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The Australian Securities and Investments Commission has put directors and executives on notice that they will be held accountable for wrongdoing with a massive case against 11 Star Entertainment officials.

The Federal Court case also puts pressure on Ben Heap, chairman of the embattled casino company, to resign, according to The Australian Financial Review (AFR). It could also stifle the company’s ability to rebuild after inquiries found that it was unfit to run its casinos in Sydney, Brisbane and the Gold Coast.

ASIC alleges that former Star Entertainment chief executive Matt Bekier and former chairman John O’Neill failed to “sufficiently focus” on the risks of money laundering and criminal ties at the company’s casinos, AFR reported. Also among the officials targeted in the case is former chief legal and risk officer Paula Martin.

‘Landmark’ case

ASIC chairman Joe Longo said the case was a “landmark” because it holds that company boards should be aware of foreseeable risks.

The case focuses on alleged breaches of duties related to Star’s dealings with gambling junket and NAB, its bank, as well as its response to a KPMG report showing possible non-compliance with anti-money laundering laws, AFR reported.

“The principle I want to really highlight is that in those circumstances, directors ought to be exercising due care and diligence in making proper inquiry as to those risks that go to the core business,” Longo said. “We’re not talking about a situation of a subtle risk, or a risk that is a surprising risk. We’re actually talking about risks that go to the core of the business that are readily foreseeable.”

ASIC is accusing Bekier and O’Neill of breaching their “care and due diligence” duties under Section 180 of the Corporations Act. It also alleges that Heap and director Katie Lahey breached their director duties under the same section.

Heap said that he and Lahey intend to contest the allegations and will remain on the board until the transition period to overhaul the casino ends early next year, AFR reported. However, Helen Bird – a corporate governance expert at Swinburne University – told the publication that Heap should “stand down from that role effective immediately.”

ASIC’s case names the following people:

  • former chief executive Matt Bekier
  • former chairman John O’Neill
  • current chairman Ben Heap
  • director Katie Lahey
  • former director Richard Sheppard
  • former director Gerard Bradley
  • former director Sally Pitkin
  • former director Zlatko Todorcevski
  • former chief legal and risk officer Paula Martin
  • former chief casino officer Greg Hawkins
  • former chief information officer Harry Theodore

ASIC claims the group failed to exercise their statutory duties of care and diligence. The regulator is seeking declarations and disqualification orders, as well as penalties, which include a maximum fine of $1.05 million per breach.

The case comes following two inquiries that found the group unfit to run its casinos in Sydney, Brisbane and the Gold Coast. The damning findings sparked a mass exodus from the board, but did not spur state regulators to cancel Star’s licences.

Links to crime

ASIC alleges that Star board members approved the expansion of the company’s relationship with people who had reported links to crime. The regulator said that the board members should have asked Star management to investigate and report back to the board regarding the probity, sources of wealth and sources of funds for individuals and Suncity junkets linked to Qin Sixin and Alvin Chau, AFR reported.

Chau, who is currently facing charges in China, ran junkets for foreign high rollers, making Suncity Star’s largest junket operator, according to AFR. Star’s turnover from Suncity grew from $2.1 billion in 2017 to $5.9 billion in 2019.

ASIC argues that Salon 95 – a private gambling den run by Suncity – and allegations against rival casino Crown Resorts should have spurred Star directors to “exercise the degree of care and diligence to direct management to terminate all business associations between the Star group and Suncity and Mr. Chau.”

ASIC also accused Martin and Theodore of knowingly allowing misleading statements to be provided to NAB about the use of debit cards issued by China Union Pay International (CUP) at NAB ATMs on Star’s premises, AFR reported

“Those statements disguised the fact that Star was permitting CUP cards to be used for gambling, which was prohibited by CUP,” the regulator said.

The scheme allowed debit cards linked to Chinese bank accounts to be used at the Star Hotel to disguise the fact that the cash was being used for gambling, as well as to avoid capital export controls, AFR reported. ASIC said that more than $900 million was obtained by Star customers using CUP cards in NAB cash machines between 2013 and 2019.

‘Shamed’ into action

Jason Harris, professor of corporate law at the University of Sydney, told AFR that it’s unusual for ASIC to take the directors of large companies to court. This case, he said, sends a message that the regulator won’t tolerate poor corporate culture and governance.

“Suing the directors of large corporations is not something we see them do,” Harris said. “After the banking royal commission, we did not see boards of big banks sued for wrongdoing.”

This action marks the first time in a decade that ASIC has brought a large case against individual director, Harris told AFR.

“I would say ASIC has been shamed into doing its job properly,” Harris said. He said the regulator has been wary of targeting individual directors after a string of unsuccessful prosecutions, including a failed attempt to prosecure the directors of Crown Resorts, another company found unfit to run its own casinos after inquiries revealed wrongdoing very similar to that revealed at Star.

Longo acknowledged disappointment at the decision not to prosecute the Crown Resorts board.

“We were disappointed. I think the community and the market were disappointed that we didn’t take further action arising out of those circumstances,” he told AFR. “Essentially, there were time limitations, and secondly, as I noted at the time, the conduct has to be actionable. I can’t run a case where there aren’t reasonable prospects of success.”