0514); Exhibit B-2708 (STA.3009.0003.0516).
480
Exhibit B-2705 (STA.3009.0003.0493).
481
Exhibit A-83 (INQ.002.004.0001); Buchanan: Day 5, T552.48 - T553.3.
482
Buchannan: Day 5, T553.5-18; Exhibit B-2701 (STA.3009.0003.0482).
483
Buchannan: Day 5, T553.20-36.
484
Exhibit B-2778 (STA.3412.0054.3082); B-2779 (STA.3412.0054.3083); B-2780 (STA.3412.0054.3093);
B-2781 (STA.3412.0054.3139).
485
Exhibit B 2781 (STA.3412.0054.3139).
486
Exhibit B-2778 (STA.3412.0054.3082).
487
Exhibit B-2603 (STA.3002.0005.0001).
488
Exhibit B-2705 (STA.3009.0003.0493).
489
Exhibit B-2779 (STA.3412.0054.3083).
490
Buchanan: Day 5, T543.39-43, T545.9-15, T546.44-47, T547.35-43, T551.28-31
491
Exhibit B-2603, para 7 (STA.3002.0005.0001 at .0002).
492
Ibid para 10 at .0002.
493
Buchanan: Day 5, T551.40-44.
494
Power: Day 18, T1982.9-13.
495
Exhibit B-2701 (STA.3009.0003.0482).
496
Buchannan: Day 5, T557.38-41.
497
Exhibit B-2701 (STA.3009.0003.0482 at .0483).
498
Ibid.
499
Ibid at .0486.
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
500
Ibid at . 0487 - .0488.
501
Power: Day 18, T1970.27 - T1971.5.
502
Andrew Power Written Submissions dated 21 June 2022, para [55]; Andrew Power Oral Submissions: Day
44, T4421.25-40.
503
Exhibit A-83, para 6 (INQ.002.004.0001 at .0001 and . 0002)
504
Buchanan: Day 4, T444.7-445.27.
505
Star Entities’ Written submissions dated 21 June 2022, para [C.117]
506
Ibid para [C.13]-[C.14].
507
Exhibit B-2791, para [123]-[126] (INQ.017.001.0061 at .0641).
508
Ibid, para [123].
509
Ibid.
510
Ibid, para [124]-[126].
511
Exhibit C-255 (STA.3428.0005.1400).
512
Ibid.
513
C 257 (STA.3428.0005.1407); Exhibit C-255 (STA.3428.0005.1400).
514
Exhibit C-256 (STA.3428.0005.1401 at .1401).
515
Ibid.
516
Power: Day 18, T1980.45-1981.10.
517
Exhibit C-256 (STA.3428.0005.1401 at .1404).
518
Buchannan: Day 5, T560.31-561.17.
519
Star Entities’ Written submissions dated 21 June 2022, para [C.134].
520
Exhibit A-552, p 2 (STA.5002.0007.1447 at.1448).
521
Star Entities’ Written submissions dated 21 June 2022, para [C.133].
522
Exhibit G-0932, p9 (STA.3023.0003.0050 at .0058).
523
Ibid.
524
Ibid p 10 .0059.
525
Ibid.
526
Ibid p16 at .0065.
527
Ibid.
528
Ibid p 17 at .0066.
529
Exhibit A-83, para 77 (INQ.002.004.0001 at .0013); Exhibit B-3504 (STA.3009.0003.0468).
530
Exhibit A-83, para 75 (INQ.002.004.0001 at .0012).
531
Star Entities written submissions, 21 June 2022, para [C.142].
532
Exhibit C-330 (INQ.018.001.0001); Exhibit C-331 (INQ.018.001.0180).
533
Exhibit B-1479 (STA.3417.0005.8905 at .8912).
534
Houlihan: Day 11, T1287.21-45.
535
Exhibit B-2209 (STA.3412.0053.6455 at .6456).
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CHAPTER 13 | THE STAR’S DEALINGS WITH SUNCITY SINCE 2016
536
Exhibit B-745 (STA.3419.0003.6802 at .6802).
537
Exhibit B-790 (STA.3411.0010.3560).
538
Brodie: Day 21, T2383.1-9.
539
Exhibit D-30 (INQ.012.001.0009).
540
Hawkins: Day 24, T2741.41-44.
541
Bekier: Day 26, T2994.2-5.
542
Star Entities’ Written Submissions dated 30 June 2022, paras [O.26-O.29], [O.31-O.32].
543
Ibid para [O.29].
544
Ibid paras [O.41]-[O.43].
545
Exhibit B-842 (STA.3412.0019.7695)
546
Exhibit S-202 (STA.3001.0001.1277)
547
Counsel Assisting’s Written Submissions dated 27 June 2022, para [1].
548
Exhibit S-202, STA.3001.0001.1277.
549
Star Entities’ Written Submissions, 30 June 2022, para O.40.
550
Ibid para [O.41].
551
Ibid para [O.42], [O.43].
552
Ibid para [O.44].
553
Ibid para [O.45].
554
Brodie: Day 21, T2383.1-9.
555
Hawkins: Day 24, T2741.4-44.
556
Hawkins, Day 24, T2742.15-18.
557
Hawkins: Day 24, T2743.26-45.
558
Bekier: Day 26, T2993.41-2994.5
559
Star Entities’ Written Submissions, 30 June 2022 para [O.45].
560
Oxford English Dictionary, accessed via www.oed.com.
561
Star Entities’ Written Submissions, 21 June 2022 para [C.2(a)].
562
Pitkin: Day 32, T3561.41-45 ; Lahey: Day 33, T3650.28-32.
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139
cxl
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Chapter 14
The end of junkets
CHAPTER 14 | THE END OF JUNKETS
Chapter 14. The end of junkets
Chapter 14.1 Introduction
1. In paragraph 5.3 of the Updated Term of Reference, the Authority expressed concerns about
The Star’s intentions in relation to junkets. Paragraph 5.3 referred first to evidence given
to the Bergin Inquiry on 4 August 2020 that The Star was continuing to operate junket
programs. The Authority then referred to information received from The Star on 6 May
2021 indicating that there were dealings with junket operators until October 2020 (at least).
The Authority then stated that The Star’s dealings with Suncity and other junket operators
in these circumstances raised concerns for the Authority as to The Star’s ongoing
willingness and capability to comply with its obligations under the Casino Control Act.
Chapter 14.2 Evidence to the Bergin Inquiry
2. The media attention received by Crown Resorts from late July 2019 shone a spotlight on
junkets, painting a picture that was unfavourable. Junkets received considerable attention
during the Bergin Inquiry. Evidence emerged that a number of junket operators or junket
funders with whom Crown Resorts and Star Entertainment had dealings had links to
organised crime.
3. Mr Greg Hawkins, at that time the Chief Casino Officer for Star Entertainment, gave
evidence at the public hearings of the Bergin Inquiry on 4 August 2020. Specific aspects
of his evidence are considered in detail in Chapter 13. For present purposes, Mr Hawkins
gave evidence that following the media allegations against Crown Resorts in July 2019,
Star Entertainment responded to certain questions from the NSW regulator about persons
adversely named in the media reports. He said Star Entertainment then conduced an
ongoing review from an AML/CTF perspective of the junkets so named and that:
1
we took specific action on the individuals that were named and some of the
associations we had there. That included the finishing up of the relationship with
Suncity, so it was so it was a review of the operations that were occurring with
regards to that particular junket.
4. Mr Hawkins later clarified in his evidence to the Bergin Inquiry that Suncity had ceased
the fixed room arrangement shortly after the media allegations but that a relationship
continued with a junket operator associated with Suncity, Mr Iek.
2
He also confirmed that
Star Entertainment continued to have a relationship with Mr Alvin Chau as he held the CCF
for the junket operator Mr Iek.
3
He confirmed that Star Entertainment was still dealing
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CHAPTER 14 | THE END OF JUNKETS
with Mr Chau
4
and that Mr Iek’s junket had moved to a VIP gaming salon at The Star’s
hotel.
5
Chapter 14.3. Star Entertainment’s announcement in September 2020
5. In September 2020, Star Entertainment announced that it was suspending its dealing with
junkets. Mr Bekier said he made this decision in consultation with Mr John O’Neill.
6
Mr
Bekier said that in making the decision he was motivated by the fact that from mid-2020
AUSTRAC had increasing concerns about the AML risks posed by junkets and that by
September 2020, evidence before the Bergin Inquiry had raised significant questions about
the suitability of junkets.
7
Similarly, Mr Hawkins and Ms Martin said that Mr Bekier’s
decision was influenced by matters emerging from the Bergin Inquiry.
8
6. Mr Bekier considered that junkets posed a level of risk that could not be satisfactorily
mitigated.
9
He told the Review that he considered his decision to be a permanent one,
10
and that he would not advocate for a reopening of junket business.
11
7. Mr Hawkins stated in his written statement to the Review that telephone contact was made
with various junket operators in around early October 2020 informing them of Mr Bekier’s
decision, and at least in some cases, written confirmation was provided in early November
2020.
12
A number of the cover emails sent in early November 2020 stated that the junket
program was “temporarily suspended” and that the junket operator would be contacted
“once the program is resumed”.
13
Chapter 14.4 Mr Bekier’s 6 May 2021 email to the Authority
8. On 1 February 2021, Commissioner Bergin SC provided her report to the Authority. One
of Commissioner Bergin SC’s recommendations was to amend the Casino Control Act to
prohibit casino operators in NSW from dealing with junket operators.
14
9. Following the Bergin Report, the Authority wished to understand Star Entertainment’s
position with respect to dealing with junkets. For this reason, on 6 May 2021, Mr Bekier
sent an email to the Authority identifying public announcements made by Star
Entertainment with respect to dealing with junkets. The email stated:
15
September 2020 – Bergin Inquiry – public hearings increasingly focussed on junket
operators / international VIP business and AML risks
17 Sept 2020 – The Star Board meeting – Board receive [sic] regular update from
management on Bergin Inquiry monitoring, including monitoring for new
information on certain junkets
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25 Sept 2020 – CWN ASX announcement made – suspending all activity with junket
operators until 30 June 2021
By end September 2020 - assessment made to halt group rebate programs to enable
review of new information coming from Bergin Inquiry; consider Inquiry findings
and recommendations and engage with regulatory authorities regarding regulatory
framework and potential changes.
2 October 2020 – calls made to junket promoters and representatives to advise that
The Star was not providing entry into new group rebate programs until further notice
and any remaining group rebate programs closed
By late October 2020 – written confirmation of above verbal advice issued (including
translations) sent to individual operators confirming verbal advice 9 February 2021
– Bergin Report release containing a recommendation that junkets be prohibited
May 2021 – no formal regulatory direction as yet in relation to international group
rebate business. We have written to L&G and we understand that you are close to
announcing a decision. As we said in the meeting, should your decision be to ban
this type of business, we will be supportive in our internal and external messaging.
10. Mr Bekier also stated in the email:
So our Junket group business is closed since October 2020 and we have no intention
of reopening until we have heard from ILGA. This covers our operations in NSW as
well as in Queensland. We have also made statements to that effect to the media
since the AGM in October 2020.
11. Mr Bekier also included a table illustrating junket turnover for that financial year. It
demonstrated that only small volumes were played in the first four months and that all
activity had ceased since the October decision.
12. Meanwhile, it had been reported in a 14 February 2021 newspaper article that Mr O’Neill
said he would “wait and see” what the NSW regulator did with the Bergin Report before
ruling out future partnerships with Suncity or other junket operators.
16
On the other hand,
according to a media article on 18 February 2021, Mr Bekier said that “the junket business
is dead” and “[i]t is not going to come back”.
17
13. It is clear from this material that, whatever may have been Mr Bekier’s private view, Star
Entertainment decided to suspend dealing with junkets whilst it awaited an indication from
the Authority for its views about junkets. At no time in this period did Star Entertainment
conclusively rule out dealing with junket operators in the future.
Chapter 14.5 The intentions of senior management
14. During early 2021 the senior echelons of management at Star Entertainment continued to
contemplate that in the future casino operators may engage with junkets, or entities that
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performed similar functions to junkets. Mr Hawkins prepared an International Strategy
Update dated 27 May 2021,
18
which was presented to the Board that same day.
19
His paper
stated:
20
Following the release of the Bergin report and ceasing engagement with junkets,
management’s long-term recommendation is to then:
- Continue to grow International Premium Direct (Tables) and Premium Mass
(Tables and Slots) international segments
- Activate third party referral arrangements
- Reduce prevalence of high value, high risk, high turnover, low margin
customers
- Reduce credit exposure and minimise volatility
- Further cost reduction initiatives.
15. Third party referral arrangements were explained in more detail as follows:
21
1. Third Party Referrer –Existing customers or individuals previously
employed by junkets or other casinos, introduces a potential customer to the
sales team. Referrer is required to undergo relevant know your customer
(‘KYC’) checks prior to progressing.
2. Referred Customer–The third party referrer and sales team engage the
customer jointly (i.e. through an introductory dinner).
3. Trip Requirements–Consistent with previous processes, funds flow /
credit, trip driver / deal structure and regulatory requirements to be
negotiated by The Star and outlined prior to gaming commencing.
4. Travel –Third party referrer may either accompany the customer to The
Star property (i.e. in a group setting) or communicate remotely.
5. Customer / Referral Payment –Customer receives payment as per
previous processes with the third party referrer receiving an incentive after
outstanding credit has been settled based on two scenarios:
- Fixed Fee–regardless of customer play activity, amount to be based
on either qualitative or quantitative information (i.e. loyalty cards
held at other competitor properties or front money)
- Variable–Based on a percentage of gaming activity throughout the
trip duration.
16. At least on this foreshadowed model, third party referral arrangements have commonalities
with junkets. However, witnesses were not examined on this document and it is not known
what, if any, further consideration was given to this proposal at the time. Clearly, any
prohibition on junkets must eradicate them in substance as well as in form.
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17. Further useful insights on senior management’s intentions in this period come from a file
note that Mr Power emailed to his colleagues following a meeting on 23 April 2021 to
discuss Project Zurich. The file note recorded Ms Martin telling the meeting:
22
Response from Star was ‘junkets are dead’ but this was reflective of the pressure and
intensity at the time and the borders were closed so it was a convenient answer. There
is some concern around them in NSW but relate to particular practices in a particular
organisation. Starting point from Bergin is that “all junkets are evil” and that has not
been the position in Australia for decades. In QLD, the regulator may be very
comfortable with the business model, and level of probity undertaken. I think it is
correct to say that
“junkets will be different, and heavily scrutinised”. But not sure that they are dead.
We haven’t seen the deck from the business. But need to be mindful whether
regulatory framework/requirements/controls make it practically unfeasible.
Business will want to do international inbound business. We will want players
brought to us, We will want to deal with them in a way to minimise our credit risk.
What is viable that doesn’t kill them in terms of. Some approaches would make
junkets subject to the Australian tax regime.
18. According to Mr Power’s file note, Ms Martin saw the new TrackVia system as way of
demonstrating to regulators that Star Entertainment’s decision-making in relation to junkets
was comprehensive. In this regard, Ms Martin was recorded as saying:
23
and then Howard’s [Steiner’s] piece comes into play. We have a new case
management tool and all relevant information in one place and so we can be
comprehensive in our decision making, and here is the transparency and how our
decision making can be critiqued. That is part of the next bit of our evolution.
19. Ms Martin was also recorded as saying “junkets may need to be parked just for now”.
24
20. In oral evidence, Ms Martin said she was waiting for a business strategy to be presented on
how Star Entertainment would conduct its international business.
25
21. Mr Bekier said in evidence that he could not understand why ECDD was conducted on
junket funders Mr Chau and Mr Sixin Qin at this time given that Star Entertainment had
made a public commitment not to deal with junkets.
26
That members of the senior
management team at Star Entertainment were in fact hedging their bets explains why Star
Entertainment continued to progress ECDD reviews of various junket operators and funders
into late 2021.
27
Chapter 14.6 The intentions of the Board
22. Mr Heap said in evidence that Star Entertainment had no interest in entering the junket
business “at this time, and so we’ve parked that”.
28
Similarly, Mr Sheppard said that “the
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position today is that we are not dealing with junkets” and that junkets should be
“permanently suspended”.
29
23. These statements by the directors appear to amount to something less than a decision by
Star Entertainment to cease dealing with junkets permanently.
24. During the course of the public hearings of the Review, Star Entertainment announced to
the ASX that it intended to suspend all rebate play from 9 May 2022.
30
Mr Heap said that
the IRB represented a level of risk which was not commensurate with the level of return
that this business can generate.
31
However, he said that the rebate business could make
sense and the Board would consider opening that again.
32
Mr Sheppard said that a body of
work had to be done to address the issues arising from the Review and in the meantime the
Board wanted to eliminate entirely one source of risk.
33
25. This announcement and the evidence in relation to it also appeared to leave open the
possibility of Star Entertainment re-engaging with junkets in the future.
Chapter 14.7 Conclusions and recommendations
26. The evidence considered by this Review, not least in relation to Suncity and Salon 95, has
emphatically demonstrated the wisdom of Commissioner Bergin SC’s recommendation
that casino operators in NSW be prohibited from dealing with junkets.
27. What is clear from the evidence presented to the Review is that certain junkets with which
The Star has dealt are likely to be linked to organised crime. They pose an unacceptable
threat to the public interest. What is also clear is that commercial pressures mean that
casino operators will continue to contemplate engaging with junkets unless there is a
comprehensive prohibition on them doing so, in both substance and form.
28. On 22 June 2022, the NSW Government announced that legislation would be introduced
into the NSW Parliament to support all 19 recommendations of the Bergin Inquiry,
including a ban on casinos dealing with junket operators. The Amendment Act comes into
effect on 5 September 2022. New sub-section 76B(1) will make it a condition of a licence
that the casino operator not promote or conduct junkets or pay a commission or other
financial or non-financial benefit to a person not playing at the casino by reference to
another person’s turnover or other gambling metric. Section 76B(2) defines junket to
mean:
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an arrangement involving a person, or a group of persons, introduced to a casino
operator by a promoter who receives a commission—
(a) based on the turnover of play in the casino attributable to the person or group
of persons introduced by the promoter, or
(b) otherwise calculated by reference to play in the casino.
29. This approach, which focuses on remuneration structure rather than the form of the junket,
is clearly intended to be broad enough to prohibit junkets in substance as well as in form.
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Endnotes
1
Exhibit H-380 at T881.23-25 (ILGA.001.001.0133 at .0182).
2
Exhibit H-380 at T885.4-22 (ILGA.001.001.0133 at .0186).
3
Exhibit H-380 at T887.17-24 (ILGA.001.001.0133 at .0188).
4
Exhibit H-380 at T888.41-43 (ILGA.001.001.0133 at .0189).
5
Exhibit H-380 at T892.37-45 (ILGA.001.001.0133 at .0193).
6
Exhibit A-72, para [33] (INQ.002.004.0066 at .0070).
7
Ibid.
8
Exhibit A-378, para [74] (INQ.002.004.0109 at .0124); Martin: Day 20 T2307.32-38.
9
Exhibit A-72, para [33] (INQ.002.004.0066 at .0070).
10
Bekier: Day 28 T3145.24-28.
11
Bekier: Day 28 T3147.12-13.
12
Exhibit A-378, para [7]7-[78] (INQ.002.004.0109 at .0124 - .0125).
13
Ibid; see Exhibit B-2652 (STA.3408.0001.0159).
14
Exhibit B-2803 (STA.3412.0004.5443 at .5451).
15
Exhibit B-2847 (STA.3433.0023.0480).
16
Exhibit G-807 (INQ.014.001.0202 at .0203).
17
G-953 (INQ.014.001.0191 at .0191).
18
Exhibit B-2903 (STA.5002.0007.2621).
19
Ibid at .2438.
20
Ibid at .2625.
21
Ibid at .2651.
22
Exhibit B-2837 (STA.3412.0003.5112 at .5113).
23
Ibid at .5114.
24
Ibid.
25
Martin: Day 20, T2309.31-32.
26
Bekier: Day 28 T3148.23-45, T3149.30-31.
27
Exhibit A-905, para [78] (INQ.002.004.0201 at .0214).
28
Heap: Day 30, T3390.47-T3391.3.
29
Sheppard: Day 34 T3733.44 - 3734.23.
30
Exhibit J-157 (INQ.003.007.0001).
31
Heap: Day 30, T3390.26-36.
32
Heap: Day 30, T3391.5-11.
33
Sheppard: Day 34, T3734.41-45.
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Chapter 15
Misrepresentations to the Bank of China Macau
CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
Chapter 15. Misrepresentation to the Bank
of China Macau
Chapter 15. 1 Introduction
1. This Chapter addresses serious misconduct by Star Entertainment, in its Macau office,
involving false letters given to the BOC Macau. The conduct, described further below,
occurred between 2013 and 2017, and ceased upon the closure of The Star’s accounts with
that bank.
2. The conduct was disclosed to this Review in a response to a written information request.
The request sought that The Star state all facts, matters or circumstances which it
considered “may affect the suitability of The Star or any Close Associate in the period from
28 November 2016 to date (Relevant Period) which have not previously been disclosed in
writing to the Authority”.
1
3. The Star made the following disclosure on 8 November 2021:
2
Until 31 December 2017, The Star maintained an account with the BOC Macau
branch (“BOC Macau”), which was capable of accepting cash deposits on behalf of
The Star for the payment of CCFs or for Front Money in advance of play. In late
2021, The Star identified that patron deposits may have been facilitated by
documentation provided by The Star’s Credit and Collections team in Macau,
whereby a member of that team would issue a letter to BOC Macau to the effect that
a cash deposit represented funds previously deposited by the patron with The Star’s
Cage team in Macau. This was false, as The Star has never operated a Cage in Macau,
and the patron’s cash deposit had not been accepted by The Star before deposit into
the BOC Macau account. The Star believes that this documentation was to help
satisfy the BOC Macau’s internal requirements regarding the source of funds. This
documentation did not correctly represent the source of the patron’s money. The
BOC account was closed in 2017. This matter has only recently been identified and
is still the subject of investigation. There is no suggestion at this stage that anyone
outside of the Credit and Collections team or Macau office staff in the International
Marketing team were involved in, or aware of, this practice.
4. At that time, The Star stated that disclosure of the matter (among others) “should not be
understood as an acceptance by The Star that the identified matters, in fact mean that The
Star or any of its close associates is not a suitable person to be concerned in or associated
with the management and operation of a casino”.
3
5. The Star now accepts that the practice was “completely unacceptable and should never have
occurred”.
4
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CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
Chapter 15.2 The Relevant Conduct
6. On 22 November 2013, The Star opened two foreign currency (HKD and multi-currency)
accounts with BOC Macau.
5
Two further accounts were opened on 27 February 2015, and
a final account was opened on 23 June 2016.
6
All five BOC Macau accounts held by The
Star were closed on 25 January 2018.
7
7. During the period 2013 to the end of 2017, The Star’s BOC Macau accounts were utilised
heavily for deposits by patrons in Macau, for both the deposit of front money and CCF
redemption.
8
BOC would accept large cash deposits in Hong Kong dollars.
9
BOC Macau
ostensibly had “strict” verification requirements in relation to cash deposits.
10
Such
controls appear to have not been strongly enforced by BOC Macau, or were actively
circumvented by The Star (by deceptive means), or both.
8. Use of the BOC Macau accounts for The Star was overseen and facilitated by Macau and
Hong Kong staff of The Star, including Mr Jacker Chou, Vice President of VIP Credit and
Collections, Hong Kong Branch and, from 2015, Ms Gabriela Soares, the assistant Vice
President of VIP Credit and Collections in Macau. Ms Soares reported to Mr Chou. At
least by 2017, Mr Chou held a position of equivalent seniority to Mr David Procter, the
VIP Credit and Collections Manager in Sydney, and both reported to Mr Adrian Hornsby
who held the position of General Manager of VIP Credit and Collections.
11
9. In the period 2013 to 2017, staff in the Macau office adopted a process whereby deposits
of cash by patrons were accompanied by a letter from The Star providing “proof” on the
“source of funds to deposit” stating that the funds had been taken from “Macau branch
office safe-keeping”, some of which would be used to “partially deposit” into the BOC
Macau account and the balance would be returned “to our Macau Cage Safekeep” (False
SOF Letters).
12
10. As The Star disclosed to the Review on 8 November 2021, the funds had not been accepted
by Star Entertainment or The Star before the deposit with BOC Macau and The Star did
not operate a cage in Macau.
13
11. It was later explained by Ms Soares, that BOC Macau considered that the funds were
deposited by staff of The Star instead of customers themselves.
14
The False SOF letters
were to confirm to BOC Macau that the cash being deposited had not come directly from a
patron but from The Star, and were required by BOC Macau to satisfy the bank’s
verification requirements.
15
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CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
12. It was submitted by The Star Entities, and it is accepted, that two other types of template
letters produced by Star Entertainment contributed to the false source of funds information,
and therefore should also be regarded as false.
16
They were:
a “Letter to CCF holder”, which was a template letter purporting to notify a junket
operator of the due dates of their junket program payment and providing alternative
methods for payment, including “Cash deposit to The Star Macau Office and/or
The Star Hong Kong Office”.
17
Ms Soares confirmed that this cash option was
included to explain the False SOF Letters, and that, despite the terms of the letter
to the junket operator, no cash had been accepted at The Star’s offices in Hong
Kong or Macau;
18
a “Letter of demand” which was a template letter of demand addressed to a patron.
19
Ms Soares observed that this letter could be used as additional proof as to the
purpose of a deposit into the BOC Macau account and that BOC Macau had asked
that deposits not be accompanied by the same type of documentation each time.
20
This suggests that the BOC Macau staff may have been knowing participants in the
obfuscation of the source of funds deposited with BOC Macau.
21
The reference to
BOC Macau’s request for different types of documentation suggests that the
template letter was not a genuine letter of demand but rather a document prepared
to convey a false impression regarding the source of funds being deposited with
BOC Macau (according to Ms Soares’ emails, in order to satisfy BOC Macau’s
requirements);
(together with the False SOF Letters, the False SOF Documentation).
13. No further KYC or source of funds checks were performed by BOC Macau on the basis
that this was a “The Star to The Star” transfer of funds.
22
Accordingly, the only requirement
was that a member of the Credit and Collections team would be present at all times when
the deposit was made with BOC, and that they provide the False SOF Letters for the
transactions.
23
The customer did not even need to be present, as long as a representative of
the customer was present.
24
14. Mr Michael Whytcross, the General Manager Finance and Commercial from October 2016
(and based in Hong Kong until April 2019)
25
gave evidence that it did not seem likely that
BOC were conducting any source of funds checks.
26
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CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
15. For its own part, The Star’s staff did not request any further information from patrons to
ascertain the source of their funds, such as a withdrawal slip from a Macau junket cage or
a Macau bank account, or request payee identification.
27
16. Originals of the False SOF Documentation sent to BOC Macau, were not kept.
28
17. The Star accepts that the False SOF Documentation provided to BOC Macau falsely
described the source of funds to be deposited, and that they were misleading to the
knowledge of those involved in providing them (with the possible exception of Ms
Soares).
29
18. In evidence, Mr Whytcross agreed that the False SOF Letters provided to the BOC Macau
were “completely false” documents.
30
He agreed that the Review should conclude that The
Star Entertainment Group was making serious and deliberate misrepresentations to BOC
Macau.
31
Mr Whytcross also agreed in evidence that that the false documentation from
The Star suggests that there is a “high risk of money laundering”.
32
Ms Skye Arnott
conceded that was a “very significant” concern because “it's obscuring the source of funds
and preventing another bank from doing their due diligence properly”.
33
19. An internal file note by Mr Oliver White dated 29 November 2021, suggested that all Credit
and Collections staff in Macau were involved in the process, with potentially some
involvement by IRB and marketing staff.
34
The signatory on the fraudulent False SOF
Letter was Mr Chou.
35
According to Ms Soares, Mr Chou had meetings at the BOC Macau
branch to discuss how to process transactions, and discussed the relevant arrangements with
Mr Hornsby.
36
20. Mr Houlihan gave evidence that he was informed by both Ms Soares and Mr Chou that Mr
Hornsby was aware that these letters were being provided to BOC.
37
21. Mr White stated in evidence that he had been informed by Ms Soares in 2021 that Mr Chou
had been the main contact with BOC but that Mr Chou reported to Mr Hornsby.
38
Mr White
also stated that Ms Soares did not directly inform him that Mr Hornsby had authorised the
provision of the false documentation to BOC but had indicated that as a “general practice”
Mr Hornsby was “across everything that Jacker [Chou] did”.
39
In an interview conducted
by Mr Houlihan in February 2022, Mr Chou is recorded as stating that he sought approval
from Mr Hornsby to use the False SOF Letters but then “Adrian said he was not
comfortable”.
40
Mr Chou is also recorded as denying that he ever produced “a document
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CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
to BOC to say that cash came from Macau Cage”, and denied any knowledge of Ms Soares
producing such a letter to BOC.
41
22. In the period up to December 2017, when the BOC Macau accounts were in use, Mr
Hornsby was the General Manager of Credit & Collections and reported to the Star
Entertainment CFO (at that time, Mr Chad Barton who left Star Entertainment in April
2019).
42
Mr Hornsby left the employment of Star Entertainment in or around August
2020.
43
23. The head of Star Entertainment’s International VIP Team from June 2015 to 2017
44
was
Mr John Chong, whose employment was terminated in March 2018.
45
His termination is
discussed in Chapter 17. Mr Greg Hawkins, who took over responsibility for the
International VIP Team in April 2018, denied that he had any knowledge at the time that
staff of The Star had provided false documentation to BOC in Macau.
46
24. None of Mr Chou, Mr Hornsby or Ms Soares are current employees or close associates of
The Star. They did not give evidence to the Review. In those circumstances, and given the
seriousness of the conduct, it is inappropriate and unnecessary to make findings of
knowledge or intention by those individuals in relation to the use of the False SOF
Documentation. This is also the case in relation to any suggested knowing involvement by
BOC Macau staff.
25. It is sufficient to find that the practice existed, that it involved serious and deliberate
misrepresentations by Star Entertainment to one of The Star’s banks, and that there must
have been employees of Star Entertainment who were knowingly involved in the practice.
26. The Star Entities accept that, upon discovery by members of senior management of Star
Entertainment in late 2021, the issue of False SOF Letters should have immediately been
notified to the Board, but was not.
47
Chapter 15.3 Extent of the Conduct
27. It was submitted by The Star Entities that the Review cannot safely make findings about
precisely how many times the False SOF Documentation was used.
48
28. Ms Soares reported to Mr White that the practice had occurred on a daily basis.
49
Mr
Whytcross gave evidence that the misrepresentations were done “repeatedly”.
50
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29. Mr Houlihan gave oral evidence to the Review that it had been reported to him that False
SOF Documentation had occurred in only 2% of cases.
51
Mr Houlihan said that this was
his recollection of what Ms Soares, and perhaps Mr Chou, had told him in his interviews
with them.
52
He said that if notes were taken of these interviews, the figure of 2% would
be recorded in those notes. However, none of the interview file notes produced to the
Review reflect that figure. One interview note by Mr Houlihan recorded that Ms Soares
had stated that cash deposits (which would be accompanied by the False SOF
Documentation) occurred daily.
53
30. Mr Houlihan’s recollection of the 2% figure was unsupported by any other documentary or
oral evidence and is not a matter about which Mr Houlihan gave evidence in his written
statement.
31. Mr White gave evidence that Ms Soares did not say to him that the false letters were only
handed over in 2% of occasions that the deposits were made by or on behalf of patrons.
54
Mr White stated that his understanding, based on his discussions with Ms Soares, was that
this had been a systemic problem.
55
32. The Review cannot make a finding about precisely how many times the False SOF
Documentation was used. It should be observed that this is partly because The Star failed
to institute and enforce proper document retention systems that might have ensured that the
relevant documentation was kept. Mr Houlihan’s recollection of what he was told in
interviews as to the frequency is not accepted as a reliable recollection in the absence of
any supporting documentation available to the Review. It is inconsistent with the evidence
of Mr Whytcross and with Mr White’s evidence of what he was told by Ms Soares.
33. Whatever the exact frequency of occurrence, Star Entertainment made serious and
deliberate false statements to BOC repeatedly from 2013 to 2017 and the practice was
systemic.
34. It is not known precisely how much cash was deposited through the BOC Macau, or how
much cash was deposited using the False SOF Documentation. However, as late as May
2017, BOC Macau was imposing additional fees on The Star owing to the “large sum of
cash deposit every month”.
56
It was later reported by the EEIS Steering Committee that
between January and November 2017 alone, the BOC accounts in Macau had accepted
HKD$1.2billion (over $200m AUD) in cash.
57
It was noted that cash redemption was
driven by customers seeking to avoid electronic transfers “in principle”, customers being
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CHAPTER 15 | MISREPRESENTATION TO THE BANK OF CHINA MACAU
reluctant to transfer to a bank account in the name of a casino, and customers not operating
a bank account in Macau.
58
On any view, the misconduct was extremely serious and the
risk that money was laundered was high.
Chapter 15.4 The Investigation of the Conduct by Star Entertainment
35. The evidence indicates that the issue came to light in mid-October 2021. The fact that this
misconduct occurred in the first place, and that it first came to light almost four years after
the BOC Macau bank accounts had been closed, indicates that the IRB of Star
Entertainment was seriously mismanaged during the Relevant Period. This issue is
discussed further in Chapter 17.
36. In October 2021, in the course of preparing a regulatory response, Mr Whytcross and Ms
Arnott made queries of Ms Soares about ways in which customers could deposit funds
overseas.
59
In that context, Ms Soares notified them of the documents used to deposit cash
with BOC Macau. This caused Mr White to conduct some inquiries and on 29 November
2021, prepare a file note detailing what was known about the matter.
60
37. Mr Houlihan gave evidence to the Review that he was instructed by Ms Paula Martin at the
end of 2021 to investigate the provision of documents to BOC Macau by carrying out a
number of interviews and reviewing relevant documents.
61
Mr Theodore also gave
evidence that in November 2021, a working group had been established to address the
matter (among others).
62
38. Mr Houlihan flew to Hong Kong twice, and interviewed both Mr Chou and Ms Soares as
part of his investigation.
63
39. Mr Houlihan gave evidence that HWLE had been engaged to assist with the investigation.
64
Mr Houlihan said that he spoke to Mr Chou on two occasions and a solicitor from HWLE
was present on both occasions.
65
Mr Houlihan confirmed that he also spoke to Ms Soares
on two occasions and a solicitor from HWLE was present on both occasions.
66
Lawyers
for The Star informed the Review that The Star is not in possession of notes from the
meetings with Ms Soares and could not produce any documents in response to a call for
those documents.
67
40. At the time of giving evidence in the public hearings of the Review on 1 April 2022, Mr
Houlihan had not spoken to Mr Hornsby as part of his investigation, and said that he was
still in the process of interviewing Mr Chou and Ms Soares.
68
Mr Whytcross, the person
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to whom VIP Credit and Collections reported up until his departure from Star
Entertainment, did not know what stage the investigation had reached.
69
Mr Houlihan gave
evidence that he had reported back on the investigation to Mr James Johnston, in the Star
Entertainment Legal Team, but had not provided any reports to Ms Martin and she in turn
had not asked how the investigation was proceeding.
70
However, Ms Martin was not herself
asked about this matter.
41. The Star Entities acknowledge that the investigation has taken a considerable amount of
time and remains incomplete, but submit that the investigation is the product of
circumstances that have made it difficult to obtain relevant and reliable evidence more
quickly.
71
Those circumstances include the fact that evidence from Ms Soares and Mr Chou
has been conflicting, and that none of the relevant individuals are still employees of Star
Entertainment.
72
42. Mr Heap, the current Chair of Star Entertainment, and the Chair of the Renewal Steering
Committee,
73
was first made aware of this serious misconduct by The Star when the matter
was raised with him in evidence by Counsel Assisting.
74
He agreed that it was an extremely
serious allegation, that the behaviour was unacceptable and warranted urgent
investigation.
