[Senate Hearing 109-50]
[From the U.S. Government Publishing Office]



                                                  S. Hrg. 109-50, Pt. 4
 
                                 GAMING

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

          OVERSIGHT HEARING ON THE REGULATION OF INDIAN GAMING

                               __________

                           SEPTEMBER 21, 2005
                             WASHINGTON, DC

                               __________

                                 PART 4

                               __________



                    U.S. GOVERNMENT PRINTING OFFICE
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                      COMMITTEE ON INDIAN AFFAIRS

                     JOHN McCAIN, Arizona, Chairman

              BYRON L. DORGAN, North Dakota, Vice Chairman

PETE V. DOMENICI, New Mexico         DANIEL K. INOUYE, Hawaii
CRAIG THOMAS, Wyoming                KENT CONRAD, North Dakota
GORDON SMITH, Oregon                 DANIEL K. AKAKA, Hawaii
LISA MURKOWSKI, Alaska               TIM JOHNSON, South Dakota
MICHAEL D. CRAPO, Idaho              MARIA CANTWELL, Washington
RICHARD BURR, North Carolina
TOM COBURN, M.D., Oklahoma

                 Jeanne Bumpus, Majority Staff Director

                Sara G. Garland, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page
Statements:
    Akaka, Hon. Daniel K., U.S. Senator from Hawaii..............     2
    Conrad, Hon. Kent, U.S. Senator from North Dakota............     2
    Dorgan, Hon. Byron L., U.S. Senator from North Dakota, vice 
      chairman, Committee on Indian Affairs......................     1
    Hogen, Phil, chairman, National Indian Gaming Commission.....     3
    McCain, Hon. John, U.S. Senator from Arizona, chairman, 
      Committee on Indian Affairs................................     1
    Van Norman, Mark, executive director, National Indian Gaming 
      Commission.................................................    11
    Washburn, Kevin, associate professor of law, University of 
      Minnesota..................................................    13
    .............................................................

                                Appendix

Prepared statements:
    Hogen, Phil (with attachment)................................    23
    Van Norman, Mark.............................................    29
    Washburn, Kevin..............................................    38
Additional material submitted for the record:
    Allen, W. Ron, chairman, Washington Indian Gaming Association 
      and tribal chairman, Jamestown S'Klallam Tribe, letter.....    43
    Eddy, Jr., Daniel, tribal council chairman, Colorado River 
      Indian Tribes, letter......................................    45


                                 GAMING

                              ----------                              


                     WEDNESDAY, SEPTEMBER 21, 2005


                                       U.S. Senate,
                               Committee on Indian Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m. in room 
325 Senate Russell Office Building, Hon. John McCain (chairman 
of the committee), presiding.
    Present: Senators McCain, Akaka, Conrad, Dorgan, and 
Inouye.

   STATEMENT OF HON. JOHN McCAIN, U.S. SENATOR FROM ARIZONA, 
             CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

    The Chairman. T1Last month, a Federal District Court issued 
a ruling with potentially far-reaching effects on the 
regulation of Indian gaming. In Colorado River Indian Tribes v. 
the National Indian Gaming Commission, the court held that the 
Indian Gaming Regulatory Act as it is now written does not give 
the NIGC authority to issue or enforce regulations which 
address the day to day operations of class III gaming 
facilities, the so-called minimum internal control standards, 
or MICS.
    Class III gaming represents the lion's share of revenue 
created by Indian gaming. The focus of today's hearing is not 
whether or not the court's decision was correct. Instead, the 
question before us today is, among tribes, States, and the 
Federal Government, how do we make sure that there is adequate 
regulation of class III gaming?
    Before we begin the hearing, I have a comment on another 
regulatory matter. In April, I requested that the Department of 
Justice [DOJ] and NIGC put their heads together to see if they 
could come up with a proposal to address the ongoing litigation 
and controversy surrounding class II bingo machines. I 
understand that the DOJ and NIGC have concluded their 
discussions regarding a potential statutory fix. While the 
department has not shared this proposal with the committee, I 
look forward to seeing it in the near future.
    Senator Dorgan.

  STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR FROM NORTH 
       DAKOTA, VICE CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

    Senator Dorgan. Mr. Chairman, thank you very much.
    Today, we are going to hear testimony from Federal and 
tribal advocates, along with an independent analysis of what 
roles each government are playing and should be playing with 
respect to class III gaming. I hope this testimony today will 
inform this committee in a significant way as to the practical 
impact of the recent court decision on this matter.
    I think you posed the question implicitly with your opening 
statement with respect to the integrity of Indian gaming. It 
would necessitate a change in Federal law, whether such a 
change should be immediate, whether such a change should in 
fact be made. It is an important issue, and I look forward very 
much to hearing the testimony of the witnesses that have come 
before us today.
    The Chairman. Senator Akaka.

  STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR FROM HAWAII

    Senator Akaka. Thank you very much, Mr. Chairman. Thank you 
for holding this hearing. It is very, very important to our 
country.
    Today's oversight hearing on the regulation of class III 
gaming under the Indian Gaming Regulatory Act follows a recent 
decision by the U.S. District Court for the District of 
Columbia regarding the case of Colorado River Indian Tribes v. 
National Indian Gaming Commission.
    As we address the regulatory authority of NIGC, I believe 
that it is important that we preserve the sovereignty of Indian 
nations and provide them with the necessary support in the 
exercise of their sovereignty. They can help themselves 
economically, politically and governmentally.
    I look forward to the testimony in the hearing, and I thank 
the witnesses here today. I thank the Chairman for holding this 
hearing. Thank you very much.
    The Chairman. Senator Conrad.

 STATEMENT OF HON. KENT CONRAD, U.S. SENATOR FROM NORTH DAKOTA

    Senator Conrad. Thank you, Mr. Chairman. Thank you for 
holding this hearing.
    The court determination obviously raises a whole series of 
issues. I think it is important that this committee attempt to 
address them. At the same time, I think it is important that 
while there is a reaction, there is not an over-reaction. The 
history of regulation throughout Indian country in gaming has 
been quite strong. As I have looked across regulation in my 
State, they really have done a sound job of regulating gaming.
    Now, we may find that there are other places where that is 
not the case. To the extent we find abuses, obviously they need 
to be addressed. But I do hope that we do not have an over-
reaction to this one court's decision.
    Again Mr. Chairman and Senator Dorgan, as ranking member, 
we appreciate the leadership that you are providing to this 
committee.
    The Chairman. Thank you very much, Senator Conrad.
    Mr. Hogen, welcome.

