[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                      ``MINIMUM INTERNAL CONTROL
                        STANDARDS'' (MICS) FOR
                             INDIAN GAMING

=======================================================================

                           OVERSIGHT HEARING

                               before the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                         Thursday, May 11, 2006

                               __________

                           Serial No. 109-52

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel


                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Thursday, May 11, 2006...........................     1

Statement of Members:
    Kildee, Hon. Dale, a Representative in Congress from the 
      State of Michigan..........................................     2
    Pombo, Hon. Richard W., a Representative in Congress from the 
      State of California........................................     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Aspa, Raymond, Sr., Member, Tribal Council, Colorado River 
      Indian Tribes..............................................    24
        Prepared statement of....................................    25
        Response to questions submitted for the record...........    27
    DesRosiers, Norman H., Commissioner, Viejas Tribal Gaming 
      Commission.................................................    29
        Prepared statement of....................................    31
        Response to questions submitted for the record...........    32
    Ducheneaux, Franklin, Consultant, Representing Minnesota 
      Indian Gaming Association and Great Plains Indian Gaming 
      Association................................................    41
        Prepared statement of....................................    42
    Hogen, Philip N., Chairman, The National Indian Gaming 
      Commission.................................................     3
        Prepared statement of....................................     5
        Response to questions submitted for the record...........    12
    Stevens, Ernest L., Jr., Chairman, National Indian Gaming 
      Association................................................    15
        Prepared statement of....................................    17
    Washburn, Kevin K., Associate Professor, University of 
      Minnesota Law School.......................................    34
        Prepared statement of....................................    36
        Response to questions submitted for the record...........    40



 OVERSIGHT HEARING ON THE ``MINIMUM INTERNAL CONTROL STANDARDS'' (MICS) 
                           FOR INDIAN GAMING.

                              ----------                              


                         Thursday, May 11, 2006

                     U.S. House of Representatives

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to call, at 10:07 a.m. in Room 
1324, Longworth House Office Building, Hon. Richard W. Pombo 
[Chairman of the Committee] presiding.
    Present: Representatives Pombo, Boren, Faleomavaega, 
Kildee, Fortuno.

  STATEMENT OF THE HON. RICHARD W. POMBO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    The Chairman. The Committee on Resources will come to 
order. The Committee is meeting today to hear testimony on the 
issue of Minimum Internal Control Standards for Indian Gaming. 
Under Rule 4(g) of the Committee Rules, any oral opening 
statements at hearings are limited to the Chairman and the 
Ranking Minority Member. This will allow us to hear from our 
witnesses sooner, and help Members keep to their schedules. 
Therefore, if other Members have statements, they can be 
included in the hearing record under unanimous consent.
    The purpose of today's hearing is to examine the status of 
Minimum Internal Control Standards for Indian Gaming. In 1999, 
the National Indian Gaming Commission crafted a final rule 
providing for an objective set of detailed standards that all 
tribes with Class II or Class III casinos must meet or exceed 
running their day-to-day gaming operations.
    These standards, also known by the acronym MICS, cover 
everything from security surveillance to the handling of coins 
by cashiers. The Commission has argued that the purpose of MICS 
is to protect and preserve the integrity of Indian gaming both 
for the benefit of tribal members and for a casino's patrons. 
The Commission conducts audits and investigations of gaming 
facilities to ensure compliance and penalizes violations.
    A number of tribes, however, question the legality of MICS 
as applied to Class III casinos. They argue that the Indian 
Gaming Regulatory Act of 1988 did not vest the National Indian 
Gaming Commission with powers to implement and enforce 
standards for Class III casinos. They also said that Congress 
intended such matters to be handled by tribes and states 
through their negotiated compacts.
    In arguing their case, tribes point to a large amount of 
money they spend on protecting the integrity of their 
operations. They recognize that secure and clean operations are 
critical to the economic future of their members. Last summer 
in a case filed by the Colorado River Indian Tribes, the U.S. 
District Court for the District of Columbia declared the 
Commission's regulations to be unlawful as applied to Class III 
gaming. This brings us to today's hearing.
    It is important for members of the Committee to understand 
why the Commission believed it had the statutory authority for 
implementing MICS, to hear the tribal point of view, and to 
obtain an update on what tribes are doing to maintain secure 
gaming operations. Today's witnesses should cover all 
perspectives, and I look forward to hearing from them. I would 
like at this time to recognize Mr. Kildee for his opening 
statement.
    [The prepared statement of Mr. Pombo follows:]

        Statement of The Honorable Richard W. Pombo, Chairman, 
                         Committee on Resources

    The purpose of today's hearing is to examine the status of minimum 
internal control standards for Indian gaming. In 1999, the National 
Indian Gaming Commission crafted a final rule providing for an 
objective set of detailed standards that all tribes with class II or 
class III casinos must meet or exceed in running their day-to-day 
gaming operations.
    These standards, also known by the acronym ``MICS,'' cover 
everything from security surveillance to the handling of coins by 
cashiers. The Commission has argued that the purpose of MICS is to 
protect and preserve the integrity of Indian gaming, both for the 
benefit of tribal members and for a casino's patrons. The Commission 
conducts audits and investigations of gaming facilities to ensure 
compliance, and penalize violations.
    A number of tribes, however, questioned the legality of MICS as 
applied to class III casinos. They argued that the Indian Gaming 
Regulatory Act of 1988 did not vest the National Indian Gaming 
Commission with powers to implement and enforce standards for class III 
casinos. They also said that Congress intended such matters to be 
handled by tribes and states through their negotiated compacts. In 
arguing their case, tribes point to the large amount of money they 
spend on protecting the integrity of their operations. They recognize 
that secure and clean operations are critical to the economic future of 
their members.
    Last summer, in a case filed by the Colorado River Indian Tribes, 
the U.S. District Court for the District of Columbia declared the 
Commission's regulations to be unlawful as applied to class III gaming.
    This brings us to our hearing today. It's important for Members of 
the Committee to understand why the Commission believed why it had the 
statutory authority for implementing MICS, to hear the tribal point of 
view, and to obtain an update on what tribes are doing to maintain 
secure gaming operations.
    Today's witnesses should cover all perspectives and I look forward 
to hearing from them.
                                 ______
                                 

   STATEMENT OF THE HON. DALE E. KILDEE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Kildee. Thank you very much, Mr. Chairman. I will be 
very brief. I would just like to welcome all the witnesses. I 
think I know all of you. Of course everyone knows Ernie 
Stevens. I see him regularly, but I also would like to call 
attention to Frank Ducheneaux, who used to work for this 
committee, and Frank helped to write IGRA when I was on the 
Committee. I helped in that writing, but Frank, it is good to 
see you back. I think you are out in Montana now with the Great 
Plains Gaming Association, but always good to see all of you, 
and I look forward to your testimony.
    The Chairman. Thank you. I would like to call up our panel 
of witnesses. Although I do not often have panels with six 
witnesses, members have very busy schedules today and having 
everyone at the table may allow for some interaction and 
responses between the witnesses.
    Today's witnesses are Mr. Phil Hogen, Chairman of the 
National Indian Gaming Commission; Mr. Ernie Stevens, Chairman 
of the National Indian Gaming Association; Mr. Raymond Aspa, 
Sr., Member of the Tribal Council of the Colorado River Indian 
Tribes; Mr. Norm DesRosiers, a Viejas Tribal Gaming 
Commissioner; Professor Kevin Washburn of the University of 
Minnesota; Mr. Frank Ducheneaux, a Consultant for Gaming 
Associations in the Great Plains in Minnesota and a former 
Counsel on Indian Affairs under former Chairman of the 
Committee, Mo Udall. If you would all join us at the witness 
table. If I could just have you stand and raise your right 
hands.
    [Witnesses sworn.]
    The Chairman. Thank you very much. Let the record show they 
all answered in the affirmative. Welcome to the Committee. 
Welcome back to most of you. Mr. Hogen, we are going to begin 
with you. When you are ready, you can begin. I would like to 
remind all of our witnesses that your oral testimony is limited 
to five minutes, but your entire written testimony will appear 
in the record. Mr. Hogen, when you are ready you can begin.

              STATEMENT OF PHIL HOGEN, CHAIRMAN, 
             THE NATIONAL INDIAN GAMING COMMISSION

    Mr. Hogen. Good morning, Mr. Chairman, Ranking Member 
Rahall and members of the Committee. My name is Phil Hogen, and 
I am a member of the Oglala Sioux Tribe from South Dakota, 
chairing the National Indian Gaming Commission. With me today 
is Commissioner Choney. Commissioner Choney is a full blood. He 
is half Kiowa, half Comanche, enrolled as Comanche. Currently 
we are the full commission. That is that there are just two of 
us at the present time.
    I am pleased to be part of this panel, and I think all 
members of this panel would certainly agree that tribal 
sovereignty is vitally important, and Congress and the tribes 
themselves can never lose sight of that. I think they might all 
agree with me that Indian gaming perhaps has done more than 
anything else in recent decades to promote sovereignty. It has 
given tribes the resources to be a player, politically to be a 
player, economically to have a presence in their community that 
prior to having these resources they were not able to achieve.
    Probably where we do not agree is what is the role of the 
Federal government with respect to oversight of this economic 
miracle, Indian gaming, that has come to pass since the 1980s? 
I think we are on the cusp of a change in the way things have 
worked since 1988 when the Indian Gaming Regulatory Act was 
enacted.
    A couple of things were true in 1988. One, Indian gaming 
was bingo, and two there was really limited experience in the 
whole United States with respect to regulation of large scale 
commercial gaming. Nevada had been doing it for awhile, took 
their lumps, but finally got there. New Jersey had been doing 
it for a little while, and what was learned in those 
experiences was that it was important to separate, to keep 
independent the regulation from the management from the 
operation of the gaming.
    The nature of gambling is such that it is a cash-intensive 
business. There are lots of undocumented transactions. You have 
to scrutinize it. You have to regulate it very intensely.
    They also said in the Indian Gaming Regulatory Act that the 
purpose was to promote economic development in Indian country 
so tribes could become strong, they could become self-
sufficient, and they also created my agency, the National 
Indian Gaming Commission. It said that we were to promulgate 
some Federal standards for gaming. It said that we were to 
provide some oversight. It said that we were to enforce, take 
enforcement action when there were violations of that Indian 
Gaming Regulatory Act, the regulations that NIGC promulgated, 
as well as violations of the tribe's own tribal gaming 
ordinance that NIGC had to review and approve.
    It took awhile for NIGC to get up and running. It was not 
until the early 1990s that it was going, and it was soon 
discovered that there was great diversity out there in Indian 
gaming. There was a lack of common standards to apply to what 
was happening. Some in Congress urged the creation of some 
internal control standards that the performance could be 
measured against, and quickly to respond to that the National 
Indian Gaming Association, the National Congress of American 
Indians put together a task force, came up with some 
recommended minimum internal control standards.
    NIGC followed that by assembling a tribal advisory 
committee in 1998 and in 1999, and formulated what had become 
the NIGC minimum internal control standards. In your opening 
statement, Mr. Chairman, you described well what those cover.
    Finally, NIGC had a rule book that we could take out to 
Indian country to measure the performance against, and we found 
that most of that performance was pretty good but there were 
places were it was not very good. With this standard, with 
these minimum standards that had to be met or exceeded, we were 
able to help tribes come up to that professional standard.
    When the Indian Gaming Act was passed, it was about a $200 
million bingo industry. In 1999, when we finally did this, it 
was a $10 billion industry. It had changed dramatically. Today 
it is a $20 billion industry, and over 80 percent of that $20 
billion is class III gaming. That is where the action is. That 
is where the lion's share of Indian gaming revenues are 
generated.
    At the time we adopted the minimum internal control 
standards, tribes argued you are overstepping your authority. 
You do not have the right to do this because that Class III is 
going to be governed by the tribal-state compact. We said, well 
no. We have the right to take this enforcement if there is a 
violation of IGRA, our regs and so forth so we are going to do 
it this way.
    In addition to coming up with the regs, we went out and did 
audits to see how this performance measured up against those 
standards, and we found quite a number of violations. We did 
not say close the door, stop, aha we got you. We said, let us 
help you fix it, and in almost all cases that worked.
    We have never taken enforcement action to close a facility 
for failure to comply with the standards. We have agreed with 
some tribes that they would close their doors until they got up 
to speed, and that has worked great. But it is human nature to 
do a better job when you know that somebody is going to be 
looking at your work. That is what we do.
    We are not big enough to be all present like tribes who are 
the primary regulators are or the states when they have 
compacts but we come along, take a look at it, and literally we 
never stumble across state regulators who are there doing what 
we are doing. They are a great diversity with respect to what 
happens in the states pursuant to their compacts and we tailor 
our presence in accordance with that.
    When Colorado River brought their suit against us, we 
argued we have a right to do this. The Court agreed with the 
tribes, and so now we are threatened to change this structure 
that has helped develop the Indian gaming industry, and I think 
that is a real threat. I think that the Indian gaming industry 
will be much better served if we continue to provide this 
oversight.
    We spend about $11 million doing what we do. The tribes 
themselves spend $300 million or something like that, and so 
you can see we do not have much of a presence, but I think it 
is a significant presence, and we think the law needs to be 
clarified so that we can keep doing what has worked so well 
since 1999. Thank you.
    [The prepared statement of Mr. Hogen follows:]

                Statement of Philip N. Hogen, Chairman, 
                   National Indian Gaming Commission

    Good morning Chairman Pombo, Ranking Member Rahall and members of 
the Committee.
    My name is Philip Hogen, and I am a member of the Oglala Sioux 
Tribe from South Dakota. I have had the privilege of Chairing the 
National Indian Gaming Commission (NIGC) since December of 2002. 
Currently the NIGC consists of two members, myself and Associate 
Commissioner Cloyce Choney, who is here with me today.
    I commend the Committee for observing that the diversity and 
dramatic growth of Indian gaming since the passage of the Indian Gaming 
Regulatory Act in 1988 makes it timely to revisit that legislation, to 
address concerns that were not anticipated when IGRA was enacted, and 
to attempt to further perfect something that fostered an economic 
miracle in Indian country. I want to direct my comments today primarily 
toward the NIGC's authority over Class III gaming.
    In 1987, when the Supreme Court decided the Cabazon case and 
clarified that tribes had the right to regulate gambling on their 
reservations, provided that the states wherein they were located did 
not criminally prohibit that activity, large-scale casino gaming 
operations existed only in Nevada and New Jersey. The Indian Gaming 
Regulatory Act was passed in 1988 and established the framework for the 
regulation of Tribal gaming. That same year, Florida became the first 
state in the southern United States, and the 25th overall, to create a 
state lottery. In 1989, South Dakota legalized gambling in the historic 
gold mining town of Deadwood and Iowa and Illinois legalized riverboat 
gambling. The following year, Colorado legalized gambling in some of 
its old mining towns, and in 1991, Missouri legalized riverboat 
gambling. By that time, 32 states operated lotteries, while tribes ran 
58 gaming operations. Thus, not just in Indian country but throughout 
the United States there was at that time a manifest social and 
political acceptance of gambling as a source of governmental revenue. 
What is also evident is that very few states had experience in the 
regulation of casino gaming.
    When IGRA was enacted, those tribes then engaged in gaming were 
primarily offering bingo. While there may have been an expectation in 
Congress that there would be a dramatic change in the games tribes 
would offer, I think it is reasonable to assume many expected Tribal 
gaming would continue to be primarily Class II, or uncompacted, gaming. 
After 1988, when tribes began negotiating compacts for casinos with 
slot machines and banked games, most of the states they negotiated with 
had little or no experience in regulating full-time casino operations. 
Michigan, for example, first compacted with Tribes in 1993 but didn't 
create its own Gaming Control Board or authorize commercial gaming 
until the end of 1996. Minnesota began compacting with Tribes in 1990 
and to this day has no non-Indian casinos within its borders.
    A review of compacts approved since 1989 shows that the more recent 
compacts often address the mechanics of the oversight and regulation of 
the gaming quite specifically, but that earlier compacts, many of which 
were entered into in perpetuity, do not. Further, the dispute 
resolution provisions in the compacts often employ cumbersome and time-
consuming procedures like mediation or arbitration that do not 
necessarily foster effective regulation. For example, in the 22 states 
with Class III gaming, 12 provide for some form of mediation or 
arbitration with varying degrees of specificity and enforceability. 
Attached as Exhibit 1 is a chart summarizing the internal control and 
dispute resolution provisions of the compacts in these 22 states.
    When the NIGC came on the scene, actually getting up and running in 
the early 1990s, it believed--and still believes--that its mission was 
to provide effective oversight of Tribal gaming. IGRA--states that it 
established the NIGC as an independent Federal regulatory authority 
over Indian gaming in order to address Congressional concerns and to 
advance IGRA's overriding purposes. These are to ensure that Tribal 
gaming would promote Tribal economic development, self-sufficiency and 
strong Tribal governments; to shield gaming from organized crime and 
other corrupting influences; to ensure that the tribes were the primary 
beneficiaries of their gaming operations; and to ensure that gaming 
would be conducted fairly and honestly by both the Tribal gaming 
operations and its customers. IGRA therefore authorizes the Chairman to 
penalize, by fine or closure, violations of the Act, the NIGC's own 
regulations, and approved Tribal gaming ordinances.
    Of course, the dramatic growth of Indian gaming was in the 
direction of Class III, or casino-style gaming, to the point where 
today it represents more than 80% of gross gaming revenue. While in 
1988, the Indian gaming industry's gross gaming revenue was $200 
million, we estimate that it was $22.5 billion in 2005. Class III 
gaming, therefore, accounts for at least $18 billion of this revenue. 
Attached as Exhibit 2 are charts showing the growth and diversity of 
Indian gaming.
    There is a vast diversity among Class III Tribal gaming operations, 
not only in size and revenues, but in the effort and resources devoted 
to regulation and oversight. Historically, casino gaming has been a 
target for illicit influences. Nevada's experience provides a classic 
case study of the evolution of strong, effective regulation. It was not 
until Nevada established a strong regulatory structure--independent 
from the ownership and operation of the casinos themselves--and 
developed techniques such as full-time surveillance of the gaming 
operations that most criminal elements were eliminated from the gaming 
industry there. All jurisdictions that have subsequently legalized 
gaming have looked to Nevada's experience to help guide their own 
regulation and oversight.
    In the major non-Indian gaming jurisdictions in the United States, 
casino gaming is owned and operated by the private sector, and the 
regulation is provided by the state--the public sector. Indian gaming 
is different, for the most part, in that the gaming operations are 
owned and regulated by the public sector--the tribe. A similar 
situation exists with respect to most state lotteries. They are owned, 
operated and regulated by the state itself, but of course with a very 
few exceptions, state governments are much larger political units, and 
the separation of regulation from operation--the independence of the 
regulation--is more apparent.
    With Tribal gaming, the diversity of operations is great. Both 
rural weekly bingo games and the largest casinos in the world are 
operated by Indian tribes under IGRA, and as the industry grew, it 
appeared that large numbers of Tribal operations, particularly smaller 
ones, were not operated or regulated comparably with the operation and 
regulation of commercial casinos in gaming states. NIGC needed tools 
appropriate to its oversight responsibilities. What it lacked was a 
rule book for the conduct of professional gaming operations and a 
yardstick by which the operation and regulation of Tribal gaming could 
be measured.
    By the late 1990's, some in Congress expressed concerns that 
uniform minimum internal control standards, which were common in other 
established gaming jurisdictions, were lacking in Tribal gaming. The 
industry itself was sensitive and responsive to those concerns and a 
joint National Indian Gaming Association--National Congress of American 
Indians task force recommended a model set of internal control 
standards. Ultimately, NIGC adopted its Minimum Internal Control 
Standards (MICS) and applied them to all Tribal Class II and Class III 
Tribal gaming operations.
    The MICS provide, in considerable detail, minimum standards that 
Tribes must follow when conducting Class II and III gaming. To choose a 
few of many possible examples, the MICS prescribe a method for removing 
money from games and counting it so as best to prevent theft; they 
prescribe a method for the storage and use of playing cards so as best 
to prevent fraud and cheating; and they prescribe minimum resolutions 
and floor area coverage for casino surveillance cameras. Attached as 
Exhibit 3 is a copy of the MICS table of contents, which provides a 
more details overview of their comprehensive scope.
    At the time of adoption, of course, many Tribal gaming operations 
and Tribal regulatory units were already far ahead of the minimums set 
forth in the MICS. Other tribes, however, had no such standards, and 
for the first time they had the necessary rule book by which to 
operate, and NIGC had a yardstick with which to measure their 
performance.
    I served as an Associate Commissioner on the NIGC from 1995 through 
mid-1999, and I participated in the decision to adopt and implement the 
MICS. I have now served as the Chairman since December of 2002. It is 
my confirmed view that the Minimum Internal Control Standards--given 
the tribes' strong effort to meet and exceed them and the inspections 
and audits that NIGC conducts to ensure compliance--have been the 
single most effective tool that our Federal oversight body has had to 
utilize to ensure professionalism and integrity in Tribal gaming.
    The NIGC employs three methods of monitoring Tribal compliance with 
the MICS. First, the MICS require that when tribes have their annual 
independent audit conducted, their auditors make a thorough review of 
tribes' MICS compliance, and the auditors' reports are sent not only to 
the Tribal government but to the NIGC. In other words, the tribes 
themselves must monitor how effectively they comply with the MICS and 
their own internal control standards. Prior to NIGC's adoption of its 
MICS, reports of this nature were seldom generated, and in my opinion, 
this serious scrutiny of Tribal gaming operations was sorely lacking.
    Next, on a regular basis, NIGC investigators and auditors make site 
visits to Tribal gaming facilities and spot check Tribal compliance. 
Finally, NIGC auditors conduct a comprehensive MICS audit of a number 
of Tribal facilities each year. Typically those audits will identify 
instances wherein tribes are not in compliance with specific minimum 
internal control standards. In fact, we find, on average, anywhere 
between 35 and 90 MICS violations per audit. These include both minor 
items of non-compliance, such as recordkeeping failures, and major 
items of non-compliance--such things as the failure to investigate cash 
variances and the failure to perform proper cash cage accounting. 
Attached as Exhibit 4 is a table summarizing the number and kinds of 
MICS violations found from January 2001 through February 2006.
    All of that said, the non-compliance is then almost always 
successfully resolved by the tribe. The result is that the NIGC is 
pleased that the tribe has a stronger regulatory structure, and the 
tribe is pleased that it has plugged a gap that might have permitted a 
drain on Tribal assets and revenues. Although there have been instances 
where the non-compliance with the MICS was not resolved, in those 
instances the tribes were persuaded to voluntarily close their 
facilities until the shortcomings were rectified. NIGC has never yet 
issued a closure order or fine for Tribal non-compliance with the MICS.
    For six years, NIGC oversight of Class II and Class III gaming with 
the use of minimum internal control standards went quite smoothly. The 
MICS were, for the most part, well accepted by Tribal operators and 
regulators and by state regulators who played roles in the regulation 
of Tribal gaming where Tribal-state compacts so provided. NIGC has not 
attempted to be, and in my opinion has not been, too intrusive in the 
manner in which the MICS were applied and enforced.
    When necessary, NIGC revised its MICS, and it employed the 
assistance of Tribal advisory committees in doing so. Each time, 
though, there were expressions of concern by tribes that NIGC was 
reaching beyond its jurisdiction under IGRA. As it did when the MICS 
were adopted initially, NIGC considered those arguments, but rejected 
them, based on the various mandates from Congress.
    When NIGC initiated a MICS audit at the Blue Water Resort and 
Casino of the Colorado River Indian Tribes on its reservation in 
Parker, Arizona, in January 2001, the issue of NIGC's jurisdiction over 
Class III gaming again arose. The NIGC concluded it was being denied 
access to perform its audit, took enforcement action, and imposed a 
penalty. While an arrangement was eventually negotiated that permitted 
the audit to be completed, the Tribe reserved its right to challenge 
NIGC's Class III MICS authority in court and eventually filed such an 
action in U.S. District Court for the District of Columbia. On August 
24, 2005, the court rendered an opinion concurring with the tribe's 
position and finding that NIGC had exceeded its authority in issuing 
MICS for Class III gaming. The court wrote:
        A careful review of the text, the structure, the legislative 
        history and the purpose of the IGRA...leads the Court to the 
        inescapable conclusion that Congress plainly did not intend to 
        give the NIGC the authority to issue MICS for Class III gaming.