75
Mr Heap said that it was highly concerning and unsatisfactory that the
matter had not been brought to his attention.
76
He did make the point that as the bank
accounts in Macau had been closed there was “time to make sure we understand all of the
details and get that right”.
77
43. It may be accepted that Star Entertainment’s investigation into this matter faced challenges,
including the departure of staff members, the lack of documentation, and that the relevant
bank accounts are now closed. However, Star Entertainment’s investigation of this matter
has not been given the prominence internally and has not proceeded with the urgency which
the seriousness of the misconduct demands. That is emphasised by the extraordinary fact
that the current Chair of Star Entertainment first learnt of the matter when questioned about
it by Counsel Assisting during the public hearings.
44. There is no suggestion that further documentation in relation to the misconduct is likely to
be uncovered by Star Entertainment. The reliability of witnesses’ memories is likely to
further deteriorate over time. In those circumstances, the fact that the investigation has still
not reached any kind of finality is unsatisfactory.
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Chapter 15.5 Conclusions
45. From 2013 to 2017, Star Entertainment and its subsidiaries made false statements to the
BOC Macau by generating and issuing false documentation about patrons’ source of funds.
It is found, and The Star Entities now accept (although The Star did not do so at the
commencement of this Review), that the practice of using the False SOF Documentation
was indicative of:
78
a preparedness by the individuals involved to do whatever was necessary to meet
the needs of the patron, to the extent of fabricating documents, to create the illusion
that a transaction was something other than what it was;
a lack of understanding of, and total disregard towards AML/CTF obligations and
the purpose of AML/CTF controls by senior casino employees;
inadequate control and supervision of the activities of offshore employees; and
inadequate training of less senior staff such that they did not recognise or were
unwilling or unable to raise concerns in regard to the relevant transactions.
46. Originals or copies of the key documents in question – which would have revealed the
extent and precise frequency of the conduct – were not kept.
47. It is accepted – and there can be no doubt – that the practice involved a high-risk of money
laundering.
79
The practice deliberately obscured the true source of the funds being
deposited with BOC.
48. The practice was long-standing, spanning the four years that the BOC Macau accounts were
in operation. There were no internal controls in place that would have, or did, detect the
issue. A number of employees were involved. The practice – and the problems it has
revealed – demonstrate that this was a systemic practice, revealing compliance and control
failures that were totally inappropriate and completely unacceptable for the management
of bank accounts held by a licensed casino operator.
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Endnotes
1
Exhibit B-3331 (CORRO.001.001.0190 at .0218).
2
Ibid at .0221.
3
Ibid at .0218-.0219.
4
Star Entities’ Written Submissions dated 21 June 2022, para [I.4].
5
Exhibit D-42 (CORRO.001.001.0574 at .0587).
6
Ibid.
7
Ibid.
8
Star Entities’ Written Submissions dated 21
(STA.3004.0014.0008).
9
Exhibit B-3216 (STA.3004.0014.0008 at .0011-.0012).
10
Exhibit B-3385 (STA.3402.0003.4461 at .4464).
11
Exhibit B-482 (STA.3423.0002.5001).
12
Exhibit B-249 (STA.3104.0009.5507).
13
Exhibit B-3331 (CORRO.001.001.0190 at .0221).
14
Exhibit B-3383 (STA.3008.0002.2850 at .2854).
15
Ibid at .2852.
June 2022, para [I.2(a)]; Exhibit B-3216
16
Star Entities’ Written Submissions dated 21 June 2022, para [I.11].
17
Exhibit B-3400 (STA.3008.0002.2826).
18
Ibid at .2831.
19
Exhibit B-3398 (STA.3008.0002.2819).
20
Exhibit B-3402 (STA.3008.0002.2830 at 2831).
21
Exhibit C-330, para [8.6.4] (INQ.018.001.0001 at .0082).
22
Exhibit B-3216 (STA.3004.0014.0008 at .0011).
23
Ibid.
24
Ibid at .0010.
25
Whytcross: Day 9, T943.40-43, T945.44-946.10.
26
Whytcross: Day 10, T1086.4.
27
Exhibit B-3402 (STA.3008.0002.2830 at .2831).
28
Ibid at .2832.
29
Star Entities’ Written Submissions dated 21 June 2022, para [I.4(c)].
30
Whytcross: Day 10, T1088.12, T1088.40.
31
Whytcross: Day 10, T1089.16-20.
32
Whytcross: Day 10, T1093.24.
33
Arnott: Day 14, T1565.25-31.
34
Exhibit B-3402 (STA.3008.0002.2830 at .2831); Exhibit B-3383 (STA.3008.0002.2850).
35
Exhibit B-3399 (STA.3008.0002.2825).
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36
Exhibit B-3383 (STA.3008.0002.2850 at .2850).
37
Houlihan: Day 12, T1339.43.
38
White: Day 16, T1801.42-45.
39
White: Day 16, T1802.1-5.
40
Exhibit G-930 (STA.3038.0001.0001 at .0003).
41
Ibid at .0009.
42
Theodore: Day 25, T2822.6-18.
43
Theodore: Day 25, T2822.11-18; Whytcross: T964.43-48.
44
Exhibit J-23 (STA.3402.0007.3866).
45
Exhibit J-28 (STA.3433.0024.5500).
46
Hawkins: Day 25, T2800.8.
47
Star Entities’ Written Submissions dated 21 June 2022, para [I.7]; O’Neill: Day 36, T3919.28-35; Sheppard:
Day 34, T3746.29-T3747.48; Pitkin: Day 33, T3611.22.
48
Star Entities’ Written Submissions dated 21 June 2022, para [I.4(f)].
49
White: Day 16, T1801.30-33.
50
Whytcross: Day 10, T1089.22-27.
51
Houlihan: Day 12, T1337.43-1339.11.
52
Houlihan: Day 12, T1338.5-29.
53
Exhibit G-939 (STA.3025.0002.0001 at .0007).
54
White: Day 16, T1802.7-17.
55
White: Day 16, T1802.19-22.
56
Exhibit B-338 (STA.3302.0001.0274 at .0275).
57
Exhibit C-30 (STA.3402.0001.1078 at .1081).
58
Ibid.
59
Exhibit B-3395 (STA.3008.0002.2809).
60
Exhibit B-3402 (STA.3008.0002.2830).
61
Houlihan: Day 12, T1328.30 -T1329.5.
62
Exhibit A-1339, para [56(a)] (INQ.002.004.0145 at .0155).
63
Houlihan: Day 12, T1336.33-45, T1329.25-30; Exhibit G-939 (STA.3025.0002.0001).
64
Houlihan: Day 12, T1333.8-19.
65
Houlihan: Day 12, T1333.21-24; T1336.1-24; Exhibit G-930 (STA.3038.0001.0001); Exhibit G-939
(STA.3025.0002.0001).
66
Houlihan: Day 12, T1336.33-45, T1337.8-11.
67
Exhibit G-954 (CORRO.001.001.0625).
68
Houlihan: Day 12, T1329.32-T1330.15.
69
Whytcross: Day 10, T1091.1-4.
70
Houlihan: Day 12, T1331.33 – T1332.9.
71
Star Entities’ Written Submissions dated 21 June 2022, para [I.15].
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72
Ibid para [I.17].
73
Heap: Day 30, T3346.45-3347.2
74
Heap: Day 31, T3426.21-3427.25.
75
Heap: Day 31, T3427.27-.46.
76
Heap: Day 31, T3427.39; T3428.31.
77
Heap: Day 31, T3428.36-41.
78
Star Entities’ Written Submissions dated 21 June 2022, para [I.5].
79
Ibid para [I.6].
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Chapter 16
The Closure of Star Entertainment’s Bank Accounts in
Macau and the Response
CHAPTER 16 | THE CLOSURE OF STAR ENTERTAINMENT’S BANK ACCOUNTS IN
MACAU AND THE RESPONSE
Chapter 16. The Closure of Star
Entertainment’s Bank Accounts in Macau
and the Response
Chapter 16.1 Introduction
1. The ability to receive payment from patrons in North Asia became increasingly important
to Star Entertainment as the value of the IRB grew. Chapter 11 addressed challenges to that
business as a result of capital flight restrictions and a corruption crackdown in China, which
were associated with increased regulatory restrictions introduced into the Macau casino
industry from about 2012 onwards. Chapter 15 dealt with misrepresentations made by The
Star in false documentation which it provided to the BOC Macau from 2013 to 2017 to
disguise cash deposits by patrons as deposits by The Star itself. This Chapter addresses
how Star Entertainment responded to the problems created by the closure of The Star’s
BOC Macau account at about the end of 2017, which meant that patrons in North Asia
could no longer deposit cash in Macau directly into a bank account of The Star.
2. It is necessary to say something about references to Star Entertainment and The Star in this
Chapter. Ultimately, front money and CCF redemptions were deposited into the bank
accounts of the casino operators, being The Star in the case of the Sydney casino and Star
Entertainment QLD Limited (Star Queensland) in the case of the two Queensland casinos,
as well as EEIS, another subsidiary of Star Entertainment. The casino operators are the
reporting entities under the AML/CTF Act. However, their obligations under this statute
are organised at the group level under the Star Entertainment joint AML/CTF Program.
Moreover, usually it was Star Entertainment that made arrangements with third parties on
behalf of the casino operators and EEIS during the Relevant Period. This Chapter focuses
on the impact of the arrangements made by Star Entertainment on payment channels to The
Star, although the arrangements may also have involved payment channels to the
Queensland casinos as well.
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Chapter 16.2 Establishment of EEIS
3. On 7 November 2013, Star Entertainment established EEIS. EEIS is a private Hong Kong
incorporated company.
1
“EEI” is an acronym for Echo Entertainment International and at
the time EEIS was registered, Echo Entertainment Group Ltd was the name of its parent.
2
EEIS has always been wholly owned by Star Entertainment.
3
Star Entertainment has stated
that it intends to wind up EEIS and has taken steps to liquidate the company.
4
4. On 16 February 2015, EEIS opened four bank accounts with a BOC HK.
5
The signatories
to those accounts from their opening until the commencement of public hearings, were Mr
Bekier and Mr Theodore.
6
The Star Entities have stated that those bank accounts have now
been closed.
7
5. On 26 February 2014, EEIS opened two accounts with BOC Macau. It opened a further
three accounts with BOC Macau on 27 February 2015. Account signatories of each of the
accounts, from the time of their opening until their closure, included Mr Bekier and Mr
Theodore.
8
Each of the BOC Macau accounts held by EEIS were closed on 27 April 2018.
9
6. On 25 March 2014, EEIS was granted a Money Lender’s Ordinance Licence in Hong Kong,
permitting it to provide credit facilities to patrons in Hong Kong.
10
7. In April 2014, The Star sought approval from the Authority for EEIS to be recognised as
a “close associate” of The Star, on the basis that it was proposed that EEIS would operate
as a corporate junket (and effectively the only junket with which The Star would deal). The
arrangement envisioned:
11
EEIS entering into rebate agreements with The Star;
EEIS entering into back-to-back rebate agreements with all international premium
players and junkets who visited The Star;
all existing junket operators and their representatives becoming junket
representatives of EEIS;
EEIS holding two CCFs with The Star through which it would offer patrons credit
facilities; and
Star Entertainment providing a solvency guarantee to EEIS to ensure that EEIS had
access to funding to clear its CCFs with The Star.
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8. The Star asserted to the Authority that these arrangements would not make EEIS an agent
of The Star (though it did not specify any reasons in support of that proposition).
12
9. EEIS was approved by the Authority as a close associate in May 2014.
13
The minutes of
the meeting of the Authority in which the application was approved make no reference to
the reasons for which EEIS was being designated a close associate.
14
10. As it turned out, EEIS was not “activated” at that time. An internal document dated January
2018 stated that EEIS was initially established in order to facilitate settlement activities and
provide de facto direct credit to junkets, but was not activated as management expected that
casino modernisation legislation would permit the provision of direct credit to junkets in
NSW.
15
EEIS, as an entity, appears to have remained largely dormant until 2018.
11. In or around late 2014 or early 2015, the EEIS project was briefly reinvigorated, but was
again shelved, this time due to what was later described as “direct credit and tax issues”.
16
Chapter 16.3 Use of the EEIS Bank of China Hong Kong Accounts
12. In 2015, notwithstanding the dormancy of EEIS, a number of “anomalous” transactions
were conducted through the entity’s BOC HK accounts.
17
Further transactions into EEIS’s
BOC HK accounts occurred again in 2016 and 2017.
18
In total, there were 8 transactions
in 2015, 1 transaction in 2016 and 10 transactions in 2017 into EEIS’ BOC HK accounts,
totalling around AUD $30 million worth of deposits.
19
13. Many of the deposits made into EEIS BOC HK accounts were for the purpose of CCF
redemptions.
20
At least one or two deposits were for front money ahead of play, and at
least one remittance occurred from that account to a patron’s BOC Macau account.
21
14. In 2017, the BOC HK accounts were advertised internally as being available for use by the
credit and sales teams, but were “permitted only in rare cases” and were restricted to
transfers by wire or cheque.
22
It was later disclosed by Ms Soares, Assistant VIP of Credit
and Collections in Hong Kong, that the EEIS BOC HK accounts did not accept cash, owing
to the documentation required and Hong Kong regulation on cash deposits.
23
15. The transactions involving the EEIS BOC HK accounts were not “discovered” by Star
Entertainment lawyers and senior managers until 2021.
24
16. The Star Entities accept that the use of the EEIS BOC HK bank accounts in the period 2015
to 2017 was not accompanied by careful transaction monitoring of those accounts.
25
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17. Further, Ms Arnott gave evidence that from 2018 to mid-2019, there was no transaction
monitoring for AML/CTF purposes of those bank accounts.
26
This was so, notwithstanding
that expert witness analysis of the EEIS BOC HK bank accounts revealed that in the period
31 January 2018 to 31 December 2020, 50 transactions took place through the EEIS BOC
HK accounts.
27
Chapter 16.4 Closure of The Star’s BOC Macau Accounts
18. In a board paper regarding “International VIP Business” dated 25 May 2017, which was
referred to in Chapter 11, Mr Bekier and Mr Chong noted that owing to recent changes in
Macau’s AML legislation and increased regulation, banks in Macau had been increasing
their compliance activity and that the bank accounts of another casino in Macau had been
closed.
28
The paper stated that the two bank accounts in Macau (in the names of The Star
and EEIS) were used to remit funds and that if they were closed, it would present a
significant issue in collecting outstanding debts. This paper was taken as read at the 25
May 2017 board meeting.
29
19. An IRB Strategy Update paper presented to the Board of Star Entertainment on 26
September 2017 by Mr Bekier and Mr Chong (also referred to in Chapter 11) identified
that the “Chinese government focus on cracking down on gaming appears to be moderating
in respect to Macau casinos, but not foreign operators”.
30
It also stated that the “global
focus on AML continues to intensify, with direct and indirect implications (indirect
includes banks tightening their internal controls and customer risk assessments)”.
31
20. The 26 September 2017 board paper identified the following key issues which were said to
pose both financial and operational risks:
32
an inability to market to Chinese customers directly either in China or Macau due
to a lack of staff on the ground;
an inability to secure working visas for current or potential Chinese sales team
members in either Hong Kong or Macau;
the risk that bank accounts in Macau (which were used to remit funds) might be
closed or subject to enhanced due diligence; and
some international staff were predominantly domiciled in different locations due to
their work locations or visas.
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21. In response to these concerns the paper recommended “activating” EEIS, establishing a
Macau Marketing Subsidiary (MMS), and acquiring a licensed Macau travel agency.
33
It
appears at this point that management perceived that the risk of bank accounts in Macau
being closed or subject to increased scrutiny might be alleviated by having a business
presence in Macau.
22. By 6 December 2017, advice had been received from BOC of the impending closure of the
relevant Macau bank accounts.
34
This created “considerable concern” at Star
Entertainment because without being able to receive cash deposits it made repayments of
CCF debts and the remittance of front money from overseas patrons more difficult.
35
23. Internal correspondence indicates that unsuccessful attempts were made to approach BOC
Macau to extend the life of the accounts, and that the closure was driven by BOC’s internal
compliance teams and the BOC Macau Branch Manager.
36
At this time, a number of top
tier financial institutions were not willing to facilitate transactions on behalf of EEIS in
Macau because of “the restrictions on the banking sector to not do business with casinos or
related entities”.
37
24. The BOC Macau closed the accounts held by The Star and EEIS on 25 January 2018 and
27 April 2018 respectively.
38
Star Entertainment was told that the closure was for
“compliance reasons”.
39
In an interview by Mr Houlihan with Mr Chou, the Vice President
for Credit & Collections in the Macau Office, Mr Chou stated that the Macau Government
“didn’t want to allow Macau banks to have relationship with other casinos not in Macau”.
40
Chapter 16.5 The Kuan Koi Arrangements
The Initial Kuan Koi Arrangement
The arrangement comes into effect
25. In the wake of the impending closure of the BOC Macau accounts, Star Entertainment
needed an avenue to transmit large amounts of money from patrons in Macau.
41
Mr Bekier
in his evidence agreed that “without the introduction of some new payment channels, The
Star’s turnover was set to decrease significantly”.
42
A Star Entertainment board paper
prepared by Mr Chong for a board meeting on 22 March 2018 stated that the closure of the
Macau bank accounts was estimated to have a $21.5 million annual EBITDA impact unless
rectified. This was driven by the assumption that junkets and premium direct players who
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had previously repaid outstanding balances in Macau would not visit Star Entertainment
casinos as frequently.
43
26. Discussions about alternative arrangements commenced in around November 2017.
44
Star
Entertainment “looked for alternatives” outside of the traditional banking sector that had
been the subject of the increased restrictions from the Macau and Chinese Governments.
45
Around that time, Mr Simon Chan, a Senior Relationship Manager of BOC Macau (who
had a “longstanding relationship with the Collections team” of The Star) proposed to Mr
Chong (and conveyed to Mr Whytcross) that an independent third party could be used, to
whom patrons could transfer funds in Macau and who, in turn, could transfer funds from
his front money account with The Star.
27. Mr Chan and Mr Chong met with The Star patron and Junket Operator Mr Kuan Koi to
discuss whether he could fulfill that role.
46
It was observed by Mr Chong in an email that
Mr Koi was “agreeable” to the concept and that it could substantially reduce the cash
settlements that had previously taken place in Macau.
47
28. It was initially proposed that in this “collateral fund arrangement”, patrons wishing to repay
funds in Macau would be referred to Mr Koi and would make payments to Mr Koi, who
could in turn conduct a telegraphic transfer into the EEIS BOC HK accounts.
48
29. In response, Mr Oliver White issued a directive to:
49
not use the EEIS bank accounts in Hong Kong in any way until we have EEIS up
and running properly.
Using EEIS’s bank accounts in an interim and un-documented manner introduces
significant risk that we will lose these accounts and/or create compliance issues for
EEIS going forward.
Either of these must be avoided, as we are proposing to use EEIS as the long-term
solution to the current issues.
30. Mr White further warned that the proposed arrangement would need to undergo an
AML/CTF risk assessment, that there were restrictions around taking and holding deposits
in Australia and there should be no reference to any third party (such as Mr Koi) operating
as The Star’s agent (rather a “service provider to us”) because it would expose The Star to
legal and risk implications.
50
31. On 15 January 2018, Mr Chad Barton executed a “Client Management Agreement” on
behalf of Star Entertainment International Pty Ltd with Mr Koi, to “manage payments for
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and on behalf of Customers in respect of amounts due and owing to the Star Entertainment
Group”.
51
Mr Koi was to be compensated with a monthly service fee of HKD$1.35M for
January 2018 and $2.7M per month thereafter.
52
Mr Koi was obliged to transfer HKD$90M
into his front money account with The Star, to be used to make payments to The Star on
behalf of customers.
53
32. Mr White was principally responsible for preparing the agreement with Mr Koi.
54
The
arrangement was approved by Mr Brodie and Mr McWilliams.
55
33. Mr White sought external legal advice from HWLE in relation to the January 2018
agreement with Mr Koi, which was limited to advice on the fee payable to Mr Koi, and to
seek confirmation (which was obtained) that the arrangement would not make any Star
entity a remittance provider or organiser of a remittance network.
56
34. The agreement required Mr Koi to conduct his activities in accordance with the laws of the
jurisdictions in which such activities were being conducted, and provide, upon Star
Entertainment’s request, all information he collected in relation to customers.
57
Mr Koi
was also required to keep “due and proper records” of the payments made by customers to
him for the benefit of the Star Entertainment Group, “in form and substance satisfactory to
The Star”.
58
However, the agreement did not require Mr Koi to conduct KYC checks for
the patrons that he dealt with, or to verify their source of funds.
59
35. On 17 January 2018, Mr White, copying Ms Arnott, issued another warning to Mr
Whytcross, Mr Hornsby, Mr Chou and others, that it was “very important” that payments
from patrons to Mr Koi be monitored to avoid disputes as to whether a customer has paid
Mr Koi or not, and to ensure that “The Star receives from Kuan Koi (or the VIP C&C team
collects in conjunction with a payment to KK) the documentation set out below for
AML/CTF reporting requirements”.
60
At that time, he also warned that the arrangement
should be used for CCF redemptions only, and not for front money prior to play. Mr
Hornsby stated in response that they had “complied with all the below points”.
61
36. The arrangement with Mr Koi was described in a Star Entertainment paper dated 19 January
2018, distributed by Mr Richard Booth to members of the EEIS “Steering Committee”
including Mr Whytcross, Mr White, Mr Hornsby and Mr Chou, as follows:
62
Mr Koi transfers HKD$90 million to The Star Sydney (approximately AUD$15
million) which is credited to his existing front money account;
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Mr Koi accepts payments from the group’s customers in Macau and then pays the
relevant casino on behalf of that customer;
funds are transferred from Mr Koi’s front money account to settle the outstanding
amount of the customer at the relevant casino;
Mr Koi’s front money account is topped up to HKD$90 million at the end of each
month;
Mr Koi would receive a service fee of HKD $2.7 million per month as
consideration,
(Initial Kuan Koi Arrangement).
37. As described, the Initial Kuan Koi Arrangement does not identify whether, and if so, how
Mr Koi was to transfer the funds he received in Macau to his front money account with The
Star. In December 2017, following discussions between Mr Chou and Mr Koi, Mr Chou
raised with Mr Chong and Mr Hornsby several operational issues on Mr Koi’s behalf,
including that:
63
personal cheques marked “good for payment” would be provided by Mr Koi to be
cleared in Australia to top up his front money account with The Star “to avoid being
question [sic] at banks through TT or cashier order”; and
the cheques would be coming from 3-4 different “persons”.
38. Mr Hornsby elevated these matters to Mr Whytcross and Mr White:
64
We are proposing to hold a number of bank cheques totalling 90m hkd to be
deposited during the month when required.
The reason being we don’t want KK bank account or his associates flagged and
closed like us for using them as Star proxies.
As the bank cheques are held in Star possession and are not accruing any interest or
invested by KK, we need to honour the 3%.
Any direct TT to the Star from a bank in Macau is risky whilst we are under
compliance blacklist.
This is the safest approach using bank drafts either held or deposited as required.
39. This correspondence appears to demonstrate how Mr Koi proposed to remit funds into his
front money account with The Star (i.e. by cheques from Mr Koi and his associates). There
is no evidence before the Review to demonstrate whether this was in fact what occurred.
During closing submissions, The Star Entities were asked whether there was any evidence
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about how this in fact occurred.
65
The Star Entities subsequently submitted that they were
unaware of any such evidence.
66
40. Whether or not it eventuated, however, it can be seen that this proposal: (i) relied on the
provision of money from a number of Mr Koi’s “associates” whose identity and source of
funds were apparently unknown to The Star; and (ii) was designed to avoid detection by
banks and authorities in Macau.
The February 2018 amendment
41. The Initial Kuan Koi Arrangement was originally intended only to involve payments of
money to Mr Koi in Macau for the redemption of CCFs. However, in around February
2018, the arrangement was extended to include payments by patrons for front money
deposits prior to play.
42. Mr White sought further external legal advice from HWLE in relation to the modification
of the arrangement to include payments for front money deposits. HWLE advised that this
would involve the relevant casino providing a remittance designated service but that the
casino would not require registration as a remittance provider. HWLE advised that the only
implication for the casino was the need to update its AML/CTF Program to assess the risks
and to design mitigation measures.
67
43. On 9 February 2018, a “Client Management Supplementary Agreement” was entered into
with Mr Koi, to reflect the extension of the arrangement.
68
The supplementary agreement
made provision for Mr Koi to agree with a customer to purchase non-negotiable chips for
the patron.
44. Mr White noted in an email to Mr Whytcross and others on 8 February 2018 that, as far as
Star Entertainment was aware, Mr Koi was not a licensed remitter in Macau.
69
Ms Arnott’s risk assessments
45. In January 2018, Ms Arnott undertook a ML/TF risk assessment in relation to the proposed
arrangement with Mr Koi. This risk assessment was performed by Ms Arnott on the basis
of the arrangement as originally conceived, only involving the redemption of CCFs. A risk
assessment carrying the date of 10 January 2018 was produced to the Review, however,
that document is identical to an updated risk assessment dated 8 February 2018 (referred to
below).
70
No other risk assessment from January 2018 was produced to the Review, and it
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appears that Ms Arnott simply wrote over this initial assessment when she prepared an
updated risk assessment in February 2018.
46. On 8 February 2018, when the arrangement was extended to include front money deposits,
Ms Arnott issued the updated risk assessment to reflect that inclusion, although she stated
at the time that it did “not change much from the previous draft”.
71
47. In her February 2018 ML/TF risk assessment, Ms Arnott described the proposed
arrangement with Mr Koi in the following way:
72
The proposed structure of the new remittance services includes a service provider
(or providers) working on behalf of SGR in Macau to receive cash payments from
international patrons. The service provider/s will accept money from SGR patrons
for the repayment of CCFs or for prepayment of buy in amounts. The remittance of
funds will only occur in one direction- from international jurisdictions to SGR. We
will not facilitate the payment of funds in international jurisdictions using this
remittance service.
48. Ms Arnott observed in the risk assessment that there were significant money laundering
risks associated with utilising third party remitters who accept large deposits with limited
KYC or ECDD procedures. Ms Arnott wrote that under previous arrangements, where
money was deposited directly into the international bank accounts held by Star
Entertainment subsidiaries, the collection of identification had been conducted by the banks
with which those accounts were held.
73
Ms Arnott was unaware, at the time she wrote the
risk assessment, that in fact that The Star had facilitated patrons making cash deposits –
disguised as funds of The Star – by the provision of false documents to BOC Macau.
49. Ms Arnott proposed that the risks of the arrangement could be managed through the
following controls:
due diligence would be performed on users of the arrangement who would for the
most part hold CCFs with The Star, and therefore have had ECDD and KYC checks
already performed on them;
the use of an “International Depositor Identity Form” identifying the depositor, the
beneficial owner and any third parties involved in the transaction;
the lodging of IFTIs with AUSTRAC for each of the transactions;
the fact that the proposal envisaged only “one point of deposit (Kuan Koi)” so that
the ability to obscure funds coming to The Star via multiple sources would be
limited;
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additional training would be conducted on what to do if multiple depositors each
made contributions to a single front money buy in or CCF clearance; and
the international team would be invited to participate in a review of the Transaction
Monitoring Program to include transactions conducted under the new arrangement.
50. Ms Arnott gave evidence that Mr Koi “represented a hawala-style” (informal transfer
system) remittance service provider, which was the typology she was assessing at the
time.
74
51. Ms Arnott accepted in her evidence that she had been in error by incorrectly assessing the
risk of the arrangement as “low”, but that “it was a genuine assessment at the time”.
75
52. Ms Arnott agreed that the proposed arrangement became riskier once it was extended to
collecting front money deposits because the source of wealth due diligence performed on
those patrons was more limited than that undertaken for a patron with a CCF.
76
She said
this was a matter that she perhaps should have specifically addressed in the risk
assessment.
77
53. Ms Arnott accepted that the only controls that were implemented to manage the increased
risk were to ask for a staff member to be present at the time the cash was provided to Mr
Koi and to complete an International Depositor Identity Form.
78
The Board’s knowledge of the Initial Kuan Koi Arrangement
54. The Board was first informed of the Initial Kuan Koi Arrangement in an 8 February 2018
board paper from Mr Chong and Mr Williams, although Mr Koi was not identified by
name.
79
The paper referred to the problem presented by the closure of the BOC Macau
accounts and stated that an “interim” arrangement had been adopted to assist overseas
patrons sending monies to Star Entertainment casinos.
80
The interim arrangement was
expected to only be in place until June 2018, when the “EEIS/MMS Initiative” would
become operational.
81
55. The paper described the Initial Kuan Koi Arrangement:
82
• The service provider transferred HKD $90 million (circa AUD $15 million)
to The Star, which was credited to his existing casino account used to hold
funds (front money account)
• The service provider accepts payments in Macau (ensuring appropriate
AML/CTF requirements as adhered to)
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• Funds are transferred from the service provider’s front money account on
behalf of the customer to settle the outstanding amount at the relevant
property
• The service provider’s front money account is topped up to HKD $90
million at the end of each month
This process was specifically introduced to address repayment of outstanding CCF
however a business requirement exists for this to also extend to the transfer of cash
funds prior to play.
56. The paper stated that the Chief Risk Officer at the time (Mr McWilliams) had conducted
an ML/TF risk assessment of the arrangement, and had assessed the risk as “low”.
83
The
paper also advised that external legal advice had been sought, following which the
assessment had concluded that Star Entertainment did not require further approvals of the
arrangement from AUSTRAC.
84
57. An updated version of the board paper was circulated later on 8 February 2018, with a
circulating resolution of the Board.
85
The updated paper stated that the arrangement was
with Mr Koi, who was an existing customer and junket operator. It stated that Mr Koi had
been subject to the usual credit risk assessments and had deposited $90 million HKD into
his front money account.
86
58. The two papers requested that the Board, by adopting the circulating resolution, approve a
number of changes to the AML/CTF Program Part A of The Star, which were required for
the introduction of the arrangement. These included:
87
a statement that the Group had assessed the ML/TF risks associated with
“international funds transfer arrangements” and determined that they are “low”
risk;
that identification information regarding customers utilising the Initial Kuan Koi
Arrangement would be recorded in IFTIs;
sighting of original customer photo identification would be required for
verification; and
the arrangement would constitute a designated service.
59. The same day, the Board resolved by circular resolution to adopt the new version of the
AML/CTF Program as recommended by the board papers of 8 February 2018.
88
The Board
met again on 15 February 2018, but the minutes of the meeting made no mention of the 8
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February 2018 papers, the circular resolution, or any discussion of the Initial Kuan Koi
Arrangement.
89
60. When questioned about the Initial Kuan Koi Arrangement, members of the Board had scant
knowledge or recollection of it. Mr Bradley recalled that it was an interim arrangement but
he was not sure whether he knew the name of the party involved in it.
90
Dr Pitkin could
also only recall that there had been a temporary facility with an existing junket operator,
until EEIS became operational.
91
Ms Lahey had no recollection of any arrangement with
Mr Koi.
92
Mr Sheppard recalled the arrangement, and stated that he assumed it had been
the subject of full consultation with regulators in NSW and with AUSTRAC, but that was
not a matter that was confirmed to him.
93
The Initial Kuan Koi Arrangement in practice
61. While it appears that some attempts were made to track and monitor deposits made by
patrons with Mr Koi, the local staff – and Mr Chou in particular – had difficulty with record
keeping.
94
62. Mr Whytcross gave evidence that although there was heightened risk with the arrangement,
he drew comfort from the ML/TF risk assessment that the introduction of the International
Depositor Identity Forms had mitigated the risks of the arrangement.
95
However, Mr
Whytcross did not know who was required to complete the form and “whether it was
completed by Mr Koi or the customer, or a member of Star Entertainment’s team in that
process”.
96
He was also not sure why the use of the International Depositor Identity Forms
gave him comfort or whether it was effective
97
and he could not recall ever seeing one of
the forms.
98
Further, Mr Whytcross accepted that the AML/CTF risks presented by the
arrangement rang “alarm bells in terms of source of funds”, and he was not sure that use of
the International Depositor Identity Forms was an adequate control to mitigate that risk.
99
63. The International Depositor Identity Forms required the bare minimum of detail about the
customer and sought no information about the source of the customer’s wealth, or the
source of funds that were being deposited, notwithstanding that Mr Koi was predominantly
accepting cash.
100
64. The Star Entities submitted that there is evidence that the International Depositor Identity
Form were completed for the duration of the Kuan Koi arrangements, and that 46 such
forms had been produced to the Review.
101
Those forms were produced under summons,
after they had been identified by The Star to the Review.
102
In fact, only 29 of those
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documents produced to The Review were unique International Depositor Identity Forms.
103
Of those, 17 forms had dates between January and March 2018, and 12 had dates between
April 2018 and September 2019.
65. Ms Arnott gave evidence to the Review that she only received the International Depositor
Identity Forms up to about March 2018”.
104
Ms Arnott’s evidence was that International
Depositor Identity Forms were received “at the beginning” and:
105
the process was that I would have those forms and forward them to our AML/CTF
administrator for the purposes of creating IFTI reports to AUSTRAC. At some point,
[Wayne Willett] informed me that he was getting access to the transaction detail
[through the cage team] and that I no longer needed to forward him the forms. So I
said they didn't need to continue to send them to me. But it was - there was a
significant period where I was getting them.
66. In July 2018, Ms Arnott sent an email to Mr Booth and Mr White stating that she had not
received any information relation to the “Kuan Koi Agreement” for a while and that:
106
It is necessary that the paperwork continue to be completed. The paperwork that is
relevant to AML is the International Depositor form that we implemented at the
beginning of the Kuan Koi arrangement. I would be grateful if you could confirm
with Adrian that these forms are still being completed.
67. No substantive response to that email has been identified.
68. The Star Entities submitted that there is no evidence to conclude that staff members were
not present at the time that Mr Koi took payment from patrons.
107
There is insufficient
evidence to find that they were in fact present in all instances. Ms Arnott did not know
whether staff members were always present at the time that Mr Koi took payment from
patrons.
108
No finding can be made either way. The forms that Ms Arnott did receive were
not ordinarily accompanied by copies of the identification documents that staff had
apparently viewed at the time of completing them, so she had no way of verifying whether
the staff who completed these forms in fact viewed the identification documents for
themselves.
109
69. Ms Arnott’s ML/TF risk assessment relied on the fact that IFTIs would be submitted for
the transactions involving Mr Koi. Ms Arnott said in evidence that the lack of transparency
in relation to the transactions involving Mr Koi was “why we reported all these transactions
to AUSTRAC as IFTIs”.
110
The Star Entities contend that Ms McKern’s reports make no
comment on a lack of IFTI reporting conducted for the Initial Kuan Koi Arrangement.
111
The Star Entities do not identify any other evidence that IFTIs were in fact filed for this
arrangement, and the Review has not identified any. There is therefore insufficient
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evidence on which to make a finding either way as to whether IFTIs were lodged in relation
to the Initial Kuan Koi Arrangement.
70. The arrangement with Mr Koi was intended to be an interim measure, in place until around
June 2018,
112
at which time it was hoped that EEIS (and the proposed new MMS would
become operational as the longer-term solution to Star Entertainment being able to accept
payments from overseas for gaming.
113
71. In fact, unbeknownst to the Board of Star Entertainment and with very little or no oversight
by senior management in the Legal, Risk and AML/CTF Teams at Star Entertainment, an
even riskier arrangement involving Mr Koi evolved, which continued until about
September 2019.
