Recently, ASIC commenced proceedings against 11 current and former directors and officers of The Star Entertainment Group Ltd (Star) in the Federal Court for alleged contraventions of their statutory duties of care and diligence pursuant to section 180(1) of the Corporations Act 2001 (Cth). The defendants include the former director and CEO, former Chief Legal and Risk Officer, former CFO and the former Chief Casino Officer, in addition to seven current and former non-executive directors of Star.
ASIC Deputy Chair, Sarah Court, said, “ASIC alleges that Star’s board and executives failed to give sufficient focus to the risk of money laundering and criminal associations, which are inherent in the operation of a large casino with an international customer base”.
In essence, ASIC alleges that the directors and officers of Star approved the expansion of its relationship with individuals with reported criminal links, and when provided with information about money laundering risks affecting Star, failed to take steps to investigate those risks in breach of their duties.
The alleged contraventions largely arise out of Star’s dealings with junkets and the use of China UnionPay (CUP) cards used in payment terminals provided by NAB located in Star hotels. A junket is a short-term gambling program arranged between a casino operator and one or more high-wealth players. ASIC asserts that the directors of Star knew, or ought to have known, that the junkets were a risk to the integrity of Star’s operations as they were “vulnerable to money laundering and exploitation by criminal influences”.
Junkets
A significant proportion of Star’s revenue is generated through its relationships with junkets each year. The concise statement filed by ASIC states that between financial years 2015 to 2019, approximately 23-27% of Star’s revenue came from foreign junkets, and Star’s most fruitful junket relationship was with Suncity, generating $2.1 billion for star in the 2017 financial year.
In 2017 and 2018 financial years, the board of Star approved resolutions which ASIC says had the effect of increasing Star’s exposure to the funders of those junkets, without receiving information which verified that the individuals associated with the junkets were of good repute, and the probity of those individuals. Further, when officers of Star were made aware of “compliance risks” and various allegations that individuals associated with those junkets were involved in money laundering and organised crime, ASIC alleges that they failed to suspend or terminate Star’s associations with those junkets unless information demonstrating the probity and good repute of those individuals was obtained.
CUP cards
In 2016 to 2017, on several occasions, Star was informed by NAB that CUP transactions could not be used for the purchase of gaming chips. On various occasions between 2016 to 2019, CUP raised inquiries about transactions conducted at the NAB terminals located at Star hotels and whether those transactions were for gambling purposes. Star responded to the effect that the funds from the CUP transactions were used for non-gambling purposes, such as hotel accommodation, food, wine and jewellery, and that none of the funds obtained were used for the purchase of gaming chips. ASIC claims that these representations were inaccurate, incomplete and misleading.
It is ASIC’s contention that in engaging in the above activities, the various defendants have failed to exercise the degree of care and diligence a reasonable person in their positions would have exercised, and thus, contravened section 180(1) of the Corporations Act 2001 (Cth) (Corporations Act).
A breach of Section 180(1) of the Corporations Act can attract financial penalties. Where an individual has contravened a civil penalty provision of the Corporations Act, the court may also disqualify the person from managing corporations for a period of time. ASIC seeks various penalties against the defendants, including declarations, pecuniary penalties and disqualification orders. If the directors and officers of Star are found to have breached their statutory duties, each breach that occurred before 13 March 2019 attracts a maximum penalty of $200,000, and each breach that occurred in the period 13 March 2019 to 1 July 2020 attracts a maximum penalty of $1,050,000.
This case has the potential to further clarify the boundaries of what is expected of company officers and directors in Australia. It is also a novel case in that it is a rare example of where ASIC has commenced proceedings against an entire board of a major company. It also serves as a reminder that the obligation on directors to understand the operations of the company, and the particular risks faced by the company, is an ongoing one. ASIC Chair, Joe Longo, said that directors and officers have a duty “to understand the operations of the company over which they preside, and the particular risks faced by the business. They are required to bring an inquiring mind to business operations. It is not a ‘set and forget’”.
Contact Cinzia Donald, Partner, Corporate Disputes & Investigations Team, for advice regarding directors duties and ASIC investigations and prosecutions.