   STATEMENT OF PHIL HOGEN, CHAIRMAN, NATIONAL INDIAN GAMING 
                           COMMISSION

    Mr. Hogen. Good morning, Chairman McCain, Vice Chairman 
Dorgan, and members of the committee. I am Phil Hogen, chairman 
of the National Indian Gaming Commission. I am an Oglala Sioux 
from South Dakota. I am very delighted to appear here on behalf 
of the commission and appreciative that the committee chose to 
quickly convene this hearing in the wake of the court decision 
that has been mentioned.
    I bring you greetings from my fellow commissioners, Nelson 
Westrin and Chuck Choney. They are on the Coeur d'Alene 
Reservation in Idaho today meeting with the Affiliated Tribes 
of Northwest Indians at a long-scheduled consultation session. 
That is where I would be but for this hearing.
    I expect the committee is familiar with the history of how 
we got to where we are, but let me try and quickly review that. 
Indian gaming is not a Federal program. Indians invented Indian 
gaming. They do it very well.
    The Chairman. Mr. Hogen, could I ask you to take us back 
one step further? The Cabazon decision triggered what action? 
In other words, basically the Cabazon decision by the U.S. 
Supreme Court triggered the Indian Gaming Regulatory Act. 
Right?
    Mr. Hogen. That is correct, Senator.
    The Chairman. Okay.
    And then that gave your commission the authority to 
regulate what classes of gaming under what circumstance? I 
would like to have this for the record. Go ahead.
    Mr. Hogen. Okay. IGRA divided Indian gaming into three 
categories. Class I is traditional or ceremonial gaming. It is 
basically not commercial gaming. That was left exclusively 
within the domain of the tribes. Then there was created class 
II gaming, which was bingo and pull-tabs and games of that 
nature such as poker where you do not play against the house. 
Then the third category was basically everything else, but 
primarily house-bank games and casino-type gaming.
    The Chairman. And there is some gray area concerning, 
because of technology, between class II and class III. Right?
    Mr. Hogen. That is correct. Class II was permitted to use 
computers and electronic and other technologic aids, but there 
was not a real clear definition of where that ended and where 
slot machines and electronic facsimiles of games of chance 
began. So that is a troublesome area that we are dealing with.
    The Chairman. So then the Colorado River Indian Tribe 
decided not to allow the National Indian Gaming Commission 
auditors to look at their books. Is that correct?
    Mr. Hogen. That is correct. That occurred in the context of 
NIGC attempting to conduct an audit of their Colorado River 
Indian Tribe's compliance with the minimum internal control 
standards that NIGC had promulgated.
    The Chairman. Over class III or class II?
    Mr. Hogen. Over all of the gaming operations.
    The Chairman. Okay.
    Mr. Hogen. A reason that we have to look at the whole 
gaming operation is gaming facilities integrate their 
operations. The dollars may come from the bingo hall or they 
may come from the slot machines, but they go into the same 
cage, the same bank, and it is very difficult to look at one 
without looking at the other.
    In any event, we looked at class II at Colorado River and 
we went to go look at class III and they said wait a minute, 
you do not have the jurisdiction to do this. The reason they 
argued we did not, is that IGRA provides for a tribal-State 
compact to frame the class III gaming that will be permissible 
and permits the States and the tribes to negotiate with respect 
to the regulatory structure.
    The Chairman. Arguing that, once the State and the tribes 
have reached this compact, the regulation or oversight of that 
gaming responsibilities now left the NIGC.
    Mr. Hogen. That is what they argued and we disagreed. As a 
result of that disagreement, we found them in violation of not 
giving us access. On account of that violation, we assessed a 
fine. We eventually negotiated an arrangement whereby we could, 
and we did conduct an audit, but the tribe reserved the right 
to challenge that principle: Did we have this jurisdiction.
    The Chairman. And the court's decision said?
    Mr. Hogen. It said NIGC, you have gone too far; you entered 
into an area that was left to the tribes and the States and you 
cannot do what you are doing with respect to class III.
    The Chairman. In other words, right now at this moment if 
you went to any Indian tribe in America that has concluded a 
compact with a State, they could bar you from looking at their 
books?
    Mr. Hogen. We do not view the decision that broadly, but 
the ultimate consequence certainly could be that.
    The Chairman. In other words, you would go out of business 
then?
    Mr. Hogen. Yes; well, we would be out of most of the 
business because 80 percent of the gaming is class III gaming. 
That is where the money is. That is where the action is.
    The Chairman. Do you expect other tribes in light of this 
to challenge your oversight authority?
    Mr. Hogen. We certainly do. We have already had, you might 
call it push-back from tribes; tribes saying we know you have 
an audit scheduled to come out and look at our compliance, but 
do not bother coming because you do not have that authority 
under the Colorado River Indian Tribe's decision. We argue 
that, well, that is still a work in progress. We are trying to 
sort that out. We are going to continue business as usual.
    The Chairman. Does the Administration plan to appeal this 
decision?
    Mr. Hogen. We are in negotiations or we are working with 
our lawyers in the Department of Justice. I expect that we 
will. We will be asking them to appeal. That decision has not 
been finalized yet.
    The Chairman. What was the logic behind this judge's 
decision? Clearly in the law, it is stated that there would be 
a National Indian Gaming Commission to conduct oversight 
responsibilities. What was the judge's logic to say that 
somehow even though NIGC was created in the law, you would have 
no ability to carry out your investigative or oversight 
responsibilities?
    Mr. Hogen. The Indian Gaming Regulatory Act has been a very 
positive piece of legislation, but in some respects it is not a 
model of clarity. For example, it says in terms of findings 
that the tribes have the exclusive right to regulate gaming, 
and then it goes on to assign other roles, a role to the 
Federal Government, a role to States and so forth.
    I think the paradigm at the time it was written, and of 
course you were one of the authors, Senator, Indian gaming then 
was high-stakes bingo. So it was written, okay, this is how we 
are going to class II gaming and then, not necessarily an 
after-thought, but okay, then if you are going to do class III, 
some of these other things apply. Therein, some confusion 
arose, I believe.
    It did give the States the right to negotiate with tribes 
with respect to regulations and we have attached to our 
testimony, which we ask to be included in the record, a chart 
that tries to characterize what States have done and what they 
have not done with respect to getting involved. In many cases, 
there is literally no State involvement. Our audit teams that 
have gone out to do these minimum internal control standards 
audits have never bumped heads with State folks who are out 
there doing what we do. We find that if we are not out there 
doing this, for the most part nobody is going to be playing 
that oversight role.
    The Chairman. I thought it was important for the record to 
establish that history. I thank you. Please proceed.
    Mr. Hogen. You have established it very well, Senator.
    I have a couple of charts here that I think just emphasize 
what you mentioned. The one chart shows the growth of Indian 
gaming. Our minimum internal control standards were written in 
1999 and went into effect in 2000. What this chart 
demonstrates, of course, is how strong the Indian gaming 
industry is and the fact that this system that was developed 
that has not been challenged until just now, has not 
significantly inhibited the growth of Indian gaming. Rather, I 
think it has fostered it.
    The other chart over here, the pie chart, shows that 80 
percent of that $19.4 billion in 2004 was class III revenue. 
That is where the money is. The other 20 percent is divided 
between class II gaming and that other gaming that is using the 
player stations that may be class II or may be class III that 
we are trying to sort out. Where the money is is in class III.
    In connection with the development of these minimum 
internal control standards, NIGC embarked on a very thorough 
consultation process. We formed a tribal advisory committee and 
even at that time, this concern about NIGC's getting beyond its 
jurisdiction was voiced, but the commission then said no, this 
is the right thing to do. We were directed to promulgate 
Federal standards and we are doing that.
    The minimum internal control standards were thoroughly 
reviewed and revisited in 2002. Again, this issue was 
addressed. You will find in the Federal Register a reflection 
of that consultation and that process in the preamble to that 
2002 enactment.
    This is a copy of the minimum internal control standards. 
They are thorough. They are patterned after established gaming 
jurisdiction controls. Tribes have been for the most part very 
accepting of them. When we set out these standards, one of the 
things they require is that when the tribe does their annual 
independent audit of their gaming operation, their auditor look 
at their compliance with their internal control standards and 
do those internal control standards meet what NIGC has 
specified as minimums. We get a copy of that report. After 
screening all of those reports, we select some of those where a 
number of exceptions are noted, and we go out and conduct a 
minimum internal control standards audit.
    This is not a ``gotcha'' deal. That is, we put on our 
website the checklist that we use to identify all of those 
areas we are going to look at. We send the tribe a letter 
saying in 30 days we are going to be out there; we select four 
dates, a date during each quarter of the preceding year, and 
our team of from four to eight auditors will go out and look at 
everything that occurred in that casino on that date to see if 
it complied with the controls.
    When we are done, we then prepare a report and issue that 
report after it is reviewed by our head auditor, Joe Smith, who 
is seated back here. And then we set up an arrangement to meet 
with the tribal leadership, the tribal management of a 
facility, the tribal gaming commission, and we go over that 
list.
    In the Colorado River Tribe situation, the list of 
exceptions was 23 pages long. There were 40 specific 
exceptions. Now, I am not saying they have a terrible 
operation. They do not, but it was not a perfect operation. We 
identified areas where it was deficient.
    One of those areas was the lack of compliance of their 
surveillance system. When we went out there to conduct this 
exit interview, both the management and the gaming commission 
said, well, I will bet you are going to gig us on shortcomings 
on our surveillance system, aren't you? And we said yes, yes, 
we are. And they said, well, that is good because we have been 
trying to get the tribe to spend money to upgrade the system 
and they have not seen fit to do that.
    As a result of our mics audit, they spent $2 million and 
now they have a state of the art surveillance system and they 
solved that problem. Notwithstanding State regulation, tribal 
regulation, they were not moving in that direction. I believe 
that that is the kind of worthwhile service that we perform 
with respect to those audits.
    So that is what we do and generally how we do it. Now we 
are at the point where tribes are pushing back and saying 
because of this District Court decision in the District of 
Columbia, you cannot do this anymore. I think that will be a 
great disservice to this strong, but perhaps fragile structure 
that has been developed since the MICS were put in place in 
1999.
    In a number of instances, Arizona I think being one of 
them, California being another, tribes have pointed with pride 
as a badge of honor, we are the most regulated gaming there is. 
We have tribal regulations. We have State regulations. We have 
Federal oversight. And to now say for 80 percent of that gaming 
we no longer have that arrangement, I think that is a risk.
    Tribes rightfully defend sovereignty. Sovereignty has 
several manifestations. I think the main way you are strong and 
sovereign is by being self-sufficient, being able to provide 
for yourself and your people. I think that if we put at risk 
this structure of strong regulation that involves States, 
tribes and the Federal Government, we put that sovereignty at 
risk.
    With respect to these audits that we go out and do, there 
are some horror stories out there. There are places where we 