The Modified Kuan Koi Arrangement
72. In March 2018, the fears expressed by Mr Chou and Mr Hornsby in December 2017
materialised. In an email to Mr Hawkins, Mr White, Mr McWilliams, Mr Theodore and
Mr Whytcross (among others), Mr Hornsby stated that BOC Macau had blocked all
international wire transfers, issuances of cashier orders and personal accounts from Mr
Koi’s Macau accounts and those of people related to him. He further advised:
114
the EEIS “solution” would not be available until July 1 at the earliest;
Star Entertainment had approached other Macau banks, which either could not
handle its banking requirements, or “flat out refused our approaches”;
he had pressured another junket to wire to the casino “under duress”, and even they
were unwilling or unable to wire the debt owing to the casino directly to its bank
account. Instead, a personal cheque was issued that the junket advised would
bounce;
recently patron Qin Sixin had utilised third party remitter Regal Crown Trading
Limited (Regal Crown) at his own expense for two payments of $3.2M AUD and
$4.6M AUD respectively, with “serious ramifications to Qin with his bankers”,
nevertheless the payments had been received from Regal Crown into one of the
NAB bank accounts held by Star Entertainment subsidiaries;
casino customers expect that when they pay their debts “their personal cheque is
not banked. In the EEIS world this can be solved however under the Casino Control
Act we must bank on 30 business days on issuance in the meantime”;
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a potential solution was for a disbursement “to temporarily to clear a patron’s
marker who have paid Regal Crown, to be reversed pending the clearance of the
funds direct to NAB or [United Overseas Bank] at an agreed time of maturity. Front
money cash players may have temporary CCF facilities offered to them similar to
CUP”, with commissions to Regal Crown negotiated at a rate of 3%.
73. Mr Hornsby warned that his team in North Asia had been unable to find another service
that could offer a solution, and they had been under “immense pressure from our Star
patrons and junkets to present cash options to them and there [are] no other banks or third
parties willing to pick up our volumes without exposing themselves negatively with their
bankers similar to Kuan”.
115
74. Similar internal correspondence reveals a real concern at the time about a loss of patronage
due to the inability to accept deposits in Macau.
116
75. In the period from around April 2018 to September 2019, a modified arrangement with Mr
Koi was utilised to transmit funds from overseas patrons to The Star. The arrangement
utilised other third party remitters, that would provide remittance services, for which The
Star would reimburse service fees to the patrons, through separate payments to Mr Koi
(Modified Kuan Koi Arrangement).
117
76. From May 2018 to July 2018, the Modified Kuan Koi Arrangement was conducted via
companies called ONEPIP HK and ONEPIP Singapore that were both depositing money
into the EEIS NAB accounts pursuant to arrangements with Mr Koi.
118
The arrangement
also appears to have been conducted through a remitter called “Currenxie” in June and July
2018.
119
From November 2018 to March 2020, the primary third-party remitter used was
Silver Express Investment Limited (Silver Express).
120
77. There is also some evidence that patrons were being introduced by Star Entertainment staff
to Regal Crown, a licensed money service operator in Hong Kong.
121
ML/TF risks of the Modified Kuan Koi Arrangement
78. The opacity of these arrangements – and the ML/TF risks they presented – cannot be
overstated.
79. First, the Modified Kuan Koi Arrangement appears to have been initially conducted by an
“associate of Kuan Koi” via further corporate entities, also unknown to Star Entertainment,
in order to avoid remitting as a licensed money lender in Hong Kong, “which they
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specifically clarified” with Star Entertainment before they took over the contract.
122
There
is no evidence as to the identity of the associate, only that the identity may have been known
to Mr Hornsby.
123
The documentary evidence indicates that while the “associate” was
willing to perform the service, they did not want to transfer payments directly to a casino.
124
80. Secondly, the corporate entities through which payments were ultimately made, were
unknown to Star Entertainment from the outset. Remittances were initially accepted by
ONEPIP Hong Kong and ONEPIP Singapore, in circumstances where Star Entertainment
did not have knowledge of the directors of those entities or the identity of their controlling
entities.
125
Remittances coming from those entities were simply treated as payments on
behalf of Mr Koi.
126
Throughout the entire period that it was used, the Legal Team had no
contact with Silver Express to understand their processes in Macau.
127
Ms Martin could
not recall whether the Compliance Team had performed any review of Silver Express’s
processes.
128
Currenxie, one of the other third-party money service business that undertook
remittances as part of the Modified Kuan Koi Arrangement, appears to also have been
unknown to Star Entertainment – other than to Mr Chou – prior to those arrangements being
utilised.
129
81. Thirdly, Star Entertainment had no insight into the companies’ source of funds.
130
As
accepted by Ms Arnott, the problem with remitters depositing funds into The Star’s
accounts was that they could not be sure of where the money was really coming from,
which increased the source of funds risks associated with that usage.
131
82. Fourthly, it is not clear that Star Entertainment obtained information regarding the payers’
identity or their source of funds for the transactions.
132
As noted in respect of the Initial
Kuan Koi Arrangement, the International Depositor Identity Forms required scant detail
from the patron, and no information as to the source of the patron’s funds for the
transactions. Further, it is far from clear that International Depositor Identity Forms were
collected in relation to all of the transactions that took place via the Modified Kuan Koi
Arrangement. There were approximately 135 deposits by third party remitters into the
EEIS NAB accounts and approximately 60 deposits by third party remitters in the NAB
account held by The Star in the period May 2018 to March 2020.
133
By contrast, only 12
forms that were created in that period were produced by The Star.
134
Ms Arnott’s evidence
was that she no longer received the forms after March 2018 (when the Initial Kuan Koi
Arrangement ceased).
135
In those circumstances, the only available conclusion is that this
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control was not effective as a compliance measure, during the period the Modified Kuan
Koi Arrangement was on foot.
83. Further, in an email to NAB, when queried about the transactions, Ms Arnott stated that
while The Star conducted due diligence on customers ultimately responsible for repayments
of debts (or into whose front money accounts payments would be made), it relied on the
third party remitters to conduct due diligence on the payer.
136
In her evidence, Ms Arnott
did not accept that this was outsourcing The Star’s due diligence obligations, because of
the due diligence The Star was performing on patrons. However there is no evidence that
such due diligence was performed on payers involved in the transaction.
137
Mr Brodie
accepted that there were problems with The Star outsourcing its KYC processes because in
order to do that, it “must understand the nature of the [remitting] entity” (which in this
instance, it did not).
138
He stated:
139
If you don't have clarity about who you're dealing with and where they come from
and their processes and all of those sorts of things, then you wouldn't - then you
wouldn't have incorporated them into the program and we hadn't done any of that
work so we wouldn't have been - in my view, we weren't using and our AML
program said we wouldn't use a third-party KYC agent.
84. When Silver Express was utilised, no source of funds information would be sought from
the payer, and Star Entertainment did not have direct contact with customers utilising the
arrangement.
140
Ms Arnott confirmed that the use of third party remitters made the
arrangement even more risky from a money-laundering perspective, “particularly if our
staff didn’t continue to attend to make sure that it was our customers who were providing
the funds for transfer”.
141
85. Fifthly, the evidence suggests that there was minimal (or no) oversight into the
arrangements from a compliance or ML/TF perspective, particularly as it related to any
transactions with Regal Crown. Mr Whytcross gave evidence that he was not aware that
any third-party remitters played a role in the arrangements with Mr Koi, and the process
was being managed by Credit and Collections.
142
Ms Arnott did not have specific personal
knowledge of how the arrangements evolved, and stated that the process was being
managed by her manager (i.e. Mr Brodie).
143
She did not have a “firm understanding” of
what the approved process was at the time, despite the fact that she was the person who
conducted the risk assessment on the initial arrangement.
144
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86. In relation to Regal Crown, Ms Arnott gave evidence that Star Entertainment was
“comfortable” with utilising it to an extent, “although I do believe we had some concerns
about some of the aspects of Regal Crown’s transactions”.
145
Ms Arnott stated that:
146
my understanding is we had asked for quite a significant amount of information and
they – whilst they had assured us that it was lawful, they didn’t want to provide their
commercial processes to us.
87.
Ms Arnott said that it had given Star Entertainment comfort that Regal Crown was a
licensed money services business, even though it had not been able to verify the lawfulness
of the processes Regal Crown used in Macau to a “satisfactory degree to enter into a
services agreement or contract with them
”.
147
88. In March 2018, Mr Brodie had warned that Regal Crown was “a very long way from
meeting our requirements from an AML perspective”.
148
In evidence to the Review, Mr
Brodie stated that:
149
[W]e knew almost nothing about, you know, whether or not they had an AML
program, whether or not we would – whether or not we understood enough about
their – about their ownership and their company structure. To that point in time, The
Star had only ever attempted to deal with people and had never attempted to deal
with companies from an AML/CTF perspective, and obviously dealing with
companies can be a much more difficult or complicated thing to get right.
And so, you know, without understanding their methodology, without understanding
their – their approach to AML, without understanding, you know, who their
beneficial owners were and those sorts of things then it – you know, it’s difficult in
any circumstance for The Star to have addressed the question of those people being
a suitable partner for us.
89. In his file note on the matter, drafted in 2019, Mr White confirmed that Star Entertainment
had “not been able to verify the lawfulness of the process used by RC in Macau”.
150
For
that reason, it appears Star Entertainment did not deal with Regal Crown directly.
151
Indeed, an email from Mr Hornsby to Mr White stated that Regal Crown had used Silver
Express and other remitters to conduct its operations.
152
90. The Star Entities have submitted that there is no evidence that deposits were made into Star
Entertainment bank accounts by Regal Crown.
153
However, as identified above, Regal
Crown had already been used by Qin Sixin to remit funds.
154
Further, based on the
documentary evidence, it appears that Regal Crown may have used other entities and
remitters to make deposits on its behalf, which may have resulted in Regal Crown not
appearing in bank statements for The Star or EEIS.
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91. Sixthly, Star Entertainment had no knowledge of where payments being made to Mr Koi
under the Modified Kuan Koi Arrangement were going, and whether these represented the
actual costs being incurred to patrons using Silver Express (or other remittance
providers).
155
92. Seventhly, IFTIs were not lodged for either CCF or front money payments under the
Modified Kuan Koi Arrangement.
156
Although no finding is made as to whether IFTIs
were required to be lodged under federal legislation, the ML/TF risk assessment performed
by Ms Arnott presupposed that that would operate as a compliance control on the
arrangements with Kuan Koi. At least in respect of the Modified Kuan Koi Arrangement,
there was no such control.
93. Finally, the third-party remittances in conjunction with the Modified Kuan Koi
Arrangement, appear to have been largely paid into the NAB bank accounts held by EEIS,
which were not being adequately monitored for AML/CTF purposes.
94. Generally, the Modified Kuan Koi Arrangement posed a heightened AML risk because:
the very nature of remitters is to provide only remittance or currency exchange
services which limits knowledge and interaction of their customers;
157
the arrangement lacked clarity about the beneficial owner of the remitters and the
source of their funds;
158
the remitters themselves could have been involved in money laundering by
unwittingly accepting funds without knowledge of their source, or by direct
involvement in criminal organisation;
159
remitters may have been unlicensed, or licensed but not subject to a regulatory
regime capable of ensuring the legality of their activities;
160
and
it would be difficult for any authority or bank reviewing transactions undertaken
by remitters to ascertain the origin of the funds.
161
95. Star Entertainment not only failed to identify and quantify those risks, but also employed
almost no compliance measures to ameliorate them.
The end of the Modified Kuan Koi Arrangement
96. On 9 August 2019, it was reported that the Macau gaming regulator had issued a notice to
gaming participants in Macau that with effect from 1 August 2019, Macau was not to be
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used as a hub for the settlement of gaming debts arising from play outside of the territory.
162
This no doubt added further pressure to the arrangements with Mr Koi.
97. On 13 August 2019, Mr Koi met with VIP Credit and Collections and gave notice that he
wished to end his arrangements with Star Entertainment.
163
Mr Koi was apparently
concerned that BOC Macau was raising red flags in relation to his movement of funds.
164
98. Ultimately, the Modified Kuan Koi Arrangement gave rise to a dispute between Mr Koi
and Star Entertainment regarding the payments that were made into Mr Koi’s front money
accounts for the reimbursement of service fees to patrons (which was disclosed to the
Review in a letter from KWM dated 8 November 2021).
165
After an investigation by Mr
White and Mr Kevin Houlihan in around late 2019, a settlement was reached with Mr
Koi.
166
99. Mr White stated in a 29 October 2019 email to Mr Houlihan:
167
given the lack of oversight of the arrangement with KK from May 2018, the
relatively small number of key individuals involved (in particular Gabriela Soares in
Macau and perhaps Jacker Chou in Hong Kong, together with Credit & Collections
team members in Singapore and Sydney), I think there is a possibility that there could
be grounds for a complaint.
100. Mr White told the Review that despite his investigation, he was unable to identify what had
occurred.
168
Lack of oversight of the Modified Kuan Koi Arrangement
101. Despite the very high and obvious risks of money laundering raised by the Modified Kuan
Koi Arrangement, in which third party remitters became involved in the transaction chain,
it is astonishing that Star Entertainment did not perform any risk assessment of ML/TF
risks. Indeed, Ms Arnott’s evidence was that she was only “peripherally” aware of the
change in the nature of the arrangements with Mr Koi. She did not know whether Mr Koi
was accepting cash payments from patrons or whether it was his associate and whether or
not that change was approved.
169
102. There is no evidence that there was any vetting of the third-party remitters, or any vetting
that was able to verify the legality of their operations, the beneficial ownership of the
corporate entities with whom they dealt, the remitters’ source of funds, the remitters’ own
engagement in patron-identification or the remitters’ due diligence regarding the source of
the patron’s funds.
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103. There is no evidence that anyone in Star Entertainment management understood the
patrons’ source of funds for the transactions, other than it came from remitters.
104. Mr White stated that the Legal and Compliance Teams had never investigated whether
Silver Express was licensed in Macau or whether the basis upon which Silver Express
operated in Macau was lawful.
170
In contrast, Ms Arnott and Mr Brodie told the Review
that some attempts were made to verify the lawfulness of Regal Crown’s operations, but
they were unsuccessful.
105. There was in fact no due diligence at all by the Star Entertainment Legal Team in relation
to the Modified Kuan Koi Arrangement. A memorandum prepared by Mr White to Mr
Hawkins and Ms Martin dated 20 August 2019 headed “Overseas Payment Channels”
emphasises Mr White’s lack of knowledge of the then current arrangements with Mr Koi.
171
Under the heading “Background” Mr White, after referring to the Initial Kuan Koi
Arrangement stated:
172
KK informed The Star that he was encountering difficulties with the arrangement
above in [May] 2018, at which stage it was understood this arrangement had come
to an end.
106. Mr White’s 20 August 2019 memorandum then set out Mr White’s understanding at the
time concerning the use of remitters, including the Silver Express arrangement with Kuan
Koi. Mr White stated:
173
After [May] 2018, the arrangement with KK appears to have continued in an
amended form, with the assistance of licenced Money Service Operators in Hong
Kong. This process has not been subject to review by the Legal or Compliance teams
Board Knowledge of the Modified Kuan Koi Arrangement
107. The evidence indicates that the Board of Star Entertainment was not aware about the
Modified Kuan Koi Arrangement or any other arrangements involving third party remitters.
There is no indication that senior management notified the Board of the evolution of these
arrangements into a high risk payment platform involving the use of remitters. Indeed it
seems that senior management had no idea of what was going on either. Mr Bekier said
that he did not know about it.
174
He agreed that what had occurred raised “incredibly
serious money laundering risks”.
175
108. The non-executive directors focused blame on management for not keeping them
informed.
176
Levelling blame at management for this is entirely reasonable. However,
having approved of the original arrangements with Kuan Koi, in early 2018, there is no
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evidence that the Board of Star Entertainment took any steps to monitor or enquire about
those arrangements after the initial approval of them.
Chapter 16.6 Activities of EEIS in 2018 and 2019
Unshelving EEIS and Board Updates
109. The arrangements with Kuan Koi were intended to be a temporary solution to the problems
caused by the closure of the BOC Macau account, until EEIS and the proposed MMS were
operational.
177
110. In a PowerPoint presentation for a “EEIS Project Kick-Off” meeting dated 24 January
2018, it was noted that the BOC Macau accounts accepted HKD $1.2 billion in cash
(approximately AUD $200 million) between January and November 2017 because, among
other things, patrons were “reluctant to transfer to a bank account which is in the name of
a casino”.
178
111. In February 2018, at the same time as it was being notified of the Initial Kuan Koi
Arrangement, the Board was briefed about the emerging risks regarding Macau banking
services, which were intended to be addressed by activating EEIS and establishing the
MMS (which was proposed to act as EEIS’ agent in entering junket agreements).
179
The
EEIS/MMS initiative was foreshadowed to be operational and approved by 30 June
2018.
180
112. In March 2018, Mr Chong updated the Board on the proposed structure of EEIS.
181
It was
suggested that the new structure would respond to issues caused by the closure of the BOC
Macau accounts and the difficulty in securing working visas for sales team members in
Hong Kong or Macau by:
• Establishing a new Macau registered company, the MMS, to market to Macau
licensed junkets and to collect debts on behalf of the Hong Kong junket company.
The MMS will then have full legitimacy to operate in Macau including holding bank
accounts and employing both local staff and staff with working visas.
• Establishing EEI Services as a licensed money lender and licensed remittance agent
thus changing the nature of the payments from customers to being repayment of
loans in Hong Kong from repayment of gambling debts in Australia.
113. The update noted that L&GNSW would be receiving briefings on the proposal on 21 and
27 March 2018, for which a presentation had been prepared.
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114. The presentation to L&GNSW on 27 March 2018, was entitled “Master Junket Structure
Regulator Presentation” and stated that the IRB would be restructured to respond to
regulatory changes in overseas jurisdictions, the closure of the BOC Macau bank accounts
and changes in AML/CTF compliance requirements.
182
The presentation laid out the key
components of the structure (including EEIS operating as a money lender and master junket
operator, and the proposed operations of MMS).
183
It assured the Authority that “all aspects
of the proposed framework fit within the existing Act and Regulations”.
184
115. On 26 April 2018, EEIS opened five accounts with NAB, and Mr Bekier, Mr Theodore and
Ms Martin (among others) as listed signatories.
185
116. The same day, Mr David Kentworthy announced to other Star Entertainment staff:
186
good news. An A$ bank account has been opened for EEIS and is capable of
receiving deposits as of now. Adrian can we please catch up early next week…to
discuss proposed cash flows between EEIS and Star in more detail.
117. Mr Hornsby immediately queried whether he could start using the account to accept
deposits from Silver Express, which was reluctant to wire money “direct to a casino
name”.
187
118. Mr White cautioned that until EEIS was fully operational, its BOC HK and NAB accounts
should not be used.
188
Then a few days later, Mr White advised that EEIS could now accept
payments into its NAB accounts in Australia on behalf of The Star without needing to be a
licensed remitter for the repayment of debts. As for front money deposits, Mr White said:
189
where I understand that the relevant patron is looking to deposit funds into their front
money account, EEIS would not be able to accept this payment into its NAB
accounts without being a licensed remitter.
119. On 24 May 2018, Board approval was sought to establish an internal CCF for EEIS, with
a limit of $400M to facilitate the provision of loans to IRB patrons.
190
The board paper
stated that EEIS “will operate a CCF with both Casino Licence Holders”.
191
In his
presentation to the Board, seeking the approval, Mr Chad Barton noted that:
192
Introducing the EEIS Money Lender CCF provides customers the opportunity to
repay their loan in Hong Kong to a Star group bank account rather than to the casino
operations bank account in Australia.
120. The Board resolved to approve the establishment of the internal CCF of $400 million for
EEIS, “to facilitate the provision of loans to IRB customers”.
193
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121. At the meeting, management spoke to the progress of the EEIS project generally, including
the compliance framework in which the EEIS structure would operate. It is recorded that
Ms Martin stated:
194
spoke to the legal reviews undertaken and advice obtained both in relation to Money
Lender and AML/CTF legislation compliance in Hong Kong and AML/CTF legal
compliance in Australia. Ms Martin noted that, to the extent there are differences
between Hong Kong and Australian law, the highest standard has been adopted
across all AML/CTF Programs for the Group. Ms Martin confirmed that legal sign-
off advices had been obtained from the Company’s advisors in Hong Kong and
Australia in support of the proposed new arrangements under Phase 1 of the project.
122. In May 2018, EEIS released its own AML/CTF Program (EEIS AML/CTF Program).
195
This document said that EEIS was subject to both Hong Kong and Australian AML/CTF
legislation, but noted that EEIS was not registered as a remittance provider in Australia
because it did not provide remittance services through a permanent establishment in
Australia.
123. The EEIS AML/CTF Program also said:
196
The AML/CTF Compliance Officer will play an active role in identifying and
reporting suspicious transactions and will act as the main point of contact with
regulatory authorities and law enforcement …
124. The EEIS AML/CTF Program specified that the AML/CTF Compliance Officer would be
responsible for overseeing the ongoing operation and effectiveness of the transaction
monitoring program. The AML/CTF Compliance Officer was either to review
transactional activities personally or delegate them so that suspicious matter reports
(SMRs) could be lodged, information could be added to a risk register and ML/TF risk
could be assessed and recorded.
197
125. The AML/CTF Compliance Officer position for EEIS was jointly held by Ms Arnott (from
April 2019 to May 2020 and 1 December 2021 onwards) and Mr Whytcross (from May
2018 until at least July 2021).
198
126. On 30 May 2018, NAB issued a request for information about Star Entertainment’s
AML/CTF Program, and specifically questioned what remittance activities had been
undertaken.
199
In response, Star Entertainment advised that EEIS was not operational as a
lender or remitter, and did not currently perform international funds transfers.
200
127. As mentioned earlier in this Chapter, a management committee called the “EEIS/MMS
Project Steering Committee” was operating in this period. The “Project Sponsor” was Mr
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Whytcross, the “Project Leads” were Mr Whytcross and Mr White and the “Project
Manager” was Mr Booth. The members of the committee were Mr Bekier, Mr Barton, Ms
Martin, Mr McWilliams, Mr Chong, Mr Whytcross, Mr White, Mr Theodore, Mr Booth
and Ms Joanne Moore. The day-to-day progression of the project was managed by Mr
Booth with the Steering Committee scheduled to meet each month.
201
128. After the conclusion of the public hearings of the Review, certain documents provided to
the EEIS/MMS Project Steering Committee in June 2018 were identified.
129. On 28 June 2018, Mr Booth sent an email for an EEIS/MMS Project Steering Committee
meeting to be held on 29 June 2018 to Mr Barton, Mr Whytcross, Mr McWilliams, Mr
White, Ms Moore, Mr Theodore, Mr Hornsby, Mr Kenworthy, Mr Brodie, Mr Marcus Lim,
Mr Bekier, Ms Martin and Mr Hawkins. The email included the following “highlights”:
202
1. $AUD 24 m has been received into the EEIS NAB bank account since it was made
available for repaying CCF to casinos. This illustrates the benefit of holding bank
accounts not in the name of the casino.
…
3. Management direction is to only offer an EEIS loan where the customer can
clearly not use the existing CCF mechanism with the casino directly.
…
5. Once EEIS has a M O licence (remittance licence) it will be able to receive front
money deposits as well as repayment of CCF. This is subject to customs meeting
AML//CTF requirements. The licence is now not expected to be granted until
September 2018.
6. EEIS has not been able to open additional bank accounts in Hong Kong or
Singapore consequently banking EEIS facilities are limited to Hong Kong (BOC)
and Australia (NAB).
130. A slide deck was attached to the 28 June 2018 email for the Steering Committee meeting
which attached considerably more detail.
203
The Executive Summary noted that funds
continued to flow through the “Kuan Koi arrangement with formal agreement ending 30
June 2018”.
204
The Executive Summary stated that twelve banks had been approached for
accounts in Hong Kong for EEIS and ten had declined the opportunity.
205
The reasons for
this were not stated but presumably related to the regulatory crackdown by the Chinese
authorities on foreign casinos. This emphasised the importance to Star Entertainment of
the EEIS NAB account in Australia which the Executive Summary noted had been opened,
as well as the account with BOC Hong Kong.
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131. The Executive Summary stated that EEIS had been presented to an IRB sales conference
on the Gold Coast on 19 – 20 June 2018 as “a payment solution”.
206
The slides presented
at the IRB sales conference were included as an Appendix.
132. The appendices to the slide deck for the steering committee meeting on 29 June 2018
included two slides presented at the IRB sales conference which described EEIS “Payment
Solutions for Customers”. The slides were as follows:
207
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133. The Review invited supplementary submissions from The Star Entities in relation to these
documents. The Star Entities now accept that “at least one motivation or purpose among
the EEIS Project Team in developing the EEIS Project was to facilitate payments to The
Star through another entity (EEIS) in a way that obscured their connection with The Star
so as to assist customers who could not or did not wish to make payments that appeared
connected with a casino”.
208
134. The Star Entities also submitted that there was no evidence that the June 2018 EEIS/MMS
Steering Committee documents had been provided to the non-executive directors and that
to the extent that the information in those documents suggests that a purpose of EEIS
transactions was to obscure their connection with a casino, this was inconsistent with the
purposes of the EEIS project that had been disclosed or suggested to the Board.
209
135. In fact, the March 2018 board presentation has stated that establishing EEIS meant
“changing the nature of the payments from customers to being repayment of loans in Hong
Kong from repayment of gambling debts in Australia”. The 24 May 2018 Board
presentation had identified that the EEIS moneylender arrangements “provides customers
the opportunity to repay their loan in Hong Kong to a Star group bank account rather than
to the casino operations bank account in Australia”. The meaning of these statements is
tolerably clear, especially given the context of the closure of The Star’s bank accounts in
Macau. However, as the June 2018 Steering Committee documents were not shown to the
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non-executive directors when they gave evidence to the Review it not appropriate to make
any finding that they were aware of the position which is very clearly disclosed in those
documents.
136. In light of these slides presented to the IRB sales conference in June 2018, and the covering
email from Mr Booth, there can be no doubt that a principal purpose of management of
“activating” EEIS was to enable customers, particularly customers in North Asia, to make
payments to Star Entertainment’s casinos for gambling which could be disguised as
payments to an entity which was apparently unrelated to the casinos. Senior management
clearly believed that there were “benefits of holding bank accounts not in the name of the
casino”.
137. Witnesses gave varying evidence on this matter but generally denied that obscuring the
destination or origin of payments (i.e. a casino) was the driving purpose behind the EEIS
project.
210
Mr Whytcross said that:
211
the driver was to create an alternative to allow customers to repay funds in Hong
Kong. The ability to repay into EEIS was also a - an added benefit and looked at to
create a - an enhanced customer service.
138. Mr Whytcross gave evidence, however, that he understood that customers were having
funds stopped by banks when being transferred to The Star’s bank accounts, which is why
there was a preference for funds to be transferred to EEIS.
212
139. On 11 September 2018, EEIS was registered as a foreign company in Australia, with
directors of Mr Theodore (from 28 October 2019), Mr Bekier (from 14 November 2013)
and Mr Barton (from 12 May 2015 to 18 October 2019).
213
Later in 2018, EEIS became
the entity that conducted Star Entertainment’s business in Hong Kong, including holding
the office lease and employing staff.
214
140. On 26 September 2018, the Board of Star Entertainment was provided a further “IRB
Strategy Update”, foreshadowing plans to build up the IRB and to grow earnings to $145
million by FY22
215
and turnover of $120 billion by FY23.
216
The paper observed that it
was expected that the BOC Macau accounts would be reopened upon the establishment of
MMS in accordance with the previously proposed structure.
217
However:
218
Due to continued tightening of Macau’s regulatory environment this did not occur
and Management decoupled the project by implementing the EEIS money lender
initially. The roll out of the money lender did not require regulatory approvals albeit
provided an immediate business benefit and this is now operationally available for
junket or premium players who are unable to transfer electronically to The Star
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directly. Management continue to streamline processes around the money lender
process in order to lower the impact to customers whilst maintaining a robust risk
and control environment.
141. The paper noted that a number of “top tier financial institutions were not willing to facilitate
transactions on behalf of EEIS in Macau” and that Star Entertainment had applied for a
money service operator licence in Hong Kong (for EEIS) which would permit the company
to facilitate front money deposits for customers to be made through EEIS.
219
NAB’s Discovery of Transactions into EEIS Accounts
142. In June 2019, Star Entertainment’s key banking partner, NAB, requested that a
questionnaire be completed in respect of EEIS’s AML/CTF framework.
220
The response
to the questionnaire was completed by Ms Arnott,
221
in her capacity as joint AML/CTF
Compliance Officer for EEIS.
143. The response relevantly asserted that:
222
EEIS had not commenced activities as either a remitter or lender;
EEIS bank accounts were to be used for “transfers to the client’s front money
account at a casino owned by The Star” and “repayment of debts at a casino owned
by The Star;” and
EEIS’s transaction monitoring processes were manual.
144. EEIS declined to provide a copy of its AML/CTF Program to NAB.
223
Ms Arnott told the
Review this was because it was “commercial in confidence”. She said that he would have
thought that this was usual and that NAB did not argue against the refusal.
224
145. On 9 August 2019, Ms Tanya Arthur of NAB sought to organise a meeting with Star
Entertainment executives to gain a further understanding of EEIS.
225
In the meantime, an
internal NAB email exchange dated 16 August 2019 recorded that there were “material
discrepancies” between what was stated in the questionnaire and what Star Entertainment
had told NAB in prior meetings about how the EEIS NAB accounts would be used.
226
In
particular, it was observed that EEIS had permitted money service businesses to utilise the
accounts to perform remittances, notwithstanding that the questionnaire noted that EEIS
had not commenced remittances.
227
It was further noted that:
228
It appears the person who completed the questionnaire in June 2019 has a very
different understanding to the actual transactions/use of the account to what actually
happened and this is highly unusual.
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146. On 2 September 2019, a telephone conference took place between representatives of NAB
and representatives of The Star including Mr White, Ms Dudek, Ms Scopel and Ms
Arnott.
229
According to an NAB file note, NAB was told:
230
EEIS was registered with AUSTRAC as a remittance service provider and was
registered as a remittance service provider in Hong Kong;
EEIS would be “extending its business offering to include the provision of
remittance services to individual clients who are also customers of The Star. The
clients can use the remittance service of EEIS to send funds from Hong Kong to
The Star to fund their playing accounts at the casino or to settle amounts owing to
The Star”;
EEIS had “not initiated remittance transactions business” but “EEI to review the
transactions and confirm!!”
(emphasis added).
147. Following up on that meeting, on 4 September 2019, Ms Arthur of NAB emailed Ms Scopel
a January 2019 bank statement for the EEIS NAB account.
231
Ms Arthur queried a number
of transactions and asked whether KYC had been undertaken.
232
Ms Arthur also attached
a copy of the questionnaire with comments inserted. The comments included requests for
an explanation as to the intended usage of the EEIS NAB accounts, and an explanation as
to advice that EEIS was not yet operational was “aligned with the Jan-March 2019
transactions in EEI’s NAB account?”.
233
148. NAB queries prompted a flurry of activities at Star Entertainment. On 4 September 2019,
Mr Hornsby sent an email to VIP Credit and Collections, copying a number of individuals
including Mr White and Ms Arnott, stating:
234
Please do not allow any more [front money] deposits into our NAB EEIS bank
accounts until further notice. Only for CCF marker redemptions until further notice.
149. On 5 September 2019, Ms Scopel responded to Ms Arthur’s 4 September 2019 request that
their risk team had “immediately reviewed the transactions in the account mentioned and
found no concerning transactions. We will respond to the specific transactions queried”.
235
In fact it took a further 17 days for a substantive response to be provided.
150. In the intervening period, at the request of Mr White and Ms Arnott, Mr David Proctor (of
Credit and Collections) reviewed the transactions queried by NAB and the historical bank
records of the EEIS NAB accounts, which revealed that transfers into the EEIS NAB
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accounts had included both CCF redemptions and front money deposits.
236
Ms Arnott
accepted in evidence that EEIS was being used for three purposes at the time: to advance
loans to Star customers; to collect repayments for CCF; and to advance front money.
237
151. Ms Arnott stated that she only became aware on around 5 September 2019 that EEIS was
collecting front money deposits, and it had been her understanding that “those accounts
couldn’t be used for that purpose”.
238
This was, apparently, because “we hadn't settled
whether or not those payments required an IFTI to be submitted to AUSTRAC. And where
that IFTI was required, we were in danger of not - of not properly acquitting ourselves of
those reporting obligations”.
239
152. Also on 5 September 2019, Ms Arnott corresponded with Mr White about seeking legal
advice from Mr Seyfort of HWLE the following day because “we wanted to seek
clarification about the lodgement of IFTIs for front money before play transactions”.
240
153. On 13 September 2019, Mr Procter, forwarded Mr Hornsby’s email of 4 September 2019
to a number of Star Entertainment staff, including the Credit & Collections Team. On the
same day, Ms Arnott stated that she met with Ms Sabrina Yi and requested that Ms Yi lodge
IFTIs to AUSTRAC in relation to the identified transactions that she “believed to be IFTIs
at the time”.
241
154. On or around 17 September 2019, NAB held an internal Zoom meeting, attended by Ms
Arthur, before which a file note was circulated, noting:
242
In essence EEI’s AML questionnaire indicate that EEI has not started MSB activities
and EEI carry out CDD on its customers (including Junket Operator and their
customers who are also Star customers) including carrying out screenings (Sanctions
and adverse media). These were verbally confirmed again by EEI/Star AML team in
the meeting. However, transactions in NAB’s EEI accounts in Jan – March 2019
seem to be MSB activities (inward payments from third party MSB then paid
directly to individuals in Australia) rather than payments to Star’s account to allow
repayment of debt to Star or providing advance to Star’s customer. EEI/Star AML
team did confirm their transaction monitoring control does NOT include review
of the relevant bank account transactions.
Further to the meeting, some transactions were shared to EEI AML team for review
and clarifications on who the payers are, who the recipients are, how are these
transactions aligned with the EEI activities (or lack of activities as indicated in the
AML questionnaire) if they are Star customers what CDD/Screening has been
carried out. Response is still pending.
This also creates challenges for a further site visit to review Star’s AML program
and controls in that the design and effectiveness of the program and controls may not
be in line with NAB’s expectation and risk exposure, despite what was advised by
the client. It appears NAB’s accounts have been accessed by the Casino’s
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customers and their business relationships directly for remittance activities, while
there is no confirmed assurance that Casino’s customers and their business
relationships have been appropriated KYCed and screened. The NAB also need to
implement more stringent transaction monitoring of Casino customers’ NAB
accounts to ensure it is aligned with the expected use of accounts agreed by NAB.
(emphasis added)
155. During this period, Ms Arthur sent a number of emails following up the response to her 4
September 2019 request.
243
156. On 18 September 2019, Ms Arnott provided a substantive response.
244
In relation to the
transaction queries Ms Arnott advised that:
245
Patron A [name withheld] was an individual customer, and was the payee and
recipient of the transaction, and in this instance, EEIS had accepted the transaction
on behalf of The Star (and KYC and CDD had been conducted on Patron A);
transactions for Patron B and Patron C [names withheld] were for the clearance of
debts and were accepted by EEIS on behalf of The Star (and KYC and CDD had
been conducted on Patron B and Patron C); and
in relation to the transactions that NAB had highlighted, “we understand that Silver
Express and MS Services Centre are both licensed remitters in Hong Kong.”
157. Ms Arnott gave evidence that she was not surprised that remitters had been depositing
money into the EEIS bank accounts of NAB in January 2019, “because we were aware that
customers were using remitters to send money, given the constraints on the banking system
in Hong Kong and Macau.”
246
She accepted there was an increase in the money laundering
risks associated with this usage “to some extent”, but “where there were licensed remitters,
we were comfortable with the acceptance of those transactions”.
247
158. On 18 September 2019, Ms Arnott emailed the Cage Team, and advised that, in order to
provide “flexibility in relation to the services offered”:
248
we will report any Front Money related transactions through the EEIS account
(including FM matching) as IFTIs.
We have not yet finalised the process for accepting these payments so for the next
few weeks EEIS should only be used for CCF redemption payments (which are not
reportable).
Moving forward can I ask that you notify the AML team if there are any front money
transactions through EEIS as soon as possible so we can organise the reporting in a
timely manner.