Colo. River Indian Tribes v. NIGC, 383 F. Supp. 2d 123, 132 (D.D.C. 
2005).
    While the opinion is broad, the order entered in the action is 
narrow. It applies only to NIGC and its relationship with the Colorado 
River Indian Tribes. The court entered no injunction and did not strike 
down the MICS. The case is now on appeal. The entire Indian gaming 
community is watching this case with interest, and it is watching the 
Congress. Some of the provisions contained in S. 2078, now out of the 
Committee on Indian Affairs and before the full Senate, seek to clarify 
NIGC's authority over Class III gaming generally, and in particular, 
the bill would make clear NIGC's authority to issue MICS and to require 
Class III operations to comply with them.
    If the NIGC's role with respect to its minimum internal control 
standards and Class III gaming is not clarified by the courts or 
legislation, most tribes will continue to operate first-rate, well-
regulated facilities, and their Tribal gaming regulatory entities will 
perform effectively. Others will likely not. NIGC has been advised by a 
number of tribes that if IGRA is not amended to clarify NIGC's role in 
the Class III area, or if the Colorado River Indian Tribes decision is 
not reversed, they will discontinue the practice of having these 
reviews conducted by their auditors. There will be temptations, 
generated by demands for per capita payments or other Tribal needs, to 
pare down Tribal regulatory efforts and bring more dollars to the 
bottom line. There will be no federal standard that will stand in 
tribes' way should this occur. For the most part, the NIGC will become 
an advisory commission rather than a regulatory commission for the vast 
majority of Tribal gaming. The very integrity of the now-smoothly-
operating regulatory system, shared by Tribal, state and federal 
regulators, will be disrupted. If there is one imperative change that 
needs to be made in the Indian Gaming Regulatory Act, in the view of 
this NIGC Chairman and consistent with the legislative proposal that 
the NIGC sent to this Congress in March 2005, it is the clarification 
that NIGC has the authority to regulate Class III gaming.
    In conclusion, let me again say that while it may not have been 
anticipated initially, the lion's share of Tribal gaming activity is 
casino gaming conducted pursuant to Tribal-state compacts. Without the 
NIGC's oversight role, much of that gaming would lack effective 
oversight from an entity independent from the gaming operation itself. 
NIGC does not seek to expand its limited oversight role over Class III 
gaming but rather to continue the effective role that it has been 
playing since 1999.

[GRAPHIC] [TIFF OMITTED] T7518.001

[GRAPHIC] [TIFF OMITTED] T7518.002

[GRAPHIC] [TIFF OMITTED] T7518.003

[GRAPHIC] [TIFF OMITTED] T7518.004

[GRAPHIC] [TIFF OMITTED] T7518.005

        Exhibit #3--PART 542--MINIMUM INTERNAL CONTROL STANDARDS

                            Section Contents

Sec. 542.1   What does this part cover?

Sec. 542.2   What are the definitions for this part?

Sec. 542.3   How do I comply with this part?

Sec. 542.4   How do these regulations affect minimum internal control 
standards established in a Tribal-State compact?

Sec. 542.5   How do these regulations affect state jurisdiction?

Sec. 542.6   Does this part apply to small and charitable gaming 
operations?

Sec. 542.7   What are the minimum internal control standards for bingo?

Sec. 542.8   What are the minimum internal control standards for pull 
tabs?

Sec. 542.9   What are the minimum internal control standards for card 
games?

Sec. 542.10  What are the minimum internal control standards for keno?

Sec. 542.11  What are the minimum internal control standards for pari-
mutuel wagering?

Sec. 542.12  What are the minimum internal control standards for table 
games?

Sec. 542.13  What are the minimum internal control standards for gaming 
machines?

Sec. 542.14  What are the minimum internal control standards for the 
cage?

Sec. 542.15  What are the minimum internal control standards for 
credit?

Sec. 542.16  What are the minimum internal control standards for 
information technology?

Sec. 542.17  What are the minimum internal control standards for 
complimentary services or items?

Sec. 542.18  How does a gaming operation apply for a variance from the 
standards of the part?

Sec. 542.20  What is a Tier A gaming operation?

Sec. 542.21  What are the minimum internal control standards for drop 
and count for Tier A gaming operations?

Sec. 542.22  What are the minimum internal control standards for 
internal audit for Tier A gaming operations?

Sec. 542.23  What are the minimum internal control standards for 
surveillance for Tier A gaming operations?

Sec. 542.30  What is a Tier B gaming operation?

Sec. 542.31  What are the minimum internal control standards for drop 
and count for Tier B gaming operations?

Sec. 542.32  What are the minimum internal control standards for 
internal audit for Tier B gaming operations?

Sec. 542.33  What are the minimum internal control standards for 
surveillance for Tier B gaming operations?

Sec. 542.40  What is a Tier C gaming operation?

Sec. 542.41  What are the minimum internal control standards for drop 
and count for Tier C gaming operations?

Sec. 542.42  What are the minimum internal control standards for 
internal audit for Tier C gaming operations?

Sec. 542.43  What are the minimum internal control standards for 
surveillance for a Tier C gaming operation?

[GRAPHIC] [TIFF OMITTED] T7518.006


                       Exhibit #4 MICS Compliance
                                  2/2
      Findings common to most MICS compliance audits:

        Lack of statistical game analysis;

        Ineffective key control procedures;

        Failure to secure gaming machine jackpot/fill system;

        Failure to effectively investigate cash variances/missing 
supporting documentation for the cage accountability/failure to 
reconcile cage accountability to general ledger on a monthly basis;

        Inadequate segregation of duties and authorization of 
players tracking system account adjustments;

        Ineffective internal audit department audit programs, 
testing procedures, report writing and/or follow-up;

        Deficient surveillance coverage and recordings;

        Noncompliance with Internal Revenue Service Regulation 31 
CFR Part 103;

        Failure to exercise technical oversight or control over 
the computerized gaming machine systems, including the maintenance 
requirements for personnel access;

        Failure to properly document receipt and withdrawal 
transactions involving pari-mutuel patrons' funds and a lack of a 
comprehensive audit procedures of all pari-mutuel transactions;

        Failure to adequately secure and account for sensitive 
inventory items, including playing cards, dice, bingo paper and keno/
bingo balls; and

        Failure to adopt appropriate overall information 
technology controls specific to hardware and software access to ensure 
gambling games and related functions are adequately protected.
                                 ______
                                 

                              June 6, 2005

The Honorable Richard Pombo, Chairman
House Appropriations Committee
Longworth House Office Building
Washington, DC 20515

Chairman Pombo:

    The National Indian Gaming Commission (NIGC) would like to thank 
you for your continued leadership as Chairman of the House Resource 
Committee. We are especially thankful for your commitment to ensure the 
Indian gaming industry continues to provide much needed economic 
opportunities for Indian communities throughout the country.
    As a result of the House Resource Committee oversight hearing on 
May 11, 2006, several questions from Members of the Committee were 
referred to the NIGC. Following are the questions asked and answers 
from the NIGC.
The Honorable Nick J. Rahall
1.  In your testimony, you reference that many expected Tribal gaming 
        to continue mainly as Class II bingo. Can you elaborate on why 
        you came to that conclusion?
    It is my personal recollection that testimony in the 99th and 100th 
sessions of Congress presented to the Senate Indian Affairs Committee 
primarily centered on bingo and the electronic aids being offered by 
Tribes to bingo players. In addition, at the time the Cabazon case was 
decided by the U.S. Supreme Court in 1987, the preeminent form of 
gaming in Indian Country was bingo generally and high stakes bingo in 
particular. At that time, the only two states with full casino gaming 
were Nevada and New Jersey and the prospect of other states authorizing 
casino gaming was fairly narrow. Many States had forms of bingo and 
pull-tab games. It was upon this foundation that the Cabazon and 
Seminole Tribes built their cases in Federal Court. IGRA was enacted in 
this context and it is from this that the expectation about the 
direction and growth of Tribal gaming is drawn.
2.  You testified that non-Indian gaming is regulated by the states--
        isn't that exactly the situation Congress set up by requiring 
        Tribes to enter into State compacts? Do you feel the states are 
        incapable of regulating Indian gaming?
    As to the first part of the question, the answer is ``no.'' IGRA 
set up a mechanism under which Tribes may conduct Class III gaming only 
in states where such activity is permissible under state law, where the 
Tribes enter into compacts with states relating to this activity, and 
where the compacts are approved by the Secretary of the Interior. 
Compacts might include specific regulatory structures and give 
regulatory responsibility to the Tribe, to the state, or to both in 
some combination of responsibilities. In fact, since the passage of 
IGRA, 232 Tribes have executed 249 Class III compacts with 22 states, 
and the allocation of regulatory responsibility, if addressed at all, 
is as diverse as the states and Tribes that have negotiated them.
    Typically, the regulatory role a particular state undertakes in its 
compact is dependant upon that state's experience with the regulation 
of its own legalized gaming at the time the compact was negotiated. 
Some states developed effective regulatory programs, and the compacts 
these states negotiated require regular state oversight of Indian 
gaming, technical standards and testing protocols for gaming machines, 
and internal control requirements. Other states, however, have only 
limited gaming and limited experience regulating gaming. Their compacts 
provide them a minimal regulatory role. In some cases, compacts are 
little more than revenue-sharing agreements between the state and the 
Tribe.
    As to the second part of your question, states certainly are 
capable of regulating gaming of any kind--Indian gaming, commercial 
gaming, charitable gaming--if they so choose. Some states have made a 
conscious effort to develop well-funded and well-staffed regulatory 
bodies to work in collaboration with the Indian Tribes. Some states 
have not.
3.  You testify as to how hard the Commission works with Tribes to 
        mutual benefit. Given the strong opposition by Tribes to 
        opening IGRA in order to give the Commission this regulatory 
        authority over Class III games, do you see a more agreeable way 
        to reach the goal of all Tribes having the same MICS?
    As a preliminary matter, the NIGC's view is that it has--because 
Congress intended it to have--regulatory oversight authority over Class 
III gaming. Given the district court's decision in the Colorado River 
Indian Tribes (CRIT) case, the NIGC is seeking clarification of the 
point from Congress.
    That said, without authority to publish, implement and enforce 
MICS, it would be very difficult to envision a uniform way of reaching 
the goal of nationwide, uniform MICS. Just as importantly, without 
Class III oversight authority, it is difficult to envision a uniform 
way to monitor and enforce MICS. It is important to point out that 
merely having MICS does not assure that they will be applied in a 
consistent and effective manner. Effective MICS require the expenditure 
of resources to ensure the security of Tribal assets and the flow of 
funds into, within, and out of the casino. It is the experience of the 
NIGC that diligent oversight and enforcement are necessary in order to 
assure that the MICS receive the priority and resources necessary to 
maintain the integrity of a given operation.
    Inherent to gaining an understanding of the regulator--operator 
relationship is the recognition that the overseers are motivated by a 
mission to safeguard the reputation of an industry, whereas the 
operator is driven by a desire to maximize profits. These two 
objectives are not necessarily in sync, particularly in the short term.
    Generally accepted gaming regulatory practices would dictate that 
the oversight function has certain key elements. For example, relevant 
to the operation of a gaming enterprise, a regulatory authority will 
require internal controls be implemented to ensure the accurate 
recognition and recordation of financial data. The regulator will also 
require monitoring and surveillance to protect games from compromise. 
Obviously, such effective control systems have a cost, and history has 
clearly revealed that, left to the discretion of the gaming operator, 
such costs will, when practical, be saved and the money taken out of 
the operation on the bottom line. Moreover, if this kind of decision 
making becomes common across the industry, it will damage the 
industry's credibility, with the further consequence that reputable, 
operators, managers, and vendors will curtail their involvement.
    It is, of course, clear that Tribes have a very strong interest in 
assuring that their operations are adequately regulated. Consequently, 
some Tribes have gaming commissions supported by multimillion dollar 
budgets. These commissions, as well as many smaller commissions with 
very small budgets, have identified scams and cheats, refused to 
license unsuitable vendors and job applicants, removed vulnerable 
machines from play, and perform a multitude of other regulatory 
functions. The integrity and reputation of the Tribal gaming industry 
is adversely affected if one Tribe has a problem or is identified as 
running a less than reputable operation.
    Nonetheless, some gaming commissions are not sufficiently 
independent of the Tribal governments or the managers that operate the 
gaming operation. In this connection something may be learned from the 
history of the established gaming jurisdictions, particularly Nevada. 
The effectiveness of a gaming regulatory authority in Nevada was 
realized in a process that evolved over a forty-year period and is 
continuing to improve and respond to change today. Only after creation 
of a separate regulatory authority solely devoted to the regulation of 
gaming did the industry have effective oversight and enforcement.
4.  Should Tribes that don't have outside oversight of MICS included in 
        their compacts be handled differently from those that do?
    If the Tribal-state compact provides for comprehensive MICS that 
meet or exceed the NIGC MICS, and if those MICS are independently 
monitored, then it may be possible to view those situations as unique. 
As pointed out in the answer to question #2, though, MICS in and of 
themselves are not enough to insure their implementation and 
enforcement. It is also not enough to say that the Tribes will be 
solely responsible for oversight as the answer in #3 indicates.
    Further, a review of compacts approved since 1989 shows that the 
more recent compacts often address the mechanics of the oversight and 
regulation of the gaming quite specifically but that earlier compacts, 
many of which were entered into in perpetuity, do not. The staff 
necessary to effectively oversee and enforce is often lacking. For 
example, Oklahoma has 94 Tribal gaming operations and three full-time 
gaming employees; Michigan has 17 Tribal gaming operations and three 
full-time gaming employees; Arizona has 22 Tribal gaming operations but 
66 full-time gaming employees; and nine states have no full-time 
oversight at all. As you can see, the range is large.
The Honorable Dale Kildee
At the hearing you stated that a Tribe recently cited the Colorado 
        River Tribes case, as refused NIGC auditors entry to their 
        class III facility.
  Please provide the Committee with more detail about this 
        encounter, for example, under what authority of law did the 
        investigators claim seeking entry?
    On April 3, 2006, NIGC field investigators contacted the 
Confederated Salish and Kootenai Tribes in Montana, attempting to 
arrange a routine visit for April 24--a tour of gaming operations and 
follow up on audit results and some compliance issues cited in an 
earlier inspection. On April 12, 2006, one field investigator received 
an e-mail asking for additional details, including the NIGC's authority 
for the visit. On April 17, 2006, our regional director responded, 
informing the Tribe that the visit was routine and the items to be 
inspected would be determined by the field investigators upon their 
arrival using Tribal and NIGC regulations as guidelines. Our regional 
director also informed the Tribe that the visit would be made was 
pursuant to the authority granted NIGC by IGRA. When the field 
investigators arrived for their visit, they were told that they were 
being denied entry pursuant to the ruling in the CRIT case. We 
requested a written verification of this denial. A copy of the letter 
from the Tribe is attached. At this point the NIGC has taken no other 
action.
    Since my testimony we have received another challenge from the 
Siletz Tribe in Oregon. The NIGC regional office in Portland issued a 
warning to the Tribe for refusing access to financial information 
required by the NIGC approved gaming ordinance. A copy of the response 
from the Tribe's attorney is attached.
  IGRA clearly provides the NIGC with authority to approve 
        Tribal gaming ordinances. Does the NIGC have authority to 
        enforce such ordinances?
    Yes. IGRA authorizes the Commission to penalize violations of the 
Act, of the Commission's own regulations, and of approved Tribal gaming 
ordinances.
  If so, what enforcement actions can be taken?
    IGRA gives enforcement authority to the NIGC Chairman. He or she 
may penalize violations by imposition of civil fines up to $25,000 per 
day and closure of Tribal gaming facilities.
  Is it possible for the NIGC to require Tribes to establish 
        minimum internal control standards in their gaming ordinances 
        prior to approval?
    As indicated above, it is imperative to not only have the MICS in 
place, but that they are enforced in a consistent and effective manner. 
Given the district court's decision in the CRIT case, however, and some 
Tribes' subsequent refusal to recognize the NIGC's Class III 
enforcement authority, any possible assertion of such a requirement 
would doubtless invite further opposition and litigation.
    Over the past 18 years, the Indian gaming industry has experienced 
a tremendous growth and it appears this trend will continue for years 
to come. It is my goal as NIGC Chairman to ensure the Indian Gaming 
Regulatory Act is being properly adhered to and clarification is the 
most important issue facing the Indian gaming industry.
    Again, thank you for your leadership as Chairman of the House 
Resource Committee. Please feel free to contact Shawn Pensoneau at 
(202) 418-9808 if you have further questions.

                               Sincerely,

                            Philip N. Hogen

                                Chairman

                                 ______
                                 
    The Chairman. Thank you. Mr. Stevens.

             STATEMENT OF ERNIE STEVENS, CHAIRMAN, 
             THE NATIONAL INDIAN GAMING ASSOCIATION

    Mr. Stevens. Good morning, Mr. Chairman and members of the 
Committee. It is a great honor to be here this morning. I just 
wanted to mention that in the last five years I have had the 
great honor to serve as Chairman of the National Indian Gaming 
Association working for the tribal leadership. I would like to 
thank you for inviting NIGA to share our concerns regarding 
Indian gaming regulation and the minimum internal control 
standards.
    With your permission, I would like to submit my written 
testimony for the record. I will summarize it for you today, 
Mr. Chairman.
    Tribal government gaming has proven to be the most 
successful tool for economic development for tribes in over 200 
years. We are very proud of our industry. We feel that it has 
grown into this very successful economic development for Indian 
country. We feel like it has grown in a very, very responsible 
manner, and we are proud of that.
    Through gaming many tribal governments are now rebuilding 
their community infrastructure, and are now providing basic 
programs to their citizens that many Americans have enjoyed for 
generations. While gaming does not benefit every tribe, it does 
provide crucial employment opportunities and hope for a better 
future for the over 200 tribes that do conduct gaming.
    For these reasons, tribal leaders have generally opposed to 
amending IGRA because of the great risk that tribal self-
government could be compromised. Tribes throughout the Nation 
also realize that great benefits of tribal government gaming 
would not be possible without solid regulation.
    Tribes understand that strong regulations are needed to 
protect governmental revenue that gaming helps to generate. 
Over the years, tribes with Federal and state governments have 
developed a comprehensive web of regulation. In 2005 alone 
tribes spent $320 million on tribal government gaming 
regulation. This investment funds over 3,400 Federal, state and 
tribal regulatory personnel with the credentials as former FBI 
agents, state and tribal law enforcement officers, military 
officers, accountants, auditors, bank officials and state 
regulators, and it funds state-of-the-art surveillance and 
security equipment.
    We are very proud of our industry to that extent. We feel 
like our industry provides for a very safe and well regulated 
place for our customers to spend their recreational dollars. We 
have also worked with surrounding municipalities. I 
personally--in my previous capacity as a tribal councilman for 
the United Nation of Wisconsin--have worked with surrounding 
law enforcement to negotiate mutual service agreements that 
have assisted our operations, and we have been a great asset to 
their operations as well.
    IGRA requires tribes to work with the NIGC to regulate 
Class II gaming, and it mandates the tribes to regulate Class 
III gaming pursuant to tribal-state compacts. Over the past 17 
years under IGRA, tribes and states have become strong partners 
in protecting the integrity of Indian gaming.
    At the Federal level, all tribes work with the FBI, the 
U.S. Attorneys office, the Treasury Department's financial 
crimes enforcement network, the IRS, the Interior's Bureau of 
Indian Affairs. Against the backdrop of comprehensive 
regulation, the FBI and the United States Justice Department 
have testified repeatedly that this regulatory system is 
working well to prevent the infiltration of organized crime and 
protect the integrity of the games played at our tribal 
operations.
    We understand that the National Indian Gaming Commission 
has concerns with the recent Court decision in Colorado River 
Indian Tribes v. the NIGC. The District Court in the CRIT v. 
NIGC held that IGRA does not authorize the Commission to apply 
its minimum internal control standards or MICS to Class III 
gaming. The Court instead found that the Congress intended 
tribes and states to regulate Class III gaming under tribal-
state compacts.
    The Court also found that NIGC retains oversight authority 
over Class III gaming that permits the Commission to approve 
and enforce violations of Class III tribal gaming ordinances, 
conduct annual audits of Class III gaming operations, and 
review management contracts, background checks and licensing 
determinations. We fully agree with the District Court. We also 
believe that there is no need to rush to amend IGRA.
    NIGA opposed the provisions in Senate bill S. 2078 that 
would grant NIGC new Class III authority. The NIGC proposal 
reflected in the bill goes far beyond the minimum internal 
control standards and overreaches into all facets of Class III 
gaming. The proposal treads on states' rights and tribal 
sovereignty by ignoring the regulatory agreements reached 
through tribal-state compacts.
    Finally, we believe that it has the potential to create yet 
another unmanageable bureaucracy for Indian country to deal 
with at the Federal level. NIGA member tribes strongly oppose 
this proposal. The NIGC goals can all be achieved by working 
with tribes under existing laws. Generally tribal governments 
have enacted MICS through tribal ordinances, regulations or 
compact provisions.
    The NIGC ordinance approval authority enables it to work 
with tribes to make sure that tribal MICS are enforced. Instead 
of fighting in court or seeking additional legislative 
authority, the NIGC should provide deference to tribal-state 
compacts as the Court directed and dedicate its resources to 
developing a cooperative regulatory framework with tribes and 
states under existing laws.
    Again, this is not necessary legislation. The CRIT case 
remains in litigation. The Court made it clear that NIGC 
retains sufficient oversight authority over Class III gaming, 
and the tribes already employ their own minimum internal 
control standards through compacts and tribal laws.
    Congress should defer action on the NIGC proposal and 
direct the NIGC to consult with tribal governments. We believe 
that through consultation NIGC and the tribes can solve the 
agency's concerns under existing laws while respecting states' 
rights and tribal sovereignty reflected in the compact 
provisions.
    In conclusion, Mr. Chairman, the NIGC is asking for a blank 
check to determine its own jurisdiction. Congress clearly 
recognized that the joint authority of states and tribes over 
Class III gaming. The NIGC proposal would tread on states' 
rights and tribal sovereignty. The only assurance that we have 
that the NIGC will not create conflict, duplicate efforts and 
interfere with tribal economic development is the agency's own 
statement that it will not infringe on state and tribal rights. 
That is not enough protection for tribal self-government.
    Instead of risking our tribal government resources, we ask 
Congress to direct NIGC to work with tribes and states under 
existing law. Thank you, Mr. Chairman, for your time this 
morning.
    [The prepared statement of Mr. Stevens follows:]