found deficiencies and they have not been corrected and we have 
had to in some cases get the tribes to voluntarily close their 
facility. We are considering closing others because they have 
not come around. But by and large for the most part, they are 
success stories. We identify weaknesses. They solve those 
problems. At the end of the day, they have a stronger operation 
and we are happy that we have been able to help that.
    We have conducted 41 audits. Only in one instance, I think, 
did we duplicate what somebody else did. That was at the Avi 
Casino in Nevada. Nevada is an unusual jurisdiction to do 
Indian gaming in because there is really no advantage to the 
Indians. Nevada lets anybody who can get a license do that. 
Their compact provides for integral involvement by the State of 
Nevada. So Nevada does an audit there. Every three years they 
do an audit of everybody and they cover the whole period of 
time.
    There is a little difference in what we require and what 
Nevada requires, so there was some overlap with respect to that 
audit. But in those other 40 audits, nobody else did what we 
did, and as I say, by and large they were success stories. The 
problems identified were solved.
    Again, the nature of the operations is the commingling, the 
intertwining of class II and class III revenues makes it almost 
impossible to say, well, we will go look at one and not the 
other. If in fact we are ejected from this area, we may awaken 
a sleeping giant. That is, States may say, oh, we were asleep 
at the switch; we are going to come back and we want a 
stronger, larger role in the regulation on a day to day basis 
of tribal gaming.
    I do not think that would be good for the tribes. I think 
they would rather deal with the Federal Government than the 
States. And I do not think it would be good for the States 
either because they would be creating another mechanism. The 
tribes would end up paying that bill, too. I do not think that 
would have any advantage over the strong system that we have 
right now.
    So we think we have a vehicle to solve this problem. In 
March of this year we sent a letter to the President of the 
Senate and the Speaker of the House saying this is a 
legislative package that would fix some of the problems we 
perceive with respect to the Indian Gaming Regulatory Act. They 
dealt with our fees and the chairman's power and so forth, but 
the narrow issue here was to add in section 7 with respect to 
the commission's power a clarification that we have authority 
over class II and class III gaming.
    We do not want to expand our powers. We do not want to grow 
a bit. I appreciate Senator Conrad's concern, let's not do 
overkill here if in fact we have to fix this. We just want to 
keep doing what we have been doing successfully, not do more. 
We think with the enactment of the amendment proposed relating 
to clarification of NIGC's authority in class III gaming, that 
problem would be solved.
    We address a number of other things in our written 
testimony, but I think I will conclude here with respect to 
what I have to say and I would be happy to try and respond to 
any questions.
    [Prepared statement of Mr. Hogen appears in appendix.]
    The Chairman. Thank you very much, Mr. Hogen.
    If IGRA is amended to clarify that the NIGC has authority 
to issue class III MICS, will that impact the role that tribal 
governments have as regulators?
    Mr. Hogen. It would not change what has happened for the 
past 5 years.
    The Chairman. Would it impact the roles that States play as 
spelled out in their tribal-State compacts?
    Mr. Hogen. No; they would keep doing what they are doing.
    The Chairman. Are the MICS consistent ``industry 
standards''?
    Mr. Hogen. We attempt to keep them as current as we 
possibly can. Next week, our advisory committee will be meeting 
in Rapid City to again review the MICS and make changes to 
comply with tehnologic advances and technology advances and so 
forth.
    The Chairman. NIGA states in its testimony there is no need 
for a quick fix to the CRIT decision. Do you agree?
    Mr. Hogen. No; I think it is urgent that we have a remedy 
to this problem.
    The Chairman. Because you are already getting pushed back 
from some tribes.
    Mr. Hogen. Yes, Senator; we are.
    The Chairman. The Department of Justice announced last week 
its proposed change to the Johnson Act that would affect Indian 
gaming. Why wasn't it a joint announcement with NIGC?
    Mr. Hogen. They kind of do things their own way there at 
the Department of Justice.
    The Chairman. Did you have any role in developing this 
language?
    Mr. Hogen. We did. We went to many, many negotiating 
sessions with the Department of Justice.
    The Chairman. Do you know when we will get the language?
    Mr. Hogen. Pardon me?
    The Chairman. Do you know when we are supposed to get this 
language?
    Mr. Hogen. Tom Heffelfinger, U.S. Attorney for Minnesota, 
indicated last week in Las Vegas that within 10 days or two 
weeks they would be sending draft language to tribal 
leadership, so I expect it will be arriving at other offices 
here in Washington, DC any day now.
    The Chairman. Thank you. I thank you for your good work and 
I thank you for your very clear and coherent testimony. I thank 
you for the continued good job that you do under very difficult 
circumstances.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much.
    Mr. Hogen, thank you for being with us once again.
    The court's decision cited a number of facts. Let me just 
run through a couple of them with you. The court says the 
legislative history of IGRA states explicitly that Congress did 
not intend the NIGC to regulate Class III gaming. Any response 
to that?
    Mr. Hogen. We do not read it the same way the court did. 
Our brief submitted to the court by the Justice Department 
states that in greater detail, and points to areas in the 
legislative history where we think this was addressed, and 
clearly indicates as it states in the purpose of IGRA, that 
NIGC was being established in part to establish or to 
promulgate Federal standards. That is what we have done there.
    Senator Dorgan. Over the years, your compliance enforcement 
efforts and audits have routinely included class II and class 
III gaming issues, right?
    Mr. Hogen. Yes; both areas.
    Senator Dorgan. When was this issue first raised? I think 
you stated in your testimony that back some long while ago 
there were discussions about whether you had the authority or 
not. The first court challenge was this particular challenge, 
is that correct?
    Mr. Hogen. That is correct, but from day one when we 
started talking about minimum internal control standards to 
apply to class II and class III, some tribes said you are 
stepping into an area where you do not have any authority, and 
we had that discussion. We decided we did.
    Senator Dorgan. Describe to me a future for your commission 
if as of tomorrow, for example, you have no authority under any 
condition to be involved with respect to class III issues 
enforcement, compliance, auditing and so on. Describe for me 
that future. Is there much left for the commission? Is there 
much of a reason for the commission to exist?
    Mr. Hogen. Well, I think we would need to still exist. We 
would be a toothless tiger. That is, we could go out and look 
things over to the extent tribes would voluntarily show us 
their class III information, and we could point to what we 
perceived as shortcomings, but all we could do is a ``please 
fix this'' and there would be no incentive. Tribes would 
probably cease to have their external auditors analyze the 
minimum internal control standards because that costs a little 
more money, things like that. It would be a very less effective 
role.
    Senator Dorgan. You had indicated that 80 percent of the 
gaming revenue is now class III. Is that correct?
    Mr. Hogen. That is our guess. Nobody knows exactly because 
tribes do not have to designate it, but that is our best guess, 
yes, Senator.
    Senator Dorgan. By far the bulk of the gaming would be 
outside of the purview of the commission's activities for 
enforcement compliance auditing and so on, if that were the 
case.
    Mr. Hogen. The act says that the tribes have to adopt a 
tribal gaming ordinance, and they do. That has to be reviewed 
and approved by the chairman of the commission. Now, that 
ordinance embraces a lot of things such as this is how we are 
going to do our gaming. The chairman of the National Indian 
Gaming Commission has the authority to take enforcement action 
for a violation of that NIGC-approved ordinance.
    So there may be a way we could go in the back door and say, 
well, maybe we do not have class III MICS authority, but your 
ordinance says you have minimum internal control standards; you 
violated those, and consequently we are going to take 
enforcement action. A challenge to such an arrangement would be 
we then have 225 systems out there, rather than one system. I 
think the quality that IGRA sought would be diminished.
    Senator Dorgan. The absence of the Commission being 
involved in class III issues means that the States would be 
involved through the compact and also the tribal regulations 
would be involved. So tell us from your perspective how that 
relates to your enforcement and your audits. Are they up to 
that or are they up to your standards? Do you do a better job? 
Do they do a lesser job? Tell me your assessment of all that.
    Mr. Hogen. There are over 20 States that have compacts with 
tribes, and they are very diverse. Minnesota, for example, got 
in early; cut some perpetual compacts with the tribes, and give 
a very minimal role to the State with respect to regulation. 
Some of the more recent compacts, Oklahoma for example, have a 
more participatory role for the State. The problem with 
Oklahoma is it looks good on paper, but they only have three 
people in their office and they have 30 gaming tribes out 
there. They are, at least not yet, up to that task.
    Senator Dorgan. Sorry for interrupting you, Mr. Hogen. My 
point it, we are going to have others testify that say the 
commission is unnecessary. It is unneeded. With or without the 
question of whether you have the authority to deal with class 
III, it is duplicative and unneeded and the States and the 
tribes will do just fine, thank you. Respond to that.
    Mr. Hogen. Okay. I think one of the most important things 
we bring to the table is we give validity to what the tribes 
and what the States do. As we come along objectively from the 
outside, look at it, and say these are the rules. They either 
are playing by the rules, which we find in most cases, or they 
were not playing by those rules, but they fixed that.
    So we validate that good job that they do, and we have that 
national perspective that gives us the tools to do what needs 
to be done in diverse circumstances.
    Senator Dorgan. Mr. Hogen, thank you for your testimony. As 
always, thanks for your assistance when you appear before the 
committee.
    Mr. Hogen. Thank you, Senator.
    The Chairman. Mr. Hogen, I just want to reiterate, when we 
contemplated the Indian Gaming Regulatory Act, we clearly 
contemplated an Indian Gaming Commission. That is why it was 
created. Perhaps the language is somewhat murky, but I find it 
very difficult to accept the proposition that now that Indian 
gaming has gone from $500 million a year to $19.5 billion, and 
no sign of slowing, that somehow now we do not need a 
regulatory agency. It defies logic. In consultation with 
Senator Dorgan and other members of the committee, I think we 
are going to have to come up with some fix for this.
    I have said a thousand times, and I will say it again, when 
we wrote the act, Senator Inouye and I and others wrote the 
act, if you had told us that by this time it would be a $19.5 
billion a year business, we would have been astonished, to say 
the least.
    I continue to point out to my Native American friends who 
assert this is simply an issue of tribal sovereignty, issues of 
tribal sovereignty not only entails activities on Indian lands, 
that are conducted by Indians; 99 percent of the patrons of 
these Indian gaming activities are non-Indians. So we have an 
obligation to non-Indians as well as Indians to make sure that 
these gaming activities are honest, straightforward and 
adequately regulated.
    I think you and the commission overall over time have done 
a good job at that. To wit, there have been a minimum, an 
absolute minimum of allegations of corruption in Indian gaming 
activities. So it seems to me to want to abandon what has been 
a successful regulatory scheme, I would take some convincing 
before agreeing to that.
    Thank you, Mr. Hogen.
    Mr. Hogen. Thank you, Senator.
    The Chairman. Our next witnesses are Mark Van Norman, 
executive director of the National Indian Gaming Association 
and Kevin Washburn, who is the associate professor of law at 
the University of Minnesota. Welcome to the witnesses.
    We will begin with you, Mr. Van Norman.