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159. Shortly thereafter, Mr White sought further legal advice from Mr Seyfort of HWLE, this
time in relation to whether EEIS had provided a designated service, and/or had an IFTI
reporting obligation in relation to the various deposit scenarios arising in relation to the
transactions that had been identified by NAB. Mr Seyfort advised that EEIS had not been
providing designated services, and the conduct did not trigger IFTI reporting obligations.
249
160. It is not a function of this Review to consider whether Mr Seyfort’s advice was correct.
However, in light of the above evidence, it is clear that IFTIs had not been raised for either
CCF redemptions or front money deposits into the EEIS NAB bank accounts. As most or
all deposits relating to the Modified Kuan Koi Arrangements were made into the EEIS
NAB accounts, it appears likely that IFTIs were not lodged in relation to those transactions.
161. On 25 September 2019, there was a further teleconference between NAB (including Ms
Arthur) and The Star’s “EEI AML” Team. A file note entitled “Star / EEI Red Flags Call”
was prepared by Ms Arthur and later distributed internally to NAB. The file note stated:
250
EEIS & The Star have separate AML programs as they provide different services.
Share the same customers in some instances and where they do customers are
screened twice.
• EEI is a loans and Remittance business, The Star is a Casino.
• EEI does not provide a designated service and therefore reporting
obligations have not yet commenced (?)
162. The note further reflected that “Red Flags for EEI” included “remittance transactions”
where the amounts were large, were not consistent with customer’s profile or history or
have no economic purpose, or where amounts consisted of cash deposits that are “usually
with money that has been wrapped by a casino”. The note stated that “channel risks” for
EEIS included where “customers do not provide us with requested information” and “where
[EEIS] are asked to deal with a third party”.
251
163. In or around September 2019, Mr White initiated a review into how the EEIS accounts had
been used after the queries from NAB.
252
A December 2021 memorandum by Mr White
also noted that the issue had been reviewed again as part of preparation for responses to
both AUSTRAC and this Review.
253
164. On 26 September 2019, Ms Arnott requested that Ms Dudek and Mr Aloi provide Ms
Michelle Chiu (from Hong Kong) and Mr Willet (from the Sydney AML Team) access to
the EEIS bank accounts with read-only permissions.
254
Ms Arnott gave evidence that up
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to that point, no one from the AML Team could access or monitor the transactions of the
EEIS bank accounts.
255
It is clear that no transaction monitoring by the AML Team was
occurring up this point.
165. On 30 September 2019, Ms Arthur of NAB emailed Ms Scopel to request a meeting to
discuss The Star’s approach to financial crimes risk/AML and KYC. Specifically, NAB
wished to:
256
re-visit the recent discussion regarding the AML and transaction monitoring
undertaken for EEI Services Limited and receive confirmation that your internal
processes now include visibility/monitoring of the NAB transactional accounts.
(emphasis added)
166. Ms Arthur gave evidence that she asked for this confirmation, because Ms Arnott had
informed her in one of their meetings that “transaction monitoring was not occurring across
those accounts because EEIS had not commenced providing Designated Services”.
257
167. That meeting with NAB occurred on 16 October 2019, and was attended by senior Star
Entertainment executives including Ms Martin, Ms Theodore, Ms Arnott, Mr White and
Ms Scopel. From NAB, attendees included Mr Steve Blackburn – Chief Financial Crime
Risk Officer & Group MLRO, Mr Tom Mazzaferro – General Manager Client Coverage,
Ms Arthur – Head of Diversified Industries and Technology, Ms Amanda Wu - Acting
Director, AML, Customer Onboarding & Regulatory Due Diligence and Ms Vivianna Cho
– Associate Director Financial Crime Advisory.
258
168. Included on the agenda for discussion was whether there had been any recent enhancements
of EEIS’ and The Star’s transaction monitoring processes and assessments, and how the
Star Entertainment managed the risk of clients depositing directly into its NAB accounts.
259
169. File notes from the meeting reflect that Ms Martin stated:
260
that EEIS was a new structured offering for the Star Group. It holds a money lender
and a money services license in Hong Kong and is a registered MSB with AUSTRAC
in Australia.
…
The customers in EEIS are rated medium ML/TF risk to start with. As a medium
risk, source of funds and wealth (SoF /SoW) information is collected but is not
verified unless there are circumstances presenting that seem incongruous. The same
customers will be categorised as high risk should they be a politically exposed
persons (PEP), subject to serious adverse news, or attract a red flag from transaction
monitoring (TM). The credit team assess the credit risk of customers where SoW
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/SoF information is obtained. This credit check includes the use of a “central credit”
system where information of customers’ interactions with global casinos is stored.
For approved VIP/Program players, funds are transferred into the EEIS Hong Kong
bank account ahead of their visit > the Hong Kong bank transfers the funds to the
NAB EEIS bank account > EEIS then transfers the funds into the Star’s player
account (notional accounts within the Star environment, not NAB accounts)
170. To this, Mr Blackburn challenged:
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whether the information held by the hosts could form tangible and hard evidence
presentable to a regulator especially on SoW/SoF.
171. Ms Martin is recorded as saying that:
262
for Chinese high rollers – most of Star’s VIP customers are coming from Hong Kong,
Macau or have business/companies set out in Asia outside of PRC. Reliance is placed
on the Star employees/hosts that are internationally based to know the VIP players
well through building close professional relationships to understand the player’s
tendencies and behaviours, their businesses and even personal lives. AUSTRAC has
regular reviews on the Star’s customers and so far are happy with the AML and credit
records including SoW / SoF information collected.
172. Ms Arnott could not recall anyone from Star Entertainment telling NAB there was no
transaction monitoring occurring of the EEIS bank accounts with NAB.
263
However, she
conceded that there were shortcomings in the EEIS transaction monitoring at that point in
time because “we weren't looking at the bank accounts in enough detail. And there may not
have been as much monitoring of repayments of loans as there should have been”.
264
173. In two separate emails – from Ms Arthur and Mr Blackburn to The Star – NAB thanked
The Star for its “transparency” in the meeting.
265
174. On 20 November 2019, Ms Arthur followed up with Ms Arnott and requested a copy of the
EEIS AML/CTF Program, and other information regarding high-risk customer types and
countries.
266
This information – and a copy of the EEIS AML/CTF Program – was provided
by Ms Arnott on 21 November 2019.
267
175. On 11 December 2019, Ms Arthur raised further questions with Ms Arnott, including:
268
Could EEIS please provide an explanation as to why most funds transfers to its
accounts with NAB originate from overseas MSB’s? (e.g. EEIS has no bank accounts
in those jurisdictions? and does EEIS rely on the overseas MSBs to conduct the
required KYC on the payer of the funds to ensure the SOF information is
obtained/screened/reported as required?)
176. Ms Arthur followed up on 19 December 2019, requesting a response.
269
That day, Ms
Arnott replied:
270
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The majority of funds that are transferred into the EEIS account relate to the payment
of debts for The Star. The payments come from the countries where The Star’s
customers reside rather than countries where The Star has a formal business
presence. These do not represent remittances conducted by EEIS. The Star conducts
due diligence on the customer who is responsible for repaying the debt but does rely
on the MSB to conduct the required due diligence on the payee. The Star (and EEIS
by proxy) request that our customers only deal with licenced remitters so that we are
able to rely on the due diligence conducted by the MSB.
177. In around October 2020, NAB issued another questionnaire to Star Entertainment regarding
its AML/CTF Program and Transaction Monitoring. In its response, in an email from Ms
Dudek to Ms Arthur, Ms Dudek noted that funds received into the accounts of EEIS
Services (Hong Kong) Holdings Limited:
271
are from existing guests to redeem their CCF only i.e. repayment of debt. EEIS is a
licenced remittance service provider in Hong Kong and registered as a remittance
service provider with AUSTRAC. To date EEIS has not conducted any remittance
transactions; the NAB account has only been used to receive funds for the repayment
of debts to The Star Entertainment Group entities and accordingly no remittance.
178. As there is no evidence that EEI Services (Hong Kong) Holdings Limited held accounts
with NAB,
272
it is assumed that Ms Dudek’s response related to EEIS.
179. Ms Dudek’s response was incorrect, as the NAB account had also been used for front
money deposits. Ms Dudek was not asked about this email. Ms Dudek did say that it was
her understanding that the EEIS accounts were only to be used for the repayment of gaming
debts, though she did not have any personal knowledge of that.
273
Review of the Group Bank Account Arrangements
180. In April 2021, Star Entertainment sought a number of reports from HWLE, including as to
whether the patron account issues that arose for Crown in the Bergin inquiry would be an
issue with respect to Star Entertainment.
274
It was also requested that there be a review of
EEIS and consideration of whether it still needed to be part of the business, and what
controls should be adopted in respect of it.
275
181. HWLE delivered a paper entitled “Group Bank Account Arrangements” dated 7 July 2021.
The paper observed:
276
virtually all of the “Star Group’s” bank account arrangements did not involve
attributes that concerned the Bergin Inquiry in respect of Crown’s arrangements
(including that there was insufficient oversight into the accounts by AML staff, and
neither the directors of the account-holding entities or the board had an adequate
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understanding of the activities occurring in those accounts) and The Star’s bank
account arrangements were generally more “direct, logical and transparent”;
“with the exception of the EEIS accounts” depositors should have no reason to not
understand that they are transacting with The Star; and
Group Finance, AML and Internal Audit staff have unfettered access to bank
account records as necessary to perform their functions.
182. The paper recommended that EEIS change its name to at least include the word “Star”, that
Star Entertainment’s Board and committees “should receive comprehensive reporting of
EEIS activities as it does for other business units of the group” and a review of EEIS
activities should be included in any future Independent Review of the Joint Program.
277
183. The paper did not refer to the NAB’s concerns expressed to Star Entertainment over a
lengthy period in connection with the EEIS accounts, other than to say that the banks had
no “outstanding concerns” regarding the patron accounts.
278
184. Dr Pitkin gave evidence that she did not recall having received comprehensive reporting
on EEIS’ activities, and no concerns about insufficient management oversight were brought
to the Board’s attention.
279
185. Ms Lahey also gave evidence that she did not recall comprehensive reporting about EEIS,
but that had been because the accounts were dormant, and it had been her belief that the
only activities conducted by EEIS had been to collect gambling debts from Chinese patrons
outside of China.
280
186. It was by this report that Mr Bradley stated that he became aware of the existence and
operation of the NAB accounts.
281
AML Risks, Compliance Oversight and Transaction Monitoring of the EEIS Bank Accounts
187. An analysis of the EEIS NAB account statements by Ms McKern indicates that a total of
1528 transactions took place through those accounts in the period May 2018 to November
2021.
282
A total of $103,999,290 of deposits from known third party remittance service
providers were made into the EEIS accounts.
283
Silver Express was responsible for $52
million of those deposits.
284
188. Ms McKern said that third party remittance services, typically comprise an informal value
transfer system, in which the remitter does not actually transfer cash, but – on instruction
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from a customer who wishes to transfer value to another jurisdiction – arranges for an
equivalent amount of funds to be made available within that jurisdiction by their associates.
This results in the creation of a debtor/creditor relationship between the remitter and their
associate (which is settled by a similar transaction in reverse, a periodical settlement of the
net position, or not at all).
285
189. As Ms McKern observed:
286
Accepting deposits from remittance service providers is inherently high risk from an
AML/CTF perspective because the underlying methodology involves a
disconnection between the monies deposited by the payer and the monies received
by the beneficiary which is open to exploitation by money launderers.
190. According to Ms McKern, any controls (such as transaction monitoring and customer due
diligence) imposed on those transaction chains are inherently less effective because of the
“disconnect” between the customer (typically subject to KYC and source of wealth
processes by the casino) and the actual funds placed with the casino (from remittance
service provider from an unknown source).
287
The underlying depositor and source of
funds becomes necessarily obfuscated.
288
191. Mr Whytcross and Ms Arnott both gave evidence about shortcomings in compliance
oversight and transaction monitoring of the EEIS NAB account. Notwithstanding that Mr
Whytcross was a joint AML/CTF Compliance Officer of EEIS, he disavowed responsibility
for overseeing the operations of EEIS or its transaction monitoring program.
289
This, he
said, was the responsibility of Ms Arnott.
290
His evidence was that he did not know what
his role of compliance officer was, that he did not know what was involved in EEIS
transaction monitoring,
291
that he did not undertake any transaction monitoring
292
and did
not know whether Ms Chiu, the international compliance officer based in Hong Kong,
personally undertook any transaction monitoring.
293
192. Ms Arnott accepted that for a significant period of time, she had very little understanding
of what transactions were occurring in the EEIS NAB bank accounts because she assumed
they were CCF payments relating to The Star entities rather than EEIS-related
transactions.
294
When she was compliance officer, she understood her obligation to oversee
the transaction monitoring program in relation to EEIS customers and the EEIS transaction
monitoring program, but there was a “gap” in relation to the bank accounts as only the Cage
was monitoring these in some very limited manner.
295
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193. Mr Aloi gave evidence, and The Star Entities maintain, that the Cage monitored and tracked
money when it was deposited into The Star’s bank accounts, including the EEIS NAB
account, by looking for “unusual amounts” and “anything that looks odd”.
296
Although Mr
Aloi gave evidence that the Cage Operations SOP contained all material compliance-related
tasks required to be performed by cage staff, The Cage Operations SOP made no provision
for transaction monitoring of the bank accounts for AML/CTF purposes.
297
Further, the
Cage only had limited access to the NAB accounts held by EEIS from late 2018 “at the
earliest.”
298
There was a separate AML/CTF SOP containing transaction monitoring tasks,
however it was unclear from the evidence whether those tasks were performed exclusively
by Cage staff or AML administrators sitting within the Cage.
299
194. Ms Arnott’s evidence was that it was the responsibility of the AML administrator – rather
than the Cage – to be monitoring for large cash deposits, telegraphic transfers and
identifying signs of money laundering, such as structuring.
300
Ms Arnott gave evidence
that from 2018 to mid-2019, there was “some”, although limited transaction monitoring for
AML purposes of the EEIS NAB bank accounts, and that she believed the Cage teams when
accessing those accounts may have identified some transactions that were suspicious for
AML purposes and reported them.
301
195. Ms Arnott was not monitoring the bank accounts of NAB held by EEIS during that period,
and was not aware that anyone in the AML Team was monitoring those accounts.
302
196. Mr Theodore also accepted that there were shortcomings in terms of the transaction
monitoring of EEIS bank accounts.
303
However, Mr Theodore did not consider that he was
responsible for overseeing this transaction monitoring via the AML Team.
304
197. In short, the evidence indicates that there was no transaction monitoring of the EEIS bank
accounts by the AML Team, or anyone trained or with experience in AML. To the extent
that there was monitoring occurring, it was unsophisticated monitoring conducted by the
Cage.
198. The fact that there were significant numbers of front money deposits not notified to the
AML/CTF compliance officer, including by third party remitters who were unknown to
Star Entertainment, into those accounts, makes it plain that the limited transaction
monitoring performed by the Cage was insufficient for AML/CTF purposes.
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199. It is clear that proper monitoring of the EEIS NAB bank accounts, and the bank account
statements did not occur until after NAB began to investigate the deficiencies in Star
Entertainment’s processes. It was unsatisfactory to have no clear allocation and delineation
of responsibility for AML/CTF-specific transaction monitoring. It was particularly
unsatisfactory to have left the task to a team with no demonstrated expertise or experience
in AML/CTF compliance and risks. It was also unsatisfactory that one of the EEIS
AML/CTF compliance officers, was appointed purely for commercial purposes, and self-
admittedly had limited knowledge or responsibilities in relation to AML/CTF matters.
200. The fact that the transaction monitoring of the EEIS accounts for AML/CTF purposes was
minimal (or non-existent), is made much worse by the scale and number of deposits by
third party remitters into the EEIS accounts. Even more so when so little was known about
the identity of the payers and origin of the funds being deposited. In those circumstances,
third party remittances should never have been permitted into the EEIS accounts.
201. The EEIS loan structure also carried with it significant risk from an AML/CTF perspective.
Ms McKern concluded that there was no evidence that the EEIS loan arrangements
involved actual money laundering, however, the arrangements placed The Star at “grave
risk” of failing to mitigate, manage and report the risk of money laundering or terrorism-
financing, and/or potentially being complicit in enabling the placement, layering and
integration of illicit funds.
305
That opinion was not challenged by The Star Entities.
EEIS Operations as a Money Lender
Mechanics of the Loans
202. EEIS held a money lenders licence in Hong Kong from 2014 until 2021.
306
In May 2018
the Board of Star Entertainment approved EEIS commencing to operate as a money lender
issuing loans to patrons from Hong Kong.
203. In his May 2018 presentation to the Board, seeking approval of the master $400 million
CCF, Mr Barton explained that the loan facility would operate such that:
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EEIS would operate as a Money Lender in Hong Kong, granting loans to patrons,
supported by personal cheques (made out to EEIS by the patron);
EEIS’ loans to patrons could only be drawn at the casino properties to fund gaming;
and
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EEIS would simultaneously hold a “master CCF” with The Star (and the
Queensland casino licence holder) “from which customers will draw down into
their own front money accounts”.
204. In his May 2018 presentation, Mr Barton outlined “the new customer journey…with the
implementation of EEIS Money Lender, which reflects minimal impact to customers”:
308
EEIS / MMS PROJECT
3. Customer Journey (1)
• The following outlines the new customer journey under phase 1 with the
implementation of EEIS Money Lender, which reflects minimal impact to
customers:
-Customers will continue to provide a personal cheque however they will now enter
into a loan agreement with the EEIS Money Lender to replace the existing CCF held
with the Casino Licence Holder
-Credit will be granted as per the existing process and CCF Delegated Authority
Approval Limit (‘DAAL’).
-Loans from EEIS Money Lender are drawn at the casino properties from the EEIS
Money Lender CCF and may only be used for gaming
-EEIS Money Lender will settle the CCF with the Casino Licence Holders within the
statutory time limit (under Australian law)
-EEIS Money Lender will recover debts from losing players or junkets from Hong
Kong
-Players will have 30 calendar days from program end to settle any outstanding.
Under the current CCF requirements, repayment is required 30 business days from
buy-in
-EEIS Money Lender will bank the customer cheque if the debt is not settled within
the time limit, as per current policy.
• There are no changes to:
-Assessing the creditworthiness of customers seeking loans from EEIS Money
Lender
-Terms and conditions of rebate agreements
-Know Your Customer (‘KYC’) requirements before and on arrival
-Conduct of gaming at Australian properties which includes rebate programs and
approval/licensing of junkets.
205. At its meeting on 24 May 2018 the Board of Star Entertainment resolved to approve:
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a) [the] establishment of an internal CCF for EEI Services ( Hong Kong) Ltd (“EEIS
Money Lender”) with a limit of $400 m to facilitate the provision of loans to IRB
customers; [and]
b) the inclusion of EEI Services (Hong Kong) Limited (with its AML/CTF Program)
in The Star “Designated Business Group” registered with AUSTRAC for the
purposes of Australian AML /CTF law.
206. Each of Mr Heap, Mr Bradley, Dr Pitkin, Ms Lahey and Mr Sheppard stated or accepted in
evidence that the structure, in general terms, involved a CCF with EEIS imposed as an
intermediary entity to face the relevant patron or junket, rather than the casino licence
holder.
310
207. The process was further set out in the EEIS Loan Facilities SOP initially issued on 30
October 2018, which clarified that the Cage of the relevant casino would produce (through
Synkros) a “Counter-Cheque” drawn on EEIS, which would be exchanged for the
customer’s buy-in.
311
The requirement for a personal cheque of the patron (and
presumably, by extension, the creation of a counter-cheque) could be waived by approval
of the Star Entertainment CFO.
312
208. From June 2019 to July 2020 EEIS issued six loans with a total value of $213 million.
313
The last draw-down occurred on March 2020.
314
The loans were recorded on the “EEIS
Receivable Control Sheet Master” spreadsheet.
315
While the loans were technically only
made to five or six customers, the spreadsheet records that those loans were issued to junket
operators, or junket funders, who then on-lent the monies to a number of individual patrons
of The Star.
316
The loan monies were ultimately distributed to 38 different front money
accounts.
317
The spreadsheet did not record any loans being made to persons who were not
patrons of The Star (nor has there been any other evidence or suggestion that that was the
case).
209. The spreadsheet records draw-downs totalling $162 million AUD, by patrons buying-in at
The Star (and approximately $109 million AUD worth of loans issued to patrons of the
Gold Coast property).
318
210. EEIS did not charge interest on the loans.
319
The collateral provided to support these loans
was a personal cheque of the patron (except if this requirement was waived by the CFO),
or a counter-cheque issued by The Star.
320
211. The documentation for the loans were provided to the Review. They included EEIS
“Facility Applications”,
321
EEIS “Facility Offers”
322
and drawdown notices.
323
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212. Mr Theodore told the Review that the services of EEIS were no longer required once the
casino operator was able to offer direct credit to patrons under NSW legislation.
324
With
effect from 1 July 2020, section 74(5) of the Casino Control Act was amended to permit a
casino operator to extend credit to persons not ordinarily resident in Australia to enable
them to participate in premium player arrangements or junkets.
213. A detailed explanation of the arrangements involving EEIS acting as a lender was provided
in an email dated 10 December 2020 from Ms Andrea Long, Group Regulatory Manager
Legal Department of Star Entertainment to L&GNSW:
325
EEIS is the current employer of the Star Entertainment Group’s staff in Hong Kong.
This consists of 6 team members associated with the international marketing team…
… EEIS has held a Money Lenders Licence under the Money Lenders Ordinance
since 2014. EEIS operationalised its moneylending business in 2018, with loans
made to customers of the Star Entertainment Group from 2019.
…
…Most of the services noted above as being provided by EEIS to The Star
Entertainment Group will include services provided to The Star Pty Limited.
In addition, EEIS holds a CCF with The Star Pty Ltd, which it has used to provide
funds to its borrowers for gaming at The Star Sydney. EEIS repays it CCF drawings
within the required time limits under the Casino Control Act 1992 (NSW) (through
the loan facility with The Star Entertainment Finance Ltd referred to below) and
recovers the amounts it has lent to borrowers in accordance with its own lending
terms and conditions.
…
With regard to EEIS’s Money Lenders business, all loans are approved in accordance
with The Star Entertainment Group’s delegated authority in this area, with the same
thresholds and risk reviews as for a CCF with either The Star Pty Ltd or The Star
Entertainment QLD Limited. Due diligence on customers of EEIS is carried out in
the same manner and by the same team as for the rest of The Star Entertainment
Group, with EEIS leveraging on the Star Entertainment Group’s existing information
and resources in this area. Likewise, the management of amounts owing to EEIS is
managed in the same way as for returned cheques under CCF.
Operationally, once a loan is made by EEIS, the borrower accesses their draw-down
on that loan by receiving funds into their front money account, transferred from a
drawing on EEIS’s CCF at the relevant property. EEIS repays the CCF on or before
the due date for banking the relevant cheque through (i) either a repayment of the
loan on a customer win or (ii) drawing on its loan facility with The Star
Entertainment Finance Limited (see below). Once EEIS is repaid the loan by the
borrower, it repays The Star Entertainment Finance Limited loan.
The Star Entertainment Group has agreements in place with EEIS with regards to:
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a. Provision of services by EEIS and the payments made by The Star Entertainment
Group Limited for the services, based on costs incurred by EEIS plus a margin, in
line with transfer pricing guidance;
b. Funding, where The Star Entertainment Finance Ltd agrees to fund EEIS, with
The Star Entertainment Group Limited, EEIS’s parent company, guaranteeing to The
Star Entertainment Finance Ltd EEIS’s repayment of any loans made. The Star
Entertainment Group Ltd accordingly bears the credit risk in any bad debts for EEIS,
which commercially is the same as for a returned cheque on a CCF from The Star
Pty Limited or The Star Entertainment QLD Limited.
214. The description of the relevant arrangements between EEIS and the entities in the Star
Entertainment Group provided in the 10 December 2020 email to L&GNSW appears to be
an accurate and precise description of the arrangements from a legal perspective. Star
Entertainment produced to the Review the two agreements referred to in the 10 December
2020 email and their provisions accord with the descriptions given to them in that email.
215. The Loan Facility and Guarantee Deed dated 8 August 2019 is between The Star
Entertainment Finance Limited as lender, EEIS as borrower and Star Entertainment as
guarantor.
326
It makes provision for Star Entertainment Finance Limited to advance funds
to EEIS in relation to EEIS providing loans to customers for the purpose of the customers
using them at Star Entertainment’s properties. In practice, it appears from Ms Long’s
email, that EEIS would redeem the Master CCF to The Star, using the funds with which
the patron had repaid the loan. If the patron had not already repaid the loan within the
statutory time frame for banking the cheque (for the purposes of the Master CCF), EEIS
could draw down on the loan facility with Star Entertainment Finance Limited, to redeem
the Master CCF in time.
216. The Memorandum of Services Agreement dated 19 December 2019 is between Star
Entertainment and EEIS, which is described as the “Service Provider”.
327
The “Services”
are identified in schedule one as including marketing services, credit checks and accounts
receivable management services. The “Service Fee” is defined to mean the costs
reasonably incurred by EEIS in providing the services plus 7% or such other percentage as
may be agreed. Clause 3.2 of the agreement states that in providing the services, EEIS is
acting as an independent contractor, and not an agent of Star Entertainment.
328
217. On analysis, therefore, the relevant legal relationships involved in EEIS providing a loan
to a patron for gambling at The Star Casino were more complex than merely the provision
of a loan by EEIS to the patron with a back-to-back CCF from The Star to EEIS. The legal
relationships did involve those steps, and only those steps, if the patron repaid the loan to
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EEIS within the 30-day period permitted under section 75 of the Casino Control Act for
banking cheques provided by EEIS to The Star under the EEIS master CCF.
218. However, as the 10 December 2020 email to L&GNSW explained, the credit risk on the
loan by EEIS was borne by Star Entertainment as the guarantor of the loan by Star
Entertainment Finance Ltd to EEIS which was made if the patron did not repay the EEIS
loan within the time permitted under the EEIS master CCF with The Star.
219. Furthermore, the cost of the ancillary work involved in making the loan by EEIS to the
patron, such as credit checks and receivable management, was also borne by Star
Entertainment under the terms of the Memorandum of Services Agreement, albeit, as
explained by Ms Long, to the benefit of The Star.
Was EEIS an Agent of The Star?
220. It was submitted by Counsel Assisting that EEIS was operating as an agent of the casino
operator (The Star) and therefore in issuing loans to patrons for gambling, was in breach of
the prohibitions on lending or provision of credit contained in section 74(1)(b) of the
Casino Control Act. If that submission is correct, then it would result in The Star breaching
its casino licence, by operation of section 74(2), which makes it a condition of the casino
licence, that The Star not cause or permit its agent to contravene section 74(1).
221. Counsel Assisting made submissions that:
agency is a matter to be determined by reference to substance rather than form and
the fact that Star Entertainment submitted to the Authority that EEIS would not be
an agent of The Star did not determine the matter;
329
in substance, EEIS was a company entirely controlled by Star Entertainment for the
benefit of Star to funnel money into the casino to fund gambling. EEIS had no
capital of its own, and acted entirely for the benefit of the casino operator. The Star
wished to provide credit to its customers and so provided funds to EEIS in the way
of a $400 million CCF to EEIS so that EEIS could make loans to patrons;
330
buy-in for gambling (and drawdown on the CCF that EEIS held with The Star)
occurred at the casino Cage, and the collateral for the loan was held by The Star;
331
expert evidence to the Review was that there was no physical transfer of money by
EEIS to patrons; loans made by EEIS to patrons resulted in a liability owed by The
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Star to patrons by reason of transfer to their front money accounts, and this was
reflected in ledger entries rather than any transfer of cash;
332
and
personnel of The Star were heavily involved in the process, including preparing
loan documentation and undertaking credit checks (which were conducted in the
same manner as credit checks for an ordinary CCF held with the casino).
333
222. The Star Entities disputed the proposition that there existed an agency relationship between
The Star and EEIS.
223. The Star Entities contended that:
there was no evidence of any authority conferred on EEIS to act on behalf of The
Star in issuing loans affecting The Star’s legal relations with patrons. That is, the
legal relationship that took effect was one between the patron and EEIS and this is
evidenced by the loan documents that made no reference to The Star;
334
ordinarily, the core concept of agency is that an agent has the power to legally bind
its principal, which EEIS could not do here. The Star Entities contended that there
is a category of agency that sits at the fringe of common law principles, and reflects
the role of an agent who “makes no contracts and disposes of no property, but is
simply hired, whether as an employee or independent contractor, to introduce
parties desirous of contracting and leaves them to contract between themselves.”
335
However, it was submitted, there is no evidence of that kind of agency at the
“fringe” of common law principles here; it was not the role of EEIS to introduce
the patron to The Star and leave them to contract between themselves;
336
there is no evidence of consent by The Star to appoint EEIS as its agent, or
manifestation of any intention by The Star that EEIS would act for it;
337
there was insufficient evidence to establish control of EEIS by The Star;
338
the fact that EEIS may have acted solely for the benefit of The Star in issuing loans
is insufficient to establish agency and there was a good commercial purpose in
having EEIS performing the function of providing credit to patrons of The Star (i.e.
in a way that did not contravene the Casino Control Act);
339
and
the lack of any physical movement of funds between EEIS and the patron has no
bearing on the question of agency.
340
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224. In International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldine Pastoral Co
(International Harvester),
341
the High Court stated:
342
“Agency is a word used in the law to connote an authority or capacity in one person
to create legal relations between a person occupying the position of principal and
third parties.”
225. This statement, which emphasises the authority of the agent to bind the principal to
contractual relations with a third party, was described by the NSW Court of Appeal in Tonto
Home Loans Australia Pty Ltd v Tavares (Tonto Home Loans)
343
as “the core conception
of agency as a legal concept”.
344
In International Harvester, the issue was whether a
manufacturer of goods was liable under a contract for sale of equipment sold through a
distributor. This turned on whether the distributor was the agent of the manufacturer in
entering the contract.
226. The Court in Tonto Home Loans pointed out, however, that is always essential to consider
the purpose for which the issue of agency is being determined:
345
One needs to consider the purpose for which one is asking the question whether A is
P's agent: Kirkpatrick v Kotis, per Campbell J (as his Honour then was). The question
that must be addressed here by the factual and legal analysis is whether Tonto HL
appointed S Loans to undertake tasks for it, short of creating a binding loan
agreement, such that knowledge gained, or conduct engaged in, by S Loans in the
performance of such tasks was knowledge to be imputed to Tonto HL, or conduct
for which Tonto HL was to be held legally responsible by some form of vicarious
attribution.
The appellants' first submission was that this could not be so because the expression
of the matter in International Harvester was the limit of any relevant concept of
agency known to the common law. If S Loans had no capacity to create legal
relations between the third party and the principal by binding the lender to a loan, it
could not, in law, be an agent. This is too narrow a conception of agency. The High
Court in International Harvester was concerned with the question of the creation of
legal rights. Other cases contemplate a possibly broader role for agents…
227. Whereas in International Harvester the question was whether the alleged agent had bound
the alleged principal to a contract with a third party, in Tonto Home Loans the question was
whether the alleged agent’s knowledge or conduct in dealing with the third party should be
attributed to the alleged principal.
228. In that context, in Tonto Home Loans, the Court focussed on the elements of consent,
control and the typically (if not essential) fiduciary character of the relationship. The Court
stated (references omitted):
346
Not every independent contractor performing a task for, or for the benefit of, a party
will be an agent, and so identified as it, or as representing it, and its interests. Agency
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is a consensual relationship, generally (if not always) bearing a fiduciary character,
in which by its terms A acts on behalf of (and in the interest of) P and with a
necessary degree of control requisite for the purpose of the role. Central is the
conception of identity or representation of the principal.
229. In this instance, the purpose for which the issue of agency is being determined is whether
EEIS and The Star breached section 74 of the Casino Control Act. It is necessary to pay
close attention to the language of the section. Section 74(1) relevantly provides that “[a]
casino operator must not, and an agent of the operator or a casino employee must not, in
connection with any gaming in the casino… lend money”. Section 74(2) relevantly
provides that “[it] is a condition of the casino licence that the casino operator must not
contravene subsection (1) and must not cause, permit, suffer or allow an agent of the
operator or a casino employee to contravene that subsection”.
230. The first question is whether, by virtue of section 74(1) of the Casino Control Act, in
making loans to patrons for gaming at The Star, EEIS was an agent of The Star. The second
and consequential question is, if so, whether The Star caused, permitted, suffered or
allowed EEIS to do so.
231. It is apparent that the wording of section 74(1) means that the application of the
International Harvester test will not determine if EEIS was an agent of The Star for the
relevant statutory purpose. If the question was whether EEIS’ conduct resulted in The Star,
as principal, lending money to patrons, the answer would be in the negative. The EEIS
loans did not result in The Star lending money to patrons. Indeed, the outcome of the EEIS
arrangement was that the EEIS loans resulted in patrons lending money to The Star or
repaying loans to The Star. The loans by EEIS were required to be deposited by patrons
with The Star, either as a front money deposit or to repay an existing CCF.
232. However, if this was the correct basis to determine whether EEIS was an agent of The Star,
then an arrangement by which EEIS caused The Star to itself lend money to patrons would
have made The Star liable for breach of that provision in any event.
233. It follows that Parliament must have intentionally cast a wider net, by specifically
prohibiting agents (and employees) of the casino operator from making loans in connection
with gaming. Those words would have no work to do if the only question was whether, in
making the loans, the agent (or employee) caused the casino operator to enter into a loan to
the patron.
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234. Parliament must be taken to have been concerned to ensure that not only the casino operator
was prohibited from lending to patrons in connection with gaming but also to extend the
prohibition to persons operating as agents and employees of the casino operator. By the
operation of section 74(2), Parliament ensured that the casino operator would nevertheless
be legally responsible for the conduct, even if it had not engaged in it directly. In this way,
Parliament made clear that it was not only lending by the casino operator that was
prohibited, but that the casino operator would be held accountable, by way of a breach of
its licence, for conduct of its agents (or employees) which it caused, permitted, suffered or
allowed.
235. The question is therefore whether the relationship between The Star and EEIS was in fact
one of principal and agent at the time that EEIS made the loans to patrons, not whether the
loans by EEIS caused The Star to enter into legal relations with the patron as lender to
them.
236. This makes critical the analysis in Tonto Home Loans, focused on the elements of consent
and control.
237. The Star and EEIS are, and were at all times in the Relevant Period, related companies in a
corporate group. They are sister companies, both ultimately wholly owned by Star
Entertainment. Indeed, at the time that EEIS’ loan operations commenced, Mr Bekier and
Mr Barton served as the only directors of both EEIS and The Star.
347
Mr Barton was
succeeded by Mr Theodore as Star Entertainment CFO, and from October 2019, also took
on the directorships (with Mr Bekier) in EEIS and The Star.
348
238. In “Law of Agency”
349
, G. E. Dal Pont makes the following observations about agency and
corporate groups:
That one company controls another may throw some light on the issue of agency but
is not decisive; a close analysis of all the facts must be made to identify the true
relationship. The person alleging the agency in such a case must prove it by reference
either to an express agreement to that effect (which may not in and of itself prove
conclusive), or to facts from which the proper inference can be made that one
company “is carrying on the business of the other and on behalf of the other”…
As companies, even those within a group, are separate legal entities, and given that
a purpose of creating a new corporate entity is usually to separate or distance it from
the existing entity, only weighty evidence can substantiate an intention to create an
agency relationship between the entities.
239. The author subsequently refers to “the curial reticence to find an agency relationship within
a corporate group” and notes that “control by shareholders and complete unity of
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shareholders and management are insufficient to both lift the corporate veil and establish
an agency relationship”.
350
240. It is true that there was a back-to-back arrangement between The Star and EEIS, by virtue
of which EEIS drew down a CCF which it had with The Star and EEIS then used those
funds to provide loans to patrons of The Star. Those patrons could then only use the
proceeds of the EEIS loans for gambling at The Star. Further it is now accepted by The
Star Entities that a purpose of the overall arrangement was to permit patrons in North Asia
to disguise their dealings with a casino in NSW. These factors point to a contrived
arrangement. However, no submission was made by Counsel Assisting that the
arrangements involving EEIS were a sham and it has already been pointed out in the context
of the Temporary CCF for the use of CUP cards at The Star that a suitability review, such
as this, is not an appropriate forum to determine whether arrangements were shams.