            Statement of Ernest L. Stevens, Jr., Chairman, 
                   National Indian Gaming Association

Introduction
    Good morning Chairman Pombo, Congressman Rahall, and Members of the 
Committee. Thank you for inviting the National Indian Gaming 
Association (``NIGA'') to testify this morning. My name is Ernest 
Stevens, Jr. and I serve as Chairman of the National Indian Gaming 
Association. I am a member of the Oneida Tribe of Wisconsin. NIGA is an 
association of 184 tribal governments that use Indian gaming to 
generate essential government revenue.
    Indian gaming is our Native American success story. After decades 
of poverty and economic devastation, about 60% of Indian tribes in the 
lower 48 states use gaming revenues to rebuild community 
infrastructure, provide basic health, education, and social programs 
for their citizens, and provide hope and opportunity for an entire 
generation of Indian youth.
    Does Indian gaming solve all of Indian country's problems? No. Many 
tribes cannot use gaming because of their remote locations, and we call 
upon Congress to fulfill its trust responsibility to provide funding 
for education, health care, essential government services and basic 
community infrastructure, like water systems and police and fire 
protection. For many others in rural areas with high unemployment, 
Indian gaming provides its greatest benefit through jobs. Indeed, in 
many rural areas, Indian gaming provides the catalyst for regional job 
growth for both Indians and non-Indians.
    Even with these challenges, Indian gaming has proven to be the best 
tool for economic development in Indian country and our best 
opportunity for tribal self-sufficiency and self-determination.
    For NIGA and its Member Tribes, our primary mission is to preserve 
tribal sovereignty and to protect Indian gaming as a means of 
generating essential tribal government revenue. Tribes are committed to 
effective regulation of Indian gaming. Experience demonstrates that the 
highest standard of regulation can be achieved while promoting tribal 
sovereignty and self-determination.
    Tribes are generally opposed to amending the Indian Gaming 
Regulatory Act, because even well intentioned amendments carry a great 
risk of undermining Indian gaming and tribal sovereignty. Our attached 
resolution on S. 2078, the Senate's Indian Gaming Regulatory Act 
Amendments, passed unanimously at our annual meeting last month. NIGA 
applauds the significant process that this Committee continues to 
provide tribal governments as it considers amendments to Section 20 of 
IGRA. We hope that you will undertake a similar process as if you 
contemplate any regulatory amendments to IGRA.
    The focus of this hearing is minimum internal control standards for 
class III Indian gaming. The National Indian Gaming Commission (NIGC) 
has called upon Congress to address, through legislation, the recent 
decision in Colorado River Indian Tribes (CRIT) v. NIGC, 383 F. Supp.2d 
123 (D. D.C. 2005). In CRIT, the MICS Court simply held that NIGC may 
not issue regulations to establish the framework for regulating Class 
III Indian gaming because that is the job of the states and tribal 
governments through Tribal-State Compacts. That does not mean that the 
NIGC has no role concerning the regulation of Class III gaming. The 
court acknowledged that Congress contemplated a background role for the 
NIGC over class III gaming, including the approval and review of 
enforcement of tribal class III gaming ordinances, the authority to 
receive and review annual audits of Class III gaming facilities, and 
the authority to review management contracts, background checks, and 
licensing determinations. The NIGC has appealed the district court's 
ruling to the Federal court of appeals. Thus, there is no immediate 
need to legislatively fix this issue.
    Government-to-government consultation is the cornerstone of the 
Federal-Tribal relationship. In our view, amendments to the Act should 
only be considered in consultation with tribal governments. As part of 
the Committee's consultation with tribal governments, we urge you to 
hold a series of hearings, including field hearings, which will 
demonstrate the strength and effectiveness of the Tribal-State Compact 
system and the comprehensive web of Indian gaming regulation. Many 
Tribal-State Compacts required years of work to develop and a few 
required statewide initiatives or referenda. All have built stronger 
tribal-state government partnerships. In fact, building upon the 
experience gained through the Tribal-State Compact process, tribal 
governments have become leaders in regional cooperation and 
communication.
    In addition, we ask that Congress direct the NIGC to consult with 
Tribes. We believe that through consultation with tribal governments, 
the NIGC can develop an approach that uses its existing statutory 
authority to approve tribal gaming regulatory ordinances, without 
creating a duplicative new Federal regulatory regime. The Commission's 
current Federal regulation asks tribal governments to adopt MICS 
through tribal regulations. Accordingly, we ask Congress to defer 
action on this issue while the NIGC consults with tribal governments to 
find a less intrusive alternative to its current over the top of 
Tribal-State Compacts proposal.
    Finally, if any amendments to IGRA are considered, we ask you to 
also address the decade-old concern of tribal governments: the broken 
compacting process and the resulting unreasonable demands for revenue 
sharing by some State governments. To address these issues, we ask that 
you include provisions that afford tribal governments' timely access to 
secretarial procedures in lieu of a compact, when a State raises an 
11th Amendment defense to enforcement of the Tribal-State compact 
process. For many years, NIGA has asked Congress to address the Supreme 
Court's Seminole decision, which negated the ability of Tribes to 
enforce the obligation of States to negotiate in good faith, and 
destroyed the balance that Congress crafted in the compacting process. 
The Tribal-State compact process is critical to the proper functioning 
of IGRA.
Indian Gaming Regulation Today
    No one has a greater interest in maintaining the integrity ofIndian 
gaming than tribal governments. For the past 30 years, Tribes have been 
dedicated to building and maintaining strong regulatory systems, 
realizing the need to protect government revenue. Under IGRA, Congress 
envisioned that tribal governments would be the primary day-to-day 
regulators of Indian gaming. This vision is a reality, as Tribes today 
regulate Indian gaming through tribal gaming commissions. Tribal gaming 
regulators work with the NIGC to regulate Class II gaming. Through the 
Tribal-State Compact process, tribal gaming regulators work with state 
regulators to safeguard Class III gaming.
    Indian gaming is also protected by the oversight of the FBI and the 
U.S. Attorneys. The FBI and the U.S. Justice Department have authority 
to prosecute anyone who would cheat, embezzle, or defraud an Indian 
gaming facility--this applies to management, employees, and patrons. 18 
U.S.C. Sec. 1163. In addition, Tribal governments work with the 
Department of Treasury's Financial Crimes Enforcement Network (FinCEN) 
to prevent money laundering, with the IRS to ensure Federal tax 
compliance, and with the Secret Service to prevent counterfeiting. 
Tribal governments have stringent regulatory systems in place that 
compare favorably with any Federal or State regulatory systems.
    Tribal governments have dedicated tremendous resources to the 
regulation of Indian gaming. In 2005 alone, Tribes spent over $320 
million nationwide on tribal, state, and Federal regulation:
      $245 million to fund tribal government gaming regulatory 
agencies;
      $66 million to reimburse States for State regulatory work 
under the Tribal-State Compact process; and
      $12 million for the NIGC's budget.
    At the tribal, state, and Federal level, more than 3,430 expert 
regulators and staff protect Indian gaming:
      Tribal governments employ more than 2,800 tribal gaming 
regulators and staff, with credentials as former FBI agents, BIA, 
tribal and state police, New Jersey, Nevada, and other state 
regulators, military officers, accountants, auditors, attorneys and 
bank surveillance officers;
      State regulatory agencies assist tribal governments with 
regulation, including California and North Dakota Attorney Generals, 
the Arizona Department of Gaming and the New York Racing and Wagering 
Commission;
      State governments employ more than 532 state gaming 
regulators, staff and law enforcement officers to help tribes regulate 
Indian gaming;
      The National Indian Gaming Commission is led by Philip 
Hogen, former U.S. Attorney and past Associate Solicitor for Indian 
Affairs, and Chuck Choney, Commissioner and former FBI Agent; and
      At the Federal level, the NIGC employs 98 Regulators.
    Tribal governments also employ state-of-the-art surveillance and 
security equipment. For example, the Mashantucket Pequot Tribal Nation 
uses the most technologically advanced facial recognition, high 
resolution digital cameras and picture enhancing technology. The 
digital storage for the system has more capacity than the IRS or the 
Library of Congress computer storage system. In fact, the Nation helped 
the Rhode Island state police after the tragic nightclub fire by 
enhancing a videotape of the occurrence, which enabled state police to 
study the events in greater detail.
IGRA's Comprehensive Framework of Regulation
    IGRA divides Indian gaming into three classes: Tribes retain 
exclusive authority to regulate class I gaming, defined as traditional 
gaming, such as horse-racing, stick games, or hand games at tribal 
celebrations. 25 U.S.C. Sec. 2710(a)(1).
    Class II gaming is defined as bingo, lotto and similar games, pull-
tabs, and non-banked card games, which may be used in connection with 
technologic aids. Class II gaming is regulated by tribal gaming 
regulatory agencies, under NIGC approved ordinances, in cooperation 
with the NIGC. 25 U.S.C. Sec. 2710(a)(2).
    While IGRA was under consideration in Congress, the U.S. 
Departments of Justice and Interior disclaimed any interest in 
assisting tribal governments with a federal regulatory process for 
Class III gaming. Against this background, Congress established the 
Tribal-State compact process to set forth the framework for the 
operation of Class III gaming. Class III gaming encompasses all other 
forms of gaming, including lotteries, casino gaming, banked card games, 
and pari-mutuel racing. IGRA outlines subjects for Tribal-State compact 
negotiation:
      the application of the criminal and civil laws of the 
Indian tribe or the State that are directly related to, and necessary 
for, the licensing and regulation of such activity;
      the allocation of criminal and civil jurisdiction between 
the State and the Indian tribe necessary for the enforcement of such 
laws and regulations;
      the assessment by the State of such activities in such 
amounts as are necessary to defray the costs of regulating such 
activity;
      taxation by the Indian tribe of such activity in such 
amounts comparable to amounts assessed by the State for comparable 
activities;
      remedies for breach of contract;
      standards for the operation of such activity and 
maintenance of the gaming facility, including licensing; and
      any other subjects that are directly related to the 
operation of gaming activities.
25 U.S.C. Sec. 2710(d)(3)(C). 1 The Senate Committee Report 
to IGRA explains that Congress established the Tribal-State Compact 
process because:
---------------------------------------------------------------------------
    \1\ However, ``[n]o State may refuse to enter into [compact] 
negotiations--based on the lack of authority--to impose a tax, fee, 
charge, or other assessment. Id. Sec. 2710(d)(4).
---------------------------------------------------------------------------
        [T]here is no adequate Federal regulatory system in place for 
        class III gaming, nor do tribes have such systems for the 
        regulation of class III gaming currently in place. Thus a 
        logical choice is to make use of existing State regulatory 
        systems, although the adoption of State law is not tantamount 
        to an accession to State jurisdiction. The use of State 
        regulatory systems can be accomplished through negotiated 
        compacts but this is not to say that tribal governments have no 
        role to play in the regulation of class III gaming--many can 
        and will.

        The terms of each compact may vary extensively depending on the 
        type of gaming, the location, the previous relationship of the 
        tribe and State, etc''. A compact may allocate most or all 
        jurisdictional responsibility to the tribe, to the State or any 
        variation in between.
Senate Report 100-446, 100th Cong. 2nd Sess. at 13-14 (1988).
    Given the comprehensive framework established by the Tribal-State 
Compact process, Congress limited the NIGC's role to oversight and 
support of compact-regulated class III gaming. IGRA provides the NIGC 
with the following authority over class III gaming:
      NIGC reviews and approves class III tribal gaming 
regulatory laws;
      NIGC reviews class III tribal background checks and 
gaming licenses;
      NIGC receives independent annual audits of tribal gaming 
facilities, including class III gaming and all contracts for supplies 
and services over $25,000 annually are subject to those audits;
      NIGC approves management contracts; and
      NIGC works with tribal gaming regulatory agencies to 
ensure proper implementation of tribal gaming regulatory ordinances.
    Congress clearly delineated these roles for the comprehensive 
regulation of Indian gaming. Against this backdrop of comprehensive 
regulation, the FBI and the United States Justice Department have 
testified repeatedly that this regulatory scheme is working well to 
prevent the infiltration of crime and protect the integrity of the 
games played at tribal operations. In fact, the last time the Chief of 
DOJ's Organized Crime division testified before the Senate he stated 
that ``Indian gaming has proven to be a useful economic development 
tool for a number of tribes who have utilized gaming revenues to 
support a variety of essential services.''
The Colorado River Indian Tribes Decision and the Federal MICS
    A recent decision by the Federal District Court of Washington, D.C. 
upheld the above-stated views of IGRA's regulatory scheme. On August 
24, 2005, the Court in Colorado River Indian Tribes v. NIGC, 383 F. 
Supp.2d 123 (D. D.C. 2005), held that the NIGC did not have statutory 
authority to promulgate and apply federal Minimum Internal Control 
Standards over and above Tribal-State Compacts. The Court explained:
        ``A careful review of the text, the structure, the legislative 
        history and the purpose of the IGRA, as well as each of the 
        arguments advanced by the NIGC, leads the Court to the 
        inescapable conclusion that Congress plainly did not intend to 
        give the NIGC the authority to issue MICS for Class III 
        gaming.''
Id. at 132. The Court quoted the Senate Report:
        [IGRA] provides for a system for joint regulation by tribes and 
        the Federal Government of class II gaming on Indian lands and a 
        system for compacts between tribes and States for regulation of 
        class III gaming. The bill establishes a National Indian Gaming 
        Commission as an independent agency within the Department of 
        the Interior. The Commission will have a regulatory role for 
        class II gaming and an oversight role with respect to class 
        III.
Id. at 139, quoting 1, U.S.C.C.A.N. 1988, p. 3071. The Court found this 
legislative history, in addition to the clear statutory language as 
convincing evidence that Congress did not intend the NIGC to issue MICS 
regulations for Class III gaming.
    However, the CRIT decision made clear that the Commission retains 
the authority to approve and enforce compliance with tribal gaming 
ordinances, conduct annual audits, approve management contracts, and 
review background checks and licensing determinations. Id. at 147-48. 
IGRA, at 25 U.S.C. Sec. 2713(a), provides that the Commission has 
``authority to levy and collect appropriate civil fines--against the 
tribal operator of an Indian game or a management contractor--for any 
violation of--tribal regulations, ordinances, or resolutions approved 
under section 2710''.'' If necessary, the Commission may also issue a 
notice of violation, and if the violation is not addressed, a closure 
order. 25 U.S.C. Sec. 2713(b).
    NIGA and our Member Tribes developed the first Minimum Internal 
Control Standards, and we encouraged our Member Tribes to adopt the 
MICS as a matter of tribal law. Today, the majority of tribal 
governments maintain minimum internal control standards as a matter of 
tribal law, and pursuant to tribal-state compacts. Tribal governments 
currently have tribal law standards in place that meet or exceed the 
requirements of the NIGC's MICS. There is no need for a legislative 
rush to supplant the federal court's judgment at this time.
    Indeed, the NIGC itself wrote to tribal governments, stating that 
it will not change its current MICS policy while it appeals the CRIT v. 
NIGC decision to the higher courts. The NIGC's press release after the 
decision states as follows:
        U.S. District Court Judge John D. Bates expressly cautioned 
        that `this opinion should not be read to hold that the NIGC 
        will never be able to audit a Class III gaming operation, or 
        that the NIGC may not penalize a tribe that resists a valid 
        audit...' `[I]t is important to focus on what the court did and 
        did not do in this case. What it did do was hold that the NIGC 
        couldn't penalize the Colorado River Indian Tribes for 
        resisting the NIGC's attempt to conduct an audit of its Class 
        III gaming. What it did not do was to enjoin the NIGC from 
        applying its MICS on Class III gaming elsewhere, or from 
        conducting audits to monitor tribal compliance with the MICS.'' 
        The NIGC disagrees with the CRIT decision. Accordingly, beyond 
        its dealings with the Colorado River Indian Tribes, and until 
        the Commission revises its regulations or a court of competent 
        jurisdiction orders changes in the scope of its MICS 
        regulations,--it will continue to conduct business as usual 
        with current MICS audits and enforcement actions.
NIGC Press Release (Aug. 30, 2005); h. The NIGC's request for immediate 
action to amend IGRA is premature.
S. 2078--Proposal to Reverse the CRIT Decision
    On November 11, 2005, Senate Indian Affairs Committee Chairman John 
McCain introduced S. 2078, the IGRA Amendments Act of 2005. S. 2078 
seeks to reverse the CRIT decision by granting the NIGC broad new 
authority to regulate class III gaming. The provision simply adds the 
term ``and class III gaming'' after ``class II gaming'' each place that 
it appears in the Act.
    This sweeping amendment would put in place a Federal regulatory 
regime that would duplicate and often conflict with the existing 
Tribal-State compact process. The proposal completely restructures the 
existing balance of tribal, state and federal sovereignty under the 
Act--undermining existing Tribal-State Compacts with unlimited Federal 
regulatory control. The NIGC proposal fails to harmonize the new 
federal role with the current roles of tribal and state governments. It 
reaches far beyond the agency's concerns of implementing its minimum 
internal control standards into complete regulatory authority over 
Class III Indian gaming, without adequate statutory parameters to 
protect tribal self-government. In essence, it has the potential to 
create another unmanageable bureaucracy because it gives the Federal 
agency authority a blank check to determine its own authority through 
new Federal rulemaking.
    Upon enactment of IGRA, Tribes for the first time in history were 
forced to negotiate with State governments about on-reservation 
activities. The tribal-state compacting process has proven difficult 
for many tribal governments and impossible for some. S. 2078 completely 
ignores the hard work that those Tribes that have successfully 
negotiated compacts have accomplished and the strong working 
relationships that tribal governments now have with state governments. 
This proposal must be rejected, unless Congress strikes the existing 
Tribal-State Compact process. 2
---------------------------------------------------------------------------
    \2\ After the Supreme Court's Seminole decision, discussed above, 
the tribal-state compacting process expends great tribal governmental 
manpower, is time consuming, and with the recent surge for demands for 
revenue sharing and sovereignty concessions--is costly and burdensome 
to tribal self-government. As a result, we believe that it would be 
patently unfair to ``fix'' the CRIT v. NIGC case, which is less than 
one month old and remains in litigation and add the burden of 
conflicting and duplicative federal regulations to class III gaming, 
without at the same time restoring balance and Congress' true intent to 
the compacting process, which has been broken for nearly 10 years.
---------------------------------------------------------------------------
    S. 2078 is not limited to granting the NIGC authority to promulgate 
and enforce it MICS, but instead grants the NIGC broad new authority to 
regulate all aspects of class III gaming, i.e., ``continuously monitor 
Class II and Class III gaming.'' Without any protection for tribal 
self-government, the NIGC would have authority to issue new Federal 
regulations that impose unfunded mandates to tribal governments 
concerning any and every aspect of Class III gaming. The NIGC could 
also promulgate rules that would conflict with Tribal-State Compacts 
and infringe on existing tribal-state regulatory relationships. The 
NIGC proposal is clearly overreaching and undermines the existing 
framework of IGRA.
    Moreover, several years ago, the NIGC attempted to stray from its 
statutory authority to regulate class II Indian gaming and sought to 
promulgate and enforce ``Environment, Health, and Public Safety'' 
regulations that would have duplicated work of the Indian Health 
Service and the Environmental Protection Agency. Tribes across the 
Nation expressed their opposition to this action, citing the NIGC's 
lack of authority under IGRA. The NIGC properly withdrew the proposal, 
and instead offered the proposition as guidance for tribal governments 
to look as a model. We believe that if Congress grants unfettered 
authority to the NIGC, that it will again stray from its core mission 
to regulate Indian gaming.
    As a result of the above-referenced concerns, NIGA remains opposed 
to the provisions of S. 2078 that grant the NIGC broad new authority to 
regulate class III gaming.
Alternative Proposal: Preserve the Existing Statutory Framework
    As noted above, this is not emergency legislation. The case remains 
in litigation, and the NIGC retains sufficient authority to oversee and 
if need be enforce violations of tribal class III gaming regulations. 
Thus, we ask Congress to defer acting on this issue, and instead direct 
the NIGC to consult with tribal governments pursuant to its own 
Consultation document and pursuant to President Bush's Executive 
Memorandum to the Executive Departments and Agencies on the Government-
to-Government Relationship with Tribal Governments, which explains:
        My Administration is committed to continuing to work with 
        federally recognized tribal governments on a government-to-
        government basis and strongly supports and respect tribal 
        sovereignty and self-determination for tribal governments in 
        the United States.
President Bush has also affirmed Executive Order 13175 (2000) on 
Consultation and Coordination with Tribal Governments.
    After consultation with tribal governments, if the NIGC is 
determined to continue to seek an amendment to IGRA regarding minimum 
internal control standards, its proposal should be consistent with 
IGRA's existing structure. IGRA requires tribal governments to maintain 
basic tribal law provisions concerning the regulation of Indian gaming. 
NIGC already has existing power to approve these tribal ordinances to 
ensure that these ordinance appropriately protect the integrity of 
Indian gaming.
    President Bush's Executive Memorandum on consultation with tribal 
governments directs agencies to find the least intrusive means to 
achieve agency goals. The NIGC does not need duplicative federal rule-
making authority over matters already addressed by tribal law and the 
Tribal-State compact process. In fact, because there is such a strong 
system of minimum internal control standards currently in place, this 
principle could be put into place on a ``best practices'' basis in the 
NIGC's model tribal ordinance without requiring a change in existing 
federal or tribal law. NIGC already has statutory authority to review 
and ensure the proper enforcement of tribal ordinances and regulations. 
Title 25 U.S.C. section 2713 provides: ``the Chairman shall have 
authority to levy and collect appropriate civil fines--against the 
tribal operator of an Indian game or a management contractor--for any 
violation of--tribal regulations, ordinances, or resolutions approved 
under section 2710''.
    Alternatively, the Senate has already passed S. 1295, the National 
Indian Gaming Commission Accountability Act, and it may be enacted into 
law as part of a technical amendments bill. That bill authorizes the 
NIGC to provide technical assistance to tribal governments, and under 
S. 1295, NIGC could simply draft a model tribal ordinance that includes 
MICS provisions for tribal government consideration. Perhaps after 
issuing a model ordinance, NIGC could report back one year later on how 
many tribal governments have put MICS in place through tribal 
ordinance, regulation, or maintain MICS in the Tribal-State Compacts.
    The NIGC must acknowledge the hard work that tribal governments 
have undertaken to ensure that Indian gaming is regulated by the 
highest standards of the gaming industry. After 17 years under IGRA, 
tribal governments have established strong tribal government gaming 
commissions and working relationships with the NIGC and state 
regulatory agencies. Congress should not create a new duplicative 
Federal bureaucratic regime, when there are options that are less 
intrusive on state and tribal sovereignty.
S. 2078--``Gaming-Related'' Contracts
    I would like to take this opportunity to briefly express NIGA's 
strong opposition to S. 2078's ``gaming-related'' contracts provisions. 
These provisions would grant the NIGC new authority to review and 
approve a broad array of tribal business decisions:
      Consultant Contracts;
      Construction Contracts;
      Development Contracts and subcontracts;
      Financing Contracts;
      Goods and Services Contracts;
      Gaming Related Contracts (to be defined by NIGC);
      Management Contracts; and
      Participation Contracts.
The NIGC currently approves only management contracts and collateral 
agreements related to such management contracts. Many Tribes have 
complained that the NIGC takes longer than one-year to decide on a 
management contract. S. 2078 would require Tribes to gain NIGC approval 
of not only management, but also development, consulting, financing, 
and participation contracts. Under S. 2078, the NIGC would have 30 days 
to approve financing contracts and 90 days to approve other gaming-
related contracts.
    We believe that S. 2078's gaming-related contracts provisions will 
create a bottleneck in the federal government that will only serve to 
fatten federal bureaucracy at the expense of tribal economic 
development. In addition to the delay, many smaller Tribes are 
concerned of the great added expense that this provision will cost 
their operations. Many other Tribes are also concerned with the 
associated costs of complying with the National Environmental Policy 
Act (NEPA).
    We believe that these provisions could overwhelm the NIGC with the 
required NEPA reviews. Currently, the NIGC approval of a management 
contract triggers a NEPA review. Although there are over 200 Tribes 
that conduct gaming as listed on NIGC's website, Tribes do not 
generally enter into and submit management contracts on a regular basis 
and, thus, NIGC is not handling an overwhelming number of NEPA reviews 
on an annual basis. However, each of the over 200 Tribes listed on the 
NIGC's website would likely submit numerous contracts every year to 
NIGC for approval if S. 2078 is adopted. Although the need for NEPA 
review is determined on a case by case basis, it appears that the 
approval of many of the above contracts would trigger NEPA. NEPA review 
of such contracts could be a lengthy and burdensome process. The NIGC 
has stated that it takes about six to twelve months to complete the EA 
process and twelve to eighteen months to complete the EIS process. 
However, both processes can take substantially longer. Accordingly, 
without a mechanism to avoid NEPA review of the approvals under Section 
12, NIGC could potentially be overwhelmed by the sheer volume of NEPA 
reviews required.
    Finally, S. 2078 fails to narrowly define each of the types of 
contracts that the NIGC will have authority to review. Instead, the 
bill grants the agency unfettered authority to determine on its own the 
types of contracts for which it will require approval. Once again, S. 
2078 grants the agency power to determine the scope of its own 
jurisdiction--we believe that is an abdication of congressional 
responsibility. We are concerned that this provision--read together 
with the broad new authority over class III gaming--will unreasonably 
grow the federal government at the expense of tribal sovereignty. As a 
result, NIGA strongly opposes the gaming-related contract provisions to 
S. 2078 in their current form.
CONCLUSION
    S. 2078's proposal to address the CRIT court decision intrudes upon 
Indian sovereignty, overreaches beyond the concerns of the federal 
agency requesting the amendment, disturbs the balance of authority 
between tribal, state, and federal governments, and has the potential 
to create a new unmanageable bureaucracy for Indian country to deal 
with on the federal level.
    As a result, we respectfully ask Congress to defer action on this 
provision, and instead require the NIGC to consult with tribal 
governments to develop an approach to Minimum Internal Control 
Standards that is consistent with both the existing structure of IGRA 
and the President's Executive Memorandum on Government-to-Government 
Relationships with Tribal Governments. We believe that consistent with 
tribal self-government, the NIGC can support Indian tribes through 
technical assistance and model ordinance provisions under S. 1295, and 
then report back to the Committee.
    In closing, Indian Tribes are committed to both the highest 
standards of regulation for Indian gaming and respect for Indian 
sovereignty. If we can be of assistance to the Committee, we would be 
pleased to answer any questions or provide additional documentation. 
Thank you again for the opportunity to testify on this important 
matter.
                                 ______
                                 
