[Theme Music Starts]

RUBY:

From Schwartz Media I’m Ruby Jones, this is 7am.

The very idea of a casino was invented with the involvement of the American mafia.

But for decades we’ve been reassured that everything at Australian casinos was above board. They’re apparently heavily regulated, closely monitored, and operated by reputable, publicly-traded corporations.

What we were told about many casinos in Australia is now unravelling, and we’re getting staggering insight into how regulators can be misled and the strange schemes that can flourish when chips and cash are changing hands.

Today, senior reporter for The Saturday Paper, Rick Morton, on exactly what’s been happening behind the scenes at The Star Casino.

It’s Tuesday September 20

[Theme Music Ends]

RUBY:

Rick. As we speak, Star Casino in Sydney faces the very real prospect of being shut down by the State Government. Their fate really hangs in the balance and that is quite an extraordinary position for Star to find itself in, isn't it? So how did it happen?

RICK:

Yeah. So Star Casino is the second largest casino in Australia after Melbourne's Crown. It's Sydney's oldest and for a long time it was Sydney's only casino.

Archival tape -- Seven news Reporter 1:

“40,000 people joined in celebrations for Sydney's Star City Casino, along with celebrity guest superstar Tom Jones in the showroom.”

RICK:

And it's kind of like every casino you've ever been to. It's flashy, it's big, it has two gaming floors, three restaurants and this will become important later a hotel that is attached to all of those things.

Now, to be clear, the Star is not owned by Crown Resorts Ltd, which run the other casinos in the capital cities in Australia and has also been the subject of major investigations over the last 18 months, which have seen it found unsuitable to hold a casino licence in Melbourne and Perth and Sydney. But the Star throughout the last few years has kind of used that coverage of the attention being on Crown to lay low to portray itself as the established, sensible kind of old school casino that was above all of these scandals.

But really, people haven't been paying attention to the Star because of all the controversy at Crown, and it seems like that is no longer the case.

Archival tape -- Seven news Reporter 2:

“In breaking news now. Sydney's Star Casino has been found unsuitable to hold a New South Wales casino licence.”

RICK:

Last week, the New South Wales Premier, Dominic Perrottet, announced that its stores are likely to close in two weeks if it does not comply with a court order to explain why it should not be shut down. Now the warning comes after Star Entertainment Group was found unsuitable to operate due to a damning enquiry into the company led by Adam Bell SC. It found money laundering, fraud, foreign interference and criminal organisations were allowed to infiltrate the casino for years. Management knew about many of these incredibly severe risks and actually not only did nothing but chose to actively deceive authorities when authorities asked questions about this.

RUBY:

Right. Okay. So we're talking about pretty big allegations here, things like criminal infiltration, money laundering, fraud. And not only are we talking about the existence of these things, we're talking about a cover up around them. And these types of allegations they're similar to what we heard was happening at the other big casino in Australia at Crown, right? So Tell me about what the inquiry finds, what other evidence has come to light since that investigation began?

RICK:

We could talk for days on that alone. Let's talk about fraud and this elaborate scheme to allow really moneyed patrons to continue gambling at the Star, even when they should not have been allowed to get money out. So there's a type of debit card, China UnionPay card that's essentially the favoured and low cost option of Chinese nationals to get money out of the country. China crackdown, they don't like people taking money out of China, particularly their own citizens, obviously, because, you know, it's a capital flight risk, essentially. But these cards allow that through complicated merchant reasons that I won't go into. But what you can't do with any debit card is use it within the gaming zone of a casino under the licence conditions in New South Wales. So there are no ATMs within the gaming floors of the Star. And similarly you can't use a debit card like a China UnionPay card to get cash out and go whack it on the tables. The Star found a way around this and what they were doing essentially. And bear in mind that these are high net worth individuals who are using this card. They essentially allowed the patrons to swipe the CUP cards at the Stars Hotel. But in reality, those funds were being used for gambling at the casino. Separate zone covered by different licence conditions. So between July 2013 and March 2020, CUP cards were used by 1307 patrons to the value of more than $900 million. We're talking about almost $1,000,000,000 in cash, most of which was spent on gambling. You know, there was one customer in particular who was spending millions a day. That patron had never stayed at the hotel. When he was swapping his CUP card. They would just use what they literally in emails called dummy rooms. But there was another issue which the Star was very keen to overcome in this particular scheme.

RUBY:

Right. Okay. So, Rick, it sounds like this is a deliberate and concerted effort to disguise money spent on gambling by pretending that it's being spent on hotel accommodation instead, which in and of itself is one thing. But what is this other issue that came up?