241. Against these considerations is the fact that Star Entertainment was well aware of the
agency problem in section 74 of the Casino Control Act and structured arrangements
involving EEIS quite deliberately with the intention that EEIS would not be the agent of
The Star. Moreover the carefully constructed contractual relationships involved a separate
company, Star Entertainment Finance Limited, providing the finance to EEIS if the EEIS
loan was not repaid within the 30 day period permitted by the CCF between EEIS and The
Star and the holding company, Star Entertainment, taking on the financing risk of the
arrangement by making itself the guarantor of EEIS.
242. The Memorandum of Services Agreement expressly provided that EEIS was not the agent
of Star Entertainment. Whilst that is not determinative, it emphasises that even if in
substance there was an agency relationship, it was more likely to be between EEIS and its
parent, Star Entertainment, rather than with its sister company, The Star. It was Star
Entertainment which controlled EEIS.
243. Taking all these matters into account, it is concluded, based on the submissions and
evidence presented to the Review, that EEIS was not an agent of The Star and in making
loans to patrons for gambling it did not breach section 74(1) of the Casino Control Act. It
follows that The Star was also not in breach of section 74(2) of the Casino Control Act in
relation to the loans made by EEIS to patrons of The Star for gambling.
244. Irrespective of whether EEIS was The Star’s agent for the purposes of section 74(1),
however, this is another context in which The Star Entities courted the risk of breaching
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the Casino Control Act by the actions which were taken in 2018 and 2019. The Star Entities
failed to take external legal advice to determine that the arrangements with EEIS as lender
did not breach the provisions of the legislation.
245. The Star Entities rely on the fact that they sought and obtained external legal advice from
Senior Counsel in 2012 regarding the enforceability of loans to gamble at The Star. This
reliance is misplaced. Senior Counsel was not briefed to advise on the question of whether
EEIS (or any other member of The Star Entertainment Group) would be considered an
agent in the arrangement.
351
Indeed, contrary to that submission, the agency question is
expressly excluded in the advice. Senior Counsel observed:
352
In light of the analysis set out above the answers to the two specific questions may
be shortly stated. Section 74 of the Casino Control Act precludes the Star (as the
casino operator), its agents and employees from extending any form of credit in
connection with gaming in the casino. The Casino Control Act does not prohibit the
provision of credit by other persons in connection with gaming in the casino. It
follows that it would not be contrary to the Casino Control Act for a member of the
Echo Group (other than The Star or any entity which could be construed as an
agent or employee of The Star) to advance credit to patrons or junket promoters on
the condition that the funds be used to gamble at The Star Casino.
(emphasis added)
246. A reasonable reader of this advice would appreciate that a further question must arise in a
contractual relationship involving EEIS as lender to whether it would be “construed as an
agent … of The Star”. There is no suggestion that any further external legal advice was
sought to answer that question at the time that EEIS was “activated” as a lender.
Chapter 16.7 Conclusions
247. The Star Entities accepted in their closing submissions, that the Initial Kuan Koi
Arrangement was undesirable from an ML/TF perspective. It lacked transparency because
it appeared as though money being transferred to The Star came from Mr Koi rather than
patrons.
353
248. The Star Entities also accepted in closing submissions that the arrangements with Mr Koi
were imprudent.
354
Nevertheless, The Star Entities maintained that Star Entertainment
made reasonable genuine efforts to control the risks associated with this payment
channel.
355
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249. The external legal advice in relation to the Initial Kuan Koi Arrangement was limited and
emphasised the importance of careful ML/TF risk assessment. The ML/TF risk assessment
undertaken by Ms Arnott incorrectly characterised the risk as “low”.
250. Furthermore, the risk management steps were flawed, both in concept and execution.
251. First, there is no evidence to indicate that Star Entertainment undertook any vetting of Mr
Koi, other than to assess his credit risk.
356
Mr Koi made it known to Star Entertainment
employees that he wished to obscure the nature of the transactions, including by using
cheques from his “associates” to deposit funds with The Star to avoid detection by banks
or regulators in Macau.
357
This was a red flag that should have put Star Entertainment on
notice of the compliance risks associated with the proposed initial arrangement with Mr
Koi.
252. Secondly, the risk assessment relied on the fact that “in most part, the customers who are
transferring money through this system also hold [CCFs] with [Star Entertainment]
casinos”.
358
However, once the arrangements were extended to include front money
deposits the risk calculous changed because Star Entertainment did not conduct the same
level of due diligence on patrons who did not hold CCFs. The increase in risk was not
appropriately factored into the ML/TF risk assessment.
359
253. Thirdly, while it was contemplated in the ML/TF risk assessment that International
Depositor Identity Forms would be provided in respect of each patron utilising the Kuan
Koi channel:
the forms themselves required the bare minimum of detail about the customer, and
said nothing about the source of the customer’s wealth, or the source of funds that
were being deposited, notwithstanding that Mr Koi was predominantly accepting
cash;
360
it is not clear that forms were in fact received for all deposits utilising the Kuan Koi
channel;
Ms Arnott accepted that the only control she implemented to manage the increased
risk of the arrangement (when it extended to include the acceptance of front money
deposits) was to ask for a staff member to be present at the time the cash was
provided to Mr Koi and to complete an International Depositor Identity Form.
361
She accepted that she had no way of knowing whether the control was being
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implemented.
362
There is evidence that on at least one occasion, staff of the Macau
office may not have been physically present when the transaction was performed.
363
254. It is worth pausing to reflect on the nature of the Initial Kuan Koi Arrangement which the
Board of Star Entertainment approved. The Board approved a business arrangement with
a junket operator to receive money from patrons in Macau. Then, with no visibility of the
intervening steps, the junket operator was to deposit funds into his front money account
with The Star. These funds were then transferred to the front money account of the patrons
in Macau. The arrangement obviously obscured the true source of the funds being
deposited to the casino.
255. It is a measure of the desperate position in which Star Entertainment found itself after the
closure of the BOC Macau account and the resulting inability of patrons in North Asia to
make cash deposits into that account, that Star Entertainment considered it appropriate to
enter into an arrangement such as the Initial Kuan Koi Arrangement at all.
256. It is true that the Board was told that the arrangement was an interim one. It is true that the
Board was told that a risk assessment had been conducted which assessed the risks as low.
The Board did not know that this risk assessment was wrong. The Board had also been
told that external legal advice had been obtained. The Board did not know that the matters
on which legal advice had been sought were limited. Notwithstanding these matters, an
arrangement of this nature with a junket operator is somewhat startling. Having approved
the Initial Kuan Koi Arrangement, it required ongoing monitoring of its implementation
and operation, including communication between management and the Board.
257. The long-term solution to deal with the closure of the BOC Macau accounts was EEIS.
EEIS was an attractive solution, in part because it was not a casino operator, and therefore
could accept payments from patrons who were not willing to have a casino appear on their
bank statements. Additionally, it was attractive because it was anticipated that EEIS could
offer direct credit to patrons in a way that casino operators (and their employees and agents)
were prohibited from doing under the Casino Control Act.
258. In May 2018, the Board of Star Entertainment approved the commencement of EEIS
operating as a lender in Hong Kong. No external legal advice was sought to ensure that the
process then envisaged complied with the Casino Control Act. The EEIS loan structure
was attendant with risk. Interposing EEIS as an intermediary between the casino operator
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and the patron obscured from view the fact that patrons were in effect remitting funds to
Star Entertainment’s casinos.
259. EEIS ultimately made six loans to patrons or junket operators for a total amount of $213
million.
364
260. However, unbeknownst to the Board of Star Entertainment and senior management in the
Legal, Risk and AML/CTF Teams, the two payment channels via Kuan Koi and EEIS
merged by at least the middle of 2018 to create something far riskier: the Modified Kuan
Koi Arrangement.
261. The Modified Kuan Koi Arrangement quite plainly was extremely high risk from a ML/TF
perspective and should never have been countenanced. There was no legal due diligence
of the arrangement, nor any risk assessment by the AML Team. The fact that the Board of
Star Entertainment, including the Managing Director, was unaware of this change in the
arrangements, and that it continued until at least December 2019 reflects a business
organisation with inadequate management controls and reporting lines. It took The Star’s
banker, NAB, to identify to Star Entertainment that high risk payments involving huge
sums of money were being made by remitters for front money deposits.
262. In the period January 2018 to August 2019, at least AUD $150 million moved through the
Initial Kuan Koi Arrangement and Modified Kuan Koi Arrangement channels.
365
Most of
the monies flowing through third party remitters (including those used in conjunction with
Mr Koi) were deposited into the EEIS NAB accounts while some deposits were made
directly into the casino operators’ bank accounts.
366
263. The Board as well as management must accept some responsibility for this risky payment
channel evolving. Having approved the Initial Kuan Koi Arrangement and the role of EEIS
as a lender, there needed to be ongoing communication between management and the Board
to monitor these arrangements.
264. Mr O’Neill gave the following evidence:
367
Q: And it's right, isn't it, that the board was told that there was a problem
moving money into the Australian casinos because the Macau bank
accounts, where large volumes of cash were being accepted, were being shut
down?
A: Yes.
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Q: And the board was also told, wasn't it, that there were challenges because,
internationally, money laundering regulations were being tightened?
A: Yes.
Q: Wasn't it the responsibility of the board to interrogate senior management
to ensure that the proposals being brought to the board by senior
management were not inconsistent with money laundering obligations on
the part of the three casinos?
A: Look, with the benefit of hindsight, Ms Sharp, that is a proposition that's
difficult not to accept. In terms of the best of my recollection around the
setting up of EEIS (Hong Kong), there was interrogation about the - the
manner in which it was being set up, the purpose for which it was being
used, what attendant regulatory protections were put in – put in place. But
– but, you know, I now realise, sitting here today, that there - there were
attendant risks attached to the EEIS (Hong Kong) account around its
vulnerability to be used not for the purpose for which it was intended.
265. The Star Entities conceded in closing submissions that the Modified Kuan Koi
Arrangement should never have proceeded without a proper risk assessment and legal due
diligence and Board approval.
368
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Endnotes
1
Exhibit B-1400 (STA.3002.0005.0158).
2
Bekier: Day 28, T3150.17-24.
3
Bekier, T3150.13-16; Exhibit B-1400 (STA.3002.0005.0158).
4
Star Entities’ Written Submissions dated 21 June 2022, para [A.8].
5
Exhibit D-42 (CORRO.001.001.0574 at .0586).
6
Ibid.
7
Star Entities’ Written Submissions dated 21 June 2022, para [A.8].
8
Exhibit D-42 (CORRO.001.001.0574 at .0587).
9
Ibid.
10
Exhibit C-15 (STA.3023.0001.0142 at .0144).
11
Ibid.
12
Ibid at .0143.
13
Exhibit B-540 (STA.3423.0001.5513 at .5515); see also Exhibit B-3419 (STA.3412.0087.1909).
14
INQ.028.001.3151 at .3154.
15
Exhibit B-540 (STA.3423.0001.5513 at .5515); Star Entities’ Written Submissions dated 21 June 2022,
para [J.24].
16
Exhibit B-540 (STA.3423.0001.5513 at .5515); Exhibit B-3419 (STA.3412.0087.1909).
17
Exhibit B-3146 (STA.3401.0004.5823 at .5825-.5828); Exhibit B-3419 (STA.3412.0087.1909).
18
Exhibit B-3419 (STA.3412.0087.1909).
19
Star Entities’ Written Submissions dated 21 June 2022, para [J.207]; Exhibit B-3419
(STA.3412.0087.1909 at .1910).
20
Exhibit B-3419 (STA.3412.0087.1909 at .1910).
21
Exhibit G-911 (STA.3023.0001.0839).
22
Exhibit B-204 (STA.3410.0020.4135 at .4145).
23
Exhibit B-3216 (STA.3004.0014.0008 at .0012).
24
Exhibit B-3331 (CORRO.001.001.0190 at .0220-.0221).
25
Star Entities’ Written Submissions dated 21 June 2022, para [J.207].
26
Arnott: Day 13, T1513:40-1514.4.
27
Exhibit H-634 (INQ.018.002.0001 at .0052).
28
Exhibit B-367 (STA.5002.0003.3846 at .3858).
29
Exhibit G-63 (STA.5002.0003.2520 at .2524).
30
Exhibit B-435 (STA.5002.0003.1476 at .1502).
31
Ibid.
32
Ibid. at .1512.
33
Ibid. at .1512.
34
Exhibit B-497 (STA.5002.0003.4009 at .4014).
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35
Arnott, Day 13, T1490.10-30; White: Day 16, , T1770.2-17.
36
Exhibit B-506 (STA.3423.0002.7712 at .7712 -.7713.).
37
Arnott: Day 13, T1491.1-9.
38
Exhibit D-42 (CORRO.001.001.0574 at .0587); Exhibit A-905, para 83 (INQ.002.004.0201 at .0215).
39
Whytcross: Day 9, T979.47-48.
40
Exhibit G-939, (STA.3025.0002.0001 at .0002).
41
Whytcross: Day 9, T979.1-23; Theodore: Day 26, T2961.19-48.
42
Bekier: Day 28, T3153.1-5.
43
Exhibit B-699 (STA.5002.0004.0764).
44
Exhibit B-506 (STA.3423.0002.7712 at .7718).
45
Arnott: Day 13, T1491.15; Whytcross: Day 9, T981.30-33 and T983.9-10; Martin: Day 21, T2344.26-38.
46
Exhibit B-506 (STA.3423.0002.7712 at .7717-.7718).
47
Ibid.
48
Whytcross: Day 9, T989.40-44; Ibid.
49
Exhibit B-506 (STA.3423.0002.7712 at .7715).
50
Ibid at .7716.
51
Exhibit B-523 (STA.0012.0001.0001 at .0002).
52
Ibid at .0002 - .0003.
53
Exhibit B-523 (STA.0012.0001.0001 at .0004).
54
White: Day 16, T1772.46-1773.3.
55
Arnott: Day 13, T1493.15-16.
56
Exhibit G-329 (STA.3435.0088.2183 at .2185-.2187).
57
Exhibit B-523 (STA.0012.0001.0001 at .0005).
58
Ibid at .0003.
59
Whytcross: Day 9, T1015.28-36.
60
Exhibit B-531 (STA.3423.0003.1396).
61
Ibid.
62
Exhibit B-540 (STA.3423.0001.5513 at.5517).
63
Exhibit B-514 (STA.3410.0018.8878 at .8879 - .8880).
64
Ibid at .8878 - .8879.
65
Star Entities’ Oral Submissions: Day 42, T4289.28-29.
66
Star Entities’ Written Submissions dated 21 June 2022, para [J.45].
67
Exhibit G-32 (STA.3435.0088.2183 at .2183-.2185).
68
Exhibit B-624 (STA.3414.0006.2807).
69
Exhibit B-623 (STA.3414.0006.2805); Exhibit B-626 (STA.3415.0002.6738).
70
Exhibit B-516 (STA.3008.0023.7908).
71
Exhibit B-625 (STA.3415.0002.6737).
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72
Exhibit B-626 (STA.3415.0002.6738).
73
Ibid at .6739.
74
Arnott: Day 13, T1502.36-37.
75
Arnott: Day 14, T1551.16-21.
76
Arnott: Day 13, T1503.22-26.
77
Arnott: Day 13, T1503.28-31; Day 14, T1551.31-37.
78
Arnott: Day 14, T1551.39-44.
79
Exhibit M-13 (STA.3403.0002.7306); Exhibit M-14 (STA.3403.0002.7307).
80
Exhibit M-14 (STA.3403.0002.7307).
81
Ibid.
82
Ibid.
83
Ibid at .7308.
84
Star Entities’ Written Submissions dated 21 June 2022, para [J.60]; Ibid.
85
Exhibit M-16 (STA.3403.0002.7256).
86
Ibid at .7257.
87
Ibid at .7266, .7277, .7281, .7305.
88
Exhibit Q-11 (STA.3008.0019.0362).
89
Exhibit B-653 (STA.5002.0004.1012).
90
Bradley: Day 31, T3484.1-12.
91
Pitkin: Day 33, T3621.1-32.
92
Lahey: Day 33, T3683.1-3.
93
Sheppard: Day 34, T3763.25-43.
94
Exhibit B-638 (STA.3417.0008.6605).
95
Whytcross: Day 9, T1015.38-45.
96
Whytcross: Day 9, T1016.6-10, T1022.38-46.
97
Whytcross: Day 9, T1017.18-28.
98
Whytcross: Day 9, T1017.30-32.
99
Whytcross: Day 9, T1016.29-35, T1017.4-28.
100
Arnott: Day 13, T1500.1-4; See for example Exhibit G-492 (STA.3037.0001.0025).
101
Star Entities’ Written Submissions dated 21 June 2022, para [J.161].
102
Exhibit L-47 (INQ.026.001.0103).
103
Exhibit G-492 (STA.3037.0001.0025); Exhibit G-481 (STA.3037.0001.0028); Exhibit G-454
(STA.3037.0001.0040); Exhibit G-357 (STA.3037.0001.0017); Exhibit G-413 (STA.3037.0001.0018);
Exhibit G-416 (STA.3435.0150.4557); Exhibit G-344 (STA.3435.0150.2625); Exhibit G-338
(STA.3435.0150.2180); Exhibit G-452 (STA.3037.0001.0038); Exhibit G-432 (STA.3037.0001.0044);
Exhibit G-453 (STA.3037.0001.0039); Exhibit G-471 (STA.3037.0001.0047); Exhibit G-316
(STA.3037.0001.0026); Exhibit G-458 (STA.3037.0001.0004); Exhibit G-467 (STA.3037.0001.0023);
Exhibit G-317 (STA.3037.0001.0037); Exhibit G-320 (STA.3415.0008.8489); Exhibit G-396
(STA.3435.0150.1021);Exhibit G-356 (STA.3037.0001.0016); Exhibit G-466 (STA.3037.0001.0022);
Exhibit G-483 (STA.3037.0001.0019); Exhibit G-455 (STA.3037.0001.0049); Exhibit G-423
(STA.3435.0150.5725); Exhibit G-332 (STA.3012.0001.0890); Exhibit G-394 (STA.3037.0001.0008);
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Exhibit G-391 (STA.3435.0150.1307); Exhibit G-347 (STA.3435.0150.2685); Exhibit G-469
(STA.3037.0001.0033); Exhibit G-426 (STA.3435.0150.5747).
104
Arnott: Day 13, T1496.7-10.
105
Arnott: Day 13, T1494.29-42.
106
Exhibit B-951 (STA.3009.0012.0500).
107
Star Entities’ Written Submissions dated 21 June 2022, para [J.162].
108
Arnott: Day 13, T1494.15-24.
109
Arnott: Day 14, T1552.17-39.
110
Arnott: Day 13, T 1507.30-.38.
111
Star Entities’ Written Submissions dated 21 June 2022, para [J.164].
112
Exhibit B-676 (STA.3403.0001.4781 at .4872).
113
Exhibit B-540 (STA.3423.0001.5513); Whytcross: Day 9, T992.4-7.
114
Exhibit B-707 (STA.3410.0043.7608 at .7608-.7610).
115
Ibid at .7610.
116
Exhibit B-712 (STA.3411.0010.5148); Exhibit B-709 (STA.3411.0021.0255).
117
Exhibit B-1579 (STA.3004.0008.0001). See Exhibit B-1023 (STA.3401.0005.4468); Whytcross: Day 10,
T1039.25-36.
118
Arnott: Day 14, T1555.36-45; Exhibit B-826 (STA.3009.0012.0002); Exhibit B-1579
(STA.3004.0008.0001); Exhibit H-634 (INQ.018.002.0001 at .0069-.0070).
119
Exhibit B-873 (STA.3415.0006.2825); Exhibit H-634 (INQ.018.002.0001 at .0069-.0070).
120
Exhibit B-1579 (STA.3004.0008.0001); Exhibit B-1023 (STA.3401.0005.4468); Exhibit H-634
(INQ.018.002.0001 at .0069-.0070).
121
Exhibit B-1579 (STA.3004.0008.0001 at .0002); Exhibit G-698 (STA.3417.0063.7915).
122
Exhibit B-825 (STA.3014.0002.0084).
123
Exhibit B-825 (STA.3014.0002.0084); Exhibit B-752 (STA.3104.0007.0641 at .0643).
124
Exhibit B-752 (STA.3104.0007.0641 at .0643).
125
Exhibit B-826 (STA.3009.0012.0002).
126
Ibid at .0003.
127
Exhibit B-1579 (STA.3004.0008.0001 at .0002).
128
Martin: Day 21, T2358.33-38.
129
Exhibit B-873 (STA.3415.0006.2825).
130
Exhibit B-825 (STA.3014.0002.0084).
131
Arnott: Day 13, T1524.39-43.
132
Arnott: Day 14, T1557.43-48; Exhibit C-330 (INQ.018.001.0001 at .0079); Exhibit B-1579
(STA.3004.0008.0001 at .0002).
133
Exhibit H-634 (INQ.018.002.0001 at .0069-.0070).
134
Exhibit G-492 (STA.3037.0001.0025); Exhibit G-481 (STA.3037.0001.0028); Exhibit G-454
(STA.3037.0001.0040); Exhibit G-452 (STA.3037.0001.0038); Exhibit G-453 (STA.3037.0001.0039);
Exhibit G-471 (STA.3037.0001.0047); Exhibit G-458 (STA.3037.0001.0004); Exhibit G-467
(STA.3037.0001.0023); Exhibit G-466 (STA.3037.0001.0022); Exhibit G-483 (STA.3037.0001.0019);
Exhibit G-455 (STA.3037.0001.0049).
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135
Arnott: Day 13, T1496.7-10.
136
Exhibit B-2077 (STA.3105.0012.2775).
137
Arnott: Day 14, T1538.44-1540.7.
138
Brodie: Day 21, T2421.30-38.
139
Brodie: Day 21, T2421.40-44.
140
Exhibit C-115 (STA.3427.0038.4632 at .4633).
141
Arnott: Day 13, T1505.10-15.
142
Whytcross: Day 10, T1034.23-44.
143
Arnott: Day 13, T1510.12-16.
144
Arnott: Day 14, T1553.23-31.
145
Arnott: Day 13, T1524.27-32.
146
Arnott: Day 14, T1590.9-11.
147
Arnott: Day 14, T1590.16-19.
148
Exhibit B-708 (STA.3421.0029.0564).
149
Brodie: Day 21, T2417.42-2418.6.
150
Exhibit B-1579 (STA.3004.0008.0001 at .0002).
151
Ibid.
152
Exhibit G-698 (STA.3417.0063.7915).
153
Star Entities’ Written Submissions dated 21 June 2022, para [J.121].
154
Exhibit B-707 (STA.3410.0043.7608 at .7609).
155
Exhibit B-1579 (STA.3004.0008.0001 at .0002).
156
Aloi: Day 8, T894.41-895.1.
157
Arnott: Day 13, T1386.1-32.
158
Brodie: Day 21, T2418.14-48.
159
Arnott: Day 13, T1386.1-32.
160
Arnott: Day 13, T1386.45-47.
161
Whytcross: Day 9, T1018.11-23; Arnott: Day 13, T1508:1-9.
162
Exhibit B-1579 (STA.3004.0008.0001 at .0003).
163
Ibid.
164
Exhibit B-1729 (STA.3014.0002.1123 at .1124); Exhibit B-1713 (STA.3417.0006.3576 at .3578).
165
Exhibit B-3331 (CORRO.001.001.0190 at .0221).
166
Exhibit A-1339, para 60 (INQ.002004.0145 at .0157); Exhibit B-2149 (STA.3410.0046.6171).
167
Exhibit B-1783 (STA.3014.0002.0557).
168
White: Day 16, T1790.1-45.
169
Arnott: Day 13, T1506.23-43.
170
White: Day 16, T1796.16-24.
171
Exhibit B-1570 (STA.3415.0001.9442).
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172
Ibid.
173
Exhibit B-1570 (STA.3415.0001.9442 at .9443).
174
Bekier: Day 28, T3163.19-48.
175
Bekier: Day 28, T3164.29-38.
176
Bradley: T3490:10-22 and T3492:4-7; Pitkin T3625.9-11 and T3627.1-5; Lahey T3685.13-15 and T3686.43-
48
177
Star Entities’ Written Submissions dated 21 June 2022, para [J.32].
178
Exhibit C-30 (STA.3402.0001.1078 at .1081).
179
Exhibit B-672 (KPMG.001.001.2552); Exhibit B-653 (STA.5002.0004.1012).
180
Exhibit B-672 (KPMG.001.001.2552).
181
Exhibit B-699 (STA. 5002.0004.0764).
182
Exhibit M-19 (STA.3415.0002.6077 at .6079).
183
Ibid at .6081 - .0682.
184
Ibid at .6090.
185
Exhibit D-42 (CORRO.001.001.0574 at .0587-.0588).
186
Exhibit B-752 (STA.3104.0007.0641 at .0643).
187
Ibid.
188
Ibid at .0642.
189
Ibid.
190
Exhibit B-821 (STA.5002.0004.1233).
191
Ibid at .1237.
192
Ibid at .1243.
193
Exhibit B-822 (STA.5002.0004.1038 at .1042).
194
Ibid at .1043.
195
Exhibit B-1924 (STA.3006.0003.0162).
196
Ibid at .0167.
197
Ibid at .0181 - .0182.
198
Whytcross: Day 9, T953.35-38; Arnott Day 13, T1512.45-1513.37; Exhibit A-1, para 7
(INQ.002.004.0241); Exhibit B-2972 (STA.3402.0007.1612 at .1613-.1614); Exhibit B-2972
(STA.3402.0007.1612 at .1615-.1616).
199
Exhibit B-859 (NAB.001.001.1047 at .1048).
200
Ibid.
201
Exhibit B-540 (STA .3423.0001.5513 at .5521); Bekier: Day 28, T3150.26-.29; Whytcross: Day 10,
T1052.26-.38; White: Day 16, T1771.7-.15; Theodore: Day 26, T2964.7-.21.
202
Exhibit T-1 (STA.3403.0003.2985).
203
Exhibit T-2 (STA.3403.0003.2987).
204
Ibid at .2988.
205
Ibid.
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206
Ibid.
207
Ibid at .2994 - .2995.
208
Star Entities’ Written Submissions dated 12 August 2022, para [R.16].
209
Ibid para [R.17].
210
Bekier: Day 28, T3156:40-45 and T3158.42 -3159.22; Theodore: Day 26, T2969:20-47; T2972:38-46;
T2981:15-33; Arnott: Day 14, T1563.43 – 1564.5.
211
Whytcross: Day 10, T1054.45-47.
212
Whytcross: Day 10, T1054.17-20.
213
Exhibit B-3118 (INQ.002.002.0045).
214
Exhibit B-204 (STA.3410.0020.4135).
215
Exhibit B-1093 (STA.5002.0004.2733 at .2734).
216
Ibid at .2771.
217
Ibid at .2753.
218
Ibid.
219
Ibid.
220
Exhibit B-1399 (STA.3002.0005.0156).
221
Arnott: Day 13, T1515.22-25.
222
Exhibit B-1400 (STA.3002.0005.0158 at .0159, 0161).
223
Ibid at .0159.
224
Arnott: Day 13, T1516.21–47.
225
Exhibit B-1508 (STA.3105.0012.2953).
226
Exhibit C-118 (NAB.010.001.8508 at .8509).
227
Ibid.
228
Ibid.
229
Exhibit C-95 (NAB.010.001.7369).
230
Ibid.
231
Exhibit B-1649 (STA.3105.0002.2283).
232
Ibid.
233
Exhibit B-1653 (STA.3105.0002.2293).
234
Exhibit B-1654 (STA.3410.0014.5120).
235
Exhibit B-1702 (STA.3105.0006.0364 at .0365).
236
Exhibit B-1681 (STA.3421.0004.6180); Exhibit B-1680 (STA.3421.0004.6175); Exhibit B-1679
(STA.3421.0004.6171); Exhibit B-1689 (STA.3421.0007.6447).
237
Arnott: Day 13, T1521.19-24.
238
Arnott: Day 13, T1521.26-42.
239
Arnott: Day 13, T1522.1-3.
240
Exhibit C-96 (STA.3009.0012.0180); Arnott: Day 13, T1521.9-11.
241
Exhibit A-1, para 68 (INQ.002.004.0241 at .0257).
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242
Exhibit C-108 (NAB.010.001.8397); Exhibit C-109 (NAB.010.001.8399).
243
Exhibit B-1701 (STA.3002.0001.3366 at .3367).
244
Ibid.
245
Exhibit B-1701 (STA.3002.0001.3366).
246
Arnott: Day 13, T1523.21-30.
247
Arnott: Day 13, T1524.14-19.
248
Exhibit B-1700 (STA.3435.0193.0084).
249
Exhibit B-1712 (STA.3009.0010.0067).
250
Exhibit C-121 (NAB.010.003.5412). See also Exhibit C-120 (NAB.010.003.2501).
251
Exhibit C-121 (NAB.010.003.5412).
252
White: Day 16, T1791.6-17.
253
Exhibit B-3421 (STA.3412.0087.3461).
254
Exhibit A-1, para 73 (INQ.002.004.0241 at .0257); Exhibit B-1720 (STA.3422.0060.8379).
255
Arnott: Day 13, T1525.6-19.
256
Exhibit B-1722 (STA.3105.0012.2555).
257
Arthur: Day 2, T190.3-19.
258
Exhibit B-1738 (STA.3105.0012.2971); Arnott: Day 13, T1526:34-38.
259
Exhibit B-1738 (STA.3105.0012.2971).
260
Exhibit C-319 (NAB.001.001.1800).
261
Ibid at .1801.
262
Exhibit C-319 (NAB.001.001.1800 at .1801).
263
Arnott: Day 13, T1527:10-14.
264
Arnott: Day 13, T1527:16-25.
265
Exhibit B-1741 (STA.3002.0009.0098).
266
Exhibit B-1922 (STA.3002.0009.0206).
267
Exhibit B-1923 (STA.3006.0003.0160; Exhibit B-1924 (STA.3006.0003.0162).
268
Exhibit B-2076 (NAB.002.003.6042).
269
Ibid.
270
Exhibit B-2078 (STA.3002.0009.0181).
271
Exhibit B-2638 (NAB.002.004.7872).
272
Exhibit D-42 (CORRO.001.001.0574).
273
Dudek: Day 1, T85.4-.20.
274
Exhibit B-2837 (STA.3412.0003.5112 at .5114); Sheppard: Day 29, T3259.35-41.
275
Exhibit B-2837 (STA.3412.0003.5112 at .5114).
276
Exhibit B-3377 (STA.3412.0008.7300 at .7301-.7302).
277
Exhibit B-3377 (STA.3412.0008.7300).
278
Ibid at .7302.
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279
Pitkin: Day 33, T3628.46-3629.11.
280
Lahey: Day 33, T3687.41-3688.21.
281
Bradley: Day 32, T3497.29-41.
282
Exhibit H-634, appendix A..1 (INQ.018.002.0001 at .0052).
283
Ibid para [4.3.3] at .0019.
284
Ibid para [4.4.2].
285
Ibid para [4.1.1] – [4.1.3] at .0017.
286
Ibid para [2.2.1] at .0009.
287
Ibid para [2.2.3].
288
Ibid para [4.1.4] at .0017.
289
Whytcross: Day 10, T1069.17-30.
290
Ibid.
291
Whytcross: Day 10, T1070.18-21.
292
Whytcross: Day 10, T1070.38-41.
293
Whytcross: Day 10, T1071.1-5.
294
Arnott: Day 14, T1562.9-14.
295
Arnott: Day 14, T1562.31-38.
296
Star Entities’ Written Submissions dated 21 June 2022, para [J.201]; Aloi: Day 8, T895.10-38.
297
Aloi: Day 7, T782.48-784.14; Day 8, T898.22-48.
298
Aloi: Day 8, T889.32-40.
299
Aloi: Day 8 Private Transcript: T3.13-254; T8.30-38; Exhibit B-832 (STA.3008.0021.0177).
300
Arnott: Day 14, T1609.41-1610.46.
301
Arnott: Day 13, T1514.13-16.
302
Arnott: Day 13, T1514.23-31.
303
Theodore: Day 26, T2987:7-30.
304
Theodore: Day 26, T2987.7-30.
305
Exhibit H-634 para [2.5.2] (INQ.018.002.0001 at .0012).
306
Exhibit B-3419 (STA.3412.0087.1909); Exhibit G-835 (ANZ.2000.0001.0910). See also Exhibit B-3331
(CORRO.001.001.0190 at .0300).
307
Exhibit B-821 (STA.5002.0004.1233 at .1236).
308
Ibid at .1238.
309
Exhibit B-822 (STA.5002.0004.1038 at .1042).
310
Heap: Day 31, T3436.1-.8; Bradley: Day 32, T3485.45-3486.1; Pitkin: Day 33, T3619:32-46; T3620.12-17;
Lahey: Day 33, T3682.11-16; Sheppard: Day 34, T3754.1-13.
311
Exhibit B-1096 (STA.3009.0007.0506).
312
Ibid at .0508.
313
Exhibit H-634 para [2.5.2] (INQ.018.002.0001 at .0011).
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314
Star Entities’ Written Submissions dated 21 June 2022, para [J.120]; Exhibit B-3331
(CORRO.001.001.0190 at .0300).
315
Exhibit B-3414 (STA.3008.0002.0616).
316
Ibid.
317
Exhibit H-634 para [2.4.1] (INQ.018.002.0001 at .0010).
318
Exhibit B-3414 (STA.3008.0002.0616).
319
Bekier: Day 28, T3155.42-45.
320
Arnott: Day 14, T1563.33-36; Bekier: Day 28, T3155.47 –3156.1; Exhibit H-634 para [6.8.1(a)]
(INQ.018.002.0001 at .0051).
321
Exhibit G-727 (STA.3023.0001.0515).
322
Exhibit G-728 (STA.3023.0001.0545).
323
See for example, Exhibit G-733 (STA.3023.0001.0434).
324
INQ .002.001.0194 at .0200.
325
ILGA.013.001.0098.
326
Exhibit G-813 (STA.3435.0005.0054).
327
Exhibit G-812 (STA.3435.0055.0038).
328
Ibid at .0042.
329
Counsel Assisting Oral Submissions: Day 39, T4106.12-14; Day 39, T4120.45-4121.2.
330
Counsel Assisting Oral Submissions: Day 39, T4121.6-29; T4122.6-40; T4124.6-17; Day 46, T4519.43-
4520.27.
331
Counsel Assisting Oral Submissions: Day 39, T4123.31-43.
332
Counsel Assisting Oral Submissions: Day 46, T4519.15-41; Exhibit H-634 para [6.8.1(a)]
(INQ.018.002.0001 at .0051).
333
Counsel Assisting Oral Submissions: Day 46, T4519.35-41.
334
Star Entities’ Written Submissions dated 21 June 2022, para [J.254]-[J.255].
335
Star Entities’ Written Submissions dated 21 June 2022, para [J.237]; Bowstead and Reynolds on Agency
(19th ed) at 9-10 [1-019]; quoted in Tonto at [178].
336
Star Entities’ Written Submissions dated 21 June 2022, para [J.255].
337
Ibid para [J.256].
338
Ibid para [J.259(a) to (d)];
339
Ibid para [J.259(e) to (g)].
340
Ibid para [J.261].
341
International Harvester (1958) 100 CLR 644.
342
Ibid at 652.
343
Tonto Home Loans (2011) 15 BPR 29, 699; [2011] NSWCA 389.
344
Ibid at [171].
345
Ibid at [173]-[174]; Kirkpatrick v Kotis (2004) 62 NSWLR 567 at 581 [86].
346
Tonto Home Loans at [177].
347
Exhibit I-396 (INQ.002.002.0316 at .0320); Exhibit B-3118 (INQ.002.002.0045 at .0047).