  STATEMENT OF MARK VAN NORMAN, EXECUTIVE DIRECTOR, NATIONAL 
                    INDIAN GAMING COMMISSION

    Mr. Van Norman. Thank you, Mr. Chairman.
    Thank you, Senator Dorgan.
    NIGA appreciates the opportunity to testify here today. I 
am Mark Van Norman, the executive director of NIGA. Previously, 
I worked for the Justice Department and as an attorney for my 
tribe.
    As you know, tribes generally oppose amending the Indian 
Gaming Regulatory Act because we are concerned about 
undermining Indian sovereignty. We believe that amendments to 
the act should be considered in consultation with tribal 
governments. If after consultation the committee determines to 
move forward, we ask that you move forward in regular order and 
protect IGRA from negative amendments.
    We also ask that you include timely access to secretarial 
procedures in lieu of compacts once States raise an 11th 
Amendment defense to the tribal-State compact process.
    Indian gaming has been a tremendous success story for 
tribes. Historically, the United States signed treaties 
guaranteeing Indian lands as permanent homes, and a few years 
later went to war to take those lands. This left Indian tribes 
in poverty on desolate lands, while others mined for gold or 
pumped oil from taken lands. Throughout this period, tribes 
always fought to preserve tribal self-government.
    Indian gaming has provided us new hope; 20 million people 
visit Indian tribes each year. Indian gaming has created 
550,000 jobs, where unemployment was 5 or 10 times higher than 
the national average. It funds essential services. Where 
diabetes is an epidemic, it funds clinics and wellness centers. 
Where people had only eighth-grade educations, it funds college 
scholarships.
    We have a long way to go, but Indian gaming is rebuilding 
our communities. No one has more interest in maintaining a 
strong regulatory system for Indian gaming than Indian tribes. 
Tribes are dedicated to this because tribal sovereign 
authority, government operations and resources are at stake. 
Last year, tribes invested over $290 million to regulate Indian 
gaming. More than 3,350 expert tribal, State and Federal 
regulators watch over Indian gaming.
    Class III gaming is regulated by tribal governments and 
States through the tribal-State compact process. NIGC has a 
role. It supports that regulation by approving tribal gaming 
ordinances, reviewing tribal background checks and licenses, 
receiving audits and approving management contracts. Congress 
established the unique tribal-State compact process at least in 
part because the Federal Government turned down that regulatory 
role. Under the tribal-State compact process, tribes and States 
have established strong working relationships over the past 17 
years. Tribes have also invested heavily in reliance on the 
tribal-State compact process.
    In 1999, NIGC issued a mandatory Federal rule on minimum 
internal control standards. Tribal governments adopted the rule 
through tribal law and regulation, while reserving the question 
of NIGC's authority. Last month in the Colorado River Indian 
Tribe case, the Federal court held NIGC may not issue mandatory 
Federal regulations that duplicate tribal-State compacts. NIGC 
asks you to over turn that court decision. From our 
perspective, a cornerstone of Federal Indian policy is 
government-to-government relations. Under the President's 
directives, we believe NIGC should consult with tribes now and 
seek the least intrusive alternative to address this issue. 
Yet, NIGC's request is for new Federal authority over and above 
the tribal-State compact process, without an effort to 
harmonize it with existing tribal and State regulatory 
activities.
    If NIGC were working directly with States, the proposal 
would violate the 10th Amendment. The proposal also undermines 
tribal lawmaking authority. If enacted, it would upset the 
existing balance of tribal, State and Federal sovereign 
authority. NIGC should consult with tribes to find a less-
intrusive alternative.
    For example, NIGC could simply ask tribes to maintain 
existing MICS in their tribal ordinances and regulations. In 
fact, NIGC included the MICS in its model tribal gaming 
ordinance. Alternatively, NIGC could consult with tribes about 
including a MICS provision in IGRA's tribal gaming ordinance 
requirements. NIGC now has authority to approve tribal 
ordinances and IGRA provisions harmonize tribal law with 
tribal-State compacts. Seventeen years of experience under IGRA 
has shown we have a strong regulatory system for Indian gaming, 
and that regulation can be done consistent with tribal self-
government.
    We do not think there is any need for a rush to judgment. 
We think that NIGC has issued guidance to tribes that they 
should continue to follow the MICS. We have also advised tribes 
that they should continue to follow their own laws and 
regulations that incorporate the MICS while this matter is 
pending. We believe that the NIGC could work within the 
existing framework of the statute. Look at the tribal ordinance 
section. They have authority to come out and if there is a 
violation of tribal ordinances, they have authority to take 
action already. That approach would preserve tribal lawmaking 
authority.
    So we respectfully ask the committee to defer action on 
this until the NIGC goes out to consult with tribes. We have a 
meeting coming up in October in Tulsa with the National 
Congress of American Indians and the National Indian Gaming 
Association. We have invited them to come out and sit down with 
tribal leaders. We have another meeting in November. We would 
like to sit down and talk with them about this issue and find a 
solution that is in keeping with tribal sovereignty.
    Thank you very much for the opportunity to testify.
    [Prepared statement of Mr. Van Norman appears in appendix.]
    The Chairman. Thank you very much.
    Professor Washburn.

