Crown's James Packer and Victorian Premier Daniel Andrews (Image: AAP/Tracey Nearmy)

When Daniel Andrews’ former senior adviser Chris Reilly ordered Crown executive Michelle Fielding in May 2019 to intimidate an official of Victoria’s gambling regulator with the warning that Crown would go to Andrews government minister Marlene Kairouz, it was no idle threat.

The Andrews government has kept the Victorian Commission for Gambling and Liquor Regulation (VCGLR) on a tight leash ever since it was elected, and kept the body’s funding below the levels of its predecessors.

A commission official had discovered Crown was failing to comply with a requirement to consult Commonwealth money-laundering regulator AUSTRAC over improving its anti-money laundering controls. AUSTRAC has been investigating the company for money-laundering breaches since last year and in June this year widened that investigation.

Fielding told the Victorian royal commission into Crown that she was told to invoke the minister by Reilly, who was a senior Andrews adviser from Andrews’ election in late 2014 to mid-2018 when he moved to Crown, ostensibly as “general manager — tourism”. Kairouz lost her job after the Adem Somyurek revelations last year.

When Andrews was elected, the VCGLR had been operating for nearly three years after a merger of the alcohol and gambling regulation bodies. As a 2017 Victorian auditor-general report pointed out: “VCGLR has faced budget reductions since it was established. The predecessor organisations — VCGR and RAV — had a combined budget of $41.3 million in 2010-11 and around 287 staff members.” In 2014-15, VCGLR had just $35.2 million in funding from the government and 172 staff.

The report said: “While the merger of RAV and VCGR should have created some cost efficiencies, VCGLR’s establishment coincided with a range of industry changes that had to be rolled out or continued by the regulator.”

The Andrews government did nothing to fix its budget — quite the opposite. According to its annual reports, in 2015-16, its budget was slashed by over 10% to $31 million. The following year saw some small growth, to $34 million — still below the levels of the Liberal government — and an increase in staff to 188. In 2017-18 it had another increase, to $36.8 million, and staff numbers rose to 220. In 2018-19, funding went up to $39.1 million, as well as a one-off payment of $4 million to cover a transaction the regulator had to pay back to the government. In 2019-20, however, the budget was slashed again: from $39 million to $35 million and staffing to 202.

That means its budget last year was below its budget in 2014 in cash terms, before Andrews — and Labor’s close relationship with Crown (to the tune of nearly $180,000 in donations from the company since 2010) — arrived. If Andrews had simply maintained funding in real terms, it should have got more than $40 million every year.

In 2015, the then-portfolio minister Jane Garrett ordered the new chair of the regulator to focus more on regional Victoria, with more funding to regional alcohol compliance. But the VCGLR’s regulation of Crown was the real problem. The auditor-general’s 2017 report was damning:

VCGLR is not able to demonstrate that its casino supervision is efficient or effective as is required for best practice regulation of a major participant in Victoria’s gambling industry. Despite multiple reviews and proposals to improve VCGLR’s approach dating back to 2013, these efforts have not sufficiently progressed due to multiple changes in VCGLR management. Its current approach is not adequately risk-based or purposeful and, while further work is under way to improve this area of regulation, many important activities have been undertaken only sporadically.

In particular:

VCGLR has a standard audit program on the risks of money laundering associated with gaming by premium players at the casino. However, this audit has only been conducted three times since VCGLR was established in 2012 due to a lack of staff with enough knowledge to conduct it.

Remarkably, the regulator didn’t even have a specialist casino inspection team, unlike its predecessor, let alone a coherent approach to enforcing compliance. The Victorian auditor-general came back in 2019 to see if the VCGLR had lifted its game. It commended the regulator for establishing a dedicated 24/7 casino team, ensuring better integration with AUSTRAC — unsurprising given, the auditor-general noted, the company had come under multiple investigations over money-laundering allegations — and making progress in implementing its 2017 recommendations.

But:

Further work is required to complete actions on most recommendations. This includes implementing risk-based models for gambling regulation, embedding the new performance reporting system and monitoring implementation of the quality assurance framework designed to improve compliance.

Until this year, when Andrews was dragged kicking and screaming to call a royal commission into Crown, the regulator had been left to overhaul its monitoring of the company in the face of funding cuts and the constant threat of political pressure.