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348
Ibid.
349
“Law of Agency” G.E. Dal Pont, LexisNexis 4th ed 2020 at [2.26].
350
Ibid. at [2.27].
351
Exhibit F-1 (STA.3435.0088.1779).
352
Ibid at .1784.
353
Star Entities’ Written Submissions dated 21 June 2022, para [J.11(c)].
354
Ibid para [J.11(f)].
355
Ibid para [J.11(f)].
356
Ibid para [J.61]; Exhibit M-16 (STA.3403.0002.7256 at 7257).
357
Exhibit B-514 (STA.3410.0018.8878 at .0879).
358
Exhibit B-516 (STA.3008.0023.7908 at .7909).
359
Exhibit B-625 (STA.3415.0002.6737).
360
Arnott: Day 13, T1500.1-4; See for example, Exhibit G-492 (STA.3037.0001.0025).
361
Arnott: Day 14, T1551.39-44.
362
Arnott: Day 14, T1552.12-21.
363
Exhibit S-370 (STA.3421.0018.0964).
364
Exhibit H-634 (INQ.018.002.0001 at .0011).
365
Whytcross: Day 10, T1045.34-45.
366
Exhibit H-634 para [4.3.3] (INQ.018.002.0001 at .0019).
367
O’Neill: Day 36, T3914.3-33.
368
Star Entities’ Written Submissions dated 21 June 2022, para [J.11(g)].
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Chapter 17
The Conduct of Star Entertainment’s International VIP
Team since 2016
CHAPTER 17 | THE CONDUCT OF STAR ENTERTAINMENT’S INTERNATIONAL VIP
TEAM SINCE 2016
Chapter 17. The Conduct of Star
Entertainment’s International VIP Team
since 2016
Chapter 17.1 Introduction
1. Until early 2020, when the impacts of COVID-19 began to be felt in Australia, Star
Entertainment’s IRB was a significant component of revenue.
1
2. The importance of Star Entertainment’s IRB in the Relevant Period was emphasised by Mr
Matt Bekier in his CEO’s Message in the 2018 Annual Report of Star Entertainment:
2
We achieved increased share in key gaming segments including the International
VIP Rebate business where turnover was up 54% at more than $61 billion.
Normalised International VIP Rebate gross revenue increased 52% to $827 million.
Statutory International VIP Rebate revenue was up 11% despite a low actual win rate
of 1.16% compared to the high win rate of 1.59% in FY 2017. Complementing this
volume growth was the outstanding performance of the credit risk management and
approval team.
3. Star Entertainment’s 2019 Annual Report recorded revenue from the IRB of $255.9 million
(comprising net gaming win, less player and gaming promoter rebates and promotional
allowances). This amounted to approximately 11.9% of Star Entertainment’s statutory net
revenue.
3
4. The financial performance of the IRB underpinned significant projects including the
renovation of the Sovereign Room at The Star.
4
Yet in Mr Bekier’s evidence to the Review,
he described the IRB as a “dark art”:
5
Q. And what do you mean “the dark art”?
A. The dark art of acquiring customers, you know, to convince them to fly long-
range to gamble in our casinos, and then finding a way to entertain them and collect,
you know – and then, you know, settle and collect the money. That’s very different
from the rest of our business.
5. This report has already discussed in Chapter 15serious misconduct by members of the
International VIP Team through a systemic and repeated practice of making deliberate
misrepresentations to the BOC in Macau as to the source of various cash deposits. Chapter
16 examined the lack of supervision of high-risk overseas payment channels which
followed the closure of the BOC Macau accounts.
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6. This Chapter focuses on serious concerns in relation to the conduct of senior personnel in
Star Entertainment’s International VIP Team in the Relevant Period and the lack of
adequate supervision of the International VIP Team.
Chapter 17.2 The organisational structure of the International VIP Team in the
Relevant Period
7. In the Relevant Period, the International VIP Team included three units, being VIP
International Operations, International VIP Sales and Commercial Finance International
Marketing.
6
8. From the beginning of the Relevant Period until March 2018, the International VIP Team
reported to Mr John Chong, President International Marketing.
7
Those directly reporting
to Mr Chong in this period included Mr Saro Mugnaini, the General Manager VIP
International, and Mr Michael Whytcross, the General Manager, Commercial Finance,
International Marketing.
8
In this period, Mr Chong reported directly to Mr Bekier.
9
Mr
Chong’s employment was terminated in March 2018, and the International VIP Team was
then restructured.
10
9. From 1 April 2018, Mr Marcus Lim, President International VIP Sales,
11
led the
International VIP Sales Team, and reported directly to Mr Hawkins.
12
Mr Mugnaini and
Mr Whytcross also reported directly to Mr Hawkins.
13
Chapter 17.3. Mr John Chong
10. Mr Chong was based in Hong Kong.
14
Mr Chong’s employment was terminated in 2018
and he was granted six months’ leave ceasing on 21 September 2018. This was stipulated
in a Deed of Release between Mr Chong and The Star Entertainment Macau Limited dated
28 March 2018. The Deed was executed by Mr Bekier and Ms Paula Martin on behalf of
The Star Entertainment Macau Limited.
15
11. Evidence of management concerns about the leadership of Mr Chong emerged for the first
time during Mr Bekier’s oral evidence in the public hearings:
16
A. … When I became aware of concerns around the leadership of John Chong,
concerns that were raised, you know, through – internally, we moved very quickly
to address those concerns. And so I have – I felt that we were doing the right things
and that we respond to every indication of any wrongdoing in that space.
Q. And what were the concerns in relation to John Chong?
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A. The concerns in relation to John Chong were that it was not clear where he was
for extended periods of time, that his team could not find him and that he was not
providing the appropriate leadership over his people.
Q. And what conclusion was reached in relation to those concerns?
A. We terminated employment.
“Summary of Events” Document
12. Following this evidence by Mr Bekier, Counsel Assisting made a call for production of
documents relevant to Mr Chong’s cessation of employment.
17
This call led to the
production of an email from Ms Kim Lee, Chief People and Performance Officer at Star
Entertainment, to Ms Martin dated 11 March 2018, which attached a document called
“Summary of Events – IRB” (Summary of Events).
18
Ms Lee’s role at Star Entertainment
included providing support to Mr John O’Neill, and by extension, the Board.
19
Ms Lee was
described by Mr Ben Heap as possessing “a strong understanding of the people issues
across the business”. He said she had “oversight of the transformation program of work
and the renewal steering committee”.
20
13. The concerns noted by Ms Lee in the Summary of Events regarding Mr Chong included
the following:
21
“JC driving poor behaviour that further alienates Sales from Service/Operations -
could lead to toxic culture”;
“Ignorance of Company policy”;
“Poor Leadership and understanding of process”;
“JC has a fundamental lack of understanding of what the CFO was asking of him”;
“Commercial capability gap, misaligned to interests of Leadership team”;
“… intimidating behaviour from a senior leader towards a junior member of HR-
ignorance of Company policy”; and
“... does not value Leadership engagement and support of his service team in
Australia. No Leadership follow up of issues relating to service. Bias towards the
sales team”.
14. Mr Chong was not called to give evidence and had no opportunity to address these matters.
No findings are made against him. However what is relevant is that the matters noted by
Ms Lee (individually and when read together with their context) demonstrate serious
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concerns held by Star Entertainment about Mr Chong and his patterns of behaviour and
leadership.
15. The Summary of Events also noted a very high turnover of staff within the International
VIP Team as follows:
22
There have been a number of terminations (36 in the last 12 months) in the IRB team
– 37% turnover. These range from resignations, summary dismissals, performance
terminations, redundancy, termination within probation and resignation as a result of
company assisted termination. This number is excessive given the size of the team.
97 employees in total in team.
16. As The Star Entities accepted, the unusually high turnover gave further cause for concern
regarding Mr Chong’s management of the International VIP Team.
23
17. The circumstances of Mr Chong’s termination indicate that there were concerns of serious
deficiencies with the leadership and management of the VIP International Team in the
period up to April 2018. It was in this period that staff of Star Entertainment were engaging
in very serious misleading communications to the BOC in Macau which disguised the true
source of cash deposits.
18. The non-executive directors agreed that the issues raised by Summary of Events were of
very serious concern.
24
19. Given the time at which the Summary of Events document was produced to the Review,
witnesses who were not directors of Star Entertainment were not examined about the
contents of the Summary of Events or their response to the concerns noted by Ms Lee.
Notification to the Board of termination of Mr Chong’s employment
20. On 21 March 2018, Mr Bekier sent an email to Mr O’Neill entitled “Topics for the catch
up – 21 March 2018”. The email attached a document entitled “President International
Marketing” which set out, among other things, details of the “proposed terms of
separation”.
25
The document also contained diagrams entitled “IRB Organisation Model
Changes”.
26
These diagrams identified that Mr Lim would become President International
VIP Marketing and that he and the other persons who previously reported to Mr Chong
would report to the Managing Director of The Star Sydney (i.e. Mr Hawkins at that time).
21. Mr O’Neill was made aware by Mr Bekier that he had decided to terminate Mr Chong’s
employment at around the time that Mr Chong’s employment concluded.
27
Mr O’Neill told
the Review that he could not recall the exact words Mr Bekier used to inform him why Mr
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Chong was being terminated, but he was told by Mr Bekier “that it was time to move him
on”.
28
Mr O’Neill did not enquire further as to the reasons for Mr Chong’s departure. Mr
O’Neill gave evidence that he did not inform the other Board members about what he had
been told about Mr Chong’s departure as he believed that this was Mr Bekier’s
responsibility.
29
22. Mr Bekier informed the Board of Mr Chong’s “redundancy” at page 22 of his March 2018
Managing Director and CEO report, under the heading “Human Resources”, stating only
in small print, amongst a number of other noted personnel changes “John Chong, President
International Marketing, redundancy 23/3”.
30
This paper was taken as read at the board
meeting on 24 May 2018 and the minutes do not disclose that any discussion concerning
Mr Chong’s termination took place at the meeting.
31
23. Mr Bekier was not examined on the nature and content of this communication to the Board
of Star Entertainment in relation to the circumstances of Mr Chong’s departure. That was
because the Summary of Events document had not been produced to the Review until after
Mr Bekier had given evidence. Although it was possible for witnesses to be recalled after
they had given evidence at the public hearings, the time pressures under which this Review
was conducted meant that this was a step which could only be taken in compelling
circumstances.
24. As Mr Bekier was not examined on this report, he has not had an opportunity to explain it.
There is no evidence about why Mr Bekier referred to Mr Chong’s departure as a
“redundancy” in circumstances where that was clearly not the case. Nor is there any
evidence about why Mr Bekier did not provide an explanation about the reasons for Mr
Chong’s abrupt termination.
25. Mr Chong was the leader of the VIP International Team. He reported directly to Mr Bekier.
As Mr Bekier was not asked why his report to the Board took the form that it did, no
personal criticism of Mr Bekier can fairly be made. However, in the circumstances, the
Board needed to be fully briefed on the fact of Mr Chong’s termination, the reasons for it
and the excessive turnover of staff in the VIP International Team.
26. The non-executive directors of Star Entertainment gave evidence that they had not been
made aware of the concerns in relation to Mr Chong prior to preparing to give evidence to
the Review.
32
Dr Pitkin told the Review that she would have expected concerns regarding
an excessive number of terminations in the International VIP Team and the potential for
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Mr Chong’s conduct to lead to “toxic culture” to have been raised with the Board.
33
Ms
Lahey gave similar evidence and said that the information that was provided to the Board
was too vague.
34
27. Five of the non-executive directors were not aware of the concerns raised by Ms Lee.
35
The
evidence of a number of the non-executive directors was that no other details about the
circumstances of Mr Chong’s departure from Star Entertainment, nor issues of any cultural
problems, were raised with them at this time.
36
However, Ms Lahey recalled being made
aware that Star Entertainment was “doing some reviews of our international offices; that
John Chong hadn’t proved to be a strong enough manager; and as part of the process of the
review, he would be made redundant”.
37
28. The Star Entities accepted that the information in the Managing Director & CEO Report
for March 2018 should have been given greater prominence and the Board should have
been informed of the reasons for Mr Chong’s termination.
38
The Star Entities also accepted
that concerns documented by Ms Lee should have been communicated to the Board at the
time it was notified of Mr Chong’s termination, if not prior to that time.
39
Chapter 17.4 Mr Marcus Lim
29. In March 2016, Mr Lim commenced employment at Star Entertainment in the role of Senior
Vice President International Marketing, reporting to Mr Chong.
40
From October 2017, Mr
Lim was the General Manager Marketing Asia Pacific.
41
Between April 2018 and January
2021, Mr Lim was the President of International VIP Sales.
42
He reported to Mr Hawkins
from April 2018.
43
Mr Lim was made redundant in July 2020 and his termination became
effective in January 2021.
30. The seniority of Mr Lim’s role is emphasised by the fact that he attended meetings of the
Board of Star Entertainment in Hong Kong on 26 September 2017
44
and 26 September
2018.
45
The minutes of the 26 September 2018 meeting record that Mr Lim spoke on the
agenda item relating to IRB strategy, focusing on the strategy of the sales team.
46
31. Mr Hawkins gave evidence that in July 2020 he decided to make Mr Lim’s position
redundant. He said that this was because the IRB had been significantly impacted by
COVID-19 and he was considering increasing the productivity of the sales units (Local,
Domestic and International) by merging them. He also stated that the future of the IRB
was uncertain at that time and he decided to implement a staged redundancy for all overseas
team members, including Mr Lim.
47
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32. On 21 July 2020, Mr Lim was provided a notice of termination due to redundancy of the
role.
48
Mr Lim executed a Deed of Release with his employing entity, EEI C&C Services
Pte Ltd, on 27 July 2020.
49
Mr Lim’s employment subsequently terminated on 24 January
2021.
50
Investigations conducted in relation to Mr Lim
33. Evidence was given to The Review of three separate investigations into Mr Lim between
2017 and 2019 by the Investigations Team, led by Mr Kevin Houlihan, the Group
Investigations Manager of Star Entertainment in that period.
51
2017 investigation
34. In or around 2017, Mr Houlihan was given information indicating that Mr Lim had been
gambling at a casino in Macau.
52
Mr Houlihan subsequently informed Mr Hawkins that he
had looked into the incident and could not find anything to suggest wrongdoing on Mr
Lim’s part.
53
Mr Hawkins took no action in light of the information from Mr Houlihan.
54
2018 investigation
35. In early 2018, an allegation was made that Mr Lim was misusing credit card expenses.
55
Mr Houlihan’s evidence was that he subsequently conducted an audit of spending within
the International VIP Team.
56
36. On 12 March 2018, Mr Houlihan reported to Ms Martin that he had not identified any major
issues with approvals for Mr Lim’s expenses and that he had not identified any illegal or
undesirable activity or gross misconduct requiring escalation after reviewing a sample from
Mr Lim’s email account.
57
37. Mr Hawkins was told by Mr Houlihan that the allegations were unsubstantiated and Mr
Hawkins did not take any further action.
58
Mr Bekier could not recall being made aware
of the 2018 allegations against Mr Lim.
59
2019 investigation
38. In 2019, Mr Houlihan and the Investigations Team undertook a further investigation into
Mr Lim’s conduct.
60
This investigation was known as Operation Great Wall. In or around
May 2019, an employee of Star Entertainment made a number of allegations about Mr Lim
to Mr Houlihan under Star Entertainment’s Whistleblower Policy (the Whistleblower).
61
The Whistleblower alleged that Mr Lim was trying to move into the credit and collections
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area and that he was getting a commission from the junket operators for recovering
money.
62
Two other employees of Star Entertainment also made allegations against Mr
Lim at around this time to Mr Houlihan.
63
39. An information note from Mr Houlihan to Ms Martin dated 19 July 2019 called “Operation
Great Wall” indicates that the 2019 investigation by Mr Houlihan considered a number of
“Areas of Potential Misconduct” by Mr Lim, including:
64
Conflicts/personal advantage;
Corrupt payments;
Financial mismanagement;
Abuse of patron complimentary balances;
Association/affiliation with illegal and undesirable elements;
Data security/breach of confidentiality;
Breach of company policies and procedures;
Interaction with Competitors.
40. There is further elaboration of the alleged facts relating to these “areas of potential
misconduct” in the information note.
65
The allegations were of an extremely serious nature
and demanded urgent and systematic investigation. Mr Houlihan interviewed the
Whistleblower in July 2019.
66
Mr Houlihan’s evidence was that he then spent several
months reviewing and assessing the information.
67
41. About five months later, on 9 December 2019 an independent investigator was engaged to
conduct a full profile on Mr Lim.
68
On 16 December 2019, the independent investigator’s
interim report concluded that a relative of Mr Lim controlled a company in Singapore that
provided junket support services to Star Entertainment.
69
That association appeared to give
rise to a serious conflict of interest and Mr Houlihan accepted this in evidence to the
Review.
70
42. After receiving the report, Mr Houlihan had a conversation with Ms Martin about the
concerns identified in the independent investigator’s interim report.
71
Ms Martin and Mr
Houlihan decided that Mr Houlihan should interview the Whistleblower and that discussion
took place on 20 December 2019.
72
In that meeting, the Whistleblower outlined a lengthy
series of allegations about Mr Lim and provided documents which were said to support his
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allegations.
73
Mr Houlihan reviewed those documents and gave evidence that he did not
find any support in them for the allegations made.
74
43. Mr Houlihan communicated his findings in a subsequent conversation with Ms Martin,
although it is unclear when this occurred. He and Ms Martin agreed that when the
opportunity arose, he would conduct a formal face-to-face interview with Mr Lim to put all
of the allegations to him and seek a formal response.
75
44. Mr Houlihan did not in fact ever conduct a face-to-face interview with Mr Lim before Mr
Lim was ultimately made redundant as a result of the COVID-19 pandemic.
76
Mr Houlihan
stated that this was because he was “not ready” to interview Mr Lim in December 2019 or
January 2020 and thereafter was concerned regarding travel restrictions due to the
emergence of COVID-19.
77
Mr Houlihan gave evidence that he did not interview Mr Lim
virtually as he preferred to do so “on [his] turf … in Australia”.
78
45. It needs to be emphasised that Mr Lim was not called to give evidence to the Review and
has had no opportunity to address the allegations made against him. No finding is made of
any misconduct by Mr Lim. The relevance of these matters is that very serious allegations
had been made against Mr Lim, at that time the President of International VIP Sales, and
those allegations were being investigated by Star Entertainment.
46. The investigation of the allegations against Mr Lim was inadequate. It proceeded far too
slowly both in light of his seniority within the company and the gravity of the allegations
made against him. Serious allegations had been made against Mr Lim more than a year
before he was made redundant. There is no satisfactory reason why the investigation should
not have been concluded prior to Mr Lim’s redundancy.
Knowledge of various members of senior management regarding the 2019 investigation
47. Mr Houlihan gave evidence that he did not inform Mr Hawkins of the 2019 allegations.
79
Mr Hawkins said that he did not know about the 2019 allegations.
80
That evidence is
accepted.
81
48. Mr Houlihan reported to Ms Martin. Ms Martin said she was “generally aware” of
Operation Great Wall and the scope of the allegations against Mr Lim.
82
The information
note dated 19 July 2019 was sent to her by Mr Houlihan.
83
Ms Martin could not recall
whether she reported the allegations to the Board or any of its committees.
84
She agreed
that if she had, her report would “most likely” be reflected in the minutes of the Board or a
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committee.
85
Given there are no such references in the minutes produced to the Review, it
follows that the allegations were not reported to the Board or its committees. The Star
Entities accepted that this conclusion was open to the Review.
86
49. This conclusion is also consistent with the evidence of Mr Bekier, Dr Pitkin, Ms Lahey, Mr
Richard Sheppard and Mr O’Neill, each of whom said that they were not made aware of
these of the allegations at the time.
87
Mr Bradley was not asked about the matter.
50. Mr Bekier said that he was generally aware of the 2019 investigation, but not of the details
of the allegations, other than that there were allegations of “kick-backs”.
88
Mr Houlihan
gave evidence that he did not inform Mr Bekier of the allegations.
89
Mr Bekier said he was
not made aware of the findings of the due diligence report on Mr Lim.
90
51. Mr Bekier’s evidence was that, in November 2019, he asked about the status of the
investigation into the allegations against Mr Lim
91
and was told by Ms Martin that the
investigation had been concluded on the basis that there was no evidence supporting the
allegations.
92
If this was stated, then it was incorrect. The investigations into Mr Lim
continued in 2020 and no conclusion was reached prior to Mr Lim’s redundancy became
effective in January 2021.
93
However, Ms Martin was not asked about this matter in her
oral evidence.
52. The serious allegations of misconduct against Mr Lim in 2019 and the investigation into
those allegations should have been notified to the Board of Star Entertainment. This is
another example of inappropriate isolation or “siloing” of information within a division of
Star Entertainment and the failure by management to inform the Board of matters of which
it needed to know in order to properly perform its functions.
Disclosure of allegations to the Authority
53. Mr Bekier accepted in his evidence that the Authority should have been notified of the
allegations against Mr Lim even if there was no statutory requirement to do so.
94
The Star
Entities submitted that such a finding should not be made given the procedural fairness
implications to Mr Lim and the potential impact on an employee’s reputation of reporting
untested allegations to a regulator.
95
54. Mr Lim held a Special Employee Licence issued by the Authority.
96
The allegations against
Mr Lim were “untested” more than a year after they were made only because the
investigation into them by The Star Entities was inadequate and dilatory. If the Authority
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had been notified of the allegations made in 2019, it would have enabled the Authority to
consider and make its own inquiries into whether it had grounds for disciplinary action
under the Casino Control Act in light of Mr Lim’s status as a licensed employee. If after
making any such inquiries, the Authority proposed to take disciplinary action, section 59
of the Casino Control Act sets out the procedure that must be followed, which would have
included allowing Mr Lim to make submissions prior to any action being taken. It follows
that there was a statutory mechanism which would have ensured that Mr Lim was afforded
procedural fairness.
Chapter 17.5 Mr Simon Kim
55. Mr Hwa Ryong (Simon) Kim commenced working at Star Entertainment on or around 15
November 2017.
97
Mr Kim was the Senior Vice President of International Marketing at
Star Entertainment until 13 June 2020.
98
Mr Kim was the principal relationship manager
for the Iek junket (i.e. Suncity) when he commenced his position.
99
From 18 September
2017 to 2019, Mr Kim was the International Marketing Manager.
100
During this period,
Mr Kim reported to Mr Chong and thereafter to Mr Lim.
101
Mr Kim was based in Macau
from 15 November 2017.
102
Mr Kim held a special employee licence issued by the
Authority.
103
56. In March 2020, Mr Kim disappeared.
104
Following Mr Kim’s disappearance, Star
Entertainment initiated a process to find him and reported his disappearance to the Macau
police.
105
Mr White was involved in dealing with external legal firms trying to determine
what had occurred.
106
57. Mr Kim was sent a termination letter by Star Entertainment on 13 July 2020 which stated
that he had abandoned his employment and had not contacted Star Entertainment after 23
March 2020.
107
58. Following Mr Kim’s disappearance, a number of extremely serious allegations were raised
in relation to him.
108
Issued raised in relation to Mr Kim included that he:
misappropriated funds while working at Star Entertainment;
109
defrauded Mr Guoyi Su of winnings when Mr Su played with the Suncity junket;
110
issued a $13.3 million false transfer instruction to Suncity. Suncity believed it was
transferring money to The Star, but instead it transferred the funds into an account
controlled by Mr Kim;
111
and
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was involved in a fraud on Suncity relating to $4 million.
112
59. Mr Houlihan was told by Mr Hawkins on or about 19 March 2020 of an allegation that Mr
Kim had stolen money from the Suncity junket. Mr Houlihan immediately informed Ms
Martin.
113
On 20 March 2020, Mr Houlihan was informed of other serious allegations in
relation to Mr Kim.
114
Mr Houlihan said that he asked Mr White to request documents or
evidence supporting the allegations to allow him to conduct his own investigation but no
such documents or evidence were provided.
115
Mr Houlihan said that no investigation was
conducted by Star Entertainment in relation to the allegations because no evidence was
supplied to Star Entertainment.
116
There is no evidence that any steps were taken to raise
the matter directly with Suncity.
Knowledge of the allegations against Mr Kim
60. Mr Houlihan, Mr Hawkins and Mr Bekier all gave evidence that they were not aware of
any allegations against Mr Kim until after his disappearance in March 2020.
117
61. Mr Bekier did not know whether these serious allegations were notified to the Board’s Risk
and Compliance Committee.
118
The minutes of that committee do not refer to this matter,
or that he had disappeared. Further, Dr Pitkin, Ms Lahey and Mr Sheppard all said that
they were only made aware of the allegations against Mr Kim in preparing for the
Review.
119
62. Despite Ms Martin, Mr Hawkins and Mr Bekier all being aware of Mr Kim’s disappearance
and the extremely serious allegations against Mr Kim, it is clear that the Risk and
Compliance Committee was not informed of these matters and therefore had no opportunity
to consider the ramifications. These allegations clearly should have been raised with the
Board.
Failure to notify the Authority
63. As Mr Kim held a special employee licence issued by the Authority, sub-section 62(1)(c)
of the Casino Control Act required The Star to notify the Authority within 14 days of Mr
Kim ceasing to have functions that were in, or were in relation to, The Star Casino. Section
62 provides that compliance with sub-section 62(1)(c) is a condition of a casino license.
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64. Despite Mr Kim disappearing in March 2020 and being terminated in July 2020, L&GNSW
was first notified of Mr Kim’s termination more than two months later on 23 September
2020 when it was informed by The Star that Mr Kim had abandoned his employment.
65. This was a breach by The Star of its casino licence. This is accepted by The Star Entities.
120
The notification that was made to L&GNSW did not contain any reference to the
allegations that had been made against Mr Kim or that he had “disappeared”. The
notification stated that Mr Kim had “abandoned his employment”.
Chapter 17.6 The closure of Star Entertainment’s overseas offices
66. During the Relevant Period, Star Entertainment operated offices in Macau, Hong Kong and
Singapore. The offices were staffed by various personnel. Star Entertainment had 99
employees based overseas during the Relevant Period.
121
In addition to Macau, Hong Kong
and Singapore, several staff were also based in New Zealand and one staff member was
based in Taiwan.
67. At various times during the Relevant Period, a total of 19 staff members were based in
Macau alone.
122
68. The office in Macau was closed on 29 June 2021.
123
The offices in Hong Kong and
Singapore were closed in January 2022.
124
Chapter 17.7 Inadequate Supervision and Management of the International
VIP Team
69. The IRB presented the greatest risks to The Star Entities in terms of money laundering and
terrorism financing.
125
It was therefore an area of the business which required the most
diligent management and close supervision. However, the matters identified in Chapter 15,
Chapter 16 and this Chapter demonstrate that management and supervision of the
International VIP Team in the Relevant Period was completely inadequate to manage the
risks.
70. Mr Bekier gave the following evidence:
126
Q: It’s right, isn’t it, that the VIP area of the business presented the greatest risks to
the business in terms of money laundering and terrorism financing?
A: Yes, Ms Sharp.
Q: And it’s right, isn’t it, that just at the point where the AML and CTF risks were
most acute is where the business most fundamentally dropped the ball?
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A: I am afraid that’s right, Ms Sharp.
71. Mr Bekier accepted that there were shortcomings in the structures, policies and controls in
place, but would not take personal responsibility for any individual shortcomings in the
management of the team:
127
Q: Well, the VIP team reported directly to you until April 2018, didn't it?
A: Through John Chong, yes.
Q: Well, surely you must take some responsibility for failings occurring prior to that
date?
A: Well, Ms Sharp, you know, when - when I became aware of concerns around the
leadership of John Chong, concerns that were raised, you know, through - internally,
we moved very quickly to address those concerns. And so I've - I felt that we were
doing the right things and that we responded to every indication of any wrongdoing
in that space.
72. Mr Hawkins accepted that there were shortcomings in his supervision of the “VIP
Team”.
128
Mr Hawkins accepted that this was undeniable in view of the allegations and
misconduct that have come to light in relation to various members of this team.
129
73. Mr Hawkins said that there were systemic issues which hindered his role. One systemic
issue identified by Mr Hawkins was that he did not have responsibility for the entire
International VIP Team but only the International VIP Sales Team. Mr Hawkins stated
that this siloing hindered his ability to effectively oversee these operations as he did not
have direct oversight of credit and collection personnel or overseas compliance
personnel.
130
The siloing of areas of the International VIP Team may have hindered Mr
Hawkins’ ability to effectively oversee these operations.
74. There were clear failings in the management and oversight of the International VIP Team.
The Star Entities accepted that it was open to the Review to find that there were failures of
oversight in relation to the International VIP Team.
131
Mr Bekier must bear some
responsibility for these failures, both before and after Mr Chong’s departure. However
these were not merely individual failings. These were systemic governance, risk
management and cultural failings of The Star and Star Entertainment.
75. Further, none of these concerns, allegations or issues were reported by The Star to the
Authority during the Relevant Period.
76. On 9 May 2022, Star Entertainment released an ASX Announcement stating that it was
suspending its international and domestic rebate play programs.
132
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77. Recommendation: It is recommended that the Authority take steps to require the operator
of The Star Casino to notify the Authority within 14 days of the casino operator becoming
aware of any allegation concerning the holder of a special employee licence employed or
working in the casino (Licensee) which, if established, would be grounds for disciplinary
action against the Licensee.
78. Recommendation: It is recommended that the Authority note and take such action as it
sees fit in relation to the Review’s finding of The Star’s breach of section 62(1)(c) of the
Casino Control Act in failing to notify the Authority within 14 days of Mr Simon Kim
ceasing to have functions in or in relation to The Star Casino.
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Endnotes
1
Heap: Day 30, T3388.10-19; Sheppard: Day 29, T3268.21-22.
2
Exhibit M-20 (INQ .001.001.0321 at .0330).
3
Exhibit J-54 (INQ.001.001.0469 at .0555).
4
Sheppard: Day 29, T3268.11-22.
5
Bekier: Day 26, T2999.1-15.
6
Exhibit A-378, para [41]-[43](INQ.002.004.0109).
7
Ibid; Star Entities’ Written Submissions dated 21 June 2022, para [K.6].
8
Exhibit A-378, para [41]-[43] (INQ.002.004.0109).
9
Exhibit A-597, para [7] (INQ.002.004.0264); Star Entities’ Written Submissions dated 21 June 2022, para
[K.6].
10
Exhibit A-378, para [41]-[43] (INQ.002.004.0109); Bekier: Day 26, T2990.31-48; Star Entities’ Written
Submissions dated 21 June 2022, para [K.6].
11
Exhibit A-378, para [177] (INQ.002.004.0109).
12
Exhibit G-963, para [11]-[13] (INQ.002.004.0282).
13
Ibid; Exhibit A-597, para [7]-[8] (INQ.002.004.0264).
14
Whytcross: Day 9, T947.11-13.
15
Exhibit J-29 (STA.3433.0042.0001).
16
Bekier: Day 28, T3144.15-29.
17
Bekier: Day 28, T3145.1-2.
18
Exhibit J-20 (STA.3402.0007.3857); Exhibit J-21 (STA.3402.0007.3858).
19
Heap: Day 30, T3370.18-22.
20
Heap: Day 30, T3370.18-22.
21
Exhibit J-20 (STA.3402.0007.3857); Exhibit J-21 (STA.3402.0007.3858 at .3858-.3860).
22
Exhibit J-21 (STA.3402.0007.3858 at .3863.-3864).
23
Star Entities’ Written Submissions dated 21 June 2022, para [K.14].
24
Heap: Day 30, T3372.24-44; Bradley: Day 32, T3509.40-49; Lahey: Day 33, T3659.1-7; Sheppard: Day 34,
T3737.4-8.
25
Exhibit J-28 (STA.3433.0024.5500 at .5500).
26
Ibid at .5501.
27
Exhibit J-27 (STA.3433.0024.5498); O’Neill: Day 36, T3908.39-41.
28
O’Neill: Day 36, T3909.33-34, 44-45.
29
O’Neill: Day 36, T3908.46-48.
30
Exhibit H-72 (STA.5002.0004.1244 at .1265).
31
Exhibit B-822 (STA.5002.0004.1038 at .1043).
32
Heap: Day 30, T3372.27; Bradley: Day 32, T3509.41; Pitkin: Day 32, T3583.43; Lahey: Day 33, T3659.35-
42; Sheppard: Day 34, T3736.40-46.
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33
Pitkin: Day 32, T3584.39-T3585.4.
34
Lahey: Day 33, T3660.1-12.
35
Heap: Day 30, T3375.12; Bradley: Day 32, T3509.41; Pitkin: Day 32, T3584.36-37; Sheppard: Day 34,
T3736.40; O’Neill: Day 36, T3910.27.
36
Heap: Day 30, T3375.9-22; Bradley: Day 32, T3512.17-27; Pitkin: Day 32, T3584.36-37; Sheppard: Day
34, T3735.41-T3736.2; Sheppard: Day 34, T3736.36-46; O’Neill: Day 36; T3909.30-34; O’Neill: Day 36;
T3910.27.
37
Lahey: Day 33, T3659.35-37.
38
Star Entities’ Written Submissions dated 21 June 2022, para [K.22[.
39
Ibid para [K.24].
40
Exhibit A-378, para [177] (INQ.002.004.0109); Bekier: Day 28, T3130.47-T3131.1.
41
Exhibit A-378, para [177] (INQ.002.004.0109).
42
Ibid; Bekier: Day 28, T3131.7.
43
Exhibit A-378, para [178] (INQ.002.004.0109); Exhibit G-963, para 13 (INQ.002.004.0282).
44
Exhibit G-65 (STA.5002.0003.2255).
45
Exhibit D-21 (STA.5002.0004.1056).
46
Ibid at .1056 - .1058.
47
Exhibit A-378, para [188]-[189] (INQ.002.004.0109).
48
Exhibit B-2491 (STA.3008.0006.4575); Exhibit A-378, para [190] (INQ.002.004.0109).
49
Ibid.
50
Exhibit A-378, para [189] (INQ.002.004.0109); Exhibit A-627, para [181] (INQ.002.004.0174).
51
Exhibit A-627, para [3] and [184]-[193] (INQ.002.004.0174).
52
Exhibit A-378, para [182] (INQ.002.004.0109).
53
Exhibit A-378, para [183]-[184] (INQ.002.004.0109); Hawkins: Day 24, T2786.24-45.
54
Exhibit A-378, para [184] (INQ.002.004.0109); Hawkins: Day 24, T2786.24-45.
55
Bekier: Day 27, T3127.7-22; Bekier: Day 28, T3135.5-7; Exhibit A-627, para [185]-[188]
(INQ.002.004.0174).
56
Exhibit A-627, para [187]-[188] (INQ.002.004.0174).
57
Exhibit A-627, para [186] (INQ.002.004.0174); Exhibit B-693 (STA.3402.0007.3906).
58
Exhibit A-378, para [184] (INQ.002.004.0109); Hawkins: Day 24, T2786.37-43.
59
Bekier: Day 28, T3135.5-9.
60
Exhibit G-690 (STA.3004.0006.0003).
61
Confidential Transcript: Day 12, T23.10-T24.22; Exhibit G-669 (STA.3428.0023.2682 at .2687).
62
Confidential Transcript: Day 12, T24.14-22; Exhibit G-669 (STA.3428.0023.2682 at .2683-.2684).
63
Confidential Transcript: Day 12, T22.21-32.
64
Bekier: Day 28, T3132.39-T3133.6; Exhibit G-690 (STA.3004.0006.0003 at .0004).
65
Exhibit G-690 (STA.3004.0006.0003 at .0004).
66
Confidential Transcript: Day 12, T27.38-39.
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67
Confidential Transcript: Day 12, T30.35-39.
68
Confidential Transcript: Day 12, T30.26-30; Exhibit A-627, para [189] (INQ.002.004.0174).
69
Bekier: Day 28, T3135.38-46; Exhibit B-2063 (STA.3402.0003.8648); Exhibit B-2064
(STA.3402.0003.8652); Exhibit A-627, para [190] (INQ.002.004.0174).
