Unauthorised brothels harbour sex trafficking and tax evasion, according to a professional brothel buster.
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At the same time, owners of legal sex services are frustrated that unapproved services bypass jumping through costly legal hoops.
According to Brothel Busters owner Chris Seage, brothels operating without DA approval tend to hire overseas staff on a visa loophole.
"Ninety-nine per cent of illegal houses are owned and operated and staffed by Asian sex workers offering massages," he said.
"A lot of these people are defying the law by coming in on tourist visas, they're trafficked here but not always against their will, a lot are recruited."
Mr Seage said a minority of women were brought in on debt bondages, working for their employers to pay back immigration and travel costs.
He said the Department of Immigration had regularly threatened to cancel visas but owners of unapproved brothels simply lodged appeals, which could buy another two years for workers facing deportation.
According to Mr Seage these types of businesses had public health and safety implications.
"The majority provide oral sex without a condom against the health guidelines and it's a threat to the local community when you have men going back to their wives and girlfriends spreading it," he said.
"The problem is that these places haven't been approved by council, they're unregulated and not subject to health checks, tax compliance and workplace regulations," he said.
However, Sex Worker Outreach Program (SWOP) CEO Kylie Tattersall said links between higher rates of exploitation and unapproved brothels were exaggerated and approval didn't guarantee better standards.
"Having a DA does not make the operator into a good employer automatically, nor does not having DA approval mean the operator is necessarily a bad one," she said.
"The majority of sex services premises in NSW are run by business people in a business-like manner. Like all industries, there are good employers and bad employers."
Brothels, along with prostitution, have been decriminalised in NSW, with sex service businesses requiring development application approval from local councils to gain authorised status.
A brothel is defined under the Restricted Premises Act as a premises habitually used for the purpose of prostitution and includes premises that explicitly and implicitly advertise through any medium as being used for the purpose of prostitution.
Approved brothels are subject to yearly inspections from police, council and health services and must comply with WorkCover's health and safety guideline for brothels.
Included in the regulations are strict guidelines regarding the use of condoms and the rights of sex workers.
A Wollongong owner of a DA-approved brothel claims she spent more than $50,000 getting her business up to legal standards and is frustrated by unapproved operators.
"We spent over $50,000 on things like disability ramps, cameras, hard-wired fire alarms, plumbing and security to pass for council approval," she said.
"I have to pay $400 a year for the privilege for people from council and licensing to inspect my business, while we have to share our income with plenty of places out there not doing the right thing; it's just not fair."
The owner said despite complying with the laws for 25 years and trying to alert authorities to unauthorised brothels, she was still being undercut by other businesses.
"I've tried to get council and police involved by giving them information but I feel like all they do is make it harder for people like me," she said.
SWOP clarified that no brothel was considered "illegal", rather they are unapproved, unauthorised or prohibited depending on zoning laws.