There was hope that the future would finally be bright when Star Entertainment was bought out earlier this year. But AUSTRAC may have other ideas.
The Star
Star Entertainment, which is having a hard time, is once again in the news for its long-term survival. This week, the company appeared in federal court as part of a large anti-money laundering probe by the financial watchdog AUSTRAC.
Star and its companies were sued for civil penalties in late 2022, more than a year after the lawsuit began in June 2021. Over the course of several years, the operator is accused of breaking many AML rules, including not having enough reporting procedures and not having enough management oversight.
A lot of the problems that were found in the study have to do with Star's business with junket operators that are connected to China. The most well-known of these was the Suncity Group, whose former chairman Alvin Chau is currently serving an 18-year prison sentence in Macau for illicit gambling.
Chau was first accused with 289 crimes, but a judge found him not guilty of money laundering. Prosecutors said that Chau let people place a lot of illegal bets that brought in more than HK$8.25 billion (US$1 billion) in taxable income. Chau was given the nickname "Washing Rice Wa" by certain local Chinese media, after a character on a sitcom.
A possible AU$400 million fine
The Australian Financial Review says that AUSTRAC said on Wednesday that Suncity junkets made more than AU$70 million (US$45.5 million) a week at Star Sydney alone between November 2016 and October 2020.
Regulators said that Suncity was not an approved operator for Star Queensland, although the company staged 180 junkets for Suncity colleagues during that time. During the time, overseas visitors on junket trips spent more than $125 billion with the operator.
The commission wants a $400 million punishment, which is a little less than the $450 million that Crown Resorts, another operator, paid in 2023 for the same kinds of infractions. Star has been on the verge of going out of business for almost two years. It says that even a $100 million fine might put its survival in danger.
Shortly after the case began on Wednesday, the cross-examination of Star CFO Frank Krile took place in a closed court. Krile joined Star from Lendlease in December of last year.
Customers 1 and 2
One of the greatest problems with Suncity was that they didn't do enough due diligence checks. The inquiry concluded that Star knew that "customer one" was paying for Suncity and that "customer two" owned the company together with "customer one." Star is said to have known as early as November 2016 that customer one was connected to organised crime.
Also, the company didn't stop doing business with Suncity and Chau until he was arrested in 2021, even though they were warned about possible AML issues as early as 2019. Star confessed in court papers that at least $1 billion flowed from junkets that were known to have "higher" than average AML risks from 2018 to 2021.
According to the documents, "Star Sydney and Star Queensland did not have the right risk-based controls in place to know where the money was coming from and whether it was illegal." "These bad business practices and lack of risk management put Star at risk of money laundering."
In 2022, Andrew Lo bought Chau's old interest in Suncity, which is listed in Hong Kong. The company then changed its name to LET Group Holdings.
Two hits
Star's federal case is mostly just a repeat of what has previously been found in a number of state-led investigations in the past few years. At the state level, both of its current casino licenses are on hold, and outside manager Nicolas Weeks is in charge of its locations. The business has already paid hundreds of millions of dollars in state fines and has replaced much of its board and C-suite.
Star's main property in New South Wales, Star Sydney, has been declared unfit for a licence twice, most recently in October. The NSW Independent Casino Commission then decided in March to prolong Star Sydney's licence suspension and Weeks' tenure to 30 September. This kind of decision means that the corporation may still lose its licensing, which would be a significant problem for its plans.
Star's licence is about to be suspended for 90 days in Queensland. This was imposed in 2022, but it has been put off since then. Weeks has also been in command of Star Gold Coast the whole time, though. The suspension is also set to start after September 30.
In March, Star made the bold move to get rid of its Brisbane business by surrendering its 50% investment in the Queen's Wharf development, which is worth billions of dollars, back to partners Chow Tai Fook and Far East Consortium. Star helped relieve its financial troubles by giving up a lot of obligations relating to the project. The corporation also took full control of Star Gold Coast, which they thought would be a superior investment in the long run.
Bally's in the back
Star consented to a $300 million buyout offer from US-based Bally's Corp and billionaire Bruce Mathieson in April, which makes the potential of a huge AUSTRAC charge even more problematic.
In January, the operator raised the alarm that it was losing money and didn't have much time left to find a way to stay afloat. Then, there was a frantic search for financiers and refinancing solutions before the Bally's-Mathieson deal was finally reached.
Star has already received the initial $100 million from the two investors, and they didn't need to get permission first. At its annual meeting on June 25, the business will hold a shareholder vote on the last $200 million tranche.
There was a lot of scepticism about whether Bally's could finance the transaction or whether Star would require a lot of money to stay alive. Bally had $209 million in cash reserves and about $3.5 billion in debt in the first quarter. The corporation is severely in debt since it is building casinos in Chicago and Las Vegas and still trying to get a casino licence in New York for its golf course in the Bronx.
We don't know how this huge fine will affect the new takeover right now. As of this writing, Star stock was worth 11 cents, which is more than 75% less than it was a year ago.
