Star Ruling Highlights Corporate Governance Hazards

The Federal Court of Australia handed down its decision in Australian Securities and Investments Commission v. Bekier on March 5.[1]

ASIC brought civil penalty proceedings against 11 current and former directors and executives of the Star Entertainment Group in relation to Star’s management of money laundering risks. The court found liability against Star’s former managing director and CEO Matt Bekier, and former general counsel and chief legal and risk officer Paula Martin, but not against the nonexecutive directors.

Justice Michael Lee’s judgment has been widely described as a landmark governance case. While the facts arose in the casino sector, the decision is fundamentally about governance architecture, particularly in regulated organisations.

The principles it establishes apply with equal force to banks, insurers, superannuation trustees, Australian financial services licensees and any business operating where regulators and other stakeholders expect effective risk governance and personal accountability.

Recent enforcement developments show that the matter continues to evolve. Bekier was fined $700,000 on June 17, and banned from managing corporations for six years for breaches of his directors’ duties. On July 14, Bekier and Martin appealed the combined penalties of $1.1 million, and on Aug. 10, Martin secured a stay of her $400,000 ASIC fine, pending appeal. These outcomes underscore the continuing relevance of the Star decision for regulated financial services businesses.

This article examines the Star Entertainment decision through a financial services lens, noting that the Australian Prudential Regulation Authority, or APRA, is currently consulting on updates to the cross-industry Prudential Standard 510, which covers governance, reflecting themes that also underpin APRA’s fit and proper and conflicts of interest standards. It then identifies practical implications for executives and boards in regulated entities and sets out what lawyers should now be discussing with their financial services clients.