    The Chairman. Thank you. Mr. Aspa.

           STATEMENT OF RAYMOND ASPA, SR., MEMBER OF 
          TRIBAL COUNCIL, COLORADO RIVER INDIAN TRIBES

    Mr. Aspa. Good morning, Mr. Chairman, Ranking Member Rahall 
and the members of the Committee. Thank you for providing the 
Colorado River Indian Tribes with this opportunity to testify 
this morning. My name is Raymond Aspa, Sr. I am a member of the 
tribal council of the Colorado River Indian Tribes.
    CRIT has never taken the position that Class III gaming 
should not be regulated nor has CRIT ever denied that the MICS 
are not a valuable tool to ensure the integrity of our gaming 
operation. No one has a greater interest than we do in making 
sure that the games we offer are fair and honest, and that the 
public has confidence in the fairness and honesty.
    For that reason, our tribal gaming code required internal 
control standards many years before the NIGC first promulgated 
its MICS. Our only argument with the NIGC these past five years 
has been over which government had statutory authority to 
require and enforce those standards.
    The Federal District Court agreed with us. It is the tribes 
and the states, through their tribal-state compacts, that they 
have that authority. It is not the NIGC. Class III gaming 
certainly in our case is strictly regulated. Our tribal gaming 
office has a staff of over 30 employees and an annual budget 
over $1.2 million. Moreover, our tribal-state compact is 
probably the most rigorous in the country. Most importantly in 
the context of this hearing our compact with the State of 
Arizona has adopted the MICS as the baseline for governing 
internal control standards in our casinos.
    Given this intense regulatory environment, a third Federal 
layer of direct regulation is unnecessary. In addition to the 
$1.2 million we budget for tribal regulation, we also pay 
almost one-quarter of a million dollars annually to the state 
to cover the costs of the state's oversight responsibility 
under our compact.
    Strict regulation is necessary. Unnecessary regulation 
would divert funds that are desperately needed for the very 
purposes IGRA was enacted, to fund vital tribal government 
programs, encourage self-government and to seed nongaming 
economic development. IGRA represents a legislative compromise 
among three levels of sovereign governments, each of which has 
a legitimate interest in the fair and honest conduct of tribal 
gaming.
    The tribes were rightfully viewed as the primary regulator 
of all three classes of gaming activity. The compromise balance 
struck was to give the NIGC a participatory role in regulating 
Class II, and the states are participatory role in Class III 
through the means of negotiated compacts.
    If Congress rushes to fix the CRIT litigation by simply 
giving the NIGC broad regulatory authority over Class III 
gaming, the entire statutory scheme would be thrown out of 
balance and rendered essentially meaningless. If Congress 
believes it is necessary for IGRA to address the MICS, it 
should do so in a way that is differential to the regulatory 
scheme negotiated between the tribes and the states in their 
compacts and that recognize the core framework of the statute.
    If Congress must amend IGRA to address the MICS, our 
preferred alternative is to incorporate the requirement through 
a tribal gaming ordinance. The statute currently sets forth a 
list of specific subject matters that must be included in 
tribal gaming ordinances such as a background investigation, 
annual audits and permissible uses of gaming revenues. It would 
be a simple matter to add the requirement that every gaming 
ordinance must provide for the tribal enactment of internal 
control standards. This approach would be faithful to the 
principles that tribes through their own laws are the primary 
regulators of tribal government gaming.
    It bears repeating that CRIT has never suggested that Class 
III gaming go unregulated. We firmly believe internal control 
standards are essential to the integrity of our gaming 
operation. We respectfully ask that this committee and Congress 
not to upset the balance so masterfully achieved 18 years ago 
by giving the NIGC regulatory authority to directly impose and 
enforce minimal internal control standards on Class III gaming 
activities.
    Thank you, Mr. Chairman, again for the opportunity to 
testify on this important matter. If we can be of further 
assistance to the Committee, we would be pleased to answer any 
question or provide additional information. Thank you.
    [The prepared statement of Mr. Aspa follows:]

     Statement of Raymond Aspa, Sr., Colorado River Indian Tribes, 
                      Member, CRIT Tribal Council

    Good morning Mr. Chairman, Vice-Chairman Rahall, and Members of the 
Committee. Thank you for providing the Colorado River Indian Tribes 
with the opportunity to testify this morning. My name is Raymond Aspa, 
Sr. and I am a member of the Tribal Council of the Colorado River 
Indian Tribes (CRIT).
    Our Tribe has more experience with the NIGC's Minimum Internal 
Control Standards (``MICS'') than we might like. As you know, the Tribe 
has successfully challenged the Commission's mandatory imposition of 
its MICS on the Class III gaming conducted at our BlueWater Casino in 
Parker, Arizona.
    The very first thing I would like to share with the Committee is 
that CRIT did not seek this challenge; it came to us. Like every other 
tribe in the country, we questioned the Commission's statutory 
authority to mandate Class III MICS. In January of 2001, the NIGC began 
an audit of our compliance with its MICS. We attempted to discuss with 
the audit team the statutory basis for its audit. Tempers flared, the 
audit team left with its audit unfinished, and the NIGC issued a notice 
of violation and assessed a fine against us.
    At that point, we had no choice but to defend ourselves. Our 
defense was the simple legal position that we shared with most other 
tribes: the Commission does not have the authority under the Indian 
Gaming Regulatory Act to mandate Class III MICS. An administrative law 
judge agreed with us, and then, last August, the federal district court 
agreed with us as well.
    CRIT has never taken the position that Class III gaming should not 
be regulated. Nor has CRIT ever denied that the MICS are not a valuable 
tool to ensure the integrity of our gaming operation. To the contrary, 
we believe they are essential. No one has a greater interest than we do 
in making sure that the games we offer are fair and honest, and that 
the public has confidence in that fairness and honesty. For that 
reason, our tribal Gaming Code required internal control standards many 
years before the NIGC first promulgated its MICS.
    Our only argument with the NIGC these past five years has been over 
which government has the statutory authority to require and enforce 
those standards. The federal district court agreed with us that under 
the statute as it is now written, it is the tribes and the states--
through their tribal-state compact--that have that authority. It is not 
the NIGC.
    Class III gaming, certainly in our case, is strictly regulated. Our 
Tribal Gaming Office has a staff of over 30 employees and an annual 
budget of over $ 1.2 million dollars. Moreover, our tribal-state 
compact with the State of Arizona is probably the most rigorous in the 
country. The state shares broad authority with our tribal regulatory 
agency, with what we frankly sometimes view as intrusive rights to 
monitor, certify, and inspect. Most importantly in the context of this 
hearing, our compact with the State of Arizona has adopted the MICS as 
the baseline for the governing internal control standards in our 
casino.
    Given this intense regulatory environment, a third, federal layer 
of direct regulation is unnecessary. It would also add an unnecessary 
layer of expense to an already costly regulatory scheme. In addition to 
the $ 1.2 million we budget for tribal regulation, we also pay almost 
one-quarter of a million dollars annually to the state to cover the 
cost of the state's oversight responsibility under our compact. Were 
the NIGC to assume direct responsibility for imposing and enforcing 
Class III MICS, its budget would explode, and the tribes would be the 
source of its funding. Strict regulation is necessary. Unnecessary 
regulation would divert funds that are desperately needed for the very 
purposes IGRA was enacted--to fund vital tribal governmental programs, 
encourage self-government, and seed non-gaming economic development.
    Direct federal regulation through the mandatory imposition of 
internal control standards would eviscerate the compacting system that 
was the centerpiece of IGRA when it was enacted eighteen years ago. 
IGRA represents a legislative compromise among three levels of 
sovereign governments, each of which has a legitimate interest in the 
fair and honest conduct of tribal gaming. The tribes were rightfully 
viewed as the primary regulator of all three classes of gaming 
activity. The compromise balance struck was to give the NIGC a 
participatory role in regulating Class II, and the states a 
participatory role in Class III, through means of negotiated compacts. 
If Congress rushes willy-nilly to ``fix'' the CRIT litigation by simply 
giving the NIGC broad regulatory authority over Class III gaming, the 
entire statutory scheme would be thrown out of balance and rendered 
essentially meaningless.
    If Congress believes it is necessary for IGRA to address the MICS, 
it should do so in a way that is deferential to the regulatory scheme 
negotiated between tribes and states in their compacts, and that 
recognizes the core framework of the statute.
    Senator McCain has proposed to ``fix'' the statutory MICS 
``problem'' by expressly giving the NIGC the authority to impose and 
enforce mandatory MICS for both Class II and Class III gaming. There 
are other ways to ensure that every gaming tribe imposes meaningful 
internal control standards on its gaming operation, and those other 
ways intrude far less on tribal sovereignty and the carefully balanced 
statutory scheme.
    If Congress must amend IGRA to address the MICS, our preferred 
alternative is to incorporate the requirement through the tribal gaming 
ordinances. The statute currently sets forth a list of specific subject 
matters that must be included in a tribal gaming ordinance, such as 
background investigations, annual audits, and the permissible uses of 
gaming revenues. It would be a simple matter to add the requirement 
that every tribal gaming ordinance must provide for the tribal 
enactment of internal control standards. This approach would be 
faithful to the principle that tribes, through their own laws, are the 
primary regulators of tribal governmental gaming.
    A second alternative would be to require all tribal-state compacts 
to address the subject of internal control standards, and to permit the 
Secretary of the Interior to reject a compact that did not address the 
standards adequately. This approach would eliminate the complaint so 
often heard about the inconsistency of regulatory rigor from state to 
state.
    Of these two approaches we frankly prefer the first. Tribal 
governmental gaming should be governed first and foremost by tribal 
law. Mandating the terms of the compacts would undoubtedly given the 
states even more leverage to hold the tribes hostage to unreasonable--
and unprecedented--state regulatory intrusion. Nonetheless, either of 
these suggestions is infinitely preferable to direct, heavy handed 
regulation by the NIGC, which would essentially preempt both tribal and 
state authority on the subject.
    It bears repeating that CRIT has never suggested that Class III 
gaming go unregulated. Only the willfully uninformed accuse us of that. 
We firmly believe that internal control standards are essential to the 
integrity of our gaming operation. We respectfully ask this Committee 
and Congress not to upset the balance so masterfully achieved eighteen 
years ago by giving the NIGC regulatory authority to directly impose 
and enforce Minimum Internal Control Standards on Class III tribal 
gaming activities.
    Thank you again for the opportunity to testify on this important 
matter. If we can be of further assistance to the Committee, we would 
be pleased to answer any questions or provide additional information.
                                 ______
                                 

                              May 25, 2006

Hon. Nick J. Rahall, II, Vice Chairman
House Committee on Natural Resources
 United States House of Representatives
 Washington, D.C. 20515

Re:  Oversight Hearing on Minimum Internal Control Standards Request 
for Additional Responses

Dear Vice Chairman Rahall:

    I am pleased to provide the following responses to the additional 
questions you have asked as a follow-up to my testimony before the 
Committee on May 11.
1.  I noticed in your testimony that you mentioned when the NIGC 
        auditor was at your facility, ``tempers flared.'' Can you 
        elaborate on the problems with the auditor?
    In January 2001, the NIGC sent a five-person audit team to the 
Tribe's BlueWater Casino. The audit team intended to conduct an 
approximately two-week audit of the Tribe's compliance with the MICS. 
On the second day of the audit, tribal representatives met with the 
audit team to discuss the Tribe's concern about the statutory basis for 
the audit. Four of the five NIGC auditors were polite, respectful, and 
responsive to the Tribe's questions and were willing to engage in a 
dialogue. The fifth was rude and disrespectful. He refused to respond 
to the Tribe's questions other than to insist generally that IGRA gave 
the NIGC the authority to regulate Class III activity, and he gave the 
tribal representatives an ultimatum: grant the NIGC total access 
immediately or receive a notice of violation. The Tribe offered to 
permit the audit team to continue its Class II audit while the parties 
further explored the Class III authority issue, including giving the 
audit team the opportunity to meet with the Tribal Council, which was 
then in session. This offer was refused. After raising his voice to the 
Tribe's then-Acting Attorney General, the individual causing the 
problem ordered the rest of the audit team to leave the Reservation 
with him, which they did. (For the record, the individual who created 
the problem was not the head of the audit team.)
2.  In your compact, the State of Arizona has broad authority to 
        monitor, certify, and inspect your facilities. Please tell the 
        Committee how often you see people from the state and how is 
        your relationship with them? Do you feel they adequately 
        inspect your facility?
    We receive two distinct types of ``inspection visits'' from the 
state. Annually the state conducts a Compact Compliance Review 
(``CCR''). Ordinarily, the CCR takes place over the course of 
approximately one week, and involves a relatively large number of state 
personnel visiting our gaming facility to review a broad array of 
practices. The 2006 CCR, which is occurring as we respond to these 
questions, has involved the presence of eight different state employees 
performing different tasks over the course of a full week. During this 
extensive review, the state examines the Tribe's compliance with 
employee and vendor licensing provisions, internal controls, policies 
and procedures, worksheets, various reports, and so forth. While there 
is a fair amount of overlap with a technical MICS compliance review, 
the CCR is broader, covering virtually every aspect of the Tribe's 
Class III operation. At the conclusion of the week, we sit down with 
the state personnel for an exit interview, in which we are orally 
informed of the findings. Frequently we are able at that meeting to 
provide explanations for specific findings that immediately satisfy the 
state. Approximately two weeks later, the state sends us a written 
draft report of any findings not resolved during the exit interview. We 
then provide a written response, indicating what we have done or are 
doing to address any problems that may be identified. Approximately 
three months after the CCR, the state issues a final written report, 
incorporating its findings and our responses.
    The second type of state monitoring consists of usually scheduled 
visits, occurring approximately once a month. The state generally sends 
two enforcement employees from its Flagstaff office, and each visit 
tends to focus on a specific issue, such as employee or vendor 
licensing, table game monitoring, and so forth. These monthly visits 
usually last no more than one day.
    Our relationship with the Arizona Department of Gaming personnel is 
often cordial, always professional.
    As to your question about whether we believe the state adequately 
inspects the facility, our candid response is that the state's 
inspection is more than adequate. Indeed, in virtually all respects it 
is duplicative of our own tribal regulatory regime and system of 
external audits. We are grateful for the second set of eyes, because no 
one can catch everything, no matter how vigilant. However, we hope that 
the very intensity of the state's review--eight people over the course 
of one week, plus monthly inspections--on top of the daily tribal 
regulatory regime, demonstrates the unnecessary burden that would be 
placed on our operational and regulatory personnel by adding yet a 
third layer of such intense inspection and monitoring.
3.  Do I understand your testimony correctly to say that the same MICS 
        that the NIGC put out are included in your compact with 
        Arizona? If true, then am I correct in understanding that if 
        the NIGC has statutory authority over MICS in your Class III 
        casino, you would have the tribe, the state, and the NIGC all 
        inspecting the same standards? If so, what problems do you see 
        coming from this situation?
    Section 3(b)(3)(B) of the Tribe's Compact with the State of Arizona 
provides that the Tribe's ``Gaming Facility Operation shall conduct its 
gaming activities under an internal control system that implements the 
minimum internal control standards of the [NIGC], as may be amended 
from time to time, without regard to the Commission's authority to 
promulgate the standards.'' Section 11 of the Compact identifies 
specific components and other requirements of the internal control 
standards.
    In practice, the NIGC's MICS represent the baseline from which we 
in Arizona start. The tribes and the state have jointly negotiated 
numerous changes to the NIGC's MICS to address individual issues and 
practices that have arisen within the state. All of those changes have 
resulted in standards at least as stringent as those adopted by the 
NIGC. The Arizona compact MICS also deal with some matters not 
currently addressed by the federal MICS, such as standards mandating 
the required frames/per/second for surveillance cameras.
    If the NIGC were to have the statutory authority to impose its MICS 
on our Class III operations, we would be subject to three levels of 
intensive regulatory investigation. We of course endorse the need for 
an active regulatory scheme. Nonetheless, it is also true that every 
time the state or NIGC conducts a scheduled or unscheduled inspection, 
tribal regulatory and tribal operational personnel are diverted from 
their ordinary duties. Duplicative regulation is unnecessary, 
intrusive, and expensive. More importantly, NIGC jurisdiction over the 
MICS would run the very real risk of inconsistent regulatory 
interpretation. There is no assurance that the NIGC would agree that a 
``different'' tribal-state negotiated standard was necessarily equally 
or more ``stringent.''
4.  How do you feel the NIGC having the authority to promulgate, 
        change, and enforce new standards would interfere with your 
        compact?
    As noted above, direct NIGC authority over Class III MICS would 
pose a real danger of inconsistent regulatory interpretation. It would 
also unnecessarily divert human and financial resources that are more 
appropriately spent regulating and operating our gaming activities, and 
financing a better life for our people.
    An additional potential interference lies in the manner in which 
the NIGC has been amending the MICS. The NIGC takes the position that 
it is necessary to review the MICS continually and amend them in small 
incremental changes as the need arises. The Tribe agrees that internal 
control standards need to be responsive to actual conditions and needs. 
Indeed, that is why there are frequent meetings between the Arizona 
Department of Gaming and the Arizona gaming tribes to review ever 
evolving drafts of new standards under the Compact. This sort of on-
going review is much more efficiently handled on a local level under a 
compact. The federal regulatory process is cumbersome and time 
consuming; by the time a standard has gone through the initial and 
final notice and comment periods and is published as a final rule, the 
technology has changed yet again and the standards must be revised to 
meet new conditions.
5.  You suggest you might support requiring the MICS included in gaming 
        ordinances. Is this correct? And if so, who would enforce those 
        standards?
    The Tribe would strongly support incorporating mandatory internal 
control standards through the mechanism of the tribal gaming ordinance. 
At present, IGRA identifies a number of subjects that must be included 
within a tribal gaming ordinance, such as licensing safeguards and 
public health and safety requirements. If a tribe submits an ordinance 
to the Chairman of the NIGC for approval that lacks any one of these 
elements, the Chairman must reject the ordinance. In practice, the NIGC 
customarily informs a tribe of what is lacking in the ordinance, and 
the tribe submits an amended ordinance for a second review and 
approval.
    As with all the other mandatory subject matters that currently must 
be included in a tribal gaming ordinance under Sec. 2710, the tribe 
itself would have primary responsibility to enforce internal control 
standards, because such standards would be tribal law. Moreover, where, 
as is currently the case with CRIT and the other tribes in Arizona, the 
compact imposes minimum internal control standards, the tribe and state 
would share enforcement responsibility. Finally, the NIGC would 
continue to have the authority it now has under Sec. 2713, to 
``enforce'' that tribal law if the tribe is not doing so. The operative 
principle is that the tribe would legislate the tribal law (internal 
control standards) governing the tribe's own gaming activities (and, 
for Class III gaming, with input from the state); those standards would 
be enforced primarily by the tribe, with greater or lesser state 
involvement for Class III depending on the terms of the applicable 
compact. Only if both the tribe and the state failed to enforce the 
Class III MICS adequately would the NIGC have the ability under 
Sec. 2713 to take enforcement action.
6.  Are you supportive of the way the current MICS were established? 
        Was there enough tribal input?
    Yes. CRIT obviously does not always agree with the NIGC's 
interpretation of its own statutory authority. However, giving credit 
where it is due, the Commission has been conscientious about consulting 
with tribes and obtaining tribal input. Our only complaint on this 
score is that the Commission does not always follow through on the 
input it receives.
    I wish to thank the Committee again for the opportunity to present 
the Tribe's views, and you in particular for your thoughtful questions.

                             Respectfully,

                      COLORADO RIVER INDIAN TRIBES

                           Raymond Aspa, Sr.

                      Member, CRIT Tribal Council

                                 ______
                                 
    The Chairman. Thank you very much. We have been called to a 
vote on the Floor. I believe there is only one vote. We are 
going to temporarily recess the Committee, and finish with our 
testimony as soon as we get back. I will encourage the members 
to return as soon as possible. The Committee stands in recess.
    [Recess.]
    The Chairman. The Committee will come back to order. We 
left off Mr. Aspa had just testified, and now it is Mr. 
DesRosiers.