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

    Mr. Washburn. Thank you, Mr. Chairman and Mr. Vice 
Chairman, for inviting me to be here today. This is a very 
important subject and I applaud you for calling an early 
hearing on it.
    My sense is that following Cabazon, the Senate and the 
Congress decided to take action, and they thought that gaming 
ought to be very well regulated, Indian gaming.
    The Chairman. Actually, Professor Washburn, we felt that 
there had to be some kind of structure in light of that 
decision that would somehow establish a relationship between 
States and the tribes because of the wording of the decision.
    Mr. Washburn. I believe that is right, yes, sir. I do think 
that is right. At the time, bingo was the thing that was mainly 
going on around the country. So I think you all focused on 
bingo, primarily, class II gaming. That is where you really 
focused on NIGC authority.
    As the charts indicate, that is irrelevant. Bingo to a 
great degree is much less important now than class III gaming. 
But what we have, to a large degree, is not a National Indian 
Gaming Commission. We have a National Indian Bingo Commission 
nowadays, especially after the CRIT decision of a couple of 
weeks ago. The question is: Is that what you want? Is that what 
Congress wants out there? My sense is that the public has great 
confidence in Indian gaming largely because they believe that 
there is a strong Federal regulatory presence. I think that 
Federal regulatory presence is very important.
    So it is really a question for Congress. Do you want that 
Federal presence or not? I think that tribal regulators do a 
lot better with the Federal presence. I think tribal regulators 
do a fantastic job, by and large, but I think they do a far 
better job when they have Federal oversight. I think Federal 
regulators standing behind their back gives them a great deal 
of cover when they are negotiating with tribal leaders and 
casino managers about how to regulate well.
    Regulating well is expensive. It is hard to do it. It costs 
a lot of money, but Indian gaming is extremely important and it 
must be done. You all have the power to ensure the integrity of 
the resource for Indian tribes by ensuring that it is well 
regulated. My sense is that is what you should be doing.
    I have heard several insightful questions already. I think 
that this really is the answer to them. I think that the NIGC 
is needed. It ought to be the NIGC and not the NIBC. That is, 
it ought to be regulating the bulk of Indian gaming, the 
important parts of Indian gaming, and that they should have 
that role.
    I think having national Federal standards creates a common 
set of information for the entire industry so that regulators 
can leave one casino and go to another, and still know what the 
rules are. That gives them greater independence. It also 
creates this national community of tribal regulators that can 
talk to one another. I think that that is important. I think, 
again, it makes the tribal regulator's job a lot easier and it 
puts them in touch with the national community.
    So I think it is crucial that at a minimum that the IGRA be 
amended to ensure that the NIGC has authority to promulgate the 
minimum internal control standards.
    [Prepared statement of Mr. Washburn appears in appendix.]
    The Chairman. Thank you, Professor Washburn. Thank you. I 
know you spent a long time on this issue, and we appreciate 
your expertise.
    This court decision in some respects brought to a head what 
Senator Dorgan and I were already concerned about, and that is 
that we needed to review the IGRA in light of the chart that 
was just taken down of the dramatic increase in Indian gaming 
to a $19.5-billion a year business, and what it was when we 
passed the law. As you said, it was bingo.
    Although we all anticipated growth of Indian gaming, we 
certainly did not to the level that it has. So with retrospect 
of now 17 years, that we thought we ought to look at it anyway, 
and that is why we had hearings before this latest court 
decision because it needed review.
    So maybe this court decision may bring our deliberations to 
some kind of conclusion sooner rather than later. Part of our 
process will be determined as to whether this case is appealed 
or not. I do not know if they have made that decision.
    Mr. Van Norman, I think that consultation ought to be held. 
I am glad you have invited the Indian Gaming Regulatory 
Commission out to your meetings. But isn't it true that before 
these regulations were ever issued, there was extensive 
consultation with the tribes. Is that true?
    Mr. Van Norman. There was consultation with tribes as the 
regulations were developed, but the tribes consistently said, 
we have a tribal-State compact process and a tribal ordinance 
process. Those are the processes you should work with. Tribes 
cooperated with NIGC, but they reserved that question because 
they felt it was important to tribal lawmaking authority.
    I will just give you an example. This is the Viejas Band of 
Kumeyaay Indians tribal ordinance. This is the Seneca Nation's 
tribal compact. Substantial work goes into these things and we 
think there is a way to address this without creating new 
Federal rulemaking authority, but working within the existing 
structure. We would like NIGC to consult with us about that 
because it is a less-intrusive alternative to what they are 
seeking to accomplish.
    The Chairman. As you know, Congress has a special 
responsibility for Native Americans under the Constitution of 
the United States. I have a responsibility as a Federal 
official, but also as a representative of the people of my 
State. The Colorado River Indian Tribes reject investigators 
from the Indian Gaming Regulatory Commission to look at their 
books and their operations. Then I am supposed to meet with my 
constituents who patronize that gaming establishment, and say 
to them, I am sure everything is okay; go on out there and 
gamble and I can assure you that everything is on the up-and-
up, even though this tribe has said that the gaming commission 
that was put into being by the legislation is not allowed to 
have a look at their books. How do I do that, Mr. Van Norman?
    Mr. Van Norman. Well, I think one thing to bear in mind is 
that the State, the Governor's office and others, work with the 
tribes to develop a compact that was put forward for a vote of 
the people. Under that compact, the Arizona Department of 
Gaming has an important regulatory role. The tribes in Arizona 
fund Arizona Department of Gaming at over $8 million a year. 
They have over 100 State regulators and law enforcement 
officers assigned to Indian gaming.
    In addition, I think it is a little bit of a straw man to 
say that there is no role for the NIGC.
    The Chairman. Is there a role for them to play if the tribe 
says you cannot come on the reservation? And by the way, I 
think my State regulatory folks would say that they welcome the 
involvement of the National Indian Gaming Commission as a 
valuable tool in helping them oversight.
    Mr. Van Norman. Frankly, I think that what happened at 
Colorado River was some of the NIGC folks sat down with the 
tribes. They started to work on the issues, and things got to a 
situation where they said, we are here to enforce the MICS. And 
the Colorado River Tribe said, do you have authority to do 
that? And so a question was raised.
    The Chairman. No; they did not say, do you have authority 
to do that. They said, sorry, you cannot look at our books.
    Mr. Van Norman. Okay.
    The Chairman. That is a little different.
    Mr. Van Norman. I have been involved in discussions with 
them. I have attended some of the hearings. We feel like it was 
a tribal sovereignty question. Now, there is authority, we 
feel, under section 2713 of title 25 for the NIGC to go in and 
work with tribes and ensure that tribal ordinances are 
enforced. It provides for civil fines for violations of the 
tribal ordinances, among other things. So we think that there 
is a workable system there in place.
    The problem was that the NIGC was taking on a rulemaking 
authority that was outside the tribal ordinance process. Tribes 
felt that that intruded on tribal lawmaking authority.
    The Chairman. Well, I think the NIGC believed that they 
were carrying out their responsibilities as mandated by the 
law. Again, I respect tribal sovereignty and have a clear 
record of support for tribal sovereignty, sometimes to the 
dismay perhaps of some of my constituents.
    But when an operation is in being where all the patrons are 
non-Indians, whether it is on a reservation or off a 
reservation, and we now have movements to have Indian casinos 
that are off-reservation, then the issue of tribal sovereignty 
is overridden to some degree by my obligation to protect all 
citizens. That obligation is to protect them from being 
involved in a gaming operation that is operated in the most 
honest and corruption-free activities.
    We know from experience with non-Indian gaming that if 
there is not sufficient regulation, then corruption creeps in. 
That is the history of gaming. So to assert tribal sovereignty 
over an operation that does not involve Indians, but non-
Indians, to me is not a valid enough argument because I have an 
obligation under the Constitution, Congress does, to a special 
obligation as far as Native Americans are concerned, but we 
also have an obligation to all of our citizens, and that is to 
engage in a corruption-free operation.
    You and I have had this conversation several times before, 
Mr. Van Norman. I would be glad to listen to your response 
again.
    Mr. Van Norman. Thank you, Mr. Chairman. I appreciate the 
opportunity to respond.
    From our point of view, you are right. There already has 
been some inroad on Indian sovereignty by requiring tribes to 
work with States through the tribal-State compact process by 
having a Federal regulatory authority. There is no Federal 
regulatory authority for State gaming or for commercial gaming 
in the States. As you know, they fight that vociferously.
    We feel that there is an existing balance of sovereignty 
that protects Indian gaming. There is a provision in the act 
already, a criminal provision that says anyone that steals from 
an Indian gaming facility is guilty of a Federal felony. The 
FBI and U.S. attorneys have authority to prosecute that.
    Tribes work with Treasury's Financial Crimes Enforcement 
Network on money laundering prevention. We work with the IRS on 
tax compliance. We work with the Secret Service to prevent 
counterfeiting. And we work with the NIGC. But the NIGC has a 
particular role that is consistent with the tribal-State 
compact. They have a specialized role and it is not ubiquitous 
and duplicative of the rest of the system. They have a role 
that they can come in and be supportive, but they do not 
duplicate all that the tribes do.
    One of the things that is preserved to the tribes, we feel, 
is tribal lawmaking under the tribal ordinance. It is not a 
meaningless thing to have a tribal ordinance. We feel NIGC 
could come back and work with us and get that done. In fact in 
the area of environment, public health and safety standards, 
that is exactly the approach they are taking. They said, under 
your ordinance you have to have these provisions and we will 
come out periodically and check and make sure that you are 
enforcing your own law.
    So we think that same system could work in relationship to 
the MICS.
    The Chairman. Mr. Hogen testifies that after review of the 
compacts, in some States it is evident that many compacts have 
internal control provisions not up to the standards required by 
the NIGC MICS or States such as New Jersey or Nevada.
    Professor Washburn.
    Mr. Washburn. I think that the processes for developing the 
minimum internal control standards have been very good ones. 
The NIGC has worked very carefully with tribal leaders in 
developing those MICS. I think that is a good model.
    To be quite honest with you, the problems sometimes arise 
because NIGC regulators when they are out there in the casino 
can be a little heavy-handed. That is the problem with power. 
Power sometimes gets abused, and that happens now and then.
    The Chairman. It never happens around here. (Laughter.]
    Mr. Washburn. Not all the NIGC regulators, Mr. Chairman, 
are quite as diplomatic and sensitive as U.S. Senators. But 
that is one of the problems. I think that the NIGC regulators 
need to be very cognizant of the fact that it is tribes that 
they are regulating. It is not individual persons. It is not 
businesses. It is tribes. I think that they can certainly be 
very sensitive to that. Frankly, in the development of the 
minimum internal control standards they have been very 
sensitive to that, and that should be very well applauded.
    I think Indian gaming really is an exercise of sovereignty. 
Every tribe is out there exercising its sovereignty, and what 
the NIGC is interested in, certainly it intrudes on tribal 
sovereignty to say we are going to regulate that activity. But 
the problem is, tribes cannot really protect themselves well 
here, because if one tribe makes a mistake, all tribes will 
pay. That is just a function of the political nature of the 
gaming industry. Not all of the public is totally on board with 
the notion of gaming, so if one tribe makes a serious mistake, 
other tribes will pay for that mistake.
    So one tribe's exercise of sovereignty can take away the 
sovereignty of another tribe. I think we have to recognize 
that. The entity that can address that problem best is the 
Federal entity, the National Indian Gaming Commission.
    The Chairman. Thank you, Professor Washburn.
    Mr. Van Norman, I want to repeat again that I am one who 
supports Indian gaming. I believe that the Cabazon decision 
made it very clear that the Supreme Court correctly reached the 
conclusion that Indian gaming could take place under certain 
circumstances. I have done everything that I can to make sure 
that that right is enshrined in IGRA. But I also have recurring 
fear that there is going to be some scandal out there, as there 
is from time to time in non-Indian gaming. It is not that I am 
worried about Indian gaming. I worry about a scandal out there 
in Indian gaming, and non-Indian gaming in Nevada is not under 
this committee's jurisdiction, but Indian gaming is.
    I do not want to go to my constituents and say there is a 
scandal and Senator Dorgan and I did not exercise proper 
oversight. In light of this recent court decision, it seems to 
me for us to do nothing because that was not envisioned in the 