70
Star Entities’ Written Submissions dated 21 June 2022, para [K.30]; Confidential Transcript: Day 12,
T32.12-24.
71
Confidential Transcript: Day 12, T34.27-30; Exhibit A-627, para [191] (INQ.002.004.0174).
72
Exhibit A-627, para [191] (INQ.002.004.0174); Confidential Transcript: Day 12, T29.7-8 and T32.39-47.
73
Exhibit A-627, para [192] (INQ.002.004.0174).
74
Ibid.
75
Ibid para [193].
76
Ibid.
77
Confidential Transcript: Day 12, T33.1-21.
78
Confidential Transcript: Day 12, T33.11-12.
79
Confidential Transcript: Day 12, T21.1-4.
80
Hawkins: Day 24, T2783.26-30.
81
Star Entities’ Written Submissions dated 21 June 2022, para [K.33].
82
Martin: Day 20, T2270.33-34.
83
Martin: Day 20, T2265.15-18; Exhibit G- 690 (STA.3004.0006.0003).
84
Martin: Day 20, T2272.44.
85
Martin: Day 20, T2272.46-T2273.1.
86
Star Entities’ Written Submissions dated 21 June 2022, para K.37.
87
Bekier: Day 28, T3137.24; Bekier: Day 28, T3133.8; Pitkin: Day 33, T3616.35; Lahey: Day 33, T3681.13;
Sheppard: Day 34, T3740.31; O’Neill: Day 36, T3911.33.
88
Bekier: Day 28, T3132.32; Bekier: Day 28, T3135.5-9.
89
Confidential Transcript: Day 12, T21.21-23.
90
Bekier: Day 28, T3135.46; Exhibit B-2063 (STA.3402.0003.8648).
91
Bekier: Day 28, T3134.34-40.
92
Bekier: Day 28, T3134.38-48.
93
Bekier: Day 28, T3136.5-10.
94
Bekier: Day 28, T3138.13-16.
95
Star Entities’ Written Submissions dated 21 June 2022, para K.40.
96
Exhibit H-409 (STA.3444.0001.2019 at .2033); STA.3008.0006.4545 at .4546.
97
Exhibit B-3445 (STA.3009.0005.0082); Exhibit A-378, para [99] and [192] (INQ.002.004.0109).
98
Hawkins, Day 24, T2789.33-36.
99
Exhibit A-378, para [99] (INQ.002.004.0109).
100
Hawkins: Day 24, T2790.1-4.
101
Hawkins: Day 24, T2790.6-9.
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102
Bekier: Day 28, T3138.30-37; Hawkins: Day 24, T2790.11-13; Exhibit A-378, para [23]
(INQ.002.004.0109).
103
STA.3008.0002.3032.
104
Exhibit B-3331 (CORRO.001.001.0190 at .0223); Hawkins: Day 24, T2790.42-T2791.1.
105
Hawkins: Day 24, T2791.7-10.
106
Hawkins: Day 24, T2791.11-13.
107
Hawkins: Day 24, T2790.47-T2791.1.
108
Hawkins: Day 24, T2790.15-40.
109
Bekier: Day 28, T3138.39-43; Hawkins: Day 24, T2790.15-18; Exhibit B-3331 (CORRO.001.001.0190 at
.0223).
110
Bekier: Day 28, T3138.45-48; Hawkins: Day 24, T2790.20-23.
111
Bekier: Day 28, T3139.1-6; Hawkins: Day 24, T2790.25-28.
112
Hawkins: Day 24, T2790.36-40.
113
Exhibit A-627, para [195] (INQ.002.004.0174).
114
Ibid para [196].
115
Ibid para [198].
116
Ibid para [200].
117
Ibid para [200]; Exhibit A378, at [195]-[196] (INQ.002.004.0109); Bekier: Day 28, T3139.10.
118
Bekier: Day 28, T3139.29-33.
119
Pitkin: Day 33, T3617.34-35; Lahey: Day 33, T3681.31-36; Sheppard: Day 34, T3745.27-37.
120
Letter from King & Wood Mallesons to Maddocks dated 5 August 2022.
121
Exhibit B-3445 (STA.3009.0005.0082).
122
Exhibit A-378, para [23] (INQ.002.004.0109).
123
Ibid para [22].
124
Ibid para [19].
125
Bekier: Day 26, T3000.21-25; Sheppard: Day 29, T3238.45; Sheppard: Day 34, T3744.20-21; O’Neill: Day
34, T3790.32.
126
Bekier: Day 26, T3000.21-3.
127
Bekier: Day 28, T3144.1-5; Bekier: Day 28, T3144.7-19.
128
Gregory Hawkins Written Submissions dated 21 June 2022, para 42.
129
Ibid.
130
Ibid.
131
Star Entities’ Written Submissions dated 21 June 2022, para [K.47].
132
Exhibit J-157 (INQ.003.007.0001).
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Chapter 18
The KPMG Reports
CHAPTER 18 | THE KPMG REPORTS
Chapter 18. The KPMG Reports
Chapter 18.1 Commissioning of the reports
1. Star Entertainment has two reporting entities within its designated business group for the
purposes of the AML/CTF Act: the first reporting entity is for Star Entertainment’s Sydney
property, which is The Star; and the second is for Star Entertainment’s Queensland
properties.
1
It is a requirement of the AML/CTF Act that reporting entities prepare an
AML/CTF program.
2
To give effect to this obligation Star Entertainment maintains a joint
AML/CTF program (AML/CTF Program).
2. In general terms, the nature of Part A of the AML/CTF Program is for reporting entities to
identify, manage and mitigate money laundering risks; and the nature of Part B of the
AML/CTF Program is for reporting entities to identify and verify customers to whom they
provide designated services.
3
3. Under Part 9.6 of the AML/CTF Rules, Part A of the AML/CTF Program must be the subject
of regular independent reviews and the frequency of those reviews should be determined
taking into account the nature, size and complexity of the reporting entity’s business and
the type and level of money-laundering and terrorism financing risks that it might face.
4
4. From January 2017, Star Entertainment’s Chief Risk Officer, Mr Paul McWilliams,
assumed responsibility for managing risks associated with anti-money laundering and
counter-terrorism financing at Star Entertainment.
5
5. At that time, the most recent review of Star Entertainment’s AML/CTF Program had been
undertaken by Mr William Brown.
6
Mr Brown had prepared a report of his review dated
21 August 2015.
7
6. Mr McWilliams’ recollection of Mr Brown’s report was that Mr Brown had concluded Star
Entertainment’s AML/CTF Program was compliant but his conclusions “were very much
predicated on the assumption that his recommendations on remediation were
implemented”.
8
Mr McWilliams said: “My read of that report was that he actually found
it was a non-compliant program and we needed to put in place the remedial actions.”
9
Mr
McWilliams was also concerned in 2017 that “[t]he Brown review was limited in its scope,
that it was Part A only, and didn’t really delve that much into the operationalisation of the
program”, so Mr McWilliams considered “that it would be appropriate to have another
review in the not too distant future”.
10
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CHAPTER 18 | THE KPMG REPORTS
7. The Star Entities submitted that Mr Brown’s report was a “positive” one which had
concluded, among other things, that the Part A of the AML/CTF Program “was effective”,
“complied with the AML/CTF rules”, had been “effectively implemented”, and complied
with by the casinos within the Star Entertainment group.
11
8. Consistent with that submission, Mr Bekier’s evidence was that the KPMG reports came
as a “big surprise” to him and were “very different from previous reports”.
12
9. Irrespective of how Mr Bekier or others might have understood Mr Brown’s report, on its
face it appears to support Mr McWilliams’ recollection of it. In particular, on page 1 of Mr
Brown’s report, Mr Brown expressed his overall opinion of compliance as being “subject
to implementation of the key recommended actions and to the qualifications and
assumptions set out below”.
13
That is, in substance, an opinion of non-compliance because
it is conditional on implementation of the key recommended actions. Further, consistently
with Mr McWilliams’ evidence, Mr Brown’s report made no mention of Part B of Star
Entertainment’s AML/CTF Program.
10. It was in this context that Star Entertainment’s then General Manager, Internal Audit and
Assurance, Ms Tarnya O’Neil, engaged KPMG on 27 November 2017.
14
Ms O’Neil
reported to Mr McWilliams and to Star Entertainment’s Audit Committee.
15
11. KPMG’s engagement letter provided that the purpose of KPMG’s engagement was to do
three things:
16
first, to assist Star Entertainment meet the requirements of an independent review
as required by Part 9.6 of the Rules (i.e. review Part A of Star Entertainment’s
AML/CTF Program);
secondly, to consider the design and operating effectiveness of Part B of Star
Entertainment’s AML/CTF Program; and
thirdly, to consider a number of specific issues identified in the engagement letter.
12. The two KPMG senior personnel who would undertake the reviews were Mr Alexander
Graham, then a director and subsequently a partner of KPMG, and Mr Jeff O’Sullivan, a
partner of KPMG.
13. Dr Pitkin gave evidence to explain why an internal audit at Star Entertainment involved an
external third party, KPMG, conducting the review. She said:
17
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So internal audit are members of management, but they have a direct reporting line
to the audit committee and to the board. And their responsibility is to carry out
unbiased investigations of certain matters within the company and to provide reports
on those. At times, the matter to be reviewed might be highly technical and might
require some external expertise that's not within the internal audit team and so an
external person might be engaged to do that. …
In relation to this particular review, it was part of the internal audit program, but it
required an external independent party to carry out the review because that’s what’s
required under the AML/CTF regime.
14. KPMG proceeded to undertake its review from late 2017. This included interviewing
37 employees across Star Entertainment’s three casinos in Sydney, Brisbane and the Gold
Coast, and reviewing over 400 documents and files that were provided by Star
Entertainment.
18
15. On 3 May 2018, KPMG provided drafts of its reports to Mr McWilliams, to Star
Entertainment’s General Manager of Compliance, Mr Micheil Brodie, and to Star
Entertainment’s Compliance Manager, Ms Skye Arnott, to confirm for factual accuracy.
19
16. On 14 May 2018, KPMG met with Mr McWilliams, Mr Brodie and Ms Arnott. The
findings in what were then KPMG’s draft reports “were validated for factual accuracy and
agreed”.
20
KPMG’s reports were then finalised and issued two days later on 16 May 2018.
Chapter 18.2 KPMG’s reports dated 16 May 2018
17. On 16 May 2018, KPMG provided two reports to Star Entertainment. The reports
comprised KPMG’s review of Star Entertainment’s AML/CTF Program.
21
The first report
was a review of Part A of Star Entertainment’s AML/CTF Program and was (as has been
noted) required under the AML/CTF Rules.
22
The second report was a review of Part B of
Star Entertainment’s AML/CTF Program.
18. KPMG’s reports were in final form. Neither report was marked “draft”. Drafts of the
reports had been provided to Star Entertainment beforehand and confirmed for factual
accuracy. Mr McWilliams said he was “happy with the reports” in their final form on 16
May 2018.
23
There had also been interactions involving Ms O’Neil, who said she recalled
engaging with KPMG as to findings that KPMG were likely to make before the reports
were finalised and that they were checked for factual accuracy.
24
19. In its reports, KPMG made a series of findings about serious shortcomings in Star
Entertainment’s AML/CTF Program. These included:
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that people could walk into Star Entertainment’s casinos with hundreds of
thousands of dollars in cash but would not be assessed as higher risk for that reason
alone;
25
that Star Entertainment’s AML/CTF Program did not consider counter-terrorism
financing at all (i.e. it was missing the “CTF” part of “AML/CTF”);
26
and
that there was no documented money laundering or terrorism financing risk
assessment or risk assessment methodology in relation to junkets (i.e. the part of
Star Entertainment’s business which Mr Bekier said represented about 12% of Star
Entertainment’s earnings at the time).
27
20. It was also noted that there were inadequate AML/CTF resources. While resource levels
were comparable to other Australian casinos, KPMG found that there were “significantly
less” resources than some US casinos.
28
21. In addition, KPMG found that Star Entertainment had a manual transaction monitoring
process which was inconsistently applied across the casino properties.
29
Mr Graham told
the Review that he did not recall there being any automated transaction monitoring of bank
accounts at Star Entertainment
30
and that it was a “concern” to him that Star Entertainment
did not have transaction monitoring “across many things”, including patron accounts.
31
22. Mr Graham said that he would not describe Star Entertainment’s AML/CTF Program as
“mature” when he started reviewing it.
32
This was because, he said, “[i]t wasn’t clear that
management knew what documents really constituted … key components of the AML
program and … had a good understanding of what those documents were”.
33
23. Mr O’Sullivan gave similar evidence. He said he would not regard Star Entertainment’s
AML/CTF Program as “mature”
34
because, he said:
35
I would have expected a mature AML program to have in place a comprehensive
AML and counter-terrorism financing risk assessment methodology and risk
assessment. Our engagement found that not to be the case. Moreover, a more
substantive transaction monitoring process … and risk assessment activities over
junkets, in addition to several other matters which are set out in the final reports.
24. Mr Graham also said this:
36
I think a mature AML program would have … an adequate risk assessment which
would have identified, using international and local sources, typologies and ways
that accounts could be used for money laundering and terrorism financing. That
would be the first part. The second part, then, would be around implementing
transaction monitoring over those accounts, preferably … in an automated manner,
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but recognising sometimes that transaction monitoring programs have got technical
kind of limitations and, therefore, using human intelligence for people to look over
those to identify things that maybe the system can’t.
25. In their evidence to the Review, Mr Bekier, Mr McWilliams, Ms O’Neil and Mr Graham
accepted that KPMG had identified a number of “significant deficiencies”, “fundamental
deficiencies” and “fundamental problems” in Star Entertainment’s AML/CTF Program.
37
26. The timing of KPMG’s reports was apposite. The reports came just:
two days after Mr McGregor had written to Mr Power, Mr Houlihan and Ms Judd
on 14 May 2018 to say that he would “call it out early” that Suncity was “operating
a business model under our noses which is problematic”;
38
one day after Mr Power had emailed Mr Hawkins on 15 May 2018 with his
concerns that Suncity’s conduct constituted a breach of applicable laws and
“otherwise amounts to casino operations”;
39
and
on the same day, 16 May 2018, that Mr Hawkins forwarded Mr Power’s concerns
about unlicensed casino operations to Mr Bekier.
40
Chapter 18.3 Audit Committee meeting of 23 May 2018 and reaction to
KPMG’s reports
27. Star Entertainment’s Audit Committee met on 23 May 2018. It appears that Audit
Committee members were provided with an executive summary of the KPMG reports
41
and
otherwise had access to download the full reports via the “board portal”.
42
The precise
timing of when that took place, however, is unclear.
28. On 22 May 2018, being the day before the Audit Committee’s meeting, the then Chair of
the Audit Committee, Mr Zlatko Todorcevski emailed Mr McWilliams and Ms O’Neil
noting that he had “now had a chance to review the papers for the audit committee”.
43
Mr
Todorcevski wrote:
44
I have to say that I’m concerned about the two AML/CTF reports from KPMG. I
know these reports were published after our call last week but, considering the nature
of the matters raised and the high rated findings, it would have been good to regroup
so you could step me through the findings in detail and the agreed actions. I did not
see anything in the KPMG report confirming management’s agreement with the
findings and the commitment to remediation.
As we sit today, I don’t believe we will have time to have a call before tomorrow so
we will need to spend time in the Audit Committee going through both reports in
some detail. I will leave to you to think about how best to do that in an efficient
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manner but the committee will need to walk away from the conversation knowing
that these are being actioned and with a sense of urgency.
29. Later that day, on 22 May 2018, Mr Bekier wrote to Mr McWilliams: “I haven’t seen the
KPMG report … Can you call me to talk me through the key points pls?”.
45
30. Mr Todorcevksi (as Chair), Mr Gerard Bradley, Mr Richard Sheppard, Dr Sally Pitkin and
Mr John O’Neill (as an ex officio member) attended the Audit Committee meeting as
members of that committee on 23 May 2018.
46
The minutes record that the item of business
for the KPMG reports “was discussed with Mr Bekier; Mr McWilliams; Ms O’Neil; Ms
Martin and Mr Barton of the management team present”.
47
The minutes record that Mr
McWilliams “spoke to the executive summaries in the papers”.
48
31. The minutes do not record that the KPMG senior personnel, Mr Graham and Mr
O’Sullivan, were sitting outside the Audit Committee meeting and stood ready to explain
their reports, but were never called in.
49
32. In this regard, there appear to have been two general reactions to KPMG’s reports within
Star Entertainment.
33. The first was the reaction at the Board level (excluding Mr Bekier), and in particular from
those directors who were members of the Board’s Audit Committee. The Audit Committee
was told by Star Entertainment’s management present (including Mr Bekier), as recorded
in the minutes,
50
that “the detailed [KPMG] reports have only just been received by
management and are undergoing review”. Although from the email quoted above Mr
Bekier appears not to have received the KPMG reports before 22 May 2018, other members
of Star Entertainment’s management had done so. In particular, the minutes of the Audit
Committee’s meeting on 23 May 2018 did not record that KPMG’s reports had been
received by members of Star Entertainment’s management in draft on 3 May 2018 and
discussed at a meeting involving Mr McWilliams, Mr Brodie and Ms Arnott on 14 May
2018 where the reports were confirmed as factually accurate.
51
34. The Audit Committee was told, again as recorded in the minutes, that “for the [Audit]
Committee to adequately assess the review outcomes, it is necessary for the Committee to
be presented with complete review outcomes, including management actions in response
and assurances in relation to implementation”, and that “some language in the summaries
in the report is concerning in the limited context presented”.
52
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35. The directors accepted that KPMG’s findings and recommendations needed to be
considered and addressed.
53
Mr Sheppard said that he recalled the “general thrust” of the
views of the members of the Audit Committee was that KPMG had raised “legitimate
issues … and we need to get on with it”.
54
No director gave evidence seeking to gainsay
that approach. And that, in due course (at least after 6 August 2018), is what occurred.
55
36. Mr McWilliams said that he recalled Mr O’Neill objecting to the “tone” of KPMG’s reports
and that Mr Sheppard had asked if it was too late for the KPMG reports to be changed.
56
Mr Sheppard denied asking if KPMG’s reports could be modified but said it was “entirely
possible” he had asked a question to this effect: “Can I just clarify: is this a final report, or
is it still subject to discussions with management?”.
57
There was nothing inappropriate
about such a question in the circumstances.
37. But the second reaction to KPMG’s reports was that of Star Entertainment’s senior
management, in particular Mr Bekier. Mr McWilliams told the Review that he recalled Mr
Bekier “making a show of throwing on to the table what I assumed to be the report – or the
extract – the executive summary of this report and saying, “I haven’t seen this”, and “then
the discussion was along the lines of, as best I can recall, that it was unacceptable for the
report to be prepared in this way, that it was wrong in some respects – material respects,
but without getting into a lot of detail as to what was wrong”.
58
38. Mr McWilliams said that “[w]hen it was put to us – so to Tarnya O’Neil and myself – that
this was wrong, without specifics and without having KPMG in the room, it was really hard
to counter that”, and “it is natural, when it comes from the CEO, to think that if he says it’s
wrong, well, you wonder if you have missed something”.
59
39. Mr McWilliams was asked, to the best of his recollection, to identify the substance of what
Mr Bekier said. Mr McWilliams said:
60
Just that it contained multiple errors, that KPMG didn’t know what they were doing
and – and that was the broad theme. I can’t remember the specifics, but that was the
highlight of – highlights of what he said.
40. Mr McWilliams was asked to recall the mood of the meeting. He said it was:
61
Very tense. It certainly felt like I was under a lot of pressure and that I could sense
that Ms O’Neil – Tarnya O’Neil also felt we were being put under quite a lot of
pressure for putting up a report that the directors took such exception to.
41. Ms O’Neil told the Review that she recalled that “Mr Bekier commented that it was the
first time that he had seen the report and had some concerns about the factual accuracy of
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some elements of it”.
62
Ms O’Neil said “that was reinforced, to the best of my recollection,
by Ms Martin as well”, and “[t]he conversation then proceeded along the lines of taking
those concerns offline, which I took to mean that the chief risk officer, myself and Ms
Martin would regroup outside of the meeting”.
63
42. Mr Bradley told the Review was that “there was some tension at the meeting” on 23 May
2018 and that Mr Bekier “had concerns about the report”, but Mr Bradley did not recall
what those particular concerns were.
64
43. Ms Martin’s evidence was that she did not recall anything that was discussed at the meeting
and she did not recall the tone of the meeting.
65
She said later that she “would describe Mr
Bekier’s view of the report, based on my interactions with him, as one of concern”.
66
44. In his written statement, Mr Bekier said he did not have a specific recollection of what was
said by who, but having reviewed the minutes of the meeting he said his general recollection
was that “part of the discussion was about the importance of embracing the
recommendations made in executive summaries of Part and Part B of the KPMG Reports
and ensuring that the recommendations were implemented promptly and efficiently”.
67
45. In his oral evidence Mr Bekier said that there were “a lot of things in the process here that
weren’t normal practice”.
68
He said:
69
As I understand it, the – the internal audit team received a draft version of the report
in late April. And then normal practice will be to take that report to management to
– management that would have to deal with the implementation of the rectification
actions so we can start – when the report gets presented to the board, we have a
management response to the findings of the auditor. This report, unfortunately, was
not syndicated by our own team as it should have been. And that’s why I think there
was a bit of surprise when only the executive summary was presented. And senior
management, including me, hadn’t really had time to provide the board a perspective
on what we were going to do about it.
46. Perhaps Mr Bekier’s reaction to the KPMG reports at the Audit Committee meeting was
influenced by what he considered to be those departures from normal practice. However
the evidence relating to the initial reaction to the KPMG reports at the Audit Committee
meeting was one of a number of occasions during the public hearings where a concerning
cultural issue at Star Entertainment was exposed. Even allowing for the circumstances in
which the KPMG reports had been received, the communications at the meeting on this
issue, particularly by Mr Bekier, sent a message to the management team that bad news
was unwelcome.
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47. A number of directors of Star Entertainment identified as a cultural failure that management
failed to provide information to the Board which it needed to know.
70
Episodes such as the
initial reaction to the KPMG reports at the Audit Committee meeting on 23 May 2018 assist
in giving context to that cultural failure.
Chapter 18.4 Subsequent meetings with KPMG
48. After the Audit Committee’s meeting on 23 May 2018, the KPMG senior personnel were
invited to meet with Mr Bekier, Ms Martin, Mr McWilliams and Ms O’Neil. This appears
to have been soon after the Audit Committee meeting in late May or early June, as the first
of three meetings involving Mr Bekier, the two later meetings being on or about 12 July
2018 and 25 July 2018 respectively.
71
49. Mr Graham told the Review that at the first meeting Mr Bekier was “hostile”
72
towards him
and his KPMG colleague Mr O’Sullivan. Mr Graham said:
73
Well, when me and Jeff walked into the room, I recall we weren’t greeted. There was
no eye contact. You know, we weren’t – we just sat down. Mr Bekier was sat down,
turning the pages of the report, essentially berating us for the whole entire time of
that meeting.
50. Mr Graham also said this:
74
I recall the CEO turning over pages, pointing to things, saying, “This is wrong,”
turning the page, “That is wrong”, you know, doing that for a sustained period of
time. And we tried to understand what the specific points of where the CEO believed
was wrong, and we just weren’t getting the details. I do recall there was two, maybe
three, specific areas that the CEO did stop on and – and talked us through. The first
one was in connection with disagreeing with the ratings of the report, particularly for
the high rated findings.
The second was in connection with disagreeing with statements that we had made
around customers bringing large sums of money should be considered to be higher
risk. And I believe the third point was in connection with not feeling that the – sorry,
not – something around the resource profile – the comment that we had in the report
around the resource profile of Star not being adequate.
51. Mr O’Sullivan gave similar evidence. He said that “Mr Bekier had physical copies of the
final reports in front of him, and he undertook a page turn of those reports in front of Mr
Graham, my colleague, and myself, providing feedback and observations on the reports as
he turned the pages”.
75
Mr O’Sullivan said that “Mr Bekier made several references to not
agreeing with elements of the reports”.
76
52. Mr McWilliams said he found it “quite a tense meeting” and “Mr Bekier wasn’t at his best”
because Mr Bekier “was in what I would describe as a sulk” with “an unprofessional
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demeanour”.
77
Mr McWilliams said that in his view, Mr Bekier “didn’t actually engage
that well in articulating what his list … of issues were”, and it was agreed that Mr
McWilliams and Ms O’Neil “would report back to KPMG with specifics of what we
thought his concerns were and then follow up separately with KPMG”.
78
53. Mr McWilliams said he felt from Mr Bekier “a sense that he didn’t think KPMG knew
what they were talking about” and “the overall demeanour was just one that caused a degree
of tension in the room”.
79
54. None of Mr McWilliams’ evidence was challenged in the public hearings.
55. Mr Bekier agreed that the meeting with the KPMG partners was “very uncomfortable” but
he denied being rude or aggressive or refusing to make eye contact with them.
80
He said
he “was probably getting a bit frustrated with what I perceived to be poor client service
from KPMG … I didn’t get very many answers other than, ‘I’m the expert and that’s my
opinion’, and I expected to hear more”.
81
56. Ms Martin described this meeting as “somewhat tense”.
82
She disagreed that Mr Bekier
had been “rude” or “aggressive”.
83
She said that she did not recall Mr Bekier throwing a
report on the table or refusing to make eye contact with the KPMG partners.
84
57. Mr Graham and Mr O’Sullivan asked for particulars of Star Entertainment’s concerns.
85
There were then various meetings involving KPMG between 16 May 2018 and 6 August
2018, including:
86
a meeting with Ms Martin and Mr McWilliams dated 19 June 2018;
a meeting with Mr Oliver White on 3 July 2018;
a meeting with Mr Bekier, Ms Martin and Mr McWilliams dated 12 July 2018;
a meeting with Ms Martin, Mr McWilliams and Mr Darren Henry (Cage
Supervisor) dated 18 July 2018;
a meeting with Ms Martin and Mr McWilliams dated 24 July 2018;
a meeting with Mr Bekier, Ms Martin and Mr McWilliams dated 25 July 2018; and
a meeting with Mr Zlatko Todorcevski (the then Chair of the Audit Committee)
dated 25 July 2018.
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58. Mr Graham said that Mr O’Sullivan and he attended the meeting with Mr Todorcevski on
25 July 2018 but only Mr O’Sullivan attended the meeting beforehand, involving Mr
Bekier, that same day.
87
59. During the period of the above meetings, on 13 July 2018 Ms O’Neil forwarded
88
some
notes to the KPMG partners which recorded a list of 20 specific concerns.
89
Ms Martin
said that they were her notes recording a compilation of issues identified by Mr Bekier and
herself.
90
In due course Star Entertainment’s management raised 22 specific queries with
KPMG in relation to the reports.
91
60. In particular, Star Entertainment’s management raised two “key areas”
92
of concern with
KPMG, namely:
that Star Entertainment’s customers for AML/CTF purposes were junket operators
and not junket participants; and
that if a person walks into a casino with a very large amount of money, that in and
of itself does not raise any special concern regarding money laundering.
Chapter 18.5 KPMG confirms its findings
61. Having received Star Entertainment’s various concerns and attended the meetings noted
above, by letter dated 6 August 2018 KPMG did not accept any of Star Entertainment’s
contentions and confirmed its earlier findings in its 16 May 2018 reports.
93
62. Mr Graham gave evidence that this was covered, first, in the 25 July 2018 meeting
involving Mr Todorcevski, Mr O’Sullivan and Mr Graham. Mr Graham told the Review:
94
So the meeting with Zlatko … I recall that Jeff went through, line by line, items that
were in the – or that we covered in the letter. And then at the end of the meeting, I
recall that Zlatko apologised to both me and Jeff.
…
I recall Zlatko apologising for the way that both me and Jeff had been treated and
also acknowledged that it is time to move forward.
63. Secondly, KPMG wrote in its letter dated 6 August 2018 “that the findings and
recommendations contained in both Final Reports [dated 16 May 2018] remain valid”.
95
64. Mr Graham said that up until the time of KPMG’s 16 May 2018 reports, he had found the
executives at Star Entertainment with whom he dealt to be “open and willing to identify
the level of risk and see where they could make improvements” and he described them as
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CHAPTER 18 | THE KPMG REPORTS
“cooperative”.
96
But after issuing the reports on 16 May 2018, Mr Graham said he would
describe Star Entertainment as a “challenging” client.
97
Mr Graham explained that KPMG
had finalised its reports and “there were a number of issues which were raised … I’ve never
been in a situation where we finalised reports and we have had to re-look at issues again”.
98
65. Mr Graham was examined by Counsel for Star Entertainment. He was taken to the second
paragraph of an email which he sent on 25 July 2018 to his KPMG colleagues, where he
wrote:
99
We had several positive meetings with the CEO and the chair of the audit committee.
They’ve now accepted that it’s time to look forward and focus on fixing this up.
66. This email also featured in The Star’s written submissions on this issue.
100
67. Mr Graham explained that this summary was based on his understanding of Mr
O’Sullivan’s meeting with Mr Bekier and his own attendance at the meeting involving Mr
Todorcevski.
101
Mr Graham accepted that he agreed that from 25 July 2018 both Mr Bekier
and Mr Todorcevski “were focused on fixing things up”.
102
However, Mr Graham later
clarified two matters:
(a) first, Mr Graham told the Review:
103
I didn’t have any positive meetings with the CEO [Mr Bekier]. … And I think the
context is probably important, given the fact we had been through a very challenging
situation with a lot of challenge under extreme pressure on the 22 issues which we
had worked through.
(b) secondly, Mr Graham noted the third paragraph of the same email dated 25 July
2018, where he wrote this to his KPMG colleagues:
104
Really appreciate your assistance with this. Job well done with a challenging client.
68. Mr Graham said that he “was recognising the fact that the KPMG team had worked really
hard to work through these issues under such [a] challenging environment with a
challenging client”.
105
Chapter 18.6 Implementation of KPMG’s recommendations
69. At least from the time of KPMG’s letter of 6 August 2018, when KPMG affirmed its earlier
findings, Star Entertainment set about implementing all of KPMG’s recommendations. Ms
O’Neil gave evidence that she recalled Mr McWilliams telling her that it was his intention
to work on remediation activities from the time of the reports (i.e. from 16 May 2018)
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despite the further work “going on in the background”.
106
Mr McWilliams did not give
evidence about this but said that so far as he was aware, Star Entertainment ultimately set
about adopting and implementing all of KPMG’s recommendations.
107
70. Nonetheless, the conduct of Mr Bekier reflected poorly on Star Entertainment’s culture and
processes. Even if it be fairly assumed that Mr Bekier should have been involved in
KPMG’s processes before the finalisation of their reports on 16 May 2018, the fact is he
was not. Mr Bekier’s reaction seems to have been to seek to argue with KPMG rather than
engage constructively with what were then finalised reports.
71. The Star has said that it “regrets any offence that may have been caused to Mr O’Sullivan
and Mr Graham as a result of [Mr Bekier’s] conduct”.
108
Ultimately, KPMG was not
swayed by the 22 points of disagreement which Mr Bekier raised with them and the
evidence is that Star Entertainment implemented all of KPMG’s recommendations.
72. Further, as Mr Heap accepted,
109
the KPMG reports gave Star Entertainment’s Board and
management an opportunity to ask whether, having been told that people were coming into
its casinos with large amounts of cash and not being flagged with a higher risk rating, there
might have been people with whom Star Entertainment had existing relationships which
should be brought to an end. That opportunity was missed, at the same period of time that
Mr Bekier was being told of serious concerns about Salon 95 and Suncity’s conduct.
110
73. Dr Pitkin agreed that such an undertaking “could be very instructive” at that time, but she
said the focus and resources as she understood them were on implementing KPMG’s
recommendations.
111
Mr Bradley noted that KPMG had not recommended a retrospective
review.
112
Chapter 18.7 Claiming legal professional privilege for the KPMG reports
74. Legal professional privilege attaches to communications made and documents prepared for
the dominant purpose of either a lawyer providing a client with legal advice, or the client
being provided with legal services relating to an actual or anticipated proceeding.
113
When
considering whether the privilege applies, it is necessary to do so on a document-by-
document basis by reference to the content of each given document, its context and any
relevant evidence relating to it.
114
The law relating to legal professional privilege is
considered further in Chapter 19.
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75. In the minutes of the Audit Committee’s meeting dated 23 May 2018, the topic of KPMG’s
review was marked “Subject to Legal Professional Privilege”.
115
The minutes recorded that
the item “was being discussed in a limited forum in light of the legal professional privilege
protocols in place in relation to two reviews and to enable specific queries of Committee
members raised prior to the meeting to be addressed”.
116
Ms Martin agreed that she
prepared the minutes for the Audit Committee’s 23 May 2018 meeting.
117
76. Mr McWilliams told the Review that he could not recall whether legal professional
privilege was discussed at all in the Audit Committee meeting.
118
He said it “certainly
wasn’t discussed in any detail” and “there certainly wasn’t a discussion that involved the
directors about whether it was privileged or not”.
119
77. Ms O’Neil said that legal professional privileged was not discussed at the Audit Committee
meeting.
120
Ms O’Neil said that because Ms Martin had introduced the KPMG reports,
directors might have inferred that there was privilege attaching to KPMG’s work, but Ms
O’Neil said that her own view was the KPMG reports were not privileged.
121
78. Neither Mr McWilliams nor Ms O’Neil was challenged in their evidence on this question.
79. Ms Martin gave evidence, after “having refreshed from the minutes”, to the effect that she
recalled “speaking to the fact that legal advice was being provided in relation to the reports
or utilising the reports”.
122
Ms Martin later conceded, however, that she did not have an
independent recollection of having done that. Instead, Ms Martin accepted that she was
referring only to “the contents that are captured within the minutes”.
123
80. Irrespective of the extent to which legal professional privilege was in fact discussed at the
Audit Committee meeting on 23 May 2018, the clear impression from reading the minutes
prepared by Ms Martin is that she was concerned to ensure that the minutes reflected that
a claim for legal professional privilege was to be made for the KPMG reports. The relevant
item in the minutes is marked “Subject to Legal Professional Privilege” and refers in the
introductory language to the item “being discussed in a limited forum in light of the legal
professional privilege protocols in place”.
124
The minutes purport to record that “KPMG
were engaged to conduct the independent review reported in the paper to bring financial
services / banking sector expertise to the review and prepare a report for the purposes of
legal advice being provided on the Company’s compliance with the Act with respect to
implementation of the program”.
125
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CHAPTER 18 | THE KPMG REPORTS
81. Ms Martin said:
126
I had discussions with a range of people, including Mr Bekier, Mr McWilliams and
Ms O’Neil, in relation to the paper that had been prepared for the audit committee.
And it was in the course of those discussions that I provided my opinion on the nature
of the independent review that was being conducted and my understanding of what
that review was required to do under the Act, including that there was components
of the review that needed to speak to compliance with the Act. And that that was a
point in my view as expressed at the time that meant that legal advice would be
provided as part of that review. And then from those discussions, I was included in
discussions with Paul McWilliams and then the meeting we spoke to earlier on 22
May around engaging with Ms O'Neil on the full reports for the purposes of
considering providing that advice.
82. The KPMG reports were clearly not privileged. They were not prepared for the dominant
purpose of Star Entertainment or The Star being provided with legal advice or legal services
relating to an actual or anticipated proceeding.
83. KPMG’s engagement letter dated 27 November 2017 clearly identified the purposes of the
engagement. The dominant purpose of KPMG’s engagement was clearly to perform an
independent review of Star Entertainment’s AML/CTF Program. The dominant purpose
was not the provision of legal advice by lawyers for Star Entertainment, KPMG, or anyone
else. Ms O’Neil and Mr McWilliams told the Review that the purpose of KPMG’s
engagement did not involve legal advice being provided to Star Entertainment by KPMG
or by anyone else.
127
KPMG’s two partners, Mr Graham and Mr O’Sullivan, gave the same
evidence.