RICK:

The other issue is that when you're a patron swiping your CUP card, it's a debit card, but it takes 24 to 48 hours, up to two days before that money actually lands in the casino account. But of course, if you want to go on gambling, you're swiping your card. You want that money now. And the casino, the Star in particular, under its licence conditions - and any casino in New South Wales - is forbidden from providing credit for gambling purposes. So what the Star did, again, they knew that this was an issue and that they might actually get pinged by the regulators. So they set up what they called a temporary, quote unquote, temporary check cashing facility, which was basically, you know, they would give the money. It created this artifice of respectability around the whole exchange. But really what was happening was that they were handing out between ten and $20 million a month to patrons swiping their CUP cards via this temporary check cashing facility so that they could, you know, allow this whole house of cards, forgive the pun, to continue. Now, the process raised alarm bells with the merchant, National Australia Bank. But when NAB raised those same concerns with the Stars management, some of the most high ranking executives at Star responded in terms that were, according to the review, false, misleading and unethical. Those executives also and this is really unfathomable and is systemic throughout this report, the executives did not tell the board about any of this.

RUBY:

Right. So high ranking executives at Star, they're not only aware of what's happening, it sounds like that they're actually going out of their way to try and hide it from the board, from merchants, from the regulator. So what does that tell you, Rick, about just how entrenched this type of conduct was and how much further did it go?

RICK:

It was everywhere, and it was at the lowest levels. Even though the review doesn't find, you know, that staff at the lowest levels were doing anything particularly wrong. But there was a culture said of not wanting to pass on bad news to superiors. You know, if you're a low level employee, you didn't want to tell your manager. The manager didn't want to tell the director. The director didn't want to tell the CEO and the CEO in many cases definitely did not want to tell the board because all of the problems that they were encountering across the casino and in terms of the arrangements they had to try and skirt regulations was to ensure that profit kept being made. In fact, the review multiple times makes this point that business motivations like profit and revenue were continuously prioritised over actually doing the right thing and avoiding risk. It's not just about the fact that they were lying to the regulator, but they were actually essentially lying to their own shareholders by avoiding dealing with some of these really necessary harsh truths about what it is like to run a casino. But get this right, Ruby, like we've talked about the CUP debit cards and like the fraud that happened there with trying to disguise money for gambling as hotel transactions and not even the half of it. Because then we get into this really murky, murky relationship with the junket operators, the companies who brought the high rollers through the doors on those special junkets at the Star. And that's where some pretty, pretty shady stuff goes down.

[Advertisement]

RUBY:

So, Rick, let's talk a bit more about the so-called high rollers, the people who spend the most money in casinos flying in, often from around the world to spend time in particular establishments. Can you tell me exactly how these types of big spenders are being enticed to spend their money at the Star in Sydney?

RICK:

Yeah. I mean in casino terms they are known as the whales. These are the big money people who spend a lot of cash and lose a lot of cash because they love gambling. And so what happens is casinos started in America in the 1960s and seventies, I think when this casino operator flew all of his rich friends to his casino because he wanted to show it off, essentially, and they all spent a fortune there. So it became this thing where casinos would enter into rebate arrangements with junket operators. The junkets are third party, they're not casino licencees, but they are semi respectable is the wrong word. But semi-official businesses that literally will pay for all of the expenses of these gamblers, these high money individuals, they, you know, first class flights, hotel expenses, unlimited booze on the flights coming over here, the experience. And they will fly them to the casinos where they had this arrangement. Now, of course, the casino will pay the junket operator a commission, and the people flown in by the junket operator who are treated like royalty, gamble in the high rollers rooms of these casinos. And this is basically a licence to print money if you're a casino operator. You know, the bloke I was telling you about earlier, who was using the CUP cards to gamble since he started gambling at the Star. He put $2.1 billion through that casino.

RUBY:

Wow.

RICK:

Yeah. $2.1 billion. So this is kind of like the backbone. And, you know, in many cases, certainly with the Star, it was about a third of total gambling gaming revenue before the pandemic. So this is where we kind of set our scene. Now, on the 30th of June 2017, two junket operators Suncity and IEK, which is linked very closely to Suncity, entered into a rebate agreement with the Star regarding a private VIP room called Salon 95. Now, this agreement, included in its original form the use of the word cage in this room, which in casino parlance refers to the tightly controlled space where gambling chips are exchanged for cash or or vice versa, and kind of other tokens or freebet vouchers are handled in this secure facility.

RUBY:

Right. Okay. So the cage is essentially where chips and money change hands. And I suppose it would be tightly controlled because there would be large sums of money going around and that would, I suppose, make it the place that would be ground zero, if you like, for potential money laundering, right?

