Australia’s Star Entertainment Group disguised patron deposits to a leading Macau bank as deposits made by the company, and later utilized the bank account of a Macau junket operator after its own accounts were shut down, as part of its efforts to circumvent a crackdown by mainland China on the outflow of capital for gambling purposes.
Details of Star’s practices in relation to its customers in Macau were outlined in a report made public on Tuesday in which the Australian casino giant was deemed unsuitable to retain its casino license for The Star Sydney, pending a final decision by the New South Wales casino regulator.
According to the report by Adam Bell SC on the findings of the recent review into The Star Pty Ltd, Star held a number of bank accounts with the Bank of China, Macau branch (BOC Macau) between November 2013 to January 2018 which it used for player deposits. However, in order to disguise these deposits as being made by the company rather than by patrons for the purpose of gambling, Star’s Macau office adopted a process of providing false documentation to BOC Macau. This process involved a Star Entertainment staff member attending BOC Macau when a patron deposit was being made and providing to bank representatives various letters on letterheads of The Star and other subsidiaries, “which deliberately conveyed the false impression that the deposit was made by The Star rather than a patron,” the Bell Report says.
Around HK$1.2 billion (US$153 million) was deposited into Star’s BOC Macau accounts during this period.
In late 2017, as banks in Macau became increasingly reluctant to work with foreign casinos due to mainland China’s crackdown on cross-border gambling, Star was advised by BOC Macau that its accounts were to be closed.
According to the Bell Report, “This caused considerable concern at Star Entertainment because without being able to receive cash deposits it made it more difficult for patrons to repay cheque cashing facility (CCF) debts and make front money payments prior to play. This was estimated to have an AU$21.5 million (US$14.8 million) annual EBITDA impact unless rectified.”
In response, Star reached an agreement with Macau junket operator Kuan Koi in January 2018 under which Koi would collect payments from patrons in Macau and deposit them into his casino front money account. The funds would then be applied to settle CCF debts of those patrons with Star. Around a month after this initial arrangement was agreed, it was extended to include front money deposits by patrons prior to play.
The agreement with Koi was eventually usurped following activation of a company called EEI Services (Hong Kong) Limited (EEIS) – a wholly owned subsidiary of Star Entertainment that was incorporated in Hong Kong in 2013 and approved as a “close associate” of The Star in 2014, but left dormant for a number of years.
“EEIS was the long-term solution to deal with the closure of the BOC Macau accounts,” the Bell Report explains.
“EEIS was an attractive solution, in part because it was not a casino operator, and therefore could accept payments from patrons who were not willing to have a casino appear on their bank statements. Additionally, it was attractive because it was anticipated that EEIS could offer direct credit to patrons in a way that casino operators (and their employees and agents) were prohibited from doing under the Casino Control Act.”
Later, when BOC Macau grew suspicious and blocked transactions in Koi’s account, the agreement changed again to incorporate third party remitters who would make payments into various accounts EEIS held with National Australia Bank. Star would then reimburse services fees paid by patrons through separate payments to Koi.
“In this way, the Kuan Koi and EEIS payment channels merged,” the report says.
The Bell Report is highly critical of Star’s decision to use Koi, as well as its characterization of the associated AML/CTF risk level as low.
“An arrangement of this nature with a junket operator is somewhat startling,” it said. “The arrangement obviously obscured the true source of the funds being deposited to the casino.
“Further, the risk assessment relied on the fact that the patrons transferring money through this system mostly held CCFs. Once the arrangements were extended to include front money deposits the risk calculous changed because Star Entertainment did not conduct the same level of due diligence on patrons who did not hold CCFs. The increase in risk was not appropriately factored into the ML/TF risk assessment.”
According to the Bell Report, at least AU$150 million (US$103 million) was moved via Star’s arrangements with Koi between January 2018 and August 2019, while EEIS provide loans totalling a combined AU$213 million (US$147 million) to patrons or junket operators. Those issued to junket operators were then “on-lent” to a number of individual patrons of The Star Sydney.
In summarizing its findings, the Bell Report points to a failure of culture at Star which ultimately led to payment channels used by its former BOC Macau patrons in Asia becoming “uncontrolled”.
“To manage and contain risks of money laundering and criminal infiltration, the culture of a casino operator must be risk averse,” it states.
Instead, “The culture [at Star], which was particularly problematic in the International VIP business, where the risks were most acute, was one where business goals took priority over compliance goals.”
Star has since ceased many of its dealings in Asia with its Macau office closed down on 29 June 2021 and its offices in Hong Kong and Singapore in January 2022.
