[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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______
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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
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C O N T E N T S
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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.
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\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.
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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.]