The pub has installed at least four cameras in the men's toilets - but Beach Road management insists they are just for show.
Manager Mark Delaney said the cameras were fakes placed there to stop a serial vandal who had caused more than $20,000 worth of damage to stalls and sinks in recent months.
"I'm positive they are not capturing anything inappropriate and welcome any regulatory body to come down to talk to us about them," Mr Delaney told The Sunday Telegraph.
He said the vandal had demolished the barriers between the cubicles as well as ripping off cubicle doors.
NSW Council for Civil Liberties secretary Stephen Blanks said even if the cameras were fake patrons could still feel uncomfortable because they would assume they were being filmed.
"How do we know they are fake?" Mr Blanks said.
"It would be easy to put people under surveillance and then say they are fake. The bathroom and toilet facilities are one of the places where a person should not be subject to video surveillance."
A spokesman for NSW Attorney-General Greg Smith said whether a criminal offence had occurred would depend on the circumstances.
He gave the example that it would be a crime if a person was filmed while engaged in a private act and it was then used for sexual gratification. However, he said "the criminal offences are unlikely to be made out if the device is simply a dummy".
A spokeswoman for the federal Attorney-General Mark Dreyfus said a private business is only covered by Commonwealth privacy laws if it turns over more than $3 million in a year.
The spokeswoman said the laws cover the dissemination and not the collection of the material, meaning a law would only be breached if the material was broadcast in a public forum, such as YouTube.