Star’s future again uncertain as AUSTRAC pushes for AU$400 million penalty
The long-term viability of embattled operator Star Entertainment has again been thrown into question, with the operator appearing in federal court this week as part of a sweeping anti-money laundering investigation brought by financial watchdog AUSTRAC.
Civil penalty proceedings against Star and its entities commenced in late 2022 after the case was opened in June 2021. The operator is accused of numerous AML violations over a period of several years, ranging from insufficient reporting protocols to a lack of managerial oversight and more.
Much of the shortcomings outlined in the investigation relate to Star’s dealings with Chinese-linked junket operators. Chief among them was the infamous Suncity Group, whose former chairman Alvin Chau is currently serving an 18-year prison sentence in Macau on illegal gambling charges.
Initially charged with 289 criminal counts, Chau received the conviction although a judge acquitted him on infractions pertaining to money laundering. Prosecutors accused Chau of facilitating a series of undeclared bets that exceeded HK$8.25 billion (US$1 billion) in taxable income. Among the local Chinese media, Chau received the nickname “Washing Rice Wa”, after a sitcom character.
A potential AU$400 million fine
According to the Australian Financial Review, AUSTRAC said on Wednesday that from November 2016 to October 2020, Suncity junkets had turnover of more than AU$70 million (US$45.5 million) per week at Star Sydney alone.
In the case of Star Queensland, Suncity was not an approved operator, but the entity held 180 junkets for Suncity associates during that time, regulators said. Overall, international visitors on junket tours spent upwards of $125 billion with the operator over the period.
The agency is pushing for a $400 million fine, which would be slightly less than the $450 million fellow operator Crown Resorts paid in 2023 for similar violations. Star, which has been on the brink of collapse for nearly two years, has said that even a $100 million penalty could imperil its future.
Soon after the case opened Wednesday, proceedings were moved to closed court for the cross examination of Star CFO Frank Krile. Last December, Krile joined Star from Lendlease.
Customers one and two
Insufficient due diligence checks were among the biggest violations cited in relation to Suncity. The investigation found that Star was aware Suncity was funded by a “customer one”, who also owned the outfit alongside “customer two”. Star supposedly knew as early as November 2016 that customer one was linked to organised crime.
Additionally, the company only stopped dealing with Suncity and Chau when he was arrested in 2021, despite being alerted about potential AML risks as early as 2019. In court filings, Star admitted that from 2018 to 2021, at least $1 billion came from junkets known to pose “higher” than normal AML risks.
“Appropriate risk-based controls were not in place to enable Star Sydney and Star Queensland to understand the sources of money moving through these high-risk channels, or whether there was a risk that money was illicit,” the filings read, per AFR. “These business practices and risk management failures exposed Star to the risk of money laundering.”
The Hong Kong-listed Suncity changed its name to LET Group Holdings in 2022 after Chau’s former stake was acquired by Andrew Lo.
Double whammy
Star’s federal proceedings largely rehash what has already been unearthed in various state-led inquiries from recent years. At the state level, both of its existing casino licences are suspended and its properties are under the supervision of outside manager Nicolas Weeks. The company has already paid hundreds of millions in state fines and has recycled most of its board and C-suite.
In New South Wales, Star’s flagship Star Sydney property has twice been deemed unsuitable for licensure, most recently in October. The NSW Independent Casino Commission subsequently ruled in March that it was extending Star Sydney’s licence suspension and Weeks’ term again, through 30 September. Such a ruling indicates that a licence revocation may remain on the table, which would throw a huge wrench into the company’s plans.
In Queensland, Star faces a looming 90-day suspension of its licence, which was ordered in 2022 but has been delayed since. Despite this, Weeks has also been in charge of Star Gold Coast throughout that time. That suspension is also slated to begin after 30 September.
Star made the aggressive move to divest of its Brisbane operations in March by selling its 50% stake in the multibillion-dollar Queen’s Wharf development back to partners Chow Tai Fook and Far East Consortium. By doing so, Star helped ease its financial hardships by relinquishing substantial commitments related to the project. The company also consolidated full ownership of Star Gold Coast, viewing that as a better long-term investment.
Bally’s in the background
The threat of a massive AUSTRAC fine is complicated by the fact that Star agreed to a $300 million takeover offer from US-based Bally’s Corp and billionaire Bruce Mathieson in April.
In January, the operator sounded the alarm that it was bleeding cash and had limited time left to secure a lifeline. That then kicked off a frenzied search for lenders and refinancing deals before the Bally’s-Mathieson deal was ultimately agreed to.
Star has already received the first $100 million tranche from the two investors, which did not require approval. The company is scheduled to hold a shareholder vote on the remaining $200 million tranche at its annual meeting 25 June.
When the deal was agreed to, there was serious doubt as to whether Bally’s could afford such an investment, or whether Star would need multiple capital infusions to ultimately survive. In Q1, Bally’s reported cash reserves of $209 million versus total debt of nearly $3.5 billion. The company is heavily leveraged as it builds casino projects in Chicago and Las Vegas and continues to lobby for a New York casino licence at its golf course in the Bronx.
It is unclear at this time how such a massive penalty would impact the nascent takeover. As of writing, Star stock was trading at 11 cents, down more than 75% in the last year.