         STATEMENT OF NORM DES ROSIERS, COMMISSIONER, 
        VIEJAS BAND OF KUMEYAAY TRIBAL GAMING COMMISSION

    Mr. DesRosiers. Thank you, Mr. Chairman. Good morning 
committee members. It truly is an honor to have been invited 
here to speak to you today. At this point, forgive me, much of 
my prepared testimony will probably sound a little redundant.
    I would first like to make it clear that I am here as a 
representative of the Viejas tribal government only, and that 
our expressed opinions and views may not be the same or in line 
with all of those of other tribes and tribal regulatory 
agencies.
    I would also like to first point out that collectively 
nationally tribal gaming agencies employ over 2,800 regulatory 
agents and staff, and they provide over $245 million toward 
their budgets for their regulation only at the tribal level. 
We, as tribal regulators, are responsible for the primary 
compliance enforcement of all applicable Federal, state and 
tribal laws and regulations, including the MICS or the minimum 
internal control standards.
    Due to the cash-intensive nature of the gaming industry, a 
sophisticated system of checks and balances, that is people 
watching people, is unfortunately necessary to help discourage 
the temptation for some to misappropriate some tribal revenues. 
The MICS can be somewhat cumbersome, and oftentimes would not 
support process efficiency. However, it is critical that a 
clear separation of functions, duties and responsibilities be 
maintained. This separation limits the scope of transactions 
authorized by one position without having to be overseen by 
another position.
    For example, if the same person was authorized to order 
supplies, receive and inventory those supplies and authorize 
the payment for those supplies there would be little assurance 
that the operation was getting all that was paid for. A total 
lack of controls in this area could allow for eventual 
collusion with suppliers, kickbacks, fraud or embezzlement.
    By separating these functions into say three different 
departments, for example a purchasing department that does the 
ordering and a receiving department to receive and verify the 
invoices and bills of lading and then an accounts payable 
department to authorize and issue final payment, then we 
significantly reduce the risk of collusion and improprieties. 
That is the theory behind internal controls.
    Over the course of the last eight or so years, the National 
Indian Gaming Commission has promulgated a series of regulatory 
MICS requirements covering most areas where the safeguarding of 
tribal assets is at stake in the gaming operations. These MICS 
were a product of combining applicable and desirable provisions 
of other existing MICS models such as those developed by the 
National Indian Gaming Association and the Nevada-New Jersey 
Gaming Control Agencies.
    The existing MICS today, the existing NIGC MICS, are a 
product of continued revision to accommodate new technology and 
obsolescence and have been formulated with the assistance of a 
tribal advisory committee over the last few years. Parallel to 
this we must recognize that many, if not most, tribal-state 
compacts authorizing the scope of allowable Class III gaming in 
a given state also address how that gaming will be regulated. 
Inevitably the agreed upon scope of the regulatory requirements 
calls for provisions that meet or exceed industry standards and 
internal controls.
    We do not believe that any gaming operation or any tribal, 
state or Federal regulatory agency disputes the wisdom of 
requiring strong and effective internal controls. However, the 
question of who should design, implement and enforce those 
controls has created a bit of a dilemma. As previously 
mentioned, historically the NIGC with the help of the advisory 
committee has drafted internal controls for both Class II and 
Class III gaming.
    Then they required tribal regulators to ensure the 
implementation and primary compliance enforcement with the NIGC 
field agents monitoring compliance through periodic field 
audits. This all changed several years ago when our friends, 
the Colorado River, challenged NIGC's authority to monitor 
regulatory compliance over Class III gaming activity. The 
tribes contended that under the Indian Game Regulatory Act the 
regulation of Class III gaming was strictly to be within the 
jurisdiction of tribes and states via their compacts, and that 
NIGC's regulatory authority was limited to Class II only.
    Subsequently, the Federal Court in the District of Columbia 
has upheld the position of the Colorado River Indian Tribes 
ruling that NIGC does not have the authority to impose or 
enforce Class III regulatory MICS.
    At this time, we believe that the vast majority of tribal 
gaming operations are currently in compliance with all NIGC 
MICS. Consequently, we believe that to maintain continued 
compliance with the NIGC MICS in effect poses no significant 
new impact. However, we are also aware that for various reasons 
some tribes still have not achieved full compliance.
    It is also our position that it is in the best interest of 
Indian gaming to allow NIGC to have Class III MICS oversight 
thereby bolstering public confidence that Indian gaming is 
effectively regulated. Now having said this, should the NIGC be 
given that authority statutorily, we strongly suggest that they 
consider giving deference to tribes and states for MICS 
compliance enforcement in cases where the compacts adequately 
address the scope of required internal controls.
    In addition, we firmly believe that when tribes have 
demonstrated full compliance for a period of three years that 
they should be eligible for a certificate of self-regulation in 
Class III gaming activities similarly to those provisions that 
already exist in IGRA for Class II gaming activity.
    Once again, thank you for the privilege of being here 
today, and I will be happy to answer any questions.
    [The prepared statement of Mr. DesRosiers follows:]

           Statement of Norman H. DesRosiers, Commissioner, 
                    Viejas Tribal Gaming Commission

    Thank you for the opportunity to speak to you today. It is an honor 
to have been invited here before your Committee.
    I should first make it clear that I am here as a representative of 
the Viejas Tribal Government only and our expressed opinions are not 
meant to be and likely are not, representative of the views of all 
Tribal Governments and/or Tribal Regulators.
    I've been asked to address Class III Gaming Regulation in general, 
and specifically the need and value of Minimum Internal Control 
Standards, and the appropriate enforcement authority.
    Generally speaking we take great pride in our Tribal Governmental 
Gaming Regulatory Agency. We have over fifty (50) full time agents and 
a budget of approximately four million dollars ($4,000,000.00) to 
regulate a single Tribal gaming facility. Our agency is composed of 
auditors, background investigations and licensing personnel (both for 
vendors and key gaming employees), a compliance department, inspectors/
investigators on the floor 24/7, and the surveillance department.
    Our professional staff is composed of numerous former city, county 
and federal law enforcement personnel with a combined total of 230 
years of law enforcement experience with an additional 219 years of 
combined regulatory experience.
    This is noteworthy and not unique to Viejas. Collectively, 
nationally, Tribal gaming agencies employ thousands of regulatory 
agents, with many millions of dollars budgeted for regulation at the 
Tribal level. We are responsible for the primary compliance enforcement 
of all applicable Federal, State (Compact), and Tribal laws and 
regulations.
    Despite all of this, Tribal regulatory authorities are the least 
recognized. Unfortunately, there is still a prevalent notion among the 
media, the public, and many legislators that ``if it isn't State or 
federally regulated, then it isn't regulated.'' This misperception 
needs correction.
    Now to specifically address the role of Minimum Internal Control 
Standards (MICS) in Class III Gaming.
    Due to the cash-intensive nature of the gaming industry, a 
sophisticated system of checks and balances (people watching people) is 
unfortunately necessary to help discourage the temptation for some to 
misappropriate some of the Tribal revenues.
    MICS can be somewhat cumbersome and often times would not qualify 
as supporting ``process efficiency'', however it is critical that a 
clear separation of functions, duties and responsibilities be 
maintained. This separation limits the scope of transactions authorized 
by one position, without being completed or monitored by another 
position.
    For example, if the same person was authorized to order supplies, 
receive and inventory the supplies, and authorize payment for the 
supplies, there would be little assurance that the operation is getting 
all that it is paying for. A total lack of MICS in this area would 
allow for eventual collusion with suppliers, kick backs, fraud or 
embezzlement. By separating these functions into three (3) different 
departments, (i.e., a purchasing department to order, a receiving 
department to receive and verify the invoice and bill of lading, and an 
accounts payable department to authorize and issue final payment), we 
significantly reduce the risk of collusion and improprieties.
    Over the course of the last ten (10) or more years, the National 
Indian Gaming Commission has promulgated a series of regulatory MICS 
requirements covering most areas where the safeguarding of Tribal 
assets is at stake in a gaming operation.
    These MICS were a product of combining applicable and desirable 
provisions of other existing MICS models such as those developed by the 
National Indian Gaming Association (NIGA) and the Nevada and New Jersey 
Gaming Control Boards. The existing NIGC MICS are a product of 
continued revision to accommodate new technology and obsolescence, and 
have been formulated with the assistance of a Tribal Advisory Committee 
over the last few years.
    Parallel to this, we must recognize that many, if not most, Tribal-
State Compacts authorizing the scope of allowable Class III Gaming in a 
given State, also address how that gaming will be regulated. 
Inevitably, the agreed upon scope of regulatory requirements calls for 
provisions that meet or exceed industry standards for MICS.
    We don't believe that any gaming operation or any Tribal, State, or 
Federal regulatory agency disputes the wisdom of requiring strong and 
effective internal controls. However, the questions of who should 
design, implement and enforce the controls, has created a bit of a 
dilemma.
    As previously mentioned, historically the NIGC with the help of a 
Tribal Advisory Committee has drafted the internal controls for Class 
II and Class III Gaming. Then they required Tribal regulators to ensure 
implementation and primary compliance enforcement, with the NIGC field 
agents monitoring compliance through periodic field audits.
    This all changed several years ago when the Colorado River Indian 
Tribes challenged the NIGC's authority to monitor regulatory compliance 
over Class III Gaming activity. The Tribes contended that under the 
Indian Gaming Regulatory Act the regulation of Class III gaming was 
strictly to be within the jurisdiction of Tribes and States via their 
Compacts, and that the NIGC's regulatory authority was limited to Class 
II gaming only. Subsequently, the Federal Court in the District of 
Columbia has upheld the position of the Colorado River Indian Tribes, 
ruling that the NIGC does not have authority to impose or enforce Class 
III regulatory MICS.
    At this point in time we believe that the vast majority of Tribal 
operations are currently in compliance with all existing NIGC MICS. 
Consequently, we believe that to maintain continued compliance with the 
NIGC MICS in effect poses no significant new impact. However, we are 
also aware that for various reasons, some tribes still have not 
achieved full compliance.
    It is also our position that it is in the best interest of Indian 
gaming to allow NIGC to have Class III MICS oversight thereby 
bolstering public confidence that Indian gaming is effectively 
regulated.
    Having said this, should the NIGC be given that authority 
statutorily, we would strongly suggest that the NIGC consider giving 
deference to Tribes and States for MICS compliance enforcement in cases 
where their Compacts adequately address the scope of required internal 
controls. This would minimize unnecessary duplication of efforts and 
resources.
    In addition, we also firmly believe that when Tribes have 
demonstrated full compliance for a period of three (3) years that they 
should be eligible for a certificate of Self Regulation in the Class 
III activity under the same conditions that the Indian Gaming 
Regulatory Act provide for in Class II gaming.
    Once again, thank you for the privilege of being here today. I will 
be happy to answer any of the Committee's questions.
                                 ______
                                 

                              May 26, 2006

The Honorable Richard W. Pombo, Chairman
House Committee on Resources
Washington, D.C. 20515

Dear Mr. Chairman:

    Thank you for your letter dated May 15, 2006, which requested 
additional written comment to three questions submitted by Congressman 
Nick Rahall, II, from your committee. These follow up inquiries are 
related to my testimony at your oversight hearing on May 11, 2006, 
regarding Minimum Internal Control Standards for Indian Gaming. 
Congressman Rahall has submitted three excellent questions and I shall 
attempt to address each one in the order presented.
1.  Due to my assertion that there is a perception among the media, the 
        public, and many legislators that Indian Gaming is unregulated, 
        and that it would be in the best interest of Indian Gaming to 
        allow NIGC to exercise authority over Class III MICS, thereby 
        bolstering public confidence that Indian Gaming is effectively 
        regulated; I am asked if I feel that commercial gaming has an 
        advantage over Indian Gaming in public perception of gaming 
        integrity.
    It is my opinion that, regretfully, commercial gaming does have an 
advantage over Indian Gaming with a more favorable public perception 
relative to its regulatory integrity. I say ``regretfully'' due to 
several factors.
    First, there is a solid tolerance and expectation among the 
citizens that the institutionalized State government has credibility in 
its ability to regulate virtually everything, i.e., utilities, banks, 
transportation, commerce, etc. So it is expected that they can and will 
effectively regulate gaming and protect the interests of the citizenry. 
This has some affirmation by the publicity garnered by Nevada and New 
Jersey Gambling Control Boards. I view it as incredibly ironic that it 
took Nevada Gambling Regulators approximately 50 years to get to the 
point where they were confident enough to publicly announce that they 
had finally cleansed the Nevada Gambling industry of all organized 
crime.
    Secondly, unfortunately there is a pervasive ignorance and 
widespread lack of understanding relative to Tribes, Tribal sovereignty 
and Tribal government. Because so few non Indians are exposed to 
reservations and the functions of federally recognized Tribal 
governments, those governments have been virtually invisible and non 
existent in the minds of the general public. It is nearly impossible 
for them to understand or accept the concept that ``the Indians'' could 
have competent and credible government capacities. There is an apparent 
broad based disbelief that Indians could effectively regulate their own 
governmental gaming.
    Also, we often hear the old adage of ``The fox watching the hen 
house'' relative to Tribal governmental regulatory agencies regulating 
Tribal governmentally owned casinos. This public perception suggests a 
pervasive double standard in that there is an inherent conflict of 
interest for Tribal governmental regulators to regulate Tribal gaming; 
however, it is perfectly acceptable for State regulators to regulate 
State owned gaming. Consequently, public opinion, fueled by media 
commentary and editorials, consistently decries that if Indian gaming 
is not State and/or Federally regulated, then it is not regulated at 
all.
    For these reasons, again, I would opine that commercial gaming does 
indeed have an advantage over Indian gaming relative to the public 
perception of its regulatory integrity. I do not envision this 
perception changing unless and until the public ever achieves the level 
of exposure and education in Indian governments to understand and 
accept their existence and capabilities.
2.  I am asked if I believe that the NIGC, working with the Tribal 
        Advisory Committee, has done an effective job in producing 
        internal controls for Class II and III gaming.
    Generally speaking I would have to agree that the NIGC and the 
committee have done a very credible job in producing MICS. I am 
personally acquainted with many of the committee members and they are a 
group of the industry's best in knowledge and experience in the area of 
internal controls.
    I am only aware of one frequent complaint from committee members 
which suggests that occasionally NIGC personnel may be attempting to go 
a bit too far in the promulgation of controls. It is perceived that 
NIGC proposals can be ``over kill'' in being unreasonably cumbersome, 
burdensome, complicated and stringent.
3.  I am asked to elaborate on my desire for Tribes to be able to apply 
        for Certificates of Self Regulation in Class III Gaming after 
        full compliance for three (3) years. I am very pleased that you 
        asked this particular question for I am passionate about the 
        issue and have feared that it is falling on deaf ears.
    I commented to the Senate Indian Affairs Committee when I reviewed 
the first draft of S2078. At the time I thought it was simply an 
oversight that they had not included this revision. Since that time I 
am increasingly convinced that for political and economic reasons it 
has intentionally been ignored.
    The existing IGRA, Sec. 2710 (c) (3), (4), and (5) states in 
essence that a Tribe engaged in Class II Gaming activity which has 
demonstrated full regulatory compliance and conducted the gaming 
safely, fairly and free from crime and corruption for a period of 3 
consecutive years, may obtain a ``Certificate of Self Regulation'' from 
NIGC for its Class II gaming activities. This certificate entitles the 
Tribe to exemptions from NIGC oversight specified in Sec. 2706 (b) (1), 
(2), (3) and (4) of the Act. In addition, the Tribe is eligible for a 
reduction in the fees assessed by NIGC against Class II Gaming 
revenues.
    These provisions were relevant in the reasoning used in the 
District Court's ruling in favor of the Colorado River Indian Tribes 
(CRIT) in their assertion that NIGC does not have authority to impose 
and enforce regulatory MICS over Class III Gaming activities.
    It is our opinion that if the Act is amended to specifically grant 
NIGC authority over imposing and enforcing regulations over Class III 
Gaming, that it is only reasonable and correct for Sec. 2710 (c) (3) to 
be revised to read ``(3) any Indian Tribe which operates Class II and/
or Class III gaming activity and which''.''.
    This simple inclusion of ``Class III Gaming'' then appropriately 
affords Tribes to be eligible for the same Certificate of Self 
Regulation under the same conditions and with the same benefits of 
those that would be experienced under Class II only gaming.
    This would give much more meaning and substance to a Certificate of 
Self Regulation.
    It is worth noting, that under the current existing process for 
applying for a Certificate of Self Regulation for Class II gaming, that 
the NIGC sends a team of auditors to the applying Tribe's property for 
a period of two or more weeks. During that time the audit team conducts 
an in depth compliance review verifying compliance with everything, 
including Class III MICS and ``Compact'' compliance. One must be fully 
compliant with all relevant Class III Compact requirements and 
regulations to be found eligible for a Certificate of Self Regulation 
in Class II Gaming activity only. This strikes us as illogical.
    It is also worth noting that to date, only two Tribes in the entire 
United States have applied for and obtained Certificates of Self 
Regulation. In my interaction with Tribes nationwide, it is typically 
the sentiment that a Certificate of Self Regulation in Class II gaming 
only is not worth the effort of the application and review process and 
provides meaningless benefits.
    This sentiment would most certainly change if a Certificate of Self 
Regulation included Class III Gaming.
    We greatly appreciate the opportunity to submit this additional 
written commentary in response to your questions. We sincerely hope 
that you find this commentary helpful.

                               Sincerely,

                          Norman H. DesRosiers

                              Commissioner

                                 ______
                                 
    The Chairman. Thank you. Mr. Washburn.

   STATEMENT OF KEVIN WASHBURN, ASSOCIATE PROFESSOR OF LAW, 
                    UNIVERSITY OF MINNESOTA

    Mr. Washburn. Thank you, Mr. Chairman. I am honored to be 
here, and as sort of the token academic I guess on the panel. 
When I look around, what I hear is that everyone seems to agree 
that internal controls are crucially important here, and 
everybody thinks that we need to have internal controls. The 
question is: Who ought to impose those internal controls? 
Should they be imposed by tribal governments by the Federal 
government or by state governments perhaps?
    I think we all agree probably that generally at this stage 
it ought not be state governments. In 1988, I believe that 
Congress thought that state governments would be the ones that 
imposed internal controls through the compact process. Senator 
McCain does not like when I say this. He disagrees to some 
degree, but I really think in 1988 that Congress thought that 
the states would take this mantle on and would impose internal 
controls.
    I think that the states have not necessarily lived up to 
that. Some of the states have adopted very aggressive 
regulatory models but other states have not. So what happens if 
we leave it up to the states and tribal-state compacts is we 
get spotty regulation. We get good regulation in some states 
and bad regulations in others or less focus in other states.
    I think it is appropriate this is before the Resources 
Committee because this is one of the most important resources 
that tribes have these days, gaming. Many of the tribes would 
be nowhere without the very successful gaming operations they 
have, and so this is an appropriate place to be thinking about 
this.
    I think that that also suggests that perhaps it is a 
Federal responsibility to protect this very, very important 
resource, and so that is largely why I think the Federal 
government should have this role. Really what we should 
probably do is say given the agreement that everybody believes 
that we ought to have internal controls, we should look around 
and figure out which government has the comparative advantage 
here.
    Tribal governments have strong advantages. They are very 
close to the gaming. They have lots of people with boots on the 
ground that are regulating gaming, and they by and large do an 
excellent job, and we have not had very many serious problems. 
The NIGC has very rarely had to step in and take action, and 
what that says is the tribal governments by and large do an 
excellent job regulating Indian gaming.
    Having said that, the NIGC has had to close down some 
tribal operations over the last 10 years or so. Maybe a half 
dozen. It has not been very many, but that threat of potential 
closure by the NIGC ensures that the tribal regulators do a 
good job by and large every day, and that really is an 
important role that the NIGC plays.
    Query whether those tribes would have shut down their 
operations if they were merely tribally regulated. It is 
doubtful frankly. They have had too much investment to be able 
to do that. They are too close to the gaming.
    The academic principle here is regulatory capture. The 
concern is that tribal regulators might be captured by those 
they are supposed to regulate. Regulator capture happens to 
some degree in every industry. It happens perhaps a little bit 
less in Indian gaming when the feds are involved and when there 
is a Federal presence that can oversee those tribal regulators. 
That is again why I think that the comparative advantage is 
really in favor of the Federal government.
    Anybody that knows anything about Indian gaming knows that 
there is always a strong tension at the tribal level between 
the tribal regulators and the managers of the casino. They tend 
to fight oftentimes. That is a very healthy relationship 
frankly. The regulators and the managers of the casino ought to 
have tension between them. They ought to be fighting now and 
then. That is a signal that the regulators are doing their job.
    Where we need to be concerned is when the regulators do not 
have that tension with the casino managers. Again, having the 
tribal regulators having the NIGC standing behind them will 
ensure that they do their job, and they do it very carefully 
and very well.
    Now, the notion of the minimum internal control standards 
one notion also is who ought to impose them? Who ought to 
define the substance of them? Currently the statute allows the 
tribes to determine the substance to some degree, but there is 
an overarching Federal framework. Each tribe has to have 
minimum internal control standards.
    The notion of nationwide uniform standards is a good one. 
In fact, NIGA proposed it before the NIGC adopted them. NIGA 
proposed that there be sort of a general model the tribes use, 
and that was an excellent idea. The question is: Do we want the 
feds to go ahead and put that model in place and make it 
mandatory?
    I think that we really do. I think we make better 
regulatory regime when we do that. Thank you for asking me to 
testify today.
    [The prepared statement of Mr. Washburn follows:]