128
84. The KPMG engagement letter expressly disavowed provision of any legal advice.
129
Neither of the KPMG senior personnel who worked on the engagement, Mr Graham and
Mr O’Sullivan, is, or was, a lawyer. They were engaged directly by Ms O’Neil,
130
Star
Entertainment’s General Manager of Internal Audit and Assurance, who reported to Star
Entertainment’s Chief Risk Officer, Mr McWilliams. Neither Ms O’Neil nor Mr
McWilliams is, or was, a lawyer.
85. In paragraph 120 of Ms Martin’s written statement of 8 February 2022, Ms Martin said that
she had formed a view that the KPMG reports were privileged around the time of the
23 May 2018 Audit Committee meeting because they related to Star Entertainment’s
compliance or otherwise with its statutory obligations and the Legal Team might be asked
to advise on that but, upon reflection, “I accept that this was an error, and the circumstances
in which the KPMG Reports were prepared meant that they were not privileged”.
131
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CHAPTER 18 | THE KPMG REPORTS
86. Ms Martin said in her oral evidence that she knew that the reports had been commissioned
because there was a statutory obligation on Star Entertainment to obtain an independent
report
132
and she accepted that if a copy of a document is provided to a lawyer for the
purposes of legal advice, that copy is privileged but all other copies are not.
133
Ms Martin
said, however, that she was “not sure I can recall if that was my understanding at all
times”.
134
87. In her oral evidence, Ms Martin stated that although the privilege claim was an error on her
part, it was not an inappropriate claim when first made:
135
Q: You accept, don’t you, that the report itself is not privileged?
A: No. At this time in May, I did not accept that. And I think this goes to the
heart of the error that I made at the time.
Q: Well, the error you made was to claim privilege when the claim was totally
inappropriate, wasn’t it?
A: No. In my view, at the time, it was not totally inappropriate.
88. Written submissions on behalf of Ms Martin contended that Ms Martin had a logical,
though erroneous basis for claiming privilege. It was submitted that “Ms Martin had a
reasoned basis for her view that the Part A Report was privileged” because, “as part of the
review being conducted pursuant to the requirements of the AML/CTF Rules, Star
Entertainment Group would require legal advice based on the Part A Report as to whether
it was complying with the AML Act”.
136
That “reasoned basis” pays no attention to the
dominant purpose test.
89. The Star Entities stated in their written submissions “that the assertion of privilege by a
member of senior management (Ms Martin) over the KPMG Reports was inappropriate and
unacceptable”.
137
90. It is sufficient to find that the claim for legal professional privilege over the KPMG reports
was clearly incorrect and that the dominant purpose test was clearly not satisfied.
Accepting Ms Martin’s evidence that she did not make a claim for privilege over the KPMG
reports which she considered to be inappropriate at the time, it follows that Ms Martin, then
the Group General Counsel and Company Secretary, and the head of the Legal Department
of Star Entertainment, had an unsatisfactory understanding of the law relating to legal
professional privilege.
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CHAPTER 18 | THE KPMG REPORTS
Chapter 18.8 Failure to disclose KPMG’s reports to AUSTRAC
91. Star Entertainment (through its subsidiary The Star) resisted producing the KPMG Part A
report to AUSTRAC over a period of some 16 months in spite of at least four separate
written requests from AUSTRAC for The Star to do so.
92. On 14 September 2018, AUSTRAC wrote to The Star requiring production of a copy of
the KPMG Part A report.
138
On 5 October 2018, The Star replied to AUSTRAC and refused
to provide a copy, asserting legal professional privilege.
139
93. On 12 September 2019, AUSTRAC wrote to The Star seeking a copy of the KPMG Part A
report and attaching a formal notice issued to The Star under the AML/CTF Act.
140
On 9
October 2019, The Star replied to AUSTRAC and refused to provide a copy of the report
on the basis of legal professional privilege.
141
94. On 5 December 2019, AUSTRAC wrote to The Star and requested the report, disputing
that legal professional privilege applied.
142
On 12 December 2019, The Star replied and
again refused to provide a copy.
143
95. On 9 January 2020, AUSTRAC wrote again to The Star requesting a copy of KPMG’s
report and denying that legal professional privilege applied.
144
Only then, on 20 January
2020 did The Star reply and relent, providing a copy of the report. However, The State
noted that “The Star does not intend to waive legal professional privilege in relation to the
report”.
145
96. The upshot of this is that AUSTRAC, having lawfully requested a copy of KPMG’s review,
was not given it until 16 months later.
97. In its written submissions, The Star Entities noted that on 5 October 2018 The Star
“disclosed [to AUSTRAC] the existence of the reports, together with their
recommendations and management’s response to those recommendations”.
146
This may be
accepted but the response was inadequate. AUSTRAC clearly wanted to know KPMG’s
full reasoning.
98. Ms Martin’s written submissions noted the above facts and sought to make more of them
than The Star Entities, regarding the non-disclosure to AUSTRAC. Ms Martin submitted:
147
The Action Plan provided to AUSTRAC set out, verbatim, all of the
recommendations of KPMG, KPMG’s risk priority ratings and management’s
proposed actions in response. Any suggestion that The Star was seeking to hide the
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CHAPTER 18 | THE KPMG REPORTS
substance of KPMG’s findings by a wrongful claim for privilege stands in stark
contrast to these facts, particularly the disclosure of the recommendations and risk
priority ratings to AUSTRAC.
99. That submission overstates the extent of the disclosure that was made. AUSTRAC was
entitled to, and had requested, all of KPMG’s analysis. It did not receive it. As The Star
Entities submitted: “The Star showed intransigence in relation to the privilege claim in the
face of repeated correspondence from AUSTRAC seeking the full KPMG Reports and
failed to re-visit and assess the correctness of that privilege claim”.
148
100. In her written statement, Ms Martin confirmed that she was the member of the Legal Team
within Star Entertainment who provided advice in 2018 that the KPMG reports were
privileged; she was aware in 2018 and 2019 that claims of legal professional privilege had
been made in accordance with her advice; and she recalled this was discussed with her and
that she supported the claim being made at the time.
149
101. In her oral evidence, Ms Martin said that in January 2020 she formed the view that, whether
or not KPMG’s analysis was privileged it should be provided to AUSTRAC. She stated
that it was only in preparation for this Review that she reached the conclusion that the report
was not privileged.
150
102. In their written submissions The Star Entities conceded that “AUSTRAC should have been
provided with the KPMG Reports immediately”.
151
103. The Star should have provided AUSTRAC with the KPMG reports immediately after
receiving AUSTRAC’s initial request. The consequence of The Star’s clearly incorrect
claim for legal professional privilege was that the KPMG reports were wrongly withheld
from AUSTRAC over a period of 16 months whilst Star Entertainment took steps to repair
the problems identified by KPMG without any proper regulatory scrutiny of the
remediation.
Chapter 18.9 Failure to disclose KPMG’s reports to the Authority
104. The question whether the KPMG reports ought to have been provided to the Authority does
not appear to have been raised within Star Entertainment at the time of those reports.
105. Ms Martin told the Review in her written statement that she did not turn her mind to this
question, nor did she recall anyone else raising it with her.
152
Mr Bekier said in his
statement that he was not aware of any decision not to disclose the KPMG reports to the
Authority and he did not play any role in any such decision.
153
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CHAPTER 18 | THE KPMG REPORTS
106. It may be strictly correct that because KPMG’s reports were prepared for the purposes of
the federal AML/CTF legislation, they were “outside the Casino Control Act” (to use Ms
Martin’s language).
154
Ms Martin said that she was “not aware of any specific request being
made by the Authority for a copy of any independent review”,
155
although naturally enough
as a practical matter the Authority can only request copies of documents of which it is
aware.
107. The Star Entities submitted that “[w]hile there does not appear to have been any positive
obligation to disclose the KPMG Reports to the Authority … it is accepted that, in the
interests of transparency, it was appropriate to provide them to the Authority”.
156
108. In the circumstances here, where the KPMG reports identified fundamental problems and
deficiencies in Star Entertainment’s AML/CTF Program, a transparent casino operator first
would have turned its mind to whether the reports should have been disclosed to the
Authority, and secondly would have proceeded to do so.
Chapter 18.10 Failure to disclose KPMG’s reports to the market
109. As a listed company Star Entertainment has an obligation of continuous disclosure under
s 674 of the Corporations Act 2001 (Cth) and ASX Listing Rule 3.1. In general terms, once
Star Entertainment becomes aware of any information concerning it that a reasonable
person would expect to have a material effect on the price or value of its securities, Star
Entertainment must immediately tell ASX Ltd (ASX) that information.
110. There are some exceptions to this rule under Listing Rule 3.1A (e.g. incomplete proposals
or negotiations; matters of supposition; information generated for internal management
purposes), provided that the information remains confidential and a reasonable person
would not expect it to be disclosed.
111. Mr Bekier said that the KPMG reports “highlighted some significant deficiencies”; that he
did not think they had to be disclosed to the market; but he “would have relied on our
company secretary and our legal team to advise on that”.
157
Mr Bekier also told the Review
that at the end of every board meeting there is an agenda item or point of discussion about
whether anything had to be disclosed so, “by the nature of the fact that we didn’t disclose
[the KPMG reports], I can only presume that it either wasn’t discussed or we decided that
it didn’t have to be disclosed”.
158
Ms Martin gave evidence that she did turn her mind to
continuous disclosure obligations.
159
Mr O’Neill gave evidence that he was not concerned
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CHAPTER 18 | THE KPMG REPORTS
that the KPMG reports warranted disclosure to the market because he did not consider they
contained price-sensitive information.
160
112. In due course, following adverse media allegations in October 2021
161
and a material
decline in Star Entertainment’s share price, Star Entertainment published two ASX releases
on 11 and 12 October 2021.
162
Those ASX releases focused exclusively – out of all of the
media allegations – on the KPMG reports and Star Entertainment’s response to them. Those
ASX releases are considered in Chapter 26.
113. Mr Heap gave evidence that the ASX releases focused on the KPMG reports because, as
he recalled, “there had been communication to The Star from shareholders who had a
concern to understand, particularly in relation to the AML/CTF Program … it was that
particular allegation that had caused particular concern with investors” and “[i]nvestors
were seeking clarity on the current status of The Star’s program”.
163
Similarly, Mr Heap
said: “[t]he feedback we had been receiving from investors, particularly larger institutional
investors, was particularly focused on the questions around AML/CTF”, and “they wanted
to understand the status of the AML/CTF program … at this date”.
164
Dr Pitkin gave
evidence to the same effect.
165
114. There is no satisfactory evidence before the Review that the KPMG reports contained any
information that a reasonable person would expect to have a material effect on the price or
value of Star Entertainment’s securities. Even if such evidence was available, consistently
with the approach to fact finding by the Review identified in Chapter 4, it would be
unnecessary and inappropriate to make any finding as to whether there was any breach by
Star Entertainment of the continuous disclosure obligations imposed by the Corporations
Act.
115. Recommendation: It is recommended that the Authority take steps to require the operator
of The Star Casino to provide the report of any independent review of the operator’s
AML/CTF Program to the Authority within 14 days of the issue of the report.
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CHAPTER 18 | THE KPMG REPORTS
Endnotes
1
Exhibit B-794 (STA.3001.0001.2750 at .2755) 1, [1].
2
Sections 80-81 of the Act.
3
Graham: Day 4, T385.32-38.
4
AML/CTF Rules, ss 9.6.1 and 9.6.2.
5
McWilliams: Day 3, T325.24 and T326.36.
6
McWilliams: Day 3, T325.38.
7
Exhibit Q-9 (STA.3008.0019.0037).
8
McWilliams: Day 3, T325.46-T326.2.
9
McWilliams: Day 3, T326.7-8.
10
McWilliams: Day 3, T326.47-T327.3.
11
Star Entities’ Written Submissions dated 21 June 2022, para E.24-25.
12
Bekier: Day 26, T3006.37-38 and T3005.26.
13
Exhibit Q-9 (STA.3008.0019.0037 at .0037).
14
Exhibit B-488 (KPMG.001.001.1047).
15
O’Neil: Day 4, T359.22-23.
16
Exhibit B-488 (KPMG.001.001.1047 at .1047-.1048).
17
Pitkin: Day 33: T3601.39-3602.3.
18
Exhibit B-1027 (KPMG.001.001.1779 at .1779).
19
Ibid at .1780; McWilliams: Day 3, T330.19.
20
Exhibit B-1027 (KPMG.001.001.1779 at .1780); McWilliams: Day 3, T330.41-42.
21
Exhibit B-794 (STA.3001.0001.2750); Exhibit B-791 (STA.3001.0001.2802).
22
Exhibit B-794 (STA.3001.0001.2750 at .2751).
23
McWilliams: Day 3, T330.41-42.
24
O’Neil: Day 4, T363.15-46.
25
Exhibit B-794, para [2] (STA.3001.0001.2750 at .2757-.2758); McWilliams: Day 4, T333.30.44.
26
Exhibit B-794, (STA.3001.0001.2750 at .2757-.2758); McWilliams: Day 4, T335.23-27.
27
Exhibit B-791 (STA.3001.0001.2802 at .2809); McWilliams: Day 4, T336.48-337.6; T338.3-12; see Bekier:
Day 26, T2998.9-11).
28
Exhibit B-794 (STA.3001.0001.2750 at . 2756).
29
Ibid at .2759.
30
Graham: Day 4, T395.16.
31
Graham: Day 4, T395.27-28.
32
Graham: Day 4, T388.8.
33
Graham: Day 4, T388.12-14.
34
O’Sullivan: Day 4, T416.27.
35
O’Sullivan: Day 4, T416.31-36.
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CHAPTER 18 | THE KPMG REPORTS
36
Graham: Day 4, T395.33-41.
37
Bekier: Day 26, T3007.14; McWilliams: Day 4, T335.8, T335.33, T338.22, T340.17; O’Neil: Day 4,
T366.44, T367.25, T368.39; and Graham: Day 4, T391.29, T396.31.
38
Exhibit C-49 (STA.3427.0018.3096 at .3097).
39
Exhibit B-790 (STA.3411.0010.3560).
40
Ibid.
41
Bekier: Day 26, T3010.2-3.
42
McWilliams: Day 4, T338.29-31.
43
Exhibit B-808 (STA.3403.0001.4116).
44
Ibid.
45
Ibid.
46
Exhibit B-811 (STA.5001.0003.0818 at . 0818).
47
Ibid at .0819.
48
Ibid.
49
See McWilliams: Day 4, T339.16-26; O’Neil: Day 4, T369.25-29; and Graham: Day 4, T397.1-4.
50
Exhibit B-811 (STA.5001.0003.0818 at .0819).
51
Exhibit B-1027 (KPMG.001.001.1779 at .1780.)
52
Exhibit B-811 (STA.5001.0003.0818 at .0819).
53
Pitkin: Day 33, T3602.40-3603.3; Lahey: Day 33: T3676.12-42.
54
Sheppard: Day 34, T3767.22-24.
55
Lahey: Day 33, T3676.42.
56
McWilliams: Day 4, T341.26-45.
57
Sheppard: Day 34, T3767.40-47.
58
McWilliams: Day 4, T340.4-9.
59
McWilliams: Day 4, T340.34-37.
60
McWilliams: Day 4, T343.14-16.
61
McWilliams: Day 4, T343.21-24.
62
O’Neil: Day 4, T370.25-26.
63
O’Neil: Day 4, T370.27-30.
64
Bradley: Day 32, T3528.22-35.
65
Martin: Day 19, T2092.46-2093.19.
66
Martin: Day 19, T2104.4-5.
67
Exhibit A-72, para [9]-[11] (INQ.002.004.0066 at .0066- .0067).
68
Bekier: Day 26, T3010.13-14.
69
Bekier: Day 26, T3010.18-27.
70
Sheppard: Day 29, T3324.15-19; Heap: Day 31, T3449.32-48; Bradley: Day 32, T3543.5-8, T3543.30-34;
Lahey: Day 33, T3693.26-3694.8.
71
Exhibit B-1027 (KPMG.001.001.1779 at .1780 and .1793).
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CHAPTER 18 | THE KPMG REPORTS
72
Graham: Day 4, T400.44.
73
Graham: Day 4, T401.1-4.
74
Graham: Day 4, T400.23-36.
75
O’Sullivan: Day 4, T418.45-48.
76
O’Sullivan: Day 4, T419.6-7.
77
McWilliams: Day 4, T352.3-8.
78
McWilliams: Day 4, T352.19-22.
79
McWilliams: Day 4, T353.4-7.
80
Bekier: Day 26, T3011.37-3012.11.
81
Bekier: Day 26, T3012.22-30.
82
Martin: Day 19, T2112.44.
83
Martin: Day 19, T2112.17-23.
84
Martin: Day 19, 2112.25-32.
85
Graham: Day 4, T401.11-23.
86
Exhibit B-1027 (KPMG.001.001.1779 at .1793).
87
Graham: Day 4, T411.35-38.
88
Exhibit B-935 (KPMG.001.001.7857).
89
Exhibit C-61 (KPMG.001.001.7871).
90
Martin: Day 19, T2107.1-24.
91
Exhibit B-1027 (KPMG.001.001.1779 at .1780) 2, [1].
92
Graham: Day 4, T407.4-21; Exhibit B-1027, para [1]-[2] (KPMG.001.001.1779 at .1780-.1781).
93
Exhibit B-1027 (KPMG.001.001.1779.
94
Graham: Day 4, T406.24-32.
95
Exhibit B-1027 (KPMG.001.001.1779 at .1780).
96
Graham: Day 4, T407.36-38.
97
Graham: Day 4, T407.46.
98
Graham: Day 4, T408.3-6.
99
Exhibit B-1008 (KPMG.001.001.2246).
100
Star Entities’ Written Submissions dated 21 June 2022, para [E.26].
101
Graham: Day 4, T411.35-38.
102
Graham: Day 4, T412.28.
103
Graham: Day 4, T413.6-10.
104
Exhibit B-1008 (KPMG.001.001.2246).
105
Graham: Day 4, T413.22-24.
106
O’Neil: Day 4, T381.23-29.
107
McWilliams: Day 4, T353.25.
108
Star Entities’ Written Submissions dated 21 June 2022, para [E.35].
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CHAPTER 18 | THE KPMG REPORTS
109
Heap: Day 30, T3408.36-37, T3411.1.
110
Exhibit B-790 (STA.3411.0010.3560).
111
Pitkin: Day 33, T3609.47-T3610.2.
112
Bradley: Day 32, T3531.37-T3532.10.
113
Evidence Act 1995 (NSW), ss 118-119; The Daniels Corporation International Pty Ltd v ACCC (2002) 213
CLR 543 at 552 [9].
114
Federal Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278 at [21].
115
Exhibit B-811 (STA.5001.0003.0818 at .0818).
116
Ibid.
117
Martin: Day 19, T2092.28.
118
McWilliams: Day 4, T342.18.
119
McWilliams: Day 4, T342.18-21.
120
O’Neil: Day 4, T371.36.
121
O’Neil: Day 4, T371.43-T372.3.
122
Martin: Day 19, T2093.36-37.
123
Martin: Day 19, T2094.27-28.
124
Exhibit B-811 (STA.5001.0003.0818 at . 0818).
125
Ibid at .0819.
126
Martin: Day 19, T2095.41-2096.4.
127
McWilliams: Day 3, T329.11; O’Neil: Day 4, T362.39.
128
Graham: Day 4, T387.35; O’Sullivan: Day 4, T415.25.
129
Exhibit B-488 (KPMG.001.001.1047 at .1054 -.1058) 8 and 12.
130
Ibid.
131
Martin, Day 19, T2102.23.
132
Martin: Day 19, T2102.29.
133
Martin: Day 19, T2103.34.
134
Martin: Day 19, T2103.38.
135
Martin: Day 19, T2096.38-46.
136
Paula Martin Written Submission dated 22 June 2022, para [112].
137
Star Entities’ Written Submissions dated 21 June 2022, para [E.2].
138
Exhibit B-1087, para [8]-[12] (STA.3012.0001.1855 at .1858).
139
Exhibit B-1102, para [9] (STA.3009.0009.0073 at .0076).
140
Exhibit B-1674 (STA.3402.0002.2699); Exhibit B-1675 (STA.3402.0002.2700).
141
Exhibit B-1736 (STA.3402.0002.1704).
142
Exhibit B-2013 (STA.3402.0002.3488).
143
Exhibit B-2049 (STA.3412.0004.7476).
144
Exhibit B-2095, para [6] (STA.3402.0002.2198 at .2200).
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CHAPTER 18 | THE KPMG REPORTS
145
Exhibit B-3204, para [6] (STA.3412.0009.2522 at .2525).
146
Star Entities’ Written Submissions dated 21 June 2022, para [E.39(b)].
147
Paula Martin Written Submissions dated 22 June 2022, para [89].
148
Star Entities’ Written Submissions dated 21 June 2022, para [E.43].
149
Exhibit A-905, para [123]-[124] (INQ.002.004.0201 at. 0224).
150
Martin: Day 19, T2121.19-23; T2125.10-19.
151
Star Entities’ Written Submissions dated 21 June 2022, para [E.2].
152
Exhibit A-905, para [128] (INQ.002.004.0201 at .0224).
153
Exhibit A-72, para [21] (INQ.002.004.0066 at 0068).
154
Exhibit A-905, para [128] (INQ.002.004.0201 at . 0224) 24, [128].
155
Ibid.
156
Star Entities’ Written Submissions dated 21 June 2022, para [E.2].
157
Bekier: Day 26, T3007.6-14.
158
Bekier: Day 26, T3007.27-32.
159
Martin: Day 19, T2101.18-19.
160
O’Neill: Day 35, T3816.17, T3817.13.
161
Exhibit B-3156 (INQ.014.001.0005).
162
Exhibit H-473 (INQ.003.006.0539); Exhibit B-3176, (STA.3411.0001.7109).
163
Heap: Day 31, T3447.20-24.
164
Heap: Day 31, T3448.17-22.
165
Pitkin: Day 33, T3633.36-45.
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Chapter 19
Star Entertainment’s Practices in Claiming Legal
Professional Privilege
CHAPTER 19 | STAR ENTERTAINMENT’S PRACTICES IN CLAIMING LEGAL
PROFESSIONAL PRIVILEGE
Chapter 19. Star Entertainment’s Practices
in Claiming Legal Professional Privilege
Chapter 19.1 Introduction
1. The Star’s erroneous claims of legal professional privilege in relation to the KPMG reports
(as addressed in Chapter 18) were consistent with a wider misunderstanding of the
circumstances in which privilege should be claimed by lawyers within the Star
Entertainment group.
Chapter 19.2 Key principles
2. As noted in Chapter 18, legal professional privilege attaches to communications made and
documents prepared for the dominant purpose of either a lawyer providing a client with
legal advice, or the client being provided with legal services relating to an actual or
anticipated proceeding.
1
3. Legal professional privilege is a rule of substantive law which may allow a person to resist
producing documents or other information.
2
It arises from the professional relationship
that exists between lawyers and clients. It should only be invoked when there is a
reasonable basis to do so, and not as a matter of course or as a means of withholding adverse
information from regulators and others without basis.
4. Privileged documents kept by a lawyer will include copies of documents provided to the
lawyer which might not themselves be privileged, but which were attached to a
communication for legal advice or proceedings.
3
That does not mean, however, that
documents become privileged merely because they are sent to a lawyer. The copy of them
sent to the lawyer is privileged but not the original. If the original (unprivileged) copy is
unavailable, then the privileged copy loses the privilege.
4
Chapter 19.3 Practice in relation to legal professional privilege claims
5. Each of Ms Paula Martin, Mr Andrew Power and Mr Oliver White were senior lawyers
within the Star Entertainment group at all relevant times for the purposes of the Review.
6. Ms Martin was the:
5
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Company Secretary and General Counsel, Queensland at Star Entertainment from
June 2011 to August 2012;
Company Secretary and Group General Counsel at Star Entertainment from August
2012 to August 2019; and
Chief Legal and Risk Officer from August 2019 to the time of her resignation on
6 May 2022.
7. Mr Power was the:
6
General Counsel at The Star from 2010 to November 2019; and
Group General Counsel at Star Entertainment from November 2019 to the time of
his resignation on 13 May 2022.
8. Mr White was the General Counsel, Corporate at Star Entertainment from September 2011
to January 2022.
7
9. Ms Martin, Mr Power and Mr White gave evidence of their understanding of the key
principles for the law of legal professional privilege, which was consistent in each case
with the summary of key principles outlined above.
8
Ms Martin, Mr Power and Mr White
also accepted that it would be unethical to claim legal professional privilege if the person
claiming the privilege knew that there was no basis to do so.
9
10. Ms Martin denied that she had a practice of marking documents and communications
“privileged” without first satisfying herself that she had a proper basis to claim privilege.
10
However, Ms Martin’s conduct in relation to the KPMG reports (considered in Chapter 18)
demonstrated that she had an unsatisfactory understanding of legal professional privilege.
11. Despite Star Entertainment’s experience with the KPMG reports of 2018 and its
interactions with AUSTRAC over some 16 months culminating in Star Entertainment
abandoning its claim that legal professional privilege applied, Mr Anthony Seyfort (a
Partner of HWLE) told the Star Entertainment board meeting on 28 July 2021 that the very
next review of its AML/CTF Program, by BDO, was being “conducted subject to legal
professional privilege”.
11
Neither Ms Martin nor anyone else is recorded in the minutes as
having demurred.
12. Ms Martin accepted that the dominant purpose of commissioning BDO’s report was not for
the provision of legal advice,
12
but she said that her understanding was “as at today” in
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April 2022.
13
When Ms Martin was asked by Counsel Assisting why she did not realise
this fact in July 2021, Ms Martin answered: “I’m not sure I’d turned my mind to it in July
of last year, in connection with this particular matter”.
14
13. The Star Entities submitted that the BDO report “is not a document created by The Star”
and that “[t]here is no evidence before the Review as to the origin of those words on their
report”.
15
An inference could, however, be drawn from the face of BDO’s documents,
which are marked:
16
PRIVILEGED & CONFIDENTIAL
Prepared by BDO at the request of HWL Ebsworth Lawyers for the purpose of
providing legal advice.
14. It is difficult to conceive that BDO would have marked its documents in this way without
input from HWLE on instruction from Star Entertainment’s lawyers. In any event,
however, it is clear from the evidence that Ms Martin continued to have an unsatisfactory
understanding of legal professional privilege in July 2021 in the context of the BDO report.
15. In contrast to Ms Martin’s evidence, Mr Power said that he did have a practice of marking
documents “privileged” without turning his mind to whether there was a proper basis to do
so.
17
Mr Power accepted that he had done this with an email relating to Mr Phillip Lee’s
use of CUP.
18
Mr Power said that he did not consider his practice to be unethical, nor that
it was intended to shield communications from production to regulators.
19
16. Mr Power said that he did not have the word “privileged” as part of his automatic email
signature.
20
Accordingly, each and every time “privileged” appeared in an email from Mr
Power, he would have manually typed it (or had it typed for him). Mr Power said “I take
your point” to the suggestion that the right practice would have been to write “may be
privileged”.
21
Further, Mr Power accepted that there was a risk that others, upon seeing a
document marked by Mr Power as “privileged”, would conclude that the document was
privileged without making further inquiries and refrain from producing the document to a
regulator.
22
17. Consistently with Mr Power’s evidence, The Star Entities submitted that it would be open
for the Review to find that the misunderstanding by certain staff members as to when a
communication could be privileged created a risk that a person reviewing a document
marked as privileged might refrain from producing that document in response to a request
from a regulator. The Star Entities submitted further that it would be desirable for The Star
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to have a policy and training on when a communication should be marked as privileged and
for the Legal Team’s email signature to contain words to the effect that a communication
may be privileged.
23
18. Mr White’s evidence was that he marked communications with third-party providers as
privileged as a matter of course.
24
He said he was not certain if it was unethical to engage
in that practice “if you might wish to sort of consider it later”, but Mr White went on to
say: “I take your point, that if you put it on without thought, that that is not necessarily
appropriate conduct”.
25
Mr White said that he recalled being told to mark communications
as privileged as a matter of course when he started in his role at Star Entertainment “a very
long time ago”.
26
19. In March 2018, following concerns about unauthorised cash transactions in the casino
amounting to unlicensed casino operations, Mr White sent an email instructing
colleagues:
27
If any team member becomes aware of cash transactions at the service desk, they
should inform Oliver White by email, copying in Micheil Brodie and Saro Mugnaini
using “Privileged and confidential” in the title and seeking my advice on the relevant
circumstances.
20. Mr Angus Buchanan said that he read that instruction at the time.
28
Mr White said of his
instruction, in answer to the following questions from Counsel Assisting:
29
Q: So aren’t you inviting these members of staff to mark their communications
to you “privileged and confidential” irrespective of whether or not they were
actually seeking legal advice from you?
A: No, I think I was saying to them that they – if there were circumstances
where this was happening is that there would need to be legal advice
provided. I admit it’s quite clumsy and it is – I totally accept that actually,
you know, I may have been mistaken as to the uses – but I think I was
thinking that they would need my legal advice on such matters.
Q: Well, what you’re asking them to do is let you know if cash transactions are
occurring at the desk?
A: That’s right, because I think I just directed that no cash transactions should
be taking place, or that was my legal advice, was that that shouldn’t happen,
and I think that’s above maybe.
21. Mr White was asked if he gave the instruction to shield production of any communications
from the regulator, which he denied.
30
Again, however, irrespective of Mr White’s
intention, the natural consequence of such a marking is that a subsequent reviewer will be
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more likely to conclude that the document is privileged without making further inquiries
and refrain from producing the document to a regulator.
22. Star Entertainment commissioned a risk culture report from PwC which was produced in
January 2022. On the first page of that report it says “Privileged and confidential” and
“Prepared for the purposes of legal advice”.
31
The Star Entities submitted that the PwC
document “is not a document created by The Star” and “[t]here is again no evidence before
the Review as to the origin of those words”.
32
But the following explanation from PwC
appears on the second page of its report:
33
You have told us that The Star’s legal team has been requested to provide legal
advice to executive management, including the Managing Director and CEO, in
relation to The Star’s suitability to hold a casino licence under the Casino Control
Act (NSW); and/or in relation to a suitability review and potential consequent
disciplinary proceedings conducted pursuant to the Act (Legal Act).
A risk and compliance culture review of The Star’s business, focussed on the gaming
operations and service of alcohol, is required for the Legal Advice and to prepare for
upcoming regulator proceedings.
23. This is consistent with the evidence of Dr Pitkin (a former practising lawyer). Dr Pitkin
said that she thought the language was included by PwC “because the report was
commissioned through the lawyers”.
34
Dr Pitkin said “it’s a report that’s a very useful
report for the Board”, and “[i]t’s not my understanding that it would have been prepared
for the purposes of legal advice”.
35
When asked whether the markings on page 1 of the
PwC report (i.e. “Privileged and confidential” and “Prepared for the purposes of legal
advice”) accorded with her understanding, Dr Pitkin said: “No”.
36
24. Similarly, Mr Bekier said of the PwC report: “In August 2021, we engaged PwC to
undertake a review of our risk and compliance culture”.
37
And Mr O’Neill said: “In August
2021, The Star Entertainment Group commissioned [PwC] to review its risk culture, with
a particular focus on gaming and liquor operations”.
38
Neither Mr Bekier nor Mr O’Neill
referred to PwC’s review being undertaken within a wider context of Star Entertainment
receiving legal advice. Plainly, the dominant purpose of the PwC risk culture report was
not to obtain legal advice.
Chapter 19.4 Conclusions and recommendations
25. There was an unsatisfactory understanding of the circumstances in which legal professional
privilege should be claimed among Star Entertainment’s most senior in-house lawyers over
the Relevant Period. Ms Martin, the head of the in-house Legal Team, claimed privilege
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over the KPMG reports and did nothing to correct the BDO report which was marked as
privileged in circumstances where those reports were clearly not privileged, demonstrating
an unsatisfactory understanding of the relevant principles. Mr Power and Mr White
admitted that they had a practice of marking email communications, reports and other
documents as privileged without properly considering whether there was a basis for
claiming privilege.
26. Inappropriate claims for privilege increase the likelihood that documents will not be
produced to regulators and others, when in fact they should be disclosed. That is not,
contrary to The Star Entities’ submission, “to take an unduly pessimistic view of persons –
including legal practitioners – who assist The Star in responding to regulators”.
39
Instead
it is to accept the practical reality, which Mr Power also accepted, of a risk that others, upon
seeing a document marked as “privileged”, would conclude that the document is privileged
without making further inquiries and refrain from producing the document to a regulator.
40
27. The Star Entities accepted “that it would be desirable for The Star to have a policy and
training on when a communication should be marked as privileged and for the Legal
Team’s email signature to contain words to the effect that a communication may be
privileged”.
41
28. Recommendation: It is recommended that the Authority take steps to require the operator
of The Star Casino to ensure and certify to the Authority that its in-house lawyers have
received independent and specific training on legal professional privilege and when it can
and cannot be claimed, on an annual basis.
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Endnote
1
Evidence Act 1995 (NSW) ss 118-119; Evidence Act 1995 (Cth), ss 118-119; The Daniels
Corporation International Pty Ltd v ACCC (2002) 213 CLR 543 at 552, [9].
2
The Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543 at 552, [9], citing Attorney-
General (NT) v Maurice (1986) 161 CLR 475 at 490.
3
Commissioner of the AFP v Propend Finance Pty Ltd (1997) 188 CLR 501 at 508, 544, 555, 572, 590.
4
Ibid at 512, 570-571.
5
Martin: Day 18, T2055.11-46.
6
Power: Day 17, T1807.14-T1808.33.
7
White: Day 14, T1611.37-T1612.6.
8
Martin: Day 18, T2071.14-2072.38; Power: Day 17, T1838.22-1841.12; White: Day 14, T1626.26-1629.15.
9
Martin: Day 18, T2073.1-2; Power: Day 17, T1841.8-16; White: Day 14, T1629.26.
10
Martin: Day 18, T2073.9-18.
11
Exhibit B-3006 (STA.5002.0007.2441 at .2449).
12
Martin: Day 19, T2126.27-36.
13
Martin: Day 19, T2126.36.
14
Martin: Day 19, T2126.40-41.
15
Star Entities’ Written Submissions dated 21 June 2022, para [G.19].
16
Exhibit B-3370 (STA.3402.0008.4551 at .4551); Exhibit B-2841 (STA.3002.0001.1248 at .1248).
17
Power: Day 17, T1841.13-T1842.1; Power: Day 17, T1854.30-T1855.6.
18
Power: Day 18, T2009.38-48; Exhibit B-121 (STA.3008.0008.0070).
19
Power: Day 17, T1842.5-10.
20
Power: Day 17, T1841.27-29.
21
Power: Day 17, T1857.37.
22
Power: Day 17, T1857.1-37.
23
Star Entities’ Written Submissions dated 21 June 2022, para [G.3].
24
White: Day 16, T1746.33.
25
White: Day 16, T1747.1-4.
26
White: Day 16, T1747.6-13.
27
Exhibit B-705 (STA.3412.0019.5757 at .5759) p 3.
28
Buchanan: Day 5, T484.10-22.
29
White: Day 14, T1634.22-37.
30
White: Day 14, T1634.43.
31
Exhibit B-3451 (STA.3018.0002.0024 at .0024) p 1.
32
Star Entities’ Written Submissions dated 21 June 2022, para [G.23].
33
Exhibit B-3451 (STA.3018.0002.0024 at .0025) p 2.
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34
Pitkin: Day 32, T3555.47-48.
35
Pitkin: Day 32, T3555.48-T3556.2.
36
Pitkin: Day 32, T3555.42.
37
Exhibit A-72, para [66] (INQ.002.004.0066 at .0076).
38
Exhibit A-1055, para [76] (INQ.002.004.0031 at. 0054).
39
Star Entities’ Written Submissions dated 21 June 2022, para [G.13].
40
Power: Day 17, T1857.1-37.
41
Star Entities’ Written Submissions dated 21 June 2022, para [G.3].
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