original legislation. In the original legislation, the National 
Indian Gaming Commission had certain responsibilities and we 
wanted them to carry them out, then I think we would not be 
carrying out our responsibilities appropriately.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much.
    I suppose it is important to say as well that I believe 
Indian sovereignty is very, very important. I have always 
spoken strongly in opposition to those that would erode that 
sovereignty. The President in fact at one point said the 
Indians were given sovereignty. The Indians were not given 
sovereignty. Sovereignty is theirs. It is theirs. It is a very 
important concept.
    I, too, believe that Indian gaming has been extraordinarily 
beneficial to some folks in this Country who have lived in the 
shadow of poverty and who now have an economic activity that 
provides jobs and opportunity and a revenue stream to address 
the crisis of health care, education and housing. So I think it 
is very important to say that.
    I think it is also, with respect to gaming, gaming is 
different than most other activities in this country. We have 
plenty of history in this Country where almost every 
opportunity for unsavory characters to find a way through the 
crack or through the crevice to get their hands on money. We 
have been down this road in lots of ways in this country.
    My guess is that there is no disagreement in this room 
about this proposition, that all of us want good government 
with respect to Indian gaming, good governing. The question is, 
what government, which government. Tribal government? State 
government? Federal Government? We all should want the same 
thing, that is good government.
    I think the quickest way to ruin or dramatically injure 
Indian gaming is for us to in some way be lax, relaxed, back 
away a little, and then have some huge scandal erupt because we 
did not have good government, good regulatory enforcement 
capabilities. I refer to the Time magazine big splashy feature 
story about Indian gaming. There are people who will take great 
pleasure in pointing out the mistakes and the problems, and 
especially take great pleasure in piling on a scandal.
    So Senator McCain made a correct point here. We have to 
make certain we know what works and then employ what works to 
this issue.
    Now, let me ask a couple of questions. Mr. Van Norman, 2 
years ago, 4 years ago, 7 years ago, 8 years ago, I assume that 
the National Indian Gaming Commission was going out around the 
country doing audits and enforcement visits and so on and 
looking at class II and class III gaming. Is that correct?
    Mr. Van Norman. Originally, the National Indian Gaming 
Commission said very clearly, we are primarily focused on class 
II and we have a background role on class III. We do not get 
involved in the tribal-State compact process. I think the 
Senate committee proposed minimum internal control standards in 
various bills. The National Indian Gaming Association actually 
went through a process with a number of experts to develop 
industry minimum internal control standards. At a certain 
point, the NIGC came forward, took those standards, ran them 
past Arthur Andersen, and put them into a mandatory Federal 
regulation.
    Senator Dorgan. At what point was that?
    Mr. Van Norman. That was about 1999.
    Throughout this time since them, tribes have said, we have 
tribal lawmaking authority through the tribal ordinance process 
under the act, and that that should be respected. Tribes are 
willing to work with the NIGC and frequently collaborate with 
the NIGC. In S. 1295, we had asked for the NIGC to provide 
technical assistance to tribes. We are going out next month to 
South Dakota and doing programs jointly with them on internal 
auditing. So we have an ongoing working relationship with them.
    What we want to do is have a relationship that is 
structured that protects tribal self-governance so that tribes 
have a distinct role, the State governments have their role, 
and the Federal Government has a role that is consistent with 
tribal lawmaking.
    Senator Dorgan. What does that mean, consistent with tribal 
lawmaking?
    Mr. Van Norman. That this could be a section in tribal 
ordinances, rather than a new Federal regulatory standard. What 
tribes say is, we know the industry and we are able to develop 
our MICS, and we are able to do so in a way that reflects our 
tribal-State compact, reflects our actual operation. We are 
often more technologically advanced than the National Indian 
Gaming Commission, so they have to go in and seek a variance to 
add a new technical standard.
    Senator Dorgan. Mr. Van Norman, I frankly have not decided 
what we should do here at this point. That is why I was very 
interested in this hearing. But you heard the testimony 
previous to yours. I served in State government for some while. 
I knew no only what our State government did with respect to 
enforcement issues in a range of areas, whether it was railroad 
rates or other things. And I knew what other States did. I knew 
there were great differences, some aggressive, some not, some 
highly efficient, some not, some worthwhile, some worthless.
    So I understand that there are some States that will do a 
remarkable job and other States that will do a miserable job. 
You heard some testimony this morning to that effect. What is 
your response to that?
    Mr. Van Norman. I think that the act envisioned that the 
tribes and the States would work together as sovereigns. The 
legislative history expressly says there is going to be an 
allocation of responsibility through a sovereign compacting 
process. So there was a recognition that there would be some 
variability.
    Now, tribal governments have detailed ordinances in place, 
have minimum internal control standards in place. They will 
keep those in place. So what we can have is a situation where 
there may be some variability that accommodates particular 
tribal government interests, but that they can meet an industry 
standard for effective regulation.
    Senator Dorgan. Mr. Van Norman, you heard the anecdote 
about the commission coming into a gaming facility and saying, 
you need a new surveillance system. And they said, oh man, 
thanks for making that a part of the recommendation because 
that will force the tribe then to pony up the money for a new 
surveillance system. What if there is not a commission around 
to make that recommendation and the gaming facility knows they 
need it, but they cannot get the money out of the tribe.
    How do you respond to that kind of anecdote? I assume it 
happens. This is not a perfect system, but that kind of 
anecdote is the kind of anecdote that I think is also important 
in this discussion.
    Mr. Van Norman. We are not saying that the NIGC should not 
have a role. They have a background supportive role. It is 
already clear in the statute.
    Senator Dorgan. With respect to class III as well?
    Mr. Van Norman. They have a supportive role with respect to 
class III. They do not establish the regulatory framework 
because that is the tribal-State compact process and that is 
the tribal ordinance process. But they can come out and review 
its enforcement under section 2713 of title 25.
    So we do not say that there is no role for the NIGC to 
play, but they should play a role that is consistent with what 
the tribal governments are already doing. You have 2,800 tribal 
regulators out there. They are former FBI. They are former 
Nevada, New Jersey State regulators. There are tribal law 
enforcement officers with 17 years of experience.
    Senator Dorgan. Is it your testimony that there is a 
standardization and a pretty consistent level out there that 
does not have weaknesses, tribe-by-tribe, State-by-State?
    Mr. Van Norman. In general, we believe that there is a very 
strong system.
    Senator Dorgan. That was not my question, though. I was 
asking a different question.
    Mr. Van Norman. I think in fairness, I have worked for the 
Federal Government. I have worked for State government. I have 
worked for tribal government. Governments have similar foibles. 
I would say that the tribal governments have worked very hard 
to put in place a good system. We have very accomplished 
people. Where there is a problem, the tribal governments have 
often reached out and been the ones to reach out to the Federal 
Government and say, we have a problem here and help identify 
those problems.
    Senator Dorgan. I must say, it would be hard for me to make 
the case, especially with the last several weeks, that the 
Federal Government does not have its weaknesses. All 
governments have weaknesses. I expect that that is the case.
    First of all, Mr. Van Norman, your testimony is helpful to 
us. You come to this committee and testify and work with us. We 
appreciate your input and your thoughts about this. You have 
obviously spent a lot of time thinking about it. You work in 
the field and know a lot about what is happening in the 
country. So I appreciate your being here and the thoughts you 
have expressed today.
    Mr. Washburn, in your testimony on page 2, I think you make 
the case, I guess, with respect to the question I was trying to 
ask Mr. Van Norman about the different kinds of regulatory or 
the different kinds of enforcement strategies that exist with a 
State system in which the National Commission would not have 
much of a role. Can you expand on that just for 1 moment?
    Mr. Washburn. I think that there needs to be a clear 
Federal role. I think it cannot be just an advisory role. There 
needs to be an opportunity to enforce in the worst-case 
scenario. I think Mr. Van Norman is right that by and large we 
get good regulation from tribal gaming commissions.
    The problem is the stakes are so high that when we get 
irresponsible action by one commission at some small tribe in 
some location, it hurts all the rest of the tribes in the 
country, or it could potentially. It is that big scandal that 
is the thing that we are all worried about. The best way to 
keep the big scandal from rising up is to keep a strong Federal 
oversight role overall.
    To be quite honest, most of the NIGC resources do not go 
toward the well-regulated tribes. They end up getting expended 
on the least well-regulated tribes. So the NIGC is serving an 
advisory role in helping them get their regulatory structures 
in better operation.
    Senator Dorgan. Mr. Washburn, excuse me for interrupting 
you, but can you just expand on, you say ``least well regulated 
tribes.'' Are there least well regulated tribes? If so, 
describe the prevalence of that.
    Mr. Washburn. Again, it is not something that happens every 
day, but now and then you get a problem. I do not want to stand 
up here and give you a parade of horribles, but now and then. 
It is expensive to do internal controls. It is expensive to do 
regulation. Tribal leaders and casino managers often chafe at 
that. Every regulated industry chafes at being regulated. What 
they would like is usually to reduce the regulations.
    Well, sometimes it happens. Sometimes those people win that 
argument and the regulators have to back off. If we have strong 
Federal structure in place, they will not be able to back off. 
They will have to enforce this strong regulation nationwide. I 
think that that is the problem.
    In my last testimony in April, I used the word ``regulatory 
capture.'' That is the problem. Some regulators are captured by 
the entities they regulate. If you buy all the academic 
literature on regulatory capture, Indian tribes are 
particularly at risk for it because typically you have one 
casino and one regulator. There are repeat players working 
every day together. So you have a significant risk for that.
    So again, it does not happen every day. It does not happen 
often, but the stakes are so high and Indian gaming is so 
important that it makes sense to get the best insurance we can 
that we get to keep it around for a long time and it is well 
regulated.
    Senator Dorgan. Thank you as well. I think the goal for all 
of us in this room, to the extent there has been some 
disagreement perhaps here and there, the goal for all of us is 
to preserve the opportunity for Indian gaming to exist and to 
do that through good government. The question is, what is good 
government and which levels of government can work best to 
accomplish that.
    Mr. Van Norman made a very important point about 
consultation. I think that issue of consultation is a very 
important part of what this committee is about as well. This is 
a special committee in the U.S. Senate that understands and 
believes strongly in the responsibility to work with and 
consult with the first Americans and the tribes that we work 
with.
    So I think this testimony has been really interesting. This 
court case causes some concerns. The question is now what do we 
do about those concerns. Mr Chairman, I think holding a hearing 
rather rapidly on this is the right thing to do as well in 
order for us to begin to understand all of the consequences of 
this, and what we do in the end to try to protect and preserve 
the opportunities that Indian gaming offers to Native 
Americans. That is the end goal for all of us, I believe.
    Mr. Chairman, thank you.
    Mr. Van Norman. Mr. Chairman.
    The Chairman. Go ahead please.
    Mr. Van Norman. Thank you.
    I would just say it is probably in many circumstances 
easier to have a Federal rule. There is one rule. But we live 
in a country that is divided into 50 States, and there is some 
genius to the Constitution that says the folks that are closer 
to the people have an ability to make rules that fit them 
better.
    The Chairman. You sound like a good Republican, Mr. Van 
Norman. [Laughter.]
    Mr. Van Norman. Thank you. I feel I am in good company.
    We think that preserving the tribal lawmaking authority 
gives the tribes the flexibility to meet their needs, while 
still meeting some level of Federal approval because the NIGC 
has the authority to approve those ordinances.
    So we hope that you will give that consideration, and we 
certainly appreciate the opportunity to come here and testify.
    The Chairman. We will, Mr. Van Norman. I think you 
represent your organization quite well. We appreciate the 
continued dialog with you and with other members.
    Professor, thank you very much for traveling all this way.
    Mr. Washburn. Thank you.
    The Chairman. We appreciate your continued in-depth 
examination of these issues.
    This hearing is adjourned.
    [Whereupon, at 10:47 a.m., the committee was adjourned, to 
reconvene at the call of the chair.]


