While never outright stated in the film, after Casey claims that he used the Grandmaster's lost technique of punching into someone's skull with his index finger after having simply shot his opponent, it becomes clear that this is how the Grandmaster himself defeated the other masters and then lied about it.
At first, Sensei's decision to hire Casey as an accountant for the dojo seems like an invitation to discover his blackmailing former students to keep paying membership fees long after they leave. However, Sensei's Faux Affably Evil attitude lasts the entire movie, implying that he genuinely sees Casey as an ally in need of reconditioning. Really, the decision to hire Casey cements Sensei's Blue-and-Orange Morality in believing his actions really were correct in the name of masculine leadership.
Sensei pushes Casey to have a greater interest in the German culture, as he considers Casey's Francophilia to be too feminine for a warrior. Eventually, he rewards Casey black and red stripes to place upon his yellow belt. In other words, Casey's belt is the colors of the German flag.