         Statement of Kevin K. Washburn, Associate Professor, 
            University of Minnesota Law School 1
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    \1\ The title and institution are provided for purposes of 
identification only. The views set forth herein reflect the views of an 
individual member of the legal academy and do not purport to reflect 
the official views of the University of Minnesota, its Law School, the 
State of Minnesota, or any other entity or person.
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INTRODUCTION
    Because Indian gaming is one of the most important sources of 
revenue for many Indian tribes, it is crucial that the industry remain 
well regulated. Strong regulation serves several practical functions. 
First, it protects Indian gaming from crime, ranging from petty theft 
by low-level employees to complex money laundering activities by 
members of organized crime. Second, strong regulation provides comfort 
to the gaming patron and the public in general that gaming is being 
done in a fair and honest manner and is free of criminal influence.
    The particular vulnerability of gaming is that casino gaming 
involves large sums of cash changing hands in millions of transactions 
each day by thousands of people across the country. In an age in which 
transactions in most other areas of commerce are dominated by less 
fungible and more secure financial instruments, such as credit cards, 
debit cards and checks, casinos still predominantly operate with cash. 
The cash-intensive nature of the gaming industry makes it particularly 
attractive--and particularly vulnerable--to crime and corruption.
    Despite this vulnerability, crime and corruption has, for the most 
part, been controlled in Indian gaming through vigilant adherence by 
gaming regulators to two primary regulatory strategies: careful 
background investigations of the key actors in Indian gaming, and 
strong internal control procedures for casino operations. It is widely 
agreed within the gaming industry in general that background 
investigations and internal controls are crucial to effective 
regulation. Today, no reasonable commentator could seriously deny the 
importance and effectiveness of these regulatory strategies in 
protecting the industry.
    Thus, the key question today is not whether these regulatory 
strategies are valuable and important, but which governments, tribal, 
federal, or state, should bear the ultimate responsibility for 
implementing these regulatory strategies. The regulation of gaming has 
been plagued by a lack of clarity in the roles of the respective 
regulatory entities. It is an appropriate time for Congress to clarify 
those roles to provide better guidance to the industry and to gaming 
regulators.
A. THE ROLE OF STATE GOVERNMENTS IN REGULATING INDIAN GAMING.
    When IGRA was enacted in 1988, most observers anticipated that 
states would take the opportunity afforded by the tribal-state 
compacting process to develop a strong regulatory presence over Class 
III Indian gaming. Some states took that opportunity and developed 
strong, reliable, and effective gaming regulatory agencies that provide 
vital assistance in insuring the integrity of Indian gaming. Other 
states, however, expressed little interest in regulating Indian gaming 
and failed to negotiate a significant regulatory role in tribal-state 
gaming compacts. These states have been ``no-shows'' in the important 
area of regulation. While substantially all of the states have shown a 
strong interest in tribal gaming revenues, fewer have shown significant 
interest in the actual regulation of Indian gaming. In other words, 
state gaming regulation has been inconsistent: strong in some states, 
weak in others.
    Even in the states that have undertaken a significant regulatory 
role in Class III Indian gaming, their efforts are vulnerable to 
criticism. Some of these criticisms are in the nature of conflicts of 
interest. On one hand, a state may feel ambivalent or even somewhat 
hostile to Indian gaming activity. For the Indian tribes that have 
gaming operations, gaming revenues help them maximize the exercise of 
their tribal governmental power and authority, that is, their tribal 
sovereignty. American history is littered with clashes between states 
and tribes; American legal history is a reflection of these battles. A 
leading Supreme Court case once described the people of the states as 
``the deadliest enemies'' of American Indian tribes. While today these 
clashes are less often ``deadly'' in the most immediate sense, the 
clashes between tribal and state authority continue. Indeed, in recent 
years, one such clash or another has gone all the way up to the Supreme 
Court nearly every Term. In this context, it is easy to see why state 
governments may feel conflicted about preserving the integrity of 
Indian gaming to help tribes maximize tribal sovereignty.
    On the other hand, where a state government does have an interest 
in maximizing Indian gaming revenues, which occurs when tribes have 
entered gaming revenue-sharing arrangements with state governments, 
states may have a different sort of conflict of interest. States that 
share Indian gaming revenues have an interest in maximizing gaming 
revenues. Meeting strict regulatory requirements can sometimes be 
expensive; compliance can therefore affect the bottom line and reduce 
gaming profits. A state's short-term interest in maximizing revenues 
may therefore overshadow its interest in the integrity of Indian 
gaming. This can also create a potential conflict of interest for state 
regulators.
    As a result of these conflicts of interest at the state level, 
state regulation leaves the Indian gaming industry vulnerable. The 
quality of regulation of Indian casinos ought not be subject to the 
mercy of state budgetary cycles or vary because of a potential conflict 
of interest. Congress should respect the decision of some states to 
``opt out'' of Indian gaming regulation. That does not mean, however, 
that Indian gaming should be left unregulated if a state refuses to 
undertake this important responsibility. The federal and tribal 
governments must exercise appropriate roles over Class III gaming, and 
Congress should clearly recognize those roles. The integrity of Indian 
gaming must be carefully protected if Indian gaming is to remain an 
important tribal asset in the future.
B. THE PROPER ROLE OF TRIBAL AND FEDERAL REGULATORS IN INDIAN GAMING.
    1. Tribes should have the primary responsibility, though not the 
exclusive responsibility for regulating Indian gaming. The primary 
responsibility for insuring that Indian casinos adopt and adhere to 
adequate internal controls ought to lie with tribal gaming regulators 
who have the advantage of physical proximity and already exercise a 
variety of regulatory functions within Indian gaming operations. During 
the past fifteen years, a large and sophisticated community of 
professional tribal gaming regulators has taken root across the 
country. Tribal gaming regulators have proven themselves, in the main, 
as effective regulators. In most circumstances, tribal regulators work 
conscientiously, competently and independently in providing strong 
regulation of Indian casinos. Recognizing their primacy in undertaking 
these sovereign responsibilities is likely to produce the most 
effective regulation. However, tribal regulatory structures have some 
obvious regulatory weaknesses and vulnerabilities that justify a strong 
oversight role for federal regulators, including the need for federal 
regulators to take independent enforcement action where tribal gaming 
regulators fail to meet their sovereign responsibilities.
    2. Each tribal regulator has a responsibility to his own tribe that 
makes him myopic as to the national interest of all Indian tribes. 
Federal regulators, on the other hand, can protect the integrity of the 
entire industry. Although it is true that fundamental notions of tribal 
sovereignty and self-determination ought to protect the right of each 
tribal government to make regulatory decisions without federal 
oversight, Indian gaming is an exception to this principle. I justify 
exceptionalism on this basis: one of the practical ramifications of 
tribal sovereignty is that no tribe can be held accountable to any 
other tribe. Yet, despite their legal insulation from one another and 
their lack of mutual accountability, Indian tribal decisions can harm 
other tribes. In the highly politicized world of Indian gaming, no 
tribe is an island unto itself. Indeed, the political fallout from 
incompetent or corrupt actions of one tribe may well impact hundreds of 
other tribes across the country. Indian gaming exists at the sufferance 
of Congress and State Legislatures and the public whom those bodies 
represent. If one tribe's casino succumbs to corruption or otherwise 
earns infamy, then the entire Indian gaming industry may well be 
tainted. The integrity of the industry--and even the perception of 
integrity--must be guarded with vigilance. In Indian gaming, tribes are 
linked inextricably to one another. Because no tribe has the ability to 
regulate other sovereign tribes, this problem is one that tribes cannot 
solve themselves. In my view, this lack of accountability of one tribe 
to another justifies federal oversight to accomplish what tribes cannot 
achieve through collective action. In other words, the federal 
government's own sovereign authority in this area can offer sound 
regulatory coverage that tribes could never achieve on their own.
    3. Federal regulators can provide oversight to tribal regulators, 
who may have conflicts of interest, and may need external support to 
buttress their authority within the tribal government. The risk of 
occasional irresponsible behavior by tribal regulators is quite real, 
for a couple of reasons. 2 First, the Indian Gaming 
Regulatory Act does not currently require that Indian tribes have 
independent tribal gaming commissions. Many tribes have created gaming 
commissions, but the relative independence of these commissions varies. 
Tribal commissioners are sometimes directly accountable to tribal 
leaders and/or tribal voters. While, in most circumstances, the tribal 
interest in the long term health of the gaming operation will give each 
tribal regulator a strong incentive to regulate responsibly, there may 
occasionally be overwhelming temptation to cut regulatory corners for 
short term gains. In other words, tribal regulators have the same type 
of conflict of interest that state regulators have. And, in some cases, 
the conflict will be even more severe. Federal regulators can minimize 
the damage caused by such conflicts of interest by subjecting tribal 
regulators to independent oversight.
---------------------------------------------------------------------------
    \2\ I addressed some of the same issues in detail in testimony 
before the United States Senate Committee on Indian Affairs on April 
27, 2005, and September 21, 2005. A link to this testimony can be found 
at http://www.law.umn.edu/facultyprofiles/washburnk.htm.
---------------------------------------------------------------------------
    4. Tribal regulators will sometimes lack the will to close an 
Indian casino that has engaged in gross irregularities. Because most 
tribal governments operate only a single Indian casino, and thus the 
tribal gaming regulatory agency has authority only over one casino, 
there is a serious risk that the tribal regulator will occasionally 
``pull his punches.'' In circumstances where one tribe operates one 
casino, the tribal regulator's job is dependent on the existence of the 
Indian casino. Such a regulator will not be inclined to shut down the 
casino even for gross misconduct. Hopefully, the need for closure of an 
entire casino will be rare, but it is precisely in the most egregious 
circumstances when it ought to be done. The NIGC must have clear 
authority to take appropriate action over Class III casinos, including 
closure, especially in cases in which tribal regulators fail to act.
    5. Tribal regulators are also more likely to succumb to 
``regulatory capture.'' ``Regulatory capture'' is the term used to 
define a regulatory agency's tendency to align its interests and 
collude with the firms it is ostensibly regulating, to the detriment of 
the public interest. The rich and diverse academic literature on 
capture reflects the notion that a regulated industry will attempt 
influence the regulator to prevent vigorous enforcement of the 
regulatory regime. Some scholars say ``capture'' is unavoidable: 
regulators will become instruments of the regulated community and will 
inevitably act in favor of the regulated community. Others take a 
pragmatic view that ``capture'' will exist to a greater or lesser 
degree depending on the legal structures that are used to guard against 
it, but that the threat of capture can be managed with prudent laws and 
sound regulatory structures. One risk factor for capture is a high 
degree of discretion by regulators. Wide discretion not only creates 
the opportunity for regulators to rule in favor of the regulated 
community, but also provides cover for doing so because the essence of 
discretion is power unconstrained by enforceable legal authority. The 
regulation of gaming almost always involves a high degree of discretion 
by regulators. Many regulators assert as a matter of law that their 
discretion to grant or deny gaming licenses is unfettered by due 
process requirements because involvement in gaming is not a right, but 
a privilege. Though this argument is less compelling under modern 
notions of due process, it reflects a widely held view among gaming 
regulators and it creates enormous unchecked discretion in the hands of 
the gaming regulator. Such broad discretion can increase the risk of 
capture.
    6. Federal regulatory oversight can minimize ``capture'' of tribal 
regulators. Another risk factor relates to the number of groups 
interested in the regulator's performance. A regulatory agency that has 
many regulatory entities within its jurisdiction and many other 
interested groups interested in its work is less likely to succumb to 
capture by any one group, because it will be held accountable to some 
degree by each of the entities and interested groups and each will 
scrutinize agency action. So, for example, when the FCC makes a 
decision related to the regulation of communications, AT&T or Verizon 
may cry foul if Qwest gets favorable treatment that the others perceive 
as unfair. Such competition within the regulated industry makes the 
regulator more accountable and thus serves as an important check on 
regulatory capture. In contrast, many tribal regulatory agencies have 
authority over only a single entity. In this ``one tribe, one casino'' 
model, tribal regulators work repeatedly with the same Indian casino 
officials. Thus, the structure of Indian gaming markets renders tribal 
gaming regulators tremendously vulnerable to capture. Tribal regulators 
will thus face less scrutiny than other regulators; they will hear only 
one voice, rather than many, when they make regulatory decisions. While 
outside interest groups can sometimes have an impact in preventing 
capture, there are few independent interest groups looking out for 
tribal members or casino patrons in the Indian gaming industry. Federal 
regulators can serve the role of overseeing tribal regulators, pushing 
them to be vigilant and requiring them to resist capture.
    7. Federal regulators have a comparative advantage in protecting 
all Indian gaming. Because of internal tribal pressures and the natural 
conflicts of interest of tribal regulators, federal regulators have a 
comparative advantage. Federal regulators are largely disinterested and 
objective; they have no significant conflicts of interest because they 
obtain no direct or significant benefit from the development of any 
particular Indian gaming facility.
    8. Uniform federal standards are better than individual state or 
tribal standards because federal standards can assure the integrity of 
gaming on a national scope and indirectly increase the quality and 
independence of tribal regulators. In the context of internal controls, 
the adoption of uniform federal standards creates a baseline for 
quality of regulation nationwide. Creation of such standards not only 
helps patrons, it facilitates the independence of tribal gaming 
commissioners by insuring that knowledge and expertise is portable from 
one reservation to another. Nationwide standards assure a national 
network of training and job opportunities that collectively serve to 
improve the professionalism of tribal gaming regulators. If a tribal 
regulator is fired from one reservation for applying the rules too 
rigorously, for example, he may well be able to find work with a gaming 
commission at another reservation.
    9. Federal regulation is best if it allows adequate flexibility at 
the tribal level. Federal regulators cannot be as responsive to the 
unique needs and circumstances of each individual tribe. Moreover, 
technology and other relevant circumstances will change much more 
quickly than regulators can update a complex and comprehensive 
regulatory regime, such as the federal minimum internal controls 
standards. To address these disadvantages, tribal gaming commissions 
and federal regulators should be open-minded and sensible about 
allowing reasonable variances to the federal standards.
C. RECOMMENDATION
    Indian tribes deserve clarity about the gaming regulatory 
structure. Likewise, the NIGC will be able to operate with greater 
confidence and legitimacy if it has a clear Congressional mandate on 
its authority to regulate. Because it is in the best interest of Indian 
gaming for an independent and objective regulator to oversee all 
significant gaming activity, Congress should strengthen the NIGC's 
mandate over Class III gaming. Congress should recognize the NIGC's 
authority to assure the integrity of Indian gaming extends to Class III 
gaming activity for all purposes, including background investigations 
of management contractors, minimum internal control standards, and 
health and safety.
    Second, federal Indian gaming regulators must be cognizant of the 
fact that it is sovereign governments they are regulating. Many 
disputes between Indian tribes and the NIGC have arisen when federal 
regulators have behaved in a heavy-handed fashion. While such heavy-
handedness is the norm among regulators within the commercial gaming 
industry in Nevada and New Jersey and other jurisdictions, the 
circumstances are far different in Indian gaming. Regulators in Nevada 
and New Jersey are regulating private actors, not sovereign nations.
    Federal regulators must behave much more carefully and respectfully 
toward the regulated industry. To be effective, NIGC regulators must 
not be merely regulators, but also educators and diplomats. While 
federal regulators must utilize a variety of skills to achieve tribal 
compliance, reliance on aggressive regulatory tactics sometimes simply 
masks ineffectiveness. Federal regulators should treat tribal 
regulators and tribal officials with the same respect and deference 
that they would use toward state officials. To some degree, this means 
that the NIGC requires adequate financial resources to recruit, hire, 
and retain the best regulatory professionals in the country. Given the 
context, the task for federal regulators is simply much more difficult 
than for state regulators.
CONCLUSION
    To protect the value of Indian gaming as a resource for all tribes, 
Congress should clarify the strong role for federal regulators in Class 
III Indian gaming. For most tribes, which engage in responsible 
regulation of Indian gaming, the NIGC role will be nearly invisible. 
While a strong role for the NIGC clearly treads on tribal sovereignty, 
it is a pragmatic and necessary step to insure the long-term viability 
of gaming as a resource for all tribes.
    Thank you for seeking for my views on this important subject.
                                 ______
                                 

 Response to questions submitted for the record by Kevin K. Washburn, 
        Associate Professor, University of Minnesota Law School

Responses to Congressman Rahall's Questions
    Below are answers to questions following the May 11 hearing on the 
Minimum Internal Control Standards for Indian Gaming submitted by 
Congressman Nick Rahall II. I greatly appreciate the questions and this 
opportunity to respond.
    Question 1: You make the point that the appearance of Indian gaming 
being thoroughly regulated and free of criminal influence is most 
important. In addition to your regulatory suggestions, is there a way 
to convey to the public that Indian gaming is well-regulated and 
resistant to crime?
    Answer: In recent years, public perception has lagged behind 
reality in the gaming industry generally and Indian gaming in 
particular. To some degree, the gap is created by the public memory of 
early involvement by organized crime in the gambling industry. The 
public may not be willing to support an enterprise that it believes 
creates an opportunity for crime to flourish. The reality is that there 
simply are not very many modern instances of organized crime or other 
criminal enterprises infiltrating gaming establishments. Though there 
have occasionally been attempts by such groups to reach Indian gaming, 
gaming regulators have been effective in foiling their efforts. One of 
the most telling pieces of evidence is that the Department of Justice, 
our nation's chief law enforcement office, consistently testifies that 
it has not been able to identify any serious problems with criminal 
enterprises and Indian gaming.
    Perhaps the best way to address the gap between perception and 
reality is to shine sunlight on the issue through Congressional 
oversight hearings. When the Department of Justice is asked to testify 
about crime in Indian casinos, it generally responds that it has 
concerns about the risks of such activity, but that it has found no 
significant or widespread problems. Such testimony helps to alleviate 
the concerns by the public and build the public's confidence in the 
industry. The relative crime-free nature of Indian gaming is a 
testament to the quality of the regulatory efforts directed toward the 
risks of criminal influences. Regulation has, by and large, been highly 
effective in this industry.
    Question 2: You also reference a ``lack of clarity in the roles of 
the respective regulatory entities.'' How can this be fixed?
    Answer: The National Indian Gaming Commission (NIGC) has clear and 
indisputable authority to regulate Class II gaming (bingo and simile 
games), but some tribes have challenged the NIGC's authority over Class 
III gaming (casino style games such as blackjack, roulette, craps and 
slot machines). Because Class III casino-style gaming represents, by 
far, the biggest part of the Indian gaming industry, the NIGC should 
have clear authority to regulate it. Otherwise, it would be more honest 
to label the NIGC the National Indian Bingo Commission. Congress seems 
to have anticipated in 1988 when it enacted the Indian Gaming 
Regulatory Act that states would regulate Class III gaming. The reality 
is that this expectation was not entirely met. Some states did take up 
the mantle, but other states failed to do so. This authority should 
rest with the NIGC so that there is even coverage across the nation, 
even in those states that failed to undertake regulatory 
responsibilities. While the NIGC may have authority over Class III 
gaming, the NIGC clearly has less authority over Class III gaming than 
it has over Class II gaming.
    The lack of clarity can be corrected by clearly granting the 
National Indian Gaming Commission the same authority over Class III 
gaming as it already has over Class II gaming. This would insure that 
the only federal agency with gaming regulatory responsibilities has 
adequate and clear authority to regulate all Indian gaming 
appropriately.
    The NIGC is the only regulator that can provide oversight, 
supervision, and guidance to the hundreds of tribal regulatory 
agencies, which vary in quality. The NIGC will have greater prestige if 
Congress will make clear that it intends the agency to have authority 
over Class II and Class III Indian gaming.
    Thank you for giving me a chance to respond to these important 
questions.
                                 ______
                                 
    The Chairman. Mr. Ducheneaux.

    STATEMENT OF FRANK DUCHENEAUX, CONSULTANT, REPRESENTING 
  MINNESOTA INDIAN GAMING ASSOCIATION AND GREAT PLAINS INDIAN 
                       GAMING ASSOCIATION

    Mr. Ducheneaux. Thank you, Mr. Chairman. I appear here 
today as the sign indicates at the request of the Minnesota 
Indian Gaming Association and the Great Plains Indian Gaming 
Association. Mr. Chairman, Mr. Kurt Luger, who is Executive 
Director of the Great Plains organization, asked me to present 
his regrets on not being here and express his appreciation to 
you for your past assistance to him in the tribes in North 
Dakota. I also am authorized to present this testimony on 
behalf of the Montana Tribal Gaming Association.
    A lot of the testimony here already presented and 
statements made duplicate what I am going to say. I would like 
to say here that the tribes of the organizations I represent 
here today would endorse wholeheartedly the NIGA position and 
the statements made by Mr. Aspa on behalf of the Colorado River 
Tribe.
    I have a lengthy statement of which you have already 
admitted to the record. I would also like, Mr. Chairman, if it 
is OK to submit for the record a paper that I and Pete Taylor, 
former Chief Counsel of the Indian Affairs Committee, developed 
for the NIGA entitled Tribal Sovereignty and Powers of the 
National Indian Gaming Commission, if that is OK.
    The Chairman. Without objection.
    [NOTE: The paper submitted for the record has been retained 
in the Committee's official files.]
    Mr. Ducheneaux. My statement goes into the experience I had 
as Counsel of Indian Affairs with this committee from 1973 to 
1990, including the years when the legislation was being 
considered here, and I will not go into that. I would want to 
say in the 100th Congress when we were considering legislation 
in this committee, Chairman Udall made his decision at that 
time to cease action in this committee not to mark the bill up, 
his bill up, but rather he directed me to go over to the Senate 
Indian Affairs Committee and work with the Senate Indian 
Affairs Committee staff to develop a bill, a compromise bill 
which would be minimally acceptable to the Indian tribes.
    His direction to me was to advise that committee staff that 
if the Senate could pass a bill that was minimally acceptable 
to the tribes that he would have it held at the speaker's table 
and would bring it up under suspension of the rules. 
Conversely, if a bill was passed which was not acceptable to 
the tribes, he indicated that he would have it brought back to 
the committee and would in effect kill it here.
    He gave me pretty wide latitude in developing the 
compromise. We worked several months in the closing months of 
1987 and the early months of 1988, and finally a bill as you 
know was enacted and the law is IGRA. Throughout that process, 
throughout the six years of legislation in this committee and 
the negotiations, it was a central part of Mr. Udall's position 
that tribal sovereignty and the right of tribal self-government 
be protected to the greatest extent possible while yet 
achieving the goals of the legislation.
    Despite what all of the comments being made today about 
what the intent of Congress, particularly with respect to Class 
III, clearly it was the intent of the Congress, of the 
Committee leadership including Senator Inouye and the staff 
that negotiated on it that the Commission was not to have the 
authority to develop and impose these kinds of detailed, day-
to-day regulations on Class III gaming, and I say nothing about 
Class II. I want to make that clear to the Committee, Mr. 
Chairman.
    Then I want to get into the proposals that are being made 
today. We have S. 2078 on the Senate side proposing to, despite 
the decision in the CRIT case--and again I think the tribes I 
represent would fully endorse the statement of Mr. Aspa on that 
regard.
    S. 2078 proposes to impose upon the tribes that kind of 
detailed regulations. I cannot say what the understanding of 
the Committee's Members of Congress when they voted on it in 
that regard, but clearly it was not the intent that they have 
that responsibility. Early leadership of the Commission 
recognized that. Anthony Hope, who was the first chairman, 
clearly recognized that the Commission did not have the power 
to do that. Nevertheless, they have gone ahead and done it.
    As mentioned in the NIGA statement, Indian tribes expend--I 
thought it was over $200 million. They are saying Indian tribes 
spend over $300 million a year in regulating their own 
activities, and yet those who are proposing this new amendment 
seem to ignore and discount that effort. That says to Indian 
tribes, at least to tribes that I represent, that the Congress, 
those in the Congress and other people in leadership seem to 
feel that Indian tribes do not have the capability as Indian 
people to regulate their own activities, and we have to rely on 
outside people to come in and tell us what is in our best 
interest. The Indian tribes that I represent reject that.
    I am not saying, Mr. Chairman, that there have not been 
cases in Indian gaming where there has been misconduct, abuses 
but I think as the Professor has said, those have been 
isolated, and I do not think a record has been made that there 
has been a pattern of abuse which would warrant the kind of 
proposal that is being made.
    Mr. Chairman, I would just like to say in conclusion that 
the tribes of Minnesota, North Dakota, South Dakota, Nebraska, 
Iowa and Kansas and Montana are strongly opposed to the 
proposal. Having said that however, Mr. Chairman, if in the 
wisdom of this committee that something ought to be done in 
this area, they concur in the thought that hopefully the 
Committee would work with them to try to address these 
problems, real or perceived, in a way that is as much 
consistent with tribal sovereignty as possible. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Ducheneaux follows:]

 Statement of Franklin Ducheneaux, representing, the Minnesota Indian 
   Gaming Association and the Great Plains Indian Gaming Association

