Judge damns Star’s ‘dysfunctional and unethical’ culture under former CEO

Former Star Entertainment chief executive Matt Bekier breached his duties as a director of the embattled casino operator, the Federal Court found on Thursday, even as Justice Michael Lee cleared the board for failing to pierce the “dysfunctional and unethical” culture at the company.

Lee dismissed allegations by ASIC that Star’s board led by former rugby boss John O’Neill breached their duties by paying insufficient attention to the risks of money laundering and criminal association at Star’s casinos that have ultimately led the company to the verge of collapse.

While Star executives failed to provide the board with troubling information that pointed to money laundering and illicit activities by Chinese junket operators at its casino, the Australian Securities and Investments Commission told the court that each of Star’s directors also failed to take reasonable steps to oversee its executive team.

Lee disagreed. The judgment found that the directors were let down by the management team, and warned against hindsight bias. “Life can only be understood backwards, but it must be lived forwards,” Lee said, quoting the philosopher Soren Kierkegaard.

But the judge took issue with the “more self-congratulatory submissions” from the directors’ lawyers. The evidence “is not a portrait of directors actively pressing management with difficult questions as to whether the business was being conducted ethically, lawfully, and to the highest available standard”, he observed.

This included Star management lying to China UnionPay CUP, a Chinese financial institution, after it raised concerns with Star executives that fund transfers via its cards – totalling $900 million – for “hotel expenses” were being ploughed into gambling. This is illegal in China, against the institution’s rules, and raised red flags for money laundering.

“It appears not a single person within the management of Star, or its board, ever paused to reflect and ask the question as to whether the approach adopted by Star (to) facilitate the use of the cards in this way was moral or ethical in the circumstances,” Lee’s judgment reads.

Lee noted that the wrongdoing was only exposed by this masthead’s reporting with 60 Minutes, which began in 2021 and was spearheaded by investigative reporter Nick McKenzie. “Ultimately, it fell to investigative journalism, and then a statutory inquiry, to expose the extent of the problems,” Lee said.

The judgment left blame for the lapses, which have led to all of Star’s casino licences being suspended, at the hands of its executives, including its then-chief Bekier.

“The ‘culture’ that prevailed was so dysfunctional and unethical that senior management was tardy in preventing junket operators from behaving inappropriately and lied to its bankers to secure an ongoing commercial advantage,” the judgment reads.

Lee found Bekier had breached his director’s duties in relation to a damning KPMG report detailing how Star was falling short of its anti-money laundering and counterterrorism financing obligations, as well as Bekier’s response to the information about notorious high-roller tour operator Suncity and Salon 95 – its VIP room at Star catering directly to its high-rollers.

Bekier was found to be a “good witness” under initial cross-examination, but under further scrutiny his evidence was found to be “unconvincing” in some respects, “contradictory and, on occasion, highly improbable”.

Lee said Bekier’s claim that in late 2019 he did not think Star had a problem with potential money laundering via junkets to its casinos “is reflective of his refusal to confront reality and the serious risks that Star faced at this time.”

The judgment also found that Star’s former chief legal officer Paula Martin “failed to exercise her powers or discharge her duties as an officer of Star” over her failure to inform the board of alarming information on how cash was being brought in via suitcases and paper bags to Suncity’s VIP room Salon 95, and its staff were attempting to obscure surveillance cameras.

Corporate governance expert Helen Bird expressed concern over the judgment, which potentially lets corporate boards off the hook for any wrongdoing by the executives they oversee.

“The part that troubles me personally is that he doesn’t give them a duty to inquire beyond what they’re told by management … it encourages ostrich with their head in the sand [behaviour],” she said.

“I just wonder what we’re paying directors fees for, if we don’t expect them to be able to see problems and therefore push inquiry about them.”

ASIC chairman Joe Longo acknowledged the judgment but declined to say if the corporate watchdog would appeal.

“ASIC pursued this case because of the fundamental questions it raised about trust, governance and accountability at one of Australia’s largest casino operators,” he said. “Given the length of the [500-page] judgment, ASIC will carefully consider its implications as these proceedings move to the penalty phase.”

Star still faces a fine in the hundreds of millions of dollars for contraventions of Australia’s money-laundering laws, which could lead to the casino operator’s financial collapse despite a rescue last year.

Last Friday evening, Star Entertainment released its unaudited accounts for the December half-year, reporting a $109.7 million loss as revenue continued to decline at its operations in Sydney and Queensland under the weight of regulatory reforms – including cash limits at Star Sydney.

The current board reiterated that there was material uncertainty regarding the group’s ability to stay afloat, as the federal court determined what penalty to apply for breaches of anti-money laundering provisions in separate litigation by Austrac.

Star said it had made provisions related to the ASIC case and the defence costs it pays for the defendants, but it has not made the financial figure public.

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