Why are the proceedings significant?

The obligations within section 180(1) of the Corporations Act

Section 180(1) obliges directors and officers of corporations to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of the corporation in the corporation’s circumstances, occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

A judgment in this case may set new governance standards

The pleadings allege that Star’s directors and officers should have taken more meaningful action to respond to material risks of criminal association and money laundering as they became aware of them, in order to fulfil their obligations under section 180(1).

Three officers (who were not directors at the relevant time) have been named as defendants to the proceedings. These include the former Company Secretary and Group General Counsel, the former Chief Casino Officer, and the former Chief Financial Officer. This is relatively unusual, as most cases brought by ASIC under section 180(1) are against directors. 

What do the proceedings concern?

Broadly speaking, the allegations concern the following circumstances:

1. Star’s dealings with a gambling junket (Suncity) involving individuals (including Mr Alvin Chau) with potential criminal links. Further, Star’s dealings continued in circumstances in which it was an obvious risk that the junkets were being used for money laundering.
2. Star had a Merchant Agreement with NAB which provided transaction services to Star Sydney. Particular officers of Star knowingly gave misleading information to NAB, to conceal that China UnionPay debit cards were being used for gambling. The extent of the concealment is alleged to have included particular directors directly approving misleading written communications to China UnionPay and NAB in response to concerns from those entities that the debit cards were being used for gambling.
3. Particular officers and directors received a report from KPMG identifying that Star was possibly not complying with anti-money laundering laws. However, on receipt of that report, those individuals are alleged to have not taken any real steps to address compliance issues.

In relation to the allegations against board members, broadly speaking, ASIC alleges that in order to fulfil the duty under section 180, the relevant directors should have (amongst other things):

1. Requested further information from management regarding particular individuals’ probity, sources of wealth and sources of funds.
2. Taken steps to properly inform themselves of matters relating to Suncity and Mr Chau, once each had been identified as posing a potential money laundering risk.
3. Taken steps to terminate, or alternatively to suspend, Star’s business associations with Suncity and Mr Chau.
   

In relation to Star’s officers, ASIC alleges that to fulfil the duty under section 180, the relevant officers should have (amongst other things):

1. Drawn to the Board’s attention the risk that Star was in breach of its obligations under anti-money laundering laws.
2. Brought to the Board’s attention the substance of particular information they had received that identified potential money laundering risks.
3. Terminated, or alternatively suspended, Star’s business associations with Suncity and Mr Chau.
4. Ensured an accurate and complete description of the use of the UnionPay cards was provided to NAB and China UnionPay.

ASIC has not commenced many similar cases in recent years

In more recent years, ASIC has been shy of running large high-profile cases for alleged breaches of section 180(1) against individual directors.  ASIC has had the occasional recent foray, with mixed success. For example, it brought successful proceedings against the directors of Storm Financial, but also recently brought failed proceedings against two directors of Tennis Australia in relation to their negotiation of broadcast rights with the Seven Network.

It will be worth following this case, as any judgment is likely to impact corporate governance standards.

Further information / assistance regarding the issues raised in this article is available from the author, Natalie Oliver, Senior Associate or your usual contact at Moray & Agnew.