    Mr. Chairman, my name is Franklin Ducheneaux. I appear today at the 
request of, and representing, the Minnesota Indian Gaming Association 
and the Great Plains Indian Gaming Association. These two organizations 
represent over 20 Indian tribes in six states. In addition, the Montana 
Tribal Gaming Association, representing the 7 tribes of Montana, is 
supportive of the views expressed in this statement. On behalf of those 
tribes and organizations, I want to thank you and the Committee for 
this opportunity to present their views on proposals to amend the 
Indian Gaming Regulatory Act with respect to the application of NIGC 
minimum internal control standards to class III Indian gaming.
    I also have a first-hand experience with the development and 
enactment of IGRA. From March 1983 to December 1990, I served as 
Counsel on Indian Affairs with the Committee; first with the 
Subcommittee on Indian Affairs under the chairmanship of our late 
friend, Lloyd Meeds, and, second, with the full Committee on Interior & 
Insular Affairs under the chairmanship of our late friend, Morris K. 
Udall. With particular relevance to this oversight hearing on the MICS 
issue, I served in that capacity in the 98th, 99th, and 100th 
Congresses, the period during which this committee and the Congress 
considered legislation protecting and regulating Indian gaming.
    Before getting to the specific issue of class III MICS regulation 
by NIGC, I would like to give the committee a brief overview of the 
consideration of Indian gaming legislation during those three 
congresses. At this point, Mr. Chairman, I would like to offer for the 
record a paper prepared by me and Peter S. Taylor for the Minnesota 
Indian Gaming Association entitled ``Tribal Sovereignty and the Powers 
of the National Indian Gaming Commission''.
    Seminole & Barona Decisions.--In 1981 and 1982, two Federal circuit 
courts of appeal decisions were handed down confirming the right of 
Indian tribes, under certain circumstances, to engage in, or license 
and regulate, gambling activities on Indian lands free of control by 
state laws. These decisions were Seminole v. Butterworth (658 F. 2d 
310) and Barona Group of Mission Indians v. Duffy (694 F. 2d 1185). The 
Supreme Court declined to review the two decisions. As the holding in 
these cases percolated through Indian country, increasing numbers of 
tribes began to offer high stakes bingo as a means of generating badly 
needed tribal revenues.
    98th Congress and H.R. 4566.--As Indian Affairs Counsel, I was 
concerned about the probable non-Indian reaction to these decisions and 
tribal gaming activities. There was also concern among members of the 
Indian bar that the Supreme Court would take an appeal on such a case 
and reverse. With the approval of Chairman Udall, I drafted a bill that 
provided, among other things, for minimal Federal regulation of Indian 
gaming. Mr. Udall introduced the bill on November 18, 1983, as H.R. 
4566. Hearings were held on the bill by this committee, but no further 
action was taken, primarily because the Indian tribes opposed the 
legislation, even with the minimal intrusion into tribal sovereignty 
through its provisions.
    99th Congress and H.R. 1920.--By the time the 99th Congress 
convened, more tribes had turned to high stakes bingo as an economic 
development and revenue-generating effort and there was a growing anti-
Indian gaming backlash that was increasingly being reflected in the 
Congress. Again, at Chairman Udall's direction, I drafted another bill 
dealing with Indian gaming that Mr. Udall introduced on April 2, 1985, 
as H.R. 1920. Two other bills were introduced in the House and a bill 
was introduced in the Senate on the subject.
    H.R. 1920 was a much more complex bill and more intrusive into 
tribal sovereignty than H.R. 4566. Nevertheless, it reflected Chairman 
Udall's continuing strong support for tribal sovereignty and tribal 
self-government and his reluctance to invade tribal sovereignty more 
than was strictly necessary to deal with the matter.
    Extensive hearings were held on the bill. It was marked up in the 
Committee on December 4 and 11, 1985, and ordered reported with an 
amendment in the nature of a substitute. By then, the legislation had 
established the three classes of Indian gaming and, because of the 
strong and growing anti-Indian gaming forces, the substitute 
unfortunately included a 4-year moratorium on class III gaming. The 
bill passed the House under suspension of the rules on April 22, 1986. 
The Senate Indian Affairs Committee reported H.R. 1920 to the Senate on 
September 15, 1986, but a hold was placed on the bill and it died with 
the 99th Congress.
    Despite the growing pressure from those opposed to Indian gaming to 
impose either state or Federal regulations on Indian gaming, the 
leadership of both the House and the Senate committee still sought to 
protect the right of tribal sovereignty and self-government in the 
regulation of gaming on Indian lands.
    The Supreme Court and the Cabazon Case.--An event occurred in 1986 
that colored the remainder of the legislative actions in the 99th 
Congress and action of similar legislation in the 100th Congress. On 
June 10, 1986, the Supreme Court decided to hear an appeal from the 
State of California in the case of California v. Cabazon Band of 
Mission Indians. The circuit court decision in the Cabazon case, like 
the earlier decisions in the Seminole and Barona Ranch cases, held that 
the tribe involved was entitled to engage in bingo and other games 
permitted under state law free of state regulation. It was generally 
accepted in both camps that the Supreme Court, based on recent 
decisions in other Indian cases, would reverse the lower court and find 
for state regulation.
    The 100th Congress and IGRA.--When the 100th Congress convened, I 
advised Chairman Udall that it might be the better part of valor, 
because of the expected reversal of the Supreme Court in the Cabazon 
case, to take a more conciliatory legislative position with the anti-
Indian gaming forces, both on the Committee and in the House. I drafted 
for the Chairman a bill that he introduced as H.R. 1079 on February 2, 
1987. This bill was designed to salvage as much as possible for tribal 
sovereignty over Indian gaming before the Court rendered its expected 
decision in the Cabazon case. This bill, which I now look back on with 
some shame, was offered to the other side by the Chairman, but, 
fortunately, it was soundly rejected.
    On February 25, 1987, the Supreme Court handed down its decision in 
the Cabazon case that fully upheld the decision of the lower court in 
favor of the right of Indian tribes. With the Court decision, the 
legislative momentum and strength shifted away from the state-gaming 
industry position to the tribal government position. Even then, 
Chairman Udall sought to reach a compromise with the opposing forces. 
He sent a May 4, 1987, letter to Congressman Pepper, Chairman of the 
Rules Committee, in that vein. I would like to quote from it:
        ``One effect of the Court decision is that some tribes are now 
        opposing enactment of any legislation imposing regulations on 
        tribal gaming. This opposition extends to my own bill, H.R. 
        1079. While I can appreciate this change in attitude of the 
        tribes, I still feel that some legislation is desirable to 
        provide needed protection for the tribes, themselves, and the 
        public. As a consequence, I have directed my staff to redraft a 
        bill which recognizes the rights secured to the tribes by the 
        Supreme Court decision and, yet, establishes some Federal 
        standards and regulations to protect the tribes and the public 
        interest. However, I believe that this Federal regulation must 
        be accomplished in a manner which is least intrusive upon the 
        right of tribal self-government.
I did draft the bill and Chairman introduced it on May 4, 1987, as H.R. 
2507. Still, Chairman sought to reach out to the other side with a 
compromise, but it was again rejected. On July 6th, Chairman Udall 
submitted a statement for the Congressional Record noting his offer and 
the rejection. Again, I would like to quote the closing part of the 
remarks:
        ``Mr. Speaker, I reluctantly take my compromise off the table 
        and revert to my support for the language of my bill, H.R. 
        2507, which will provide effective regulation of Indian gaming 
        within the context of our solemn promises to the Indian tribes. 
        Still, I am willing to consider compromise if the non-Indian 
        gaming industry is willing to respect Indian rights and are 
        willing to leave a small piece of the pie for the Indian 
        people.

        ``Until then, I must oppose legislation damaging to Indian 
        self-government and Indian rights.'' Congressional Record, July 
        6, 1988, P. H5028.
The Committee held a hearing on H.R. 2507 on June 25, 1987, but no 
further action was taken. I think some may have wondered why.
    The older members of the Committee will remember that Mo's 
abilities were being significantly affected by his Parkinson's disease 
about this time. He realized that his legislative strength was waning. 
Sometime after the hearing, he called me to his office. He advised me 
that, while he could probably get the bill out of committee in a form 
acceptable to the tribes, he probably could not hold it against Floor 
amendments destructive of tribal sovereignty. He decided to cease 
action in the Committee. He directed me to go to the Senate Indian 
Affairs Committee staff and advise them that no further action would be 
taken in his Committee on H.R. 2507. He directed me to advise them 
that, if the Senate would pass a bill that was minimally acceptable to 
the tribe, he would hold it at the Speaker's table and try to pass in 
under suspension of the rules. If the Senate passed a bill that was not 
acceptable to the tribes, he would bring it into the Committee and kill 
it. He authorized me to try to negotiate with the Senate staff and 
other interested parties on language that would be acceptable to the 
tribes.
    While negotiations on the compromise language began in late 1987, 
active efforts did not take place until the beginning of the 2nd 
session of the 100th Congress and final agreement was reached in late 
April of 1988. While the bill number of the eventual compromise was S. 
555, the language that formed the basis of the negotiations was the 
text of H.R. 2507, that had been introduced in the Senate by Senator 
McCain as S. 1303.
    Mr. Chairman, the compromise we reached was a delicate one and one 
that, in my view, would be only barely acceptable to the Indian tribes. 
Viewed from the perspective of the victory the tribes had won in the 
Cabazon decision, the compromise language resulted in further erosion 
of tribal sovereignty. However, viewed from the perspective of the 
political forces opposing tribal gaming, it was minimally acceptable. 
The Senate Indian Affairs Committee reported S. 555, with the 
compromise language, on August 3, 1988, and passed it by voice vote on 
September 15th. It was received in the House and passed under 
suspension of the rules on September 27th. It was signed into law by 
the President on October 17, 1988.
    IGRA and the NIGC MICS.--Mr. Chairman, at issue in this0 oversight 
hearing of the Committee is the authority of the National Indian Gaming 
Commission to promulgate and enforce its existing minimum internal 
control standards (MICS) against class III Indian gaming and, if it 
lacks such authority under IGRA, the need to amend IGRA to give it that 
authority. I would like first to address the existing authority of NIGC 
under IGRA to do so and the intent of Congress in that respect.
    There are those in leadership positions who are now saying that 
Congress intended in IGRA to confer that authority on the Commission. 
This, of course, includes the current Chairman of the Commission, Mr. 
Phil Hogen.
    As I have noted, I worked very closely with Chairman Udall in the 
development, consideration and enactment of IGRA. Mo made very clear 
that he was personally opposed to gambling and, in particular, to 
government gambling. He also made clear his position that, if states 
were going to engage in that activity or to license and regulate it, he 
strongly supported the right of Indian tribes to do so within the 
context of their tribal sovereignty. While Mo recognized the growing 
need for Congress to address concerns about tribal gaming, his 
consistent position was that any legislation addressing those concerns 
must be as consistent with tribal sovereignty and the right of tribal 
self-government as possible. Unlike some today, his support for tribal 
sovereignty and tribal self-government was not lip service only. It was 
the hallmark of his legislative position on Indian gaming.
    By the beginning of the 100th Congress, it was clear that the 
opponents of Indian gaming, including the states, had shifted their 
focus from class II gaming, including bingo, to the specter of class 
III or casino gaming. They were content to leave class II gaming to the 
regulation of the tribes, with some oversight and monitoring authority 
in the NIGC. They insisted, however, that class III Indian gaming 
either be banned or completely subject to state regulation. On the 
other side, the tribes and their supporters were equally insistent that 
the states play no role whatever in the regulation of class III gaming.
    What came out of the negotiations between the House and the Senate 
in the 100th Congress was a compromise. Class III gaming was made 
illegal on Indian lands unless done pursuant to a compact negotiated 
between a tribe and a state, subject to approval by the Secretary of 
the Interior. Realizing that this would put the tribes at the complete 
mercy of the states, we authorized the tribes to sue the states in 
Federal court for failure to negotiate or to negotiate in bad faith. We 
also included language setting out the parameters of such negotiation. 
However, the language clearly intended that whatever regulation of 
class III gaming was to occur was to occur as a result of the agreement 
between the tribe and the state. Except for the monitoring and 
oversight functions, the NIGC was to have no role whatsoever in such 
regulations.
    Mr. Chairman, I cannot say what the understanding of those Members 
of Congress who voted for IGRA was or what their intent was in voting 
for its passage. As the committee staff person charged by Chairman 
Udall with achieving compromise language that was minimally acceptable 
to the tribes, I can say what our intent and understanding was. The 
NIGC was not to have the power to promulgate and enforce detailed 
regulation of class III gaming. This would have usurped the power the 
states insisted on and destroyed the compromise the tribes accepted.
    The NIGC MICS and CRIT.--In the early days of the Commission, the 
first Chairman, Anthony J. Hope, made clear his understanding that IGRA 
did not confer power to adopt and impose detailed regulation on Indian 
gaming. Hope, in his testimony before the Senate Indian Affairs 
Committee on April 20, 1994, noted that the ``Commission lacks 
authority usually found in a comprehensive independent regulatory 
agency.''
    In discussing the need for an amendment to IGRA conferring such 
regulation, Hope stated:
        ``The Congress should set minimum standards for the regulation 
        and monitoring of class III gaming, or authorize the Commission 
        to prescribe them by regulation....If it is given 
        responsibility of regulation class III gaming, it should be 
        empowered to regulate in the same manner as gaming commissions 
        in the state.''
While the Commission's application of its MICS to class II gaming is 
not at issue in this hearing, I would parenthetically note that Hope's 
statement then noted that ``These powers should also be extended to 
class II operations.''
    As we know, Mr. Chairman, despite this early Commission position 
and over the strong objection of Indian tribes, the Commission later 
promulgated and begin enforcing its MICS over both class II and III 
Indian gaming. While tribes and other supporters of tribal sovereignty 
continued to assert the illegality of the Commission MICS, most 
complied with the MICS as a matter of economic necessity.
    However, as the Committee may be aware, the Colorado Indian Tribes 
of Arizona finally stood up to the Commission. They challenged NIGC. 
They won a decision in an administrative appeal, which the NIGC 
ignored. They then sued in the Federal District court here in DC. On 
August 24, 2005, the court handed down its decision in Colorado River 
Indian Tribes v. National Indian Gaming Commission, 383 F. Supp. 2nd 
123. The court could not have been more clear in its decision that IGRA 
did not confer power on the Commission to impose its MICS on class III 
gaming.
    IGRA Amendments and S. 2078.--Throughout the consideration of the 
Indian gaming legislation in the 98th, 99th, and 100th Congresses, it 
was Chairman Udall's goal to achieve the purposes of the legislation in 
a manner that was most consistent with tribal sovereignty. This was 
true of the provisions providing for the regulation of class III 
gaming. As is made clear in the CRIT decision, IGRA gave the Commission 
no role in regulating class III. The Act left that matter to the 
negotiations between the state and the tribe.
    Despite the favorable decision in the CRIT case and, at least in 
part, because of it, the tribes are now faced with proposals to amend 
IGRA to specifically confer that power on NIGC, including S. 2078 as 
reported from the Senate Indian Affairs Committee. With few exceptions, 
the Indian tribes and organizations representing Indian tribes oppose 
those proposals. If enacted, such legislation would completely destroy 
the tribal sovereignty and the right of self-government in the area of 
tribal gaming enterprises. The tribes cannot understand the 
justification for this proposal.
    One justification put forward by the proponents is based upon a 
comparison of funding levels for the regulation of Indian gaming. The 
assertion is made that the State of Nevada spends over $80 million a 
year in regulation its gaming industry while the NIGC spends only $8 
million. The statement is true, but it totally ignores and discounts 
the over $200,000,000 spent by Indian tribes in the regulation of 
Indian gaming activities, including funds provided to state agencies 
for regulation under compacts. The tribes are rightfully resentful of 
this attitude because it says to them that the non-Indian world 
believes that Indians, as Indians, cannot be trusted to regulate their 
own activities in an effective and fair manner.
    Nevertheless, Mr. Chairman, I believe that some Indian tribal 
leaders would not be so opposed to such efforts if a record had been 
made that there was a pattern of abuse, corruption, fraud, and other 
misconduct in Indian gaming because of inadequate regulation. But there 
has been no such record made. The Senate Indian Affairs Committee has 
held several hearings in this Congress on Indian gaming. No witness has 
come forward to document a pattern of such misconduct. Lacking such 
evidence, the proponents assert that a scandal could happen in Indian 
gaming and, therefore, Federal regulation should be imposed for the 
Indian's own good.
    Mr. Chairman, the Indian tribes and people do not need another 
Great White Father. They are strongly opposed to any return to a 
Federal policy of termination of tribal governing powers. They are 
equally strongly opposed to a reinstitution of a policy of paternalism 
by Federal bureaucracy.
    I recently attended an event at the University of South Dakota that 
was a 50-year retrospective on Indian Self-determination Act. When I 
came to work for the Committee in the 93rd Congress, the first major 
bill I worked on was S.1017, which was enacted into law as the Indian 
Self-Determination Act. It ended the era of termination and paternalism 
and established the over-all policy of the Congress and the Federal 
government that the right of Indian tribes to govern their own affairs 
would be protected and strengthened. Enactment of S. 2078 or similar 
legislation on class III gaming regulation would destroy tribal 
sovereignty and return this Nation to an Indian policy of termination 
and paternalism.
    The majority of the Indian tribes across the country, including the 
tribes represented by MIGA, GPIGA and MTGA, are strongly opposed to S. 
2078 or to any other legislation conferring power of NIGC to impose its 
MICS on class III gaming. However, Mr. Chairman, if this Committee in 
its wisdom feels the need to move such legislation, the tribes would 
like the opportunity to work with the Committee leadership to craft 
language that would be consistent with, and respectful of, tribal 
sovereignty and self-government as S. 2078 is not.
    Again, Mr. Chairman, I want to express the appreciation of the 
member tribes of MIGA, GPIGA, and MTGA/ for the opportunity to put 
their views before this Committee. This completes my statement and I 
would be happy to respond to any questions.
                                 ______
                                 