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                            A P P E N D I X

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              Additional Material Submitted for the Record

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


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

    Good morning Chairman McCain, Vice Chairman Dorgan, members of the 
committee and staff. My name is Philip Hogen. I am the chairman of the 
National Indian Gaming Commission [NIGC or Commission] and a member of 
the Oglala Sioux Tribe of the Pine Ridge Indian Reservation in South 
Dakota.
    Thank you for the opportunity to discuss a matter of grave concern 
to the NIGC. As you are aware, a decision recently issued by the 
Washington, DC. District Court found unlawful the NIGC's Minimum 
Internal Control Standards [MICS] regulations as applied to class III 
gaming. Although the decision applies solely to the Colorado River 
Indian Tribes, the language of the decision is broadly worded and could 
be used in other forums to argue for the elimination of the NIGC's 
entire regulatory role in class III gaming. While the challenge was 
with respect to the MICS regulations specifically, the District Court 
opinion contains language that appears to apply to all regulation of 
class III gaming. One particularly troubling quotation from the opinion 
bears mention. The court stated, ``[t]he [Indian Gaming Regulatory Act] 
not only lacks language giving the NIGC a role in the regulation of 
class III gaming, but it contains several provisions that are 
inconsistent with such a role.'' Colorado River Indian Tribes v. Nat'l 
Indian Gaming Comm'n, No. 1:04-cv-00010-JDB, 2005 U.S. Dist. LEXIS 
17722, at *34 (D.D.C. August 24, 2005). This statement by the court is 
troubling because it rejects the very clear ``Declaration of Policy'' 
that this committee and Congress provided in IGRA. In particular, 
IGRA's policy provision found that existing Federal law in 1988 did not 
provide clear standards or regulations for Indian gaming, 25 U.S.C. 
Sec. 2701. To address this and other congressional concerns regarding 
tribal gaming and to protect such gaming as a means of generating 
revenue to promote tribal economic development, self-sufficiency, and 
strong tribal government, this committee and Congress went on to 
expressly declare in IGRA that it was necessary to establish both 
Federal standards and the NIGC as an independent Federal regulatory 
authority for Indian gaming, 25 U.S.C. Sec. 2702. Needless to say, the 
Colorado River Indian Tribes decision has the potential to seriously 
compromise our ability to effectively regulate Indian gaming in the 
manner Congress expected and expressed in its ``Declaration of Policy'' 
in IGRA.
    The NIGC considers the MICS to be one of the most effective 
regulatory tools available to protect Indian gaming. We appear before 
the committee today to seek congressional action clarifying the NIGC's 
authority to regulate class III gaming generally, and to promulgate and 
enforce our MICS regulations for class III gaming specifically. The 
NIGC has submitted to Congress on March 23, 2005, a draft bill that, 
among other things, would amend IGRA to clarify the NIGC's authority to 
regulate class III gaming generally, and to promulgate and enforce its 
MICS regulations for class III gaming specifically. Although the NIGC 
and the Department of Justice are considering an appeal in this case, 
we believe the best way to resolve this question and prevent a 
potentially serious lapse in regulatory authority created by this court 
decision is by way of a legislative fix--language that makes absolutely 
clear the NIGC's authority with respect to class III gaming.
    In this connection, let me be crystal-clear. We are not asking 
Congress to expand the role NIGC has played in the past regarding class 
III gaming. We merely ask that the law be clarified so that we may 
continue what has proved to be a very successful coordination of 
tribal, State, and Federal participation in the oversight of class III 
gaming. This gaming produces four-fifths of overall tribal gaming 
revenue.

