The Star Casino (Image: Star Entertainment Group)

Reports this week reveal that Star Entertainment — with casinos in Sydney, Brisbane and the Gold Coast — is suspected of the same entanglement with money-laundering, tax evasion and organised crime already exposed at rival Crown Resorts.

It’s shocking, but hardly a surprise.

A Nine Network joint investigation says Star commissioned KPMG in 2018 to provide two confidential reports, which showed Star was “profoundly failing to combat the risk of money laundering, terrorism financing and corruption with its Sydney and Queensland casinos”. Most shockingly, the investigation found that, despite the KPMG reports in 2018, such activity continued as recently as 2020 and 2021.

And where was the industry watchdog? Philip Crawford, chairman of the NSW gaming regulator, told the reporters he was unaware of long-standing poor practices at Star, or the damning KPMG reports. “If it’s as bad as you say it is, then that’s certainly something they should have reported to us.” Really? 

It’s true that in September Crawford announced his organisation would conduct a routine, closed-door review to see whether improper practices exposed in the Bergin inquiry into Crown in Sydney had been part of the business at Star — “if at all”. But it’s also worth noting this was eight months after the Bergin inquiry reported its findings.

The sad reality is that business regulation over time has a very spotty record, and big corporations too often turn a blind eye to bad behaviour.

Take the classic case of the giant French bank Société Générale, which reported in 2008 that about $7 billion (€4.9 billion) had been lost through unauthorised transactions by a single rogue trader. An independent inquiry found that the bank had failed to act on 75 red flags over a period of 18 months.

That same year saw the collapse of the $65 billion Bernie Madoff investment fraud. SEC inspector general David Kotz admitted his agency missed “numerous red flags” from 1992 until the fraudster was arrested in December 2008, and he conceded five separate failed investigations into Madoff ’s operation had been bungled.

More recently consider the “London whale” trading scandal which JP Morgan Chase CEO Jamie Dimon initially dismissed in 2012 as “a tempest in a teapot”. However, it cost his bank a US$6.2 billion loss and its market value fell US$40 billion in a matter of weeks.

Most importantly, a US Senate panel reported that bank management had “disregarded multiple warnings”, including the fact that internal risk limits were breached more than 300 times. The panel concluded: “The breaches did not, however, spark an in-depth review … or require immediate remedial action to lower risk. Instead the breaches were largely ignored or ended by raising the relevant risk limit.”

JP Morgan eventually paid more than US$1 billion in fines to regulators in the United Kingdom and United States, and CEO Dimon conceded that the trades were “flawed, complex, poorly reviewed, poorly executed and poorly monitored”. Not much comfort for the investors who lost millions.

And, of course, it’s not just banks which ignore red flags. In the wake of the Murdoch newspapers phone hacking scandal in 2012, the British Parliamentary inquiry concluded the media mogul wasn’t a fit person to lead a major corporation and that he “turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications”.

With this week’s revelations about Star Entertainment, and ongoing inquiries in Victoria and Western Australia into Crown casinos, it may be premature to conclusively blame “wilful blindness”. But all the signs are there. 

Harvard professors Max Bazerman and Michael Watkins champion the concept of “predictable surprises”, which often lead to organisational crises. They argue many surprises, in all types of organisations, are predictable and avoidable; predictable surprises are a failure of leadership, and happen when leaders have all the data and information they need to recognise the potential, or even inevitability, of major problems, but fail to respond with effective preventative action. These are what they call “the disasters you should have seen coming”.

The question is whether the revelations concerning Australia’s casinos are disasters that should have been seen coming. Crown may have been caught by surprise, but Star must surely have recognised that this was an industry-wide crisis not confined to Crown, and should have been better prepared.

Star said in a statement: “We are subject to thorough and ongoing regulatory oversight including compliance checks and reviews across our operations in NSW and Queensland. The Star works closely with authorities including law-enforcement agencies and is committed to transparent engagement with regulators.”

Given that Austrac is reportedly building a legal case against Star, it was a predictable response, doubtless crafted by the company’s lawyers. 

But Star is going to need a lot more than carefully crafted legal statements. The most effective crisis management is to take steps to prevent a crisis happening in the first place, and only time will tell whether Star took any adequate steps to mitigate their impending crisis.