RICK:

Oh, yeah. Oh, yeah. If you wanted to launder the money, getting access to the cage is like number one goal on the bucket list. Right. And crucially, only people with a casino licence can operate a cage, i.e. the Star. The junket operator definitely cannot operate a cage. That's important because what happened was that to set this up, the guy in charge of regulation at the Star told the regulator that it wasn't going to be a cage, it was just going to be a service desk, you know, where you can, you know, get people drinks and, you know, help them out if they've got any questions and things like that. Now, that was a lie. And he conceded in the review that he misled the regulator. Of course, once they set this up, suncity, the junket operator starts abusing it. Now on 14th of May, 2018, Star Entertainment investigator Andrew McGregor emailed his superiors at the company to ring the alarm about Suncity after he became aware of a $45,000 transaction at Salon 95. And he wrote in this email, Today's activities with Suncity have been very strange. We have an entity within our four walls which is totally noncompliant to reasonable requests for basic information. And he went on to say, I'm going to call it out early. Suncity is operating a business model under our noses, which is problematic for the Star with regards to anti-money laundering and counter-terrorism financing laws. Suncity, however, was allowed to continue operating. On 15th of June 2018, CCTV footage appeared to show Suncity staff taking a large amount of cash from a casino cage entering Salon 95, meeting someone off camera so in the blind spot of the security cameras and engaging in covert behaviour on the balcony where they couldn't be seen, which is really, really troubling stuff.

RUBY:

Mm okay. So not only did junket operators have access to this area that they're just not even supposed to be allowed to, to run. They are also perhaps predictably allowing things to happen there that shouldn't be allowed to happen. But Rick, where is the regulator in this as this happens, as things get more and more suspicious?

RICK:

So this is the issue more generally with the regulator. I mean, the regulator a lot of this stuff relies on trust. It relies on the casino licensee telling the regulator when there's a problem and what never happened in the course of this review period which is from 2016 to 2021, the Star not only didn't inform the regulator when things went wrong, but it actively took steps to confuse the regulator, to deceive the regulator, to outright lie to them. Now, when media reports about Suncity’s criminal elements and Crown Resorts, as in James Packer's Crown began in late July 2019, the casino regulator wrote to the Star because it's a casino. These things are common issues, and the regulator knew that it had a relationship with the same junket operator Suncity. Now Star Entertainment's group general counsel Andrew Power emailed in response. This is really important, he said. As for allegations relating, that Crown was wilfully blind to the criminal activity of key business partners. We remain comfortable that the Star's processes are robust. This is the very same Andrew Power, who was one of the first executives at the Star to know about all of the issues. The litany of issues with Suncity. Indeed, he had written to the Star's chief casino officer Greg Hawkins in May, a year earlier, a year before the regulator comes asking. And in that email, he said that the junket operator Suncity had exposed the Star to an unacceptable level of risk. And despite all of this, the regulator was shooed away.

RUBY:

Right. Okay. And so, Rick, what can be done here? Because we've got something that's clearly not an isolated problem. We've got multiple casinos that are seeing this kind of entrenched criminal activity. They're clearly unafraid of the regulator in this space. And the regulator doesn't appear to have been able to really stop any of this from happening. So, I mean, should the federal government intervene? What could actually make a difference?

RICK:

This is such a good question because I love gambling. And I've spent a lot of time in casinos, not heaps, like I'm not a roulette player, anything like that. But I've never been one who's kind of like, oh, I don't know why they exist. They should be shut down or anything like that. But then you do a story like this and I wrote about James Packer and Crown and what Australians have seen with both Crown and the Star, is this culture where casino operators are willing to hoodwink regulators by almost any means necessary.

And it's crazy to me, like it boggles my mind because they are essentially like the wild west in the sense that they do what they want until they get caught. And even then they continue to do what they want. I mean, I think it was an ABC journalist, Dan Ziffer, who pointed out on Twitter recently the business journo, it's like we've had all these reviews. We've had four reviews in 18 months, four different casinos operated by Crown and Navistar. Every single one of those reviews or Royal Commissions has found that the operator of those casinos in Melbourne, Perth, Sydney's Barangaroo in Sydney's Pyrmont are unsuitable to hold a casino licence and in all four locations a casino is still operating. What does that tell you? It tells you that there is a weird symbiotic relationship between governments and casino operators because the casino pays a lot of money for the privilege of holding one of these licences to the state. That does not explain to me why he would let them get away with blue murder.

RUBY:

Mhm. And the conduct certainly seems pretty indefensible when you lay it out Rick.

RICK:

I was prepared for like, oh yeah, that's pretty bad stuff, when I was reading this review. It was outrageous. Like it was truly outrageous to see everything lined up the way it was, to see what management knew in emails. And by the way, 13, 15 managers, senior executives resigned like dominos from, you know, the first moment of this review being held. Within ten days, the CEO was gone. So, yeah, it's just wild. You can probably tell I'm a bit worked up about it.

RUBY:

Rick, thank you so much for your time.

RICK:

Thanks Ruby.

[Advertisement]

[Theme Music Starts]

RUBY:

Also in the news today,

US President Joe Biden has said American troops would defend Taiwan from invasion in an interview with CBS.
The comments go against long-standing US policy to remain ambiguous on the issue. But Biden has now made several promises to defend the territory.

And,

The senior New South Wales public servant who hired Nationals leader John Barilaro to a controversial New York trade role has been sacked.

Amy Brown, the former head of Investments New South Wales, has come under intense scrutiny for offering Barilaro the lucrative role, after an offer was made and then withdrawn from another candidate.

I’m Ruby Jones, this is 7am. See you tomorrow.

[Theme Music Ends]