The NSW government and the state’s gaming watchdog have little choice but to let Star Entertainment keep its Pyrmont casino open, corporate governance experts say, despite an inquiry hearing evidence of widespread failures at the group.

Speaking ahead of the likely release of the Bell Review into Star on Tuesday, some experts believed there may be value in taking former casino executives with adverse findings against them to court to set an example.

Yet because of the company’s contribution to the state’s economy, they said it was unlikely the Star would have its licence torn up if inquiry head Adam Bell, SC, found the group unfit to hold it.

Geoffrey Watson, a director at the Centre for Public Integrity and a former NSW police integrity commissioner, said it was reminiscent of the “too big to fail” argument in favour of bank bailouts during the global financial crisis.

“Dramatic action is almost impossible because of the size and importance of Star, and Crown Resorts for that matter, to the NSW economy,” Mr Watson said. “You’ve got so many different interests to be weighed and balanced.

“The conclusion and closing of licence would affect so many people who are innocent of any wrongdoing like frontline employees and shareholders.”

The Bell Review heard for four months allegations the Star hid criminal gang-linked junket operator Suncity’s illegal cash cage from the regulator and allowed it to operate a secret gambling room at its Pyrmont casino.

It also heard evidence that Star misled banks, breached anti-money-laundering measures, may have evaded taxes and facilitated $900 million of banned gambling transactions through its controversial China UnionPay scheme.

Counsel-assisting the inquiry argued Star was unfit for its casino licence, while Star told Mr Bell a significant reform agenda was already under way with the departure of key executives and a board clean out.

Independent monitor ‘sufficient’

The review echoed similar probes into Crown over the last two years which found it unfit to operate a casino in three states. The company was, however, allowed to stay open under the scrutiny of special monitors in Victoria and Western Australia where it was already operating.

NSW regulators banned Crown from opening its new waterfront casino in Barangaroo for 16 months. Still, the watchdog recently gave it a provisional permit to open with a monitor similar to the ones mandated in Victoria and Western Australia.

Swinburne University senior lecturer Helen Bird said the “jury is still out” on whether this is an effective way to regulate casinos, but said there was not much other choice given the toll a closure would have on staff and investors.

“You have to accept that limitation,” Ms Bird said.

“A lot of the work is being done already in a corporate governance sense. We’ve had a number of board and executive changes, and this coupled with the introduction of an independent manager would be sufficient.

“The only other question you could ask is if there is more severe action to be taken against ex-executives or the board for being asleep at the wheel … In the case of Crown, there was a lack of evidence and I can’t see that changing when it comes to Star.”

Star Entertainment was unable to comment on the report and entered a trading halt on Monday morning due to media reports that said Mr Bell had found the company unsuitable for its licence.

“The Star has not received a copy of the report, is unaware of its contents, but understands the report will be released soon. The Star will make a further statement after the report is received,” it told the ASX.

Meanwhile, Monash University senior lecturer and gambling researcher Charles Livingstone suggested there should be more reform on the regulatory side.

“You can blame the companies for their poor practices, but the big issue is: why are the regulators coming to discover this as some sort of novelty?” he said. “This is not something that is coming from the regulators. They’ve essentially been embarrassed into it by the media and whistleblowers.”

Macquarie University professor Elizabeth Sheedy said there would be a benefit to having a federal casino watchdog.

“Having all these state-based regulators is quite inefficient because most states do have casinos and have the infrastructure repeated six times plus. But I think because the federal government is not so reliant on the casino income, there would not be this problem or conflict of interest,” she said.

Written by Lucas Baird. Originally published in the Australian Financial Review on Sep 12, 2022