Dummy hotel rooms, sham invoices, and the cloaking of documents in legal privilege were among the key lines of questioning in the third week of a review examining The Star Entertainment Group’s (ASX: SGR) suitability to hold a casino licence.
Taking the stand for most of this week in the review by the Independent Liquor and Gaming Authority (ILGA) of NSW was The Star’s chief legal and risk officer Paula Martin, who was queried several times by Naomi Sharp SC about the truthfulness of her responses.
Martin at times had trouble recalling the specific details of significant events in relation to the casino group’s acceptance of China UnionPay cards to fund gambling by Chinese high rollers at its casinos. She also could not recall high-level conversations with senior management in relation to a trip made to the Hong Kong Jockey Club to discuss.
On Tuesday, Martin also could not recall having given approval for one of The Star’s biggest local high rollers to increase his cheque cashing limit by $11 million to $23 million for China UnionPay. Martin is one of only a number of managers able to authorise such a transaction.
Martin also was quizzed over fake invoices for ‘dummy’ hotel rooms issued by The Star to high rollers using China UnionPay cards so that they could divert funds to gaming tables by stealth. China UnionPay prohibits its customers from drawing funds to be used for gambling as part of the Chinese Government’s moves to limit capital outflows from the country.
However, Sharp put it to Martin that The Star had engaged in ‘sham invoicing’ in order to avoid official scrutiny of bank card transactions which totalled millions of dollars. The invoicing related to ‘dummy hotel rooms’ that Sharp argued were never used by the clients.
Sharp implied it was unlikely the $11 million cheque cashing limit signed off by Martin - then the group's general counsel and company secretary - in 2015 could have been for hotel rooms, and she agreed it wasn’t, clarifying the invoicing was ‘not intended to be a sham as you’ve described’.
“(It) was intended to enable a process in using that merchant facility to be conducted where funds were made available for gambling purposes,” Martin said.
An email sent to The Star by National Australia Bank (ASX: NAB) in 2019 revealed China UnionPay had suspicions some of the transactions were not genuinely used for hotel services. The payments which were facilitated by NAB were as much as $20 million for a single client.
China UnionPay sought to ban transactions from The Star if the funds were being used for gambling. The inquiry had previously been told that these sums, the origins of which could not be verified, were a red flag for potential money-laundering activity.
The China UnionPay system saw about $900 million ploughed through The Star’s high-roller business. While Sharp put it to Martin that it was ‘entirely conceivable’ that this might have involved The Star in dealing with the proceeds of crime, Martin described it as a ‘very bold statement’.
A subsequent response drafted by The Star to NAB clearly stated that the transactions queried by China UnionPay were not related to gambling activities, which was a statement that Martin conceded, in hindsight, was misleading.
“The reality is that you behaved completely unethically at that time in sanctioning the sending of this response to NAB,” Sharp said.
“In that moment, Ms Sharp, I don't think I was unethical. I think I acted in haste and by not pausing and making further inquiry. It's a very poor email on my part.”
The interaction summed up three days of questioning that at times called for Adam Bell SC, who is conducting the review, to step in to seek clarifications from Martin regarding her responses.
“Do you see any problem with the culture of an organisation that allowed this practice to continue for seven years?” Bell asked her.
Martin conceded there was a problem, ‘taking into account circumstances that I am aware of now’.
Cloak of Legal Privilege
Martin spent much of Tuesday being quizzed over claims that legal professional privilege was used to shield information from being shared with regulators.
The thrust of the questioning related to an independent KPMG report presented to Star senior management in May 2018, which found 22 instances of inadequate controls relating to the casino’s anti-money laundering (AML) and counter-terrorism financing (CTF) practices.
Earlier on in the inquiry, former chief risk officer Paul McWilliams recalled an audit committee meeting in 2018 where then CEO Matt Bekier allegedly described the KPMG report as "wrong". That recent claim in the inquiry, amongst others, led to Bekier's departure soon after.
Martin, who assumed McWilliams' responsibilities when she was given a broader chief legal and risk officer role after he left the company in 2019, told Sharp that audit committee meeting was "somewhat tense" but she could not recall whether Bekier had thrown the report on the table as claimed by McWilliams.
On Tuesday she was grilled as to why Star hadn’t immediately shared the KPMG report with AUSTRAC, the government agency responsible for detecting, deterring and disrupting criminal abuse of the financial system, when the regulator asked for a copy of the report in September 2019.
Star twice claimed legal professional privilege for refusing to provide AUSTRAC with the report in October and December 2019. When Star finally provided the report in January 2020, which Martin confirmed was in the interests of building a relationship with AUSTRAC, it was with a caveat that Star wasn’t waiving its legal privilege.
Asked if she had attempted to cloak the KPMG report in privilege so that she did not need to provide it to the regulator, Martin denied this was the case, saying: “No, that was not my intention.”
Martin was forced to concede that Star had a legal obligation to undertake a regular independent review of its AML and CTF program as a regulated entity. She also agreed that the terms of reference (TOR) of the KPMG report made no mention of KPMG being retained for the purpose of the staff providing or receiving legal advice.
“I accepted that the claim that was made for privilege over particular documents, the KPMG report defined in our statement, was a claim that was based on my view at the time and which I have with hindsight accepted wasn’t enough,” Martin said when asked if she knew this practice was wrong.
Upon reflection, Martin admits she was wrong in believing the KPMG report was subject to legal privilege but only formed this opinion prior to the start of this inquiry.
Sharp then questioned Martin as to why minutes from a meeting relating to a newly commissioned independent review of Star’s AML / CTF program, through the lawyers Ebsworth, were marked as legal and privileged in July 2021.
Sharp put it to Martin that Star wanted Ebsworth to commission the review to cloak the independent review in legal privilege. Martin denied that was the intention.
During the cross-examination, Sharp asked Martin if she was being candid and truthful in her responses. Martin responded that she believed she was.
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