Australian casino inquiry puts spotlight on Chinese money laundering

For decades, billionaire property developer Phillip Dong Fang Lee was a VIP at the Star Entertainment Group casino in Sydney’s glitzy Darling Harbour district, racking up millions of dollars playing baccarat shoulder to shoulder with other Chinese tycoons.

But his fortunes have changed after being called as a witness in a high-profile investigation into Star’s Sydney casino that comes as Australian and Chinese regulators crack down on money laundering and junkets, where middlemen extend credit to lure high rollers from the mainland.

The inquiry in Australia has revealed that about A$900mn ($674mn) of transactions have been processed in Star’s casinos using China UnionPay—China’s version of Visa and Mastercard — by gamblers. The use of the payment network for gambling contravenes both Australia’s anti-money laundering rules and Chinese capital outflow laws.

Lee, who speaks Mandarin with an accent from the south-east region of Nantong, told the inquiry that Star’s staff advised him one night to use his Chinese card as he nursed a heavy loss. “He said, ‘Don’t be anxious, you can use a China UnionPay card to pay off the debt’. Of course, I was very happy,” Lee said through a translator in the online hearings.

On one night in 2015, Lee swiped his Chinese cards 12 times to withdraw A$11mn. Cashiers who questioned the huge withdrawals said their concerns about money laundering were overruled by Star’s management, which did not want to jeopardise the casino’s relationship with a “A$20mn player” who spent a total of A$2.2bn at the casino over 15 years.

The inquiry is expected to issue a report in July based on the evidence. Star, which has operated in Sydney since the 1990s, could lose its gaming licence or be forced to operate under the watch of an independent monitor.

The probe is the latest setback for the country’s embattled gaming sector, which had enjoyed spectacular returns by working with junket operators in Asia to entice Chinese high rollers to gamble in their casinos.

That lucrative relationship is becoming undone. Crown Resorts, Australia’s largest casino operator, was sued last month by the country’s financial watchdog for allegedly breaching money-laundering and counter-terrorism financing laws. A third company, New Zealand’s SkyCity which has a casino in Adelaide, is also set to be probed as part of an industry-wide investigation into money laundering.

[Australia’s] casino business model is truly broken

Star, whose shares have halved in value since early 2018 to give it a market value of A$3bn, has declined to comment on the evidence while the inquiry is being held. Matt Bekier, Star’s chief executive, resigned on March 28 following the revelations, saying in a statement that it was the “right thing to do”.

Charles Livingstone, a senior lecturer at Monash University in Melbourne, called the behaviour of Star and Crown “a systematic pattern of rorting” — an Australian word for scam — as they looked to “cream off the top” of high rollers spending millions of dollars through junket operators.

With Australian casinos forced to cut ties with junket operators, Livingstone said the “casino business model is truly broken”.

The inquiry heard evidence from current and former Star staff who said that the China UnionPay transactions were disguised as hotel and entertainment services to deliberately mislead Chinese and Australian banks that had flagged the payments as suspicious. A fake hotel invoice was even attached to one email sent to a bank that took the explanations at face value.

Macau junket operator Suncity, which has been forced to close its VIP gaming rooms in Macau, has been at the centre of the investigations into Australia’s two largest casino groups. Suncity operated the “Salon 95” exclusive VIP gaming room, situated off-site from Star’s main Sydney casino, as part of its agreement with Star.

The inquiry was told that Salon 95 was operating an illegal “cage”, a room where chips are exchanged for cash. CCTV footage from inside Salon 95 shows Suncity workers picking up a backpack and sports bag and taking them into an enclosed room where “large bundles of cash” were unloaded.

There was also footage of gamblers exchanging chips for brown paper bags “stuffed” full of cash. After seeing the footage, Star executives admitted to the inquiry that there was a clear risk of money laundering taking place.

Star managers said that the risk of money laundering by gangs at the casino had been played down.

Angus Buchanan, Star’s head of due diligence and intelligence, told the inquiry that he had previously worked at the Hong Kong Jockey Club, where he oversaw a report into the alleged links between Suncity’s founders and the 14K triad gang, a Hong Kong-based organised crime syndicate.

That report was provided to Star’s management, but the group continued to work with the junket operator, allowing Suncity to operate an unbranded secret room even after it had publicly severed ties with the Macau company, said Buchanan.

Hearings for the inquiry are set to wrap up this week but the fallout from the testimony has already begun, with Australian law firm Slater and Gordon launching a shareholder class action against Star last week, alleging the casino operator misled investors over its compliance with regulatory obligations.

For Lee, his time as a high roller appears to be over after his assets were frozen, including his Star accounts, following a dispute with the Australian tax office. “Last year, [I was] given a notice that I could not go and gamble,” he said.