i. A HISTORY AND EXPLANATION OF MINIMUM INTERNAL CONTROL STANDARDS

    In the years since the Indian Gaming Regulatory Act [IGRA], 25 
U.S.C. Sec. 2701 et seq., was passed, Indian gaming has grown 
exponentially from $100 million in revenue to over $19.4 billion in 
2004. Approximately 80 percent of this revenue comes from the higher 
stakes class III gaming. Revenues from Indian gaming have built roads, 
schools, and health centers on reservations across the country, and 
greatly reduced reservation unemployment in many areas.
    As knowledge and expertise of gaming regulation grew, tribes 
recognized the need for internal controls. The National Indian Gaming 
Association [NIGA] and the National Congress of American Indians formed 
a task force which evaluated the minimum internal control standards of 
established gaming jurisdictions such as Nevada and New Jersey. The 
task force then created a set of internal control standards which 
tribes could choose to adopt. These standards became known as the 
``NIGA MICS.''
    Throughout the country, tribal gaming operations and tribal gaining 
commissions benefited from this effort, but it was a voluntary 
arrangement. Many tribes either did not adopt or enact the NIGA MICS or 
equivalent internal controls, or if they did, did not require strict 
adherence to them.
    Of course, even before the NIGA MICS, there were a number of tribal 
gaming operations that had utilized and enforced very sophisticated 
minimum internal control standards which likely were more stringent 
than and exceeded those promulgated by the associations. However, as 
the NIGC monitored tribal gaming operations and observed the imposition 
of standards by States and tribes, it became apparent that, for many 
tribes, actual operation did not always comport with the internal 
control standards adopted by the tribe. The NIGC noted there were a 
number of places in Indian country where not only were these standards 
not being met, but such good practices were plainly ignored. In 
addition, even for the tribes gaming pursuant to tribal-State compacts, 
the NIGC observed that details of the operations of tribal gaming and 
its regulation was often absent from the negotiated compacts; that in 
many instances the States' assigned role was minimal; and that in even 
more instances the actual participation of the States in regulatory 
oversight of tribal gaming operations was even less significant. This 
is not to say that an arrangement whereby a tribe has the sole 
responsibility for the regulation of its own gaming is unworkable. 
However, when no other entity has any significant oversight role, there 
develops the perception that the fox is watching the hen house. This 
perception can lead to a public distrust of the integrity of Indian 
gaming. In every other gaining jurisdiction, there is an oversight role 
for an entity that is separate from management of the gaining, and we 
believe that is what was intended and required under IGRA, and what has 
worked remarkably well since the implementation of the NIGC MICS. It is 
human nature to tend to do a better job when one knows that independent 
eyes occasionally fall on one's work. This is true in Indian gaming as 
well.
    In response to its observations, the NIGC embarked on an effort to 
promulgate a comprehensive set of internal control standards for tribal 
gaming operations in accordance with accepted gaming industry good 
practices and pursuant to the authority vested in the Commission by the 
IGRA. In close consultation with tribes and with the assistance of a 
Tribal Advisory Committee, in 1999 the NIGC promulgated the MICS.
    The MICS provide a comprehensive system of checks and balances to 
ensure control of all gaming revenues and gaming resources. The MICS 
are detailed internal procedures that tribes must meet both for the 
games offered for play and for support activities of the gaming. The 
internal controls thus cover cash handling and counting; internal 
audits; camera surveillance; the offering of credit; and information 
technology as well as the games themselves. They offer uniformity and 
consistency on an industry-wide basis while allowing variances to meet 
the specific needs of each tribe. In this way, the MICS protect the 
integrity of the gaming operation and ensure that gaining revenue is 
not lost through theft or embezzlement.
    Many tribes have adopted NIGC's MICS verbatim and others have 
adopted even more stringent standards. However, while development and 
adoption of these standards is vital to protecting the assets of a 
gaming operation, MICS are only truly effective if the employees and 
management of a gaining operation properly implement and consistently 
follow them. Therefore, it is necessary for each tribal gaming 
operation to have proper auditing procedures as this ensures that the 
internal controls are properly implemented and allows the tribe to 
discover methods of improving them. In addition to the internal audit 
requirements, the NIGC also conducts periodic ``MICS compliance 
audits'' of Indian gaming operations. The MICS audit ensures that the 
tribe has developed internal controls at least as stringent as the 
NIGC's MICS, and that the gaming operation complies with them. 
Exceptions are noted and communicated to both management and the tribe. 
A subsequent visit to the audited gaming facility is then scheduled, 
and the NIGC returns to verify that the requested corrections were 
made. In most cases, both the NIGC and tribe are pleased with the 
progress made because of the improved protection for tribal gaming 
revenues and assets.
    Recent NIGC MICS audits have revealed significant internal control 
weaknesses at a number of tribal casinos. At a facility in the Great 
Plains, we discovered that the tribe was not performing statistical 
analysis of actual to expected results; that access keys and 
information technology were not adequately protected; and that the 
people handling the money were accountable only to themselves. Another 
facility in the Southern Plains had failed to segregate duties such 
that the same individuals were both counting funds removed from the 
gaming machines and maintaining the accountability and physical 
possession of these funds. This serious lapse in security of the tribal 
gaming revenues was compounded by the lack of an internal audit system. 
At some operations we have discovered so many internal control 
deficiencies that we have convinced the tribes to voluntarily close the 
facilities until the problems can be corrected. In other instances we 
are prepared to close facilities without the tribe's cooperation due to 
the seriousness of the situation.
    The closing of a tribal gaming facility is, fortunately, a final 
option we have had to invoke only rarely. We always begin by working 
with the tribe to correct the weaknesses found, usually with great 
success. NIGC auditors found problems at a facility in the Southwest 
that included an ineffective internal audit department, surveillance 
problems, lack of statistical game analysis, and missing documentation 
for cashier cage accountability. This tribe submitted a plan outlining 
how it intended to fix the deficiencies within a 6-month period and the 
NIGC confirmed through follow-up testing that the tribe had 
successfully remedied the deficiencies in its internal controls. 
Similarly, the NIGC and a tribe in the West used the same method to 
remedy NIGC audit findings that included surveillance problems; 
computer network security lapses; cashier cage documentation lacking 
employee signatures and independent verification of transactions; and 
soft count sheets filled out and signed prior to the count of funds. 
Comparable success stories exist throughout the Nation which illustrate 
the extent to which the NIGC MICS regulatory program has benefited 
tribal gaming.

II. THE CRIT DECISION AND ITS THREAT TO THE EFFECTIVE REGULATION OF 
    CLASS III GAMING

    The reason I am here today is that a tribe engaged in class III 
gaming pursuant to a compact challenged the NIGC's regulatory authority 
to impose the MICS on class III gaming operations and received a 
district court decision in its favor.
    The CRIT decision resulted from an appeal of an NIGC Final 
Commission Decision and Order, issued in July 2003, which concluded 
that the Colorado River Indian Tribes [tribe or CRIT] violated NIGC 
regulations when it denied Commission representatives access to the 
tribe's gaming facility to conduct a MICS audit of the tribe's class 
III gaming activities. The tribe filed suit in Washington, DC District 
Court in January 2004, alleging that the NIGC exceeded its statutory 
authority under the IGRA. Recently, on August 24, 2005, the District 
Court issued an order finding that the NIGC exceeded its statutory 
powers in promulgating and enforcing the MICS for class III gaming. In 
issuing its decision, the court reviewed the text, structure, purpose, 
and legislative history of the IGRA.
    Despite our belief that the MICS are fundamental to the integrity 
of Indian gaming, tribes have long questioned our authority to regulate 
the class III gaming that accounts for most of the revenue in the 
industry. As the NIGC continues to attempt to enforce class III MICS on 
all but the CRIT, it will face the threat of multiple lawsuits. The 
NIGC has many ongoing MICS compliance efforts that are already hindered 
by the threat of litigation. For instance, there are at present 14 
ongoing NIGC MICS compliance audits that are at various stages of 
completion. The gaming operations in question range from an operation 
conducting less than $5 million in gross gaming revenue to one 
producing over $1 billion in gross gaming revenue. Several of the 
tribes in question have already expressed their position that, because 
of the District Court's opinion, completed audits are now moot and 
those tribes do not need to remedy any non-compliance with class III 
MICS. Also, several other tribes are questioning the NIGC's authority 
to conduct MICS audits at their operations. Yet other tribes have 
already indicated their intent to forego some MICS requirements, such 
as the independent annual audit of internal controls.
    The District Court opinion addressed only our authority with 
respect to class III gaming, not class II gaming. However, the MICS are 
not class specific, and from a practical standpoint it is impossible to 
separate class II from class III revenues for the entire movement of 
money through the gaming operation. The MICS dictate procedures, not 
only for each game, but for cash handling, surveillance, and 
accounting. Most tribal gaming operations offer both class II and class 
III games in their facilities. Once the revenues have been collected 
from each game, they are necessarily commingled. It is not possible or 
practical to segregate and maintain class II gaming revenues 
separately. Thus, because the MICS relating to cash handling and 
accounting would necessarily infringe on the class III activities of 
the gaming operation, strict adherence to the District Court decision 
could force a total removal of the MICS from most gaming operations.
    Although the IGRA is replete with examples of NIGC's clear 
statutory authority over class III gaming, the District Court 
interpreted other sections of IGRA to mean that class II gaming is to 
be regulated by tribes and the NIGC and that class III gaming is to be 
regulated solely by tribes and States. Even if this were a proper 
interpretation, however, the reality is that, by and large, States have 
not taken an active role in the regulation of Indian gaming.
    As illustrated by the chart attached to my written testimony, there 
are 22 States that have entered into compacts with tribes for class III 
gaming. Of these compacts, four do not address internal control 
requirements at all. Six of them require very limited controls, such as 
the display of rules of play, maintenance of lists of barred persons, 
or minimal surveillance. A compact in one State provides for tribal 
internal controls reviewed by that State, and in one other State, 
compacts specify different levels of internal controls. Compacts in two 
States require the adoption of State standards or their equivalent, and 
compacts in four States set forth thorough, comprehensive internal 
controls. Additionally, in several States, the compact terms detailing 
casino controls would be eviscerated without the NIGC's MICS: compacts 
in four States expressly adopt the NIGC MICS or standards at least as 
stringent. From this review it is evident that many compacts have 
internal control provisions not up to the standards required by the 
NIGC MICS or States such as New Jersey or Nevada. As is clear from the 
chart, strict application of the District Court decision would remove 
internal control requirements, where a party independent from the 
ownership and management of the tribal gaming plays a role, in several 
States.
    Further, even when compacts contain adequate internal control 
provisions, not all States make enforcement of violations a priority. 
In fact, there are several States with compacts that take no 
appreciable role in the regulation of class III tribal gaming within 
their borders. Thus, without NIGC MICS and their supporting audits, 
there will effectively be no oversight regulation in those States.
    Some tribes have asserted that the NIGC's authority to promulgate 
and monitor compliance with standards for class III gaming intrudes 
upon tribal sovereignty. The act recognizes and balances tribal, 
Federal, and State interests. The IGRA as written requires tribes to 
debate whether they wish to cede a small portion of their sovereignty 
in order to game and thereby increase tribal funding to carryout other 
sovereign tasks. If a tribe opts to invest in gaming it must protect 
itself and its assets. The Federal Government also seeks to protect 
this investment in tribal sovereignty by ensuring tribal gaming 
succeeds, for a scandal at one gaming facility has the ability to 
negatively affect all operations. The vast majority of visitors to the 
gaming facilities are non-Indian and these visitors will only continue 
to patronize tribal gaming operations if the hard-won reputation for 
integrity and well-regulated gaming is maintained. The most effective 
measure of any nation's sovereignty is its ability to provide for its 
needs and the needs of its people. Self-sufficiency for tribal nations 
is a stated goal of the IGRA. Weakening the strong regulation of class 
III gaming thus works against tribal sovereignty and self-sufficiency.

III. CONCLUSION

    As I have previously noted, there is a long history of tribal 
challenges to our class III authority. These challenges have prompted 
us to appear before this committee in the past to ask for legislation 
clarifying our authority. Now that a court has spoken to the issue we 
must again, and with renewed vigor, ask this committee to support 
legislation that eliminates any question regarding our legal authority 
to monitor and regulate class III gaming and that clarifies that NIGC 
authority over class III gaming is as broad as it is over class II 
gaming.

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