In a significant ruling from Australia’s Federal Court, two former executives of Star Entertainment Group have been found guilty of breaching their corporate duties, particularly concerning risks related to money laundering and criminal activities. The court’s decision shines a spotlight on the role of former CEO Matt Bekier and ex-chief legal and risk officer Paula Martin, highlighting their failure to adequately address the risks posed by junket operators, including the notorious Suncity Group. This ruling marks a critical moment in the ongoing scrutiny of the gambling industry’s responsibility to prevent criminal associations.

Background and Allegations

Star Entertainment, a major player in Australia’s casino industry, has long been at the center of regulatory probes and public controversy. The Australian Securities and Investments Commission (ASIC) brought the case against 11 former executives of Star in 2022, alleging that they had failed in their duties to mitigate money laundering risks and failed to properly investigate their ties to Suncity Group, a Macau-based junket operator. Suncity, once the largest junket operator at Star’s casinos, has since collapsed after its CEO, Alvin Chau, was arrested in late 2021 on charges related to cross-border gambling and money laundering.

As Reuters reports, in its 500-page ruling, Justice Michael Lee specifically cited Bekier for not addressing warnings from reports, including a KPMG document, which outlined deficiencies in Star’s anti-money laundering processes. Despite receiving this critical information, Bekier was found to have not acted on it, failing to alert the board and management of the severity of the risks involved. Justice Lee emphasized that, given the warnings and the situation’s gravity, Bekier should have ensured the board was properly informed and took necessary action to investigate the sources of wealth tied to the junket operators involved with Star.

Martin, who served as Star’s chief legal and risk officer, was also found guilty of not advising the board regarding the risks of engaging with Suncity or the use of China UnionPay cards for gambling transactions. The court was particularly critical of how Martin handled the information, stating she did not discharge her duties with the necessary care and diligence.

The court ruling has broader implications for corporate governance in high-risk industries like gaming. Justice Lee underscored that directors are expected to be diligent in reviewing the reports presented to them, no matter how complex the material. He pointed out that while the volume of information might make it difficult to process all details, the responsibility still falls on directors to ensure that major concerns, especially related to criminal activity, are flagged and acted upon.

“Proper collective governance requires transparency about how information is being reduced and relied upon,” the judge explained. This comment highlights the need for stronger mechanisms within corporate structures to ensure the safety and security of operations, especially in industries susceptible to criminal activity, such as the gaming and casino sectors.

Financial and Operational Fallout

Following the court’s findings, Star Entertainment’s stock saw a significant dip, with shares falling to their lowest level since February. This drop is compounded by ongoing challenges for the company, including uncertainty regarding its ability to continue as a going concern. Despite this, Star’s new management, which includes a significant investment from Bally’s Corp, is pushing forward with a refinancing plan that could help stabilize the company.

Star’s newly-appointed management team, under the leadership of Soo Kim from Bally’s Corp and CEO Bruce Mathieson Jr. from Investment Holdings, has already undertaken efforts to cut costs and improve revenues. However, they are still awaiting the outcome of an ongoing investigation by AUSTRAC, Australia’s financial crime watchdog, which could bring additional penalties or regulatory measures against the company.