Star hit With $260 million AML penalty despite warning of insolvency risk

The Federal Court of Australia has ordered The Star Entertainment Group's casino operating subsidiaries to pay a combined $260 million penalty for widespread breaches of anti-money laundering and counter-terrorism financing laws, rejecting the financially distressed operator's argument that any penalty exceeding $100 million could push it into insolvency. Justice Moore found that Star had failed to establish that a larger penalty would render it insolvent, particularly given the uncertainty surrounding its ability to raise additional debt or equity funding and the absence of evidence concerning the future financial support of its investor, Bally's Corporation. The Court nevertheless acknowledged Star's significant financial difficulties and permitted the penalty to be paid in instalments over approximately 19 months.

The proceedings were commenced in November 2022 by the Australian Transaction Reports and Analysis Centre (AUSTRAC) against The Star Pty Limited, which operated The Star Sydney, and The Star Entertainment Qld Limited, which operated casinos in Brisbane and the Gold Coast. AUSTRAC alleged systemic failures in the companies' anti-money laundering and counter-terrorism financing programs between November 2016 and November 2022, including inadequate risk assessments, deficient transaction monitoring and failures to conduct appropriate due diligence on high-risk customers.

Star admitted extensive contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), although the parties disputed several questions of statutory interpretation and the appropriate penalty. AUSTRAC sought $400 million, comprising $300 million against Star Sydney and $100 million against Star Queensland, payable within 28 days. Star argued that the total penalty should not exceed $100 million, payable over two years, submitting that a higher amount would threaten the viability of its operations.

Justice Moore found that Star's failures were widespread, systemic and serious. The Court identified deficiencies across the group's casino operations, including overseas remittance arrangements, junket programs, customer accounts and cash transactions. These arrangements exposed the casinos to significant money laundering risks, while deficiencies in transaction monitoring and reporting deprived AUSTRAC and law enforcement agencies of financial intelligence.

The Court found that Star Sydney had committed 1,190 contraventions of its ongoing customer due diligence obligations, while Star Queensland had committed 327. Justice Moore rejected AUSTRAC's primary argument that a separate contravention arose each time a designated service was provided without appropriate customer monitoring, finding instead that the statutory obligation was directed at monitoring customers rather than individual transactions. However, the judge also rejected Star's attempt to group multiple customer-monitoring failures into a small number of courses of conduct merely because they arose from common deficiencies in its systems.

A central issue in determining the penalty was Star's deteriorating financial position. The group had previously generated substantial revenues and profits, recording approximately $2.56 billion in aggregate EBITDA and $2.06 billion in operating cash inflows during the relevant period. Its financial circumstances had since changed substantially, with the company facing serious liquidity pressures, regulatory restrictions and significant restructuring requirements.

Star submitted that a penalty greater than $100 million would create a real risk of insolvency, potentially harming employees and creditors while undermining the remediation efforts undertaken since its compliance failures came to light. The company argued that its financial capacity was a crucial consideration and that the Court should avoid imposing a penalty that threatened its continued operations.

Justice Moore rejected that position, finding that the evidence did not establish that a penalty exceeding $100 million would cause Star to become insolvent. The company's liquidity analyses did not fully account for potential future funding, and its prospects depended substantially on its ability to secure further debt or equity investment.

The judge placed particular emphasis on the absence of evidence from Bally's concerning its intentions toward Star and the extent to which it would provide additional financial support. Although Bally's was involved in a proposed $300 million strategic investment, there was no binding commitment to provide further capital beyond that amount.

Justice Moore accepted AUSTRAC's submission that the absence of evidence concerning Bally's future funding intentions undermined Star's contention that a penalty above $100 million would necessarily push the group into liquidation.

More broadly, the Court emphasised that the financial capacity of a contravener does not impose a ceiling on an otherwise appropriate civil penalty. Justice Moore noted that the primary purpose of such penalties is deterrence, both of the offending company and of other businesses that might engage in similar conduct.

The judge acknowledged that penalties may, in some circumstances, be sufficiently substantial to contribute to a company's insolvency. However, the possibility of that outcome cannot prevent a court from imposing a penalty necessary to achieve general deterrence. The potential consequences for innocent employees and creditors may be relevant, but they do not override the statutory objective.

Justice Moore nevertheless accepted that Star faced material financial challenges and would require further support and restructuring to become a profitable and sustainable business. The judge also recognised that Star could no longer operate under some of the commercial arrangements that had previously contributed to its profitability, given the unacceptable money laundering risks associated with those arrangements.

Those considerations influenced the structure of the penalty rather than providing a basis to limit it to the amount Star proposed. The Court ordered Star Sydney to pay $195 million and Star Queensland to pay $65 million, with each penalty payable in four equal instalments on 25 November 2026, 25 May 2027, 25 November 2027 and 25 May 2028.

Justice Moore observed that Star would probably need to raise additional funds to satisfy the penalty and that requiring immediate payment of the entire amount could jeopardise its ability to do so. The judge also accounted for the time value of money in fixing the total penalty, noting that a lower amount would have been appropriate had payment been required within 28 days.

The Court further cautioned against treating penalties imposed in earlier negotiated settlements as reliable benchmarks for contested proceedings. Justice Moore noted that agreed penalties, including those imposed against other major casino operators, reflect negotiated outcomes and circumstances that may differ significantly from those before the Court.

The ruling confirms that the risk of insolvency does not necessarily justify reducing a civil penalty, particularly where a company's future funding options remain uncertain. At the same time, the decision demonstrates that courts may accommodate liquidity pressures through deferred payment arrangements without compromising the deterrent effect of the penalty.

Read the decision here.

The Australian Government Solicitor acted for AUSTRAC, with Simon White SC, Joanne Shepard SC of 12th Floor Wentworth Selborne Chambers, Daniel Tynan SC of 12th Floor Wentworth Selborne Chambers, Rowan O'Donnell of 12th Floor Wentworth Selborne Chambers, and Lucy Cameron of List A Barristers.

Allens acted for Star, with Steven Finch SC of Tenth Floor Chambers, Nicholas Bender SC of Banco Chambers, Emma Bathurst of Fifth Floor St James' Hall Chambers, and Maria Mellos of Banco Chambers.