    The Chairman. Thank you. Thank all of you for your 
testimony. Mr. Stevens, can you describe the degree of 
independence that tribal gaming commissioners generally have 
with respect to tribal councils? Are there potentials for 
conflict of interest, and if so, how are those dealt with?
    Mr. Stevens. No, I do not believe so. I believe that our 
tribal governments have taken that job very seriously, and I 
think like my friend here says that we end up having more 
opportunities where we might have some concerns and a little 
bit of intense dialogue between them because of their 
respective roles. I think that almost all of these governments 
have accepted their role. At the same time, the gaming 
commissioners in our tribes have accepted a very professional 
role in their responsibility to regulate this industry that 
means so much to their community, to their children and to 
their future.
    The Chairman. How are the potential conflicts dealt with 
though, Mr. Stevens? When you are self-regulated, obviously it 
bring questions, and other members have asked me about this, 
and I know that the Senate has talked about this. How do you 
ensure that those internal control standards that you have 
adopted, that the individual tribes have, how do you ensure 
that those are followed, and that there is independence on 
those that are regulating gaming within the tribes?
    Mr. Stevens. We hold ourself to a high degree of standard 
in Indian country. Chairman Hogen talked about how in Vegas and 
Atlantic City they got there. We believe that not only have we 
got there we have been there, and we have taken on those kinds 
of challenges that have confronted us.
    We have again a high degree of ethical standard within 
Indian country that is pretty much handed down through our 
elders and our culture, but at the same time in order to be the 
best in these challenges we brought on--as I said in my 
testimony--ex-FBI, ex-police department, different kinds of 
folks that ensure the integrity of our operations.
    Now, in my tribe specifically we have an internal audit 
department that exists with I believe at least three auditors 
on the tribal side, and then we have auditors that come within 
the gaming side. The gaming commissioners also have their own 
auditors. They also have their own investigators.
    We have a tremendous amount of checks and balances in our 
tribal operations, and we are very proud of that, and we work 
so hard in our group to ensure that because we know that it has 
always been kind of the myth that these kind of occurrences 
take place. In our review and the statistics and our history, 
very, very small percentage of major occurrences have happened, 
and these occurrences have been detected by our professionals, 
by our commissioners and our investigators, and taken care of 
in accordance with the laws and regulations within our tribe 
and our operations.
    The Chairman. It is my understanding that it is looked at 
as the compacts lay out the regulatory regime state-by-state. 
Has the Secretary ever rejected a compact on the basis that it 
did not provide adequate regulation of gaming operations?
    Mr. Stevens. Not to my knowledge.
    The Chairman. Mr. Hogen, do you know if that has ever 
happened?
    Mr. Hogen. No, Mr. Chairman, I do not believe that that has 
ever been identified as a cause to disapprove a proposed 
compact.
    The Chairman. Mr. Hogen, what is your response to Chairman 
Stevens' argument that the NIGC already has ample authority 
over Class III gaming?
    Mr. Hogen. For six years we thought we did. That is until 
the Court ruled in the Colorado River Indian Tribes case. These 
minimum internal control standards, our promulgation of them, 
the tribes compliance with them, our auditing of that 
performance worked beautifully, but now we are finding doors 
slammed in our face.
    We sent two of our investigators from Rapid City out to 
western Montana this week. When they got there, they were 
denied access, and the tribe pointed to the ruling in the 
Colorado River Tribe to keep us out of looking at the Class III 
gaming. We had been out there before in October. We had noticed 
some deficiencies. We wanted to go back and see if they had 
been resolved.
    Now, the Court's order in the Colorado River Indian Tribes 
case is a narrow order. It applies to us in Colorado River. It 
did not enjoin us from doing this generally, but we are going 
to find these things arising around the country if this is not 
clarified. This is an urgent concern to the National Indian 
Gaming Commission, and while we presumably would still have 
some role to play, we would become more of an advisory 
commission rather than a regulatory commission if this is not 
clarified.
    Mr. Stevens. Mr. Chairman?
    The Chairman. Yes.
    Mr. Stevens. Could I add something on that point? I think 
it is important to recognize that the tribal ordinances 
pursuant to the Act also contain important regulatory features, 
and one of the authorities that is referenced in NIGA's 
testimony is the authority to issue a notice of violation and 
have a hearing on potential violations of tribal ordinances.
    I think there is a difference between minimum internal 
control standards that are issued independently of tribal-state 
compacts or tribal ordinances and coming out to enforce the 
tribal ordinance which I think is clearly a power of NIGC that 
is reflected in the statute.
    The Chairman. Thank you. Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Mr. Chairman, and thank you 
for calling this hearing this morning. I would be remiss if I 
did not offer my personal welcome to my dear friend Mr. Frank 
Ducheneaux for being here this morning. You are getting 
younger, Frank. Probably no other person that I know of, Mr. 
Chairman, that understands every aspect of how this legislation 
was crafted, and I certainly want to pay a special tribute to 
you, Frank, for the tremendous work that you have done not only 
with this legislation but the years that you served as Chief 
Counsel of this committee dealing with Indian issues. Good to 
see you.
    I just have a couple of questions also to Mr. Stevens. What 
is the total number of tribes that are members of NIGA right 
now?
    Mr. Stevens. It fluctuates yearly based on membership. We 
have had probably a total of about 184. It just depends on 
membership dues coming in, but we have always used the number 
184, but again the accurate number reflects on memberships 
coming in. Anywhere from 150 to 184.
    Mr. Faleomavaega. This is out of 200 that are in 
currently----
    Mr. Stevens. Yes, approximately 215.
    Mr. Faleomavaega. 215 that are currently having gaming 
operations?
    Mr. Stevens. Yes, sir.
    Mr. Faleomavaega. Within the NIGA organization, do you have 
rules and everything in terms of the standards that have been 
set for these tribes to be up to par with whatever that they 
are supposed to be doing?
    Mr. Stevens. Just like the MICS, we have worked with those 
in advocacy but we left those for regional associations and the 
tribes themselves. We do have a National Tribal Regulators 
Association that work very closely and directly with the 
regulators. We do not work so closely with them because again 
in their respect to maintain an autonomous dialogue in working 
together, NIGA does not really have an ongoing relationship 
other than informational and keeping each other up to speed.
    Mr. Faleomavaega. I would like to ask Mr. Ducheneaux I 
guess the issue that is hot right now in the Congress of this 
committee is certainly Senator McCain's pending legislation. I 
wanted to ask your honest opinion. Given all that has been 
written, the regulatory aspects of how the tribes are to not 
control but the conduct of their activities as gaming 
operations, do you believe that Senator McCain's legislation is 
going in the right direction or too much intrusion into this 
compact relationship that currently exists among the tribes and 
the various states that they have done?
    Mr. Ducheneaux. As NIGA's statement and my statement 
indicate and other testimony and statements made around the 
country, the tribes are very concerned about S. 2078, and in 
general I think are opposed to it. I think the tribes recognize 
that there is a perception that there may be some problems in 
Indian gaming.
    I do not think they agree that it has gotten to the extent 
where it warrants that kind of action but what they regret most 
of all I think about that legislation is that there was not an 
attempt to work with them to try to understand where they were 
coming from and understand if the Congress, as I mentioned in 
my statement, felt a need to go forward in the MICS areas and 
some of these other areas to work closely with the tribes to 
see whether there is a way to achieve the solution to these 
real or perceived needs in a way that was more consistent with, 
more in the context of tribal sovereignty and the right of 
tribal self-government.
    As I indicated when IGRA was being considered in this 
committee and other committees, the central focus of many of 
the leaders at that time was to try to achieve the goals then 
sought in a way that was most consistent with tribal 
sovereignty, and they just feel that S. 2078 does not really do 
that.
    Mr. Faleomavaega. I am sure that Senator McCain is very 
sensitive to the situation of the sovereignty of the tribes in 
what he is trying to achieve here but do you think that there 
is a way that we can make improvements on the proposed bill 
that is satisfactory to our tribal gaming community out in 
country?
    Mr. Ducheneaux. I think you put us in a difficult position 
but I think as the NIGA statement indicates and the tribes in 
my region feel they are generally opposed to the opening of 
IGRA to amendments because of their concern about devastating 
amendments. However, having said that if legislation is going 
to move in any of these areas, I think the tribes would like 
the opportunity to sit down with those who are moving it to try 
to again fashion it in a way that addresses the issue 
realistically but still within the context of tribal 
sovereignty.
    Mr. Faleomavaega. I think the gist of the whole problem 
coming out of the problems of political contributions are just 
one question, Mr. Chairman, that has come out questioning the 
sovereignty of the tribes as a government-to-government 
situation on political contributions that tribes have made not 
only to candidates in the state and Federal election offices 
that are running for office, and the recent situation with Mr. 
Abramoff. How this is all carried into it.
    I have to commend Senator McCain for his initiative in 
looking into this whole situation. What I wanted to find out is 
that how can we strike a balance to make sure that we maintain 
the sovereignty of the tribes but at the same time not disallow 
their freedom of expression I suppose in terms of whatever 
issue that they want to make contributions, whether it be the 
state or Federal level for those who run for office because 
that seems to be where all of these problems we are faced with 
right now and why perhaps it prompted Mr. McCain to introduce 
this legislation.
    That goes back to I guess can the tribes control themselves 
in terms of making sure the corruption and all of this that we 
are concerned about does not come to a head?
    Mr. Ducheneaux. Perhaps Mr. Aspa would be better to 
respond. I think this Abramoff thing was a limited thing in 
terms of the tribes. There were very few tribes--you can count 
them on that hand--who were involved in it. Most tribes do not 
have that capability. Indian tribes have been shut out of this 
system. Were shut out of this system for over 200 years during 
a time which their resources were taken from them by acts of 
Congress, and they did not know what the process was going on, 
and they finally get the ability to have some influence on this 
process either through--and I know the word is a bad word but I 
never felt it was.
    When I was Counsel here, I would often recommend to tribes 
that they go find a lobbyist to help them find their way around 
the halls. Now, the tribes have some ability to have that 
capability. They have some ability to influence elections at 
the state and local, Federal level through contributions, 
through get out to vote, and now they are being squelched or 
people are talking about it.
    There are problems, but I do not think a sledgehammer is 
the way to solve them. I think if you sit down with the tribes 
they would be glad to work with you to try to resolve these 
things.
    Mr. Faleomavaega. Thank you, Mr. Chairman. I know my time 
is over but I would like to ask unanimous consent, and I do 
have a list of additional questions I would like to submit to 
Mr. Ducheneaux to respond for the record. Again, thank you 
for----
    The Chairman. Without objection. Mr. Boren.
    Mr. Boren. Thank you, Mr. Chairman. I recognize Kevin 
Washburn there. He has got the University of Minnesota on his 
name plate but he is actually a graduate of the University of 
Oklahoma as well. His credibility goes way up with the OU 
connotation.
    I have a couple of questions for some of our panel. Mr. 
Hogen, being a new Member of Congress I am pretty familiar with 
being in the State Legislature, knowing what happens in 
Oklahoma with the compacts that the tribes in my district have 
with the state. Could you elaborate on the differences in what 
happens in Oklahoma and what happens in Louisiana or Texas or 
other states? With Class III gaming, are there a lot of 
differences? Because you are talking about more Federal 
regulation, is it better? Do you think that there are broad 
differences or these are smaller differences?
    Mr. Hogen. I would characterize the differences, 
Congressman, as being quite significant. That is we have a huge 
diversity among the 20-plus states that have Class III compacts 
with tribes. I asked my field folks to try and identify how 
many people were employed by the states full-time to play their 
role in the regulation of their compacted tribal gaming, and 
they indicated that there were about 306 people that worked for 
states doing this.
    Arizona has 66. California has 66. Oklahoma has 3. North 
Dakota has 2. Quite a number of the states have none. These are 
full-time people. So in some places it is real up close and 
personal. They are directly involved. In other places, there is 
really nobody minding the store perhaps because there was 
nothing put in those compacts regarding this regulatory aspect, 
and in other cases it was put in there but it just was not 
funded by the state.
    Now, those bills get paid by the tribes. The states bill 
the tribes for that effort but as you can see by those numbers 
it is very diverse.
    Mr. Boren. Let me ask a question also and Ernie might be 
able to answer this as well. As was mentioned before, we have 
seen huge growth. In the State of Oklahoma, the gaming industry 
is the fastest growing industry next to oil and gas. It is 
growing faster than oil and gas. As we know, with the price of 
oil they are trying to find people all the time especially our 
smaller independents.
    Have tribes had trouble because it has grown so fast--and 
we are talking about millions of dollars if not billions of 
dollars. Have our tribes had problems establishing their own 
internal regulations because of this fast growth?
    Mr. Stevens. Congressman, I think that maybe on the early 
onset that we were just learning the industry but you know with 
the almost 20 years of working in the industry and the kind of 
professionalism and training, it used to be we used to bring 
people in but now Indian country are becoming the experts in 
this industry. We have a lot of good professionals who have 
grown in this industry. I believe that again as I stated 
earlier the checks and balances in those systems really have 
required us to really step up to the plate.
    Not only do we have to answer to all the bodies that I 
mentioned in my testimony but most important to the tribes you 
have to go before their general membership, and they have to 
report out these types of compliances. We feel like again as I 
stated previously we have grown responsibly in this industry 
and not without challenges, Congressman. I will not sit here 
and tell you that there is not but I think that Indian country 
through their constituency, through the professionals we have 
hired to work in our industry and through working nationally 
together, I think we really accepted those challenges.
    Mr. Boren. What we have seen in Oklahoma has been amazing. 
The investment not only obviously in gaming facilities but 
health care. The University of Oklahoma for instance is 
building a new comprehensive diabetes center. The Chickasaws, 
the Choctaws and others have stepped up to the plate and are 
endowing chairs to bring doctors in. That is because of gaming 
revenues. It is going to be amazing for the country. It is 
going to be the MD Anderson frankly of diabetes research.
    A couple of other questions I had in regards to Class II--
and anyone might just pick this up--has the growth of gaming 
impacted tribes level of MICS compliance for Class II gaming 
operations? Has that been affected? Anyone can take that up. 
Kevin, do you want to? You have a look on your face there.
    Mr. Washburn. Yes. I think that Class II gaming has grown 
tremendously as Class III gaming has grown, and I think that 
the tribes by and large have really come along. They have come 
along in many ways and have really improved. They have been 
really right up on the step with New Jersey and Nevada.
    The problem is many tribes it is one tribe regulating one 
casino, and the danger of regulatory capture is just so great 
in that kind of environment. That is where the problem is. That 
spans from Class II to Class III. Although the Class II 
facilities tribes tend to run several Class II facilities, and 
that is a difference that each regulator is covering numerous 
facilities that are in some ways competing with one another.
    Mr. Hogen. If I might respond to that as well. One of the 
problems with segregating Class II from Class III for purposes 
of regulation is the gaming is not segregated on the floor. 
That is you will have a gaming facility, and there will be pull 
tabs, and there will be bingo, and there will be blackjack 
tables and slot machines, and all of that money comes into the 
same cage. You cannot just watch the Class II dollars for 
example. It becomes so integrated that you are going to look at 
part of it. You kind of need to look at all of it. That is a 
challenge.
    In Oklahoma, for example, where the compacts came on board 
here relatively recently, I think about 20, 25 percent of the 
machines--some 30,000 plus gaming machines in Oklahoma--are 
compacted Class III machines. The other 75, 80 percent are 
Class II. They are sitting on the same floor in many cases.
    You cannot just say well we will close our eyes when we 
walk by the compacted machine, and we will look when there is a 
bingo machine there. It really is challenging in that kind of 
an environment.
    Mr. Boren. One final question, Mr. Chairman, and I will 
turn it back. I am a strong supporter of tribal sovereignty. 
That is where my concern is here. With a lot of tribes, 
particularly in Oklahoma--let us take the example of the 
Seminole nation which I used to represent that area when I was 
in the State Legislature--we had some bad actors come in and do 
some things.
    What specifically are you all doing, Mr. Hogen, to suggest 
criteria for good partnerships? I am not only talking about 
what to do to prevent the bad actors. What are you all doing to 
go in proactively and saying this is how you make good 
partnerships? Our larger tribes are doing well. The Chickasaws. 
The Choctaws. The Cherokees. They have much more of an 
infrastructure base but some of our smaller tribes in the 
northern part of our district I worry about. I wonder what you 
would say to them as far as being proactive.
    Mr. Hogen. The Seminole of Oklahoma case study is extremely 
interesting. They did get in with some bad actors. NIGC 
eventually issued an order to close that facility. We then 
entered into a pre-opening agreement with the tribe saying you 
can reopen. We will lift the closure order if you do these 
certain things. If you meet these certain standards including 
minimum internal control standards. The tribe is moving forward 
in that connection.
    This gets into this contract area. That is what contracts 
must or can NIGC review and approve? We did not review and 
approve the contract that the Seminoles had with the group that 
put the wrong kind of machines in their facility because it was 
not characterized as a management contract. We, in fact, think 
it was a management contract, should have been presented to us, 
and I think we would have disapproved it if we had done some of 
that review.
    So we are trying to reach out and ask tribes look before 
you leap. Please send us that contract so that we can see if it 
is a management contract will require our review and approval. 
Under this S. 2078 the universe of contracts that we would be 
required to review and approve and do background investigations 
for would be expanded. So, I think that would in part address 
that.
    If we go there, we will need to be able to do it in a way 
so we do not become the bureaucratic bottleneck to progress but 
I think we can safeguard some situations and avoid those kind 
of tragedies that occurred at Seminole.
    Mr. Van Norman. Congressman, I would just like to mention 
there is another Senate bill, S. 1295, which is now part of a 
technical amendments bill, and that provides for a significant 
increase in NIGC authority to impose fees to increase their 
budget. It also provides for technical assistance. It gives the 
NIGC an opportunity to be proactive, and where they see some of 
these issues to go out and take care of them.
    Under the existing system, these folks should have come 
through for licensing through the tribal licenses that should 
have been submitted to the NIGC as well, and there should be an 
opportunity under the gaming ordinances to take a look at some 
of those actors.
    Mr. Boren. Great. Thank you for your answers. Mr. Chairman, 
I yield back. I do want to say, Mr. Hogen, the Seminoles are 
doing a great job now. Chief Haney is really working. I know he 
and I are good friends, and we both served in the legislature 
but they are doing a great job. I also would like to say we 
need to make sure that we do protect sovereignty during this 
process, and make sure that it is not so much a hammer. That it 
is a help. As you mentioned, the assistance factor, and that is 
something that I would support. I yield back, Mr. Chairman.
    The Chairman. Mr. Fortuno.
    Mr. Fortuno. Mr. Chairman, I apologize for not being here 
earlier. I have a keen interest in this topic. You probably do 
not know but in my district in Puerto Rico we have gaming, and 
I was head of a tourism company, and part of my job was to 
supervise gaming. So, I do have an interest in the topic.
    If I may and perhaps there will be some repetition here but 
if you do not mind, Mr. Hogen, I would like to understand 
better the overlapping of any Federal, state and tribal 
jurisdiction over this, and your feelings on it if you may.
    Mr. Hogen. Thank you. The Indian Gaming Regulatory Act 
divided gambling into three classes. Class I is traditional 
ceremonial gambling that the tribes do exclusively. It is 
basically not commercial. Then Class II was identified as 
bingo, pull tabs, non bank card games and that is conducted by 
tribes in states that permit somebody else to do it someplace. 
For example, in Utah nobody can play bingo so the tribes cannot 
play bingo either but in other states if states say it is OK 
tribes can play bingo. They do not have to go to the state to 
do their deal.
    The tribes will create their own gaming regulatory entity, 
and they will be there all day everyday, do the heavy lifting, 
and then the National Indian Gaming Commission provides 
oversight of that. We play a role with respect to that Class II 
gaming.
    If tribes want to do casino gaming, slot machines, bank 
card games and so forth, they have to enter into a compact with 
their state, and the state law will have to permit somebody 
else to do something like that then they can have a compact if 
the state will come to the table and negotiate. In that 
compact, they can agree on whatever they want to with regard to 
who does the regulation--maybe it will be all the tribe, maybe 
it will be all the state or maybe it will be a combination of 
the two.
    It has been the view and the experience of the National 
Indian Gaming Commission that we also had an oversight role 
with respect to that.
    Mr. Fortuno. Until this case.
    Mr. Hogen. Right. Then this case was decided, and it said 
you have overstepped your bounds NIGC, and of course it is that 
Class III gaming that constitutes 80 percent of this $20 
billion.
    Mr. Fortuno. Yes.
    Mr. Hogen. We feel to do our job it would be useful for us 
to continue to do that oversight. The tribes spend $300 million 
regulating. We have an $11 million budget. We really can hardly 
be dangerous out there but having that oversight role we 
validate the good job that tribes do. We give credit, great 
credit to that, and we are hoping we can continue to do it.
    Mr. Fortuno. When you refer to oversight job, for example 
are you talking about going as far as betting limits, types of 
games that are played and what have you under the Class III 
category or what are you talking about?
    Mr. Hogen. No. The actual games that are played will be 
decided by the tribes and the states in the case of Class III, 
and IGRA kind of defines what Class II gaming is. We do not say 
anything about that or bet limits or whatever but we say follow 
the money. Have somebody watching who takes the money out of 
the slot machine. Make sure somebody else is there when they 
sign for it. Take it to the cage, and make sure the dollars get 
to the place they are supposed to go. Have surveillance 
systems. Things like that.
    That is what our standards address is how that procedure 
works, and so we do audits. We do inspections, and we just say 
this is the minimum, tribe. You can write a lot stricter set of 
code if you would like to, and most of them have. We just make 
sure that the minimums are adhered to.
    Mr. Fortuno. Thank you. I am sure there are different views 
on this. I would like to hear if anybody else on the panel has 
a view that feels that, and again I apologize for not being 
here before but anyone feels that I should hear a different 
opinion.
    Mr. Stevens. Yes. Congressman, what I tried to emphasize is 
that aside from the decision that the Court also found that 
NIGC retains oversight authority of Class III gaming that 
permits the Commission to approve and enforce violations of 
Class III tribal gaming ordinances, to conduct annual audits of 
Class III gaming operations and review management contracts, 
background checks and licensing determinations.
    In addition to their closure capabilities and they are able 
to fine, we feel that they do not need a new law to enforce the 
necessary elements to do their job. To that extent, that is the 
part that we really wanted to emphasize.
    Mr. Fortuno. OK. Anybody else?
    Mr. Washburn. Yes. Congressman, if that legal principle 
that is in the decision, Colorado River Indian Tribes' decision 
is allowed to stand, then Chairman Hogen over there is really 
Chairman of the National Indian Bingo Commission, not the 
National Indian Gaming Commission because he dramatically loses 
authority over the biggest and most important part of the 
industry frankly.
    Mr. Fortuno. I understand. Thank you again to all the 
panel, and thank you, Mr. Chairman.
    Mr. Van Norman. Congressman, could I just add one thing to 
the National Indian Bingo comment? We believe that it takes a 
lot of effort for the tribes as sovereigns to sit down with the 
states as sovereigns and work out compacts for Class III 
gaming, and they are important agreements. They have built 
relationships between the tribes and the states.
    One of our serious questions about the National Indian 
Gaming Commission proposal is that it is not just directed to 
minimum internal control standards. It is to add Class III 
authority anywhere where it has Class II authority, and there 
is no provision to provide harmony or a way to work together to 
respect the tribal-state compacts other than a statement from 
the Commission that they would do so. We think that that is the 
wrong kind of proposal. The tribal-state compacts should 
continue to have primacy because all this effort has gone into 
them, including several state initiatives where the voters of 
the state have put these compacts into place. Thank you.
    The Chairman. Mr. Kildee.
    Mr. Kildee. Thank you, and I apologize for being absent for 
awhile. Mr. Hogen, you mentioned that the NIGC, which IGRA 
created, has oversight over the law IGRA. It has oversight over 
your own rules to see that they are being observed, and you 
said also they have oversight over the tribes own gaming 
ordinances. Is that a correct summary?
    Mr. Hogen. Yes, that is accurate.
    Mr. Kildee. What do you fear will happen if you do not have 
minimum internal control standards over Class III?
    Mr. Hogen. The same thing that happened Tuesday out in 
Montana. We will go and ask to look at what we observed to be 
some shortcomings in the Class III area, and they will say no, 
you do not have authority there. You cannot have access to that 
sort of thing. I think that will tend to spread nationally if 
we do not get clarification to do that. As Professor Washburn 
said, yes, we can do the bingo without people telling us no but 
where the real money is we will not have access to do that. 
That is a great concern to me.
    Mr. Kildee. With all the other controls built into the 
system, the state compacting and all these things, after the 
Cabazon decision we actually put some restrictions giving the 
states some authority there with the compacting power with the 
tribes. Do you expect a proliferation of problems if you do not 
have minimum internal control standards over Class III? Do you 
expect a proliferation of problems out there?
    Mr. Hogen. I hope that would not occur, but I am concerned 
that it might. I can tell you this: That since we adopted and 
required compliance with minimum internal control standards in 
1999, the level of professionalism at tribal gaming facilities 
has increased dramatically. Prior to those regulations, almost 
no tribes had an independent auditor look specifically at their 
compliance with their internal control standard. Our MICS say 
the auditors, the independent auditors have to do that, give 
the tribe a report, send us a copy of that report.
    Almost no tribes had a very beefed up internal audit 
function like you find in other gaming jurisdictions as 
required by statutes. Internal auditors. Now, because of those 
MICS they have those. We have been told by tribes that if 
Colorado River becomes the law of the land, they are no longer 
going to have those external auditors look at those processes. 
They are probably not going to fill some of those positions 
with respect to internal audit functions.
    Most of the tribes are doing a great job. Those are not the 
ones I am worried about. It is those that maybe are marginal, 
maybe are new, maybe are rural. They need some fostering, and 
if we have the rule book here it is easier for them to do the 
job right. If that is just advice, I do not think it will 
necessarily work.
    Mr. Kildee. I have no tribes in my own district but in 
Michigan from time-to-time I will go up and observe the Saginaw 
Chippewa operation which is a fairly large one, a very 
successful one. I have been visiting them for 41 years, and 
they really have internally a very, very high concern about 
everything being done right, and they have their own internal 
checks. Is that true of most tribes where most of them would 
have high standards?
    Mr. Hogen. Absolutely. Most tribes have high standards. 
Most tribes spend a lot of money wisely to do regulation. As 
the Chairman inquired here earlier this morning, are there some 
problems with the independence of tribal gaming regulation? 
There are some problems. Some of those tribes are small 
memberships, and it is hard to get separation and independence 
of the Commission.
    In some cases the tribal council serves as the tribal 
gaming commission. In some instances the chair of the tribal 
gaming commission is the mother of the tribal chairman or some 
other relative. Certainly there is the appearance that maybe it 
is not independent, and in many cases it is not as independent 
as it ought to be. We need to have somebody that is independent 
from management insisting on the regulation.
    Mr. Kildee. One final question, Mr. Chairman. Mr. Van 
Norman, can you provide instances where minimal internal 
control standards conflict with tribal-state compacts? Could 
you provide that now or provide it to the Committee later?
    Mr. Van Norman. I could mention a couple now, and then we 
can follow up with that.
    Mr. Kildee. Very good.
    Mr. Van Norman. In New York, they have a very detailed 
compact, and so they do the backgrounding and licensing. If the 
NIGC has complete authority but there is no reference to 
deference to tribal-state compact, it provides for a potential 
conflict, and we have an assurance from the chairman that under 
his watch that he would not allow such a conflict to occur but 
there is nothing in the proposal that would prevent that type 
of a conflict. You have the same situation in Arizona.
    We think that there is an existing framework of the 
statute, and that must be respected because we have 17 years of 
experience and billions of dollars of investment that are 
relying on that situation. Any change should be consistent with 
the existing framework of the statute.
    Mr. Kildee. Thank you very much. Thank you, Mr. Chairman.
    The Chairman. Thank you. I appreciate the testimony of this 
panel and answering the questions. I know that this is an issue 
that we are going to continue to struggle with, and continue to 
find out more as we move forward but I do believe it is an 
issue that this committee does need to have on its agenda and 
pay attention to because of the Senate bill and because of 
everything. I think it is something we do need to continue to 
monitor and pay attention to as we move forward.
    I appreciate all of you being here and sharing your 
thoughts and your testimony with us. If there are further 
questions from other members of the Committee, those will be 
submitted to you in writing. If you can answer those in writing 
so that they can be included as part of the hearing record, I 
would appreciate it. Thank you again for being here. If there 
is no further business before the Committee, the Committee is 
adjourned.
    [Whereupon, at 11:45 a.m., the Committee was adjourned.]

                                 
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