[Senate Hearing 110-143]
[From the U.S. Government Publishing Office]
S. Hrg. 110-143
DISCUSSION DRAFT LEGISLATION REGARDING THE REGULATION OF CLASS III
GAMING
=======================================================================
HEARING
before the
COMMITTEE ON INDIAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 28, 2007
__________
Printed for the use of the Committee on Indian Affairs
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37-531 PDF WASHINGTON DC: 2007
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COMMITTEE ON INDIAN AFFAIRS
BYRON L. DORGAN, North Dakota, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
KENT CONRAD, North Dakota LISA MURKOWSKI, Alaska
DANIEL K. AKAKA, Hawaii TOM COBURN, M.D., Oklahoma
TIM JOHNSON, South Dakota PETE V. DOMENICI, New Mexico
MARIA CANTWELL, Washington GORDON H. SMITH, Oregon
CLAIRE McCASKILL, Missouri RICHARD BURR, North Carolina
JON TESTER, Montana
Sara G. Garland, Majority Staff Director
David A. Mullon Jr. Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on June 28, 2007.................................... 1
Statement of Senator Dorgan...................................... 1
Statement of Senator Inouye...................................... 74
Statement of Senator Murkowski................................... 3
Witnesses
Allen, W. Ron, Chairman, Washington Indian Gaming Association and
Chairman, Jamestown S'Klallam Tribe............................ 54
Prepared statement with attachments.......................... 56
Hogen, Philip N., Chairman, National Indian Gaming Commission.... 5
Prepared statement with attachments.......................... 7
Pearson, Myra, Chairwoman, Great Plains Indian Gaming
Association; Chairwoman, Spirit Lake Sioux Tribe; accompanied
by Kurt Luger, Executive Director, Great Plains Indian Gaming
Association.................................................... 24
Prepared statement with attachments.......................... 27
Shelton, Dean, Chairman, California Gambling Control Commission;
on behalf of Governor Arnold Schwarzenegger.................... 22
Prepared statement........................................... 23
Welsh-Tahbo, Valerie, Council Member, Colorado River Indian
Tribes Tribal Council.......................................... 65
Prepared statement........................................... 67
Appendix
Burris, Tracy, Gaming Commissioner of the Chickasaw Nation,
prepared statement............................................. 79
Crooks, Stanley R., Chairman of the Shakopee Mdewakanton Sioux
Community, prepared statement.................................. 81
DISCUSSION DRAFT LEGISLATION
REGARDING THE REGULATION OF CLASS III GAMING
----------
THURSDAY, JUNE 28, 2007
U.S. Senate,
Committee on Indian Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 9:30 a.m. in room
485, Senate Russell Office Building, Hon. Byron L. Dorgan,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
The Chairman. I will call the hearing to order. This is a
hearing of the Indian Affairs Committee on a draft piece of
legislation regarding the regulation of Class III gaming.
I want to begin on time. We will have a vote somewhere
around 10:45 a.m. to 11 a.m., and we may have to break at that
point, but I want to begin on time and see how long this will
consume this morning.
We are going to hold a hearing today to hear views on draft
legislation to regulate Class III Indian gaming. Let me make
clear that you have seen from the array of hearings that we
have held in this Committee, the principal and great concerns
that I have on Indian issues deal with Indian education, health
care, housing, law enforcement, methamphetamine, teen suicide,
and similar issues. That will remain our consuming ambition on
this Committee, to address those issues as a primary
responsibility.
I am holding a hearing today on a draft piece of
legislation dealing with the issue of regulation of Class III
gaming. Let me make a few early points. Last year, a Federal
court held that the Indian Gaming Regulatory Act did not
provide the National Indian Gaming Commission with the
authority to regulate day to day operations of Class III Indian
gaming. Specifically, the court held that the commission could
not enforce minimum internal control standards on tribes' Class
III gaming operations. These are the standards that were
designed to regulate the day to day operations of a gaming
facility, including how cash is handled, surveillance, customer
credit, and many other aspects of a gaming operation's daily
activities.
Indian gaming has been a great success for many tribes,
literally bringing tribes a substantial additional stream of
revenue with which to address many of their social problems and
with which to provide needed investment in areas that are of
interest and concern to tribes and tribal members. The industry
has come a great distance from when the Regulatory Act was
first passed by Congress, a great distance from the Cabazon
decision by the Supreme Court.
Last year, the gaming industry for Native Americans
generated over $25 billion. Ninety percent of this revenue was
generated from Class III gaming, the category of Indian gaming
that includes slot machines, house banked card games, and so
on. This is the category of gaming that the Federal court ruled
that the National Indian Gaming Commission lacked authority to
regulate on a day to day basis.
Now, I believe that the regulation of Indian gaming,
including adequate internal controls within a gaming facility,
is critical to the preservation, integrity and success of
Indian gaming. I think all stakeholders in this industry agree
with that statement. I also believe that some entity separate
from the gaming facility owner should have regulatory oversight
over the facility.
That doesn't mean that we should over-regulate the
industry, but there should be two layers, in my judgment, of
regulation. The first layer should be the Tribal Gaming
Commission and the second should be the Federal Government or
State Government providing effective oversight and regulation.
Now, I have offered a draft piece of legislation. We have
not introduced it. I have made it a discussion draft for a very
specific reason. I am holding a hearing on the discussion
draft. We have invited select witnesses to testify and we would
invite anyone else who wishes to submit testimony on that draft
to submit it within 2 weeks of this hearing, and we will
consider that as well.
The draft proposal is a proposal that would provide a
different approach. As you know, a proposal during the last
Congress was offered. It was much broader than the draft
discussion proposal I have offered here. But the discussion and
decision about where we will move to address this will depend
on what we learn at these hearings and what we hear from the
stakeholders.
I do make the point that I understand the Colorado River
Indian Tribe's intention in bringing their lawsuit to clarify
the authority of the National Indian Gaming Commission. The
tribe had every right to do that. The result of the case I
think has created some gaps in the regulation of Indian gaming,
and those gaps are of concern to me.
The purpose of this hearing and draft legislation and the
discussion of this is not to imply or suggest in any way that
there is a systemic problem with respect to Indian gaming. I
don't believe that exists. I certainly don't ever want it to
exist, and the discussions about how we make certain there is
effective regulation in every area here is to make certain that
we don't have a problem in the future.
As I indicated when I started, the priorities of this
Committee will remain priorities dealing with healthcare,
housing, education, teen suicide, methamphetamine, law
enforcement and the range of issues that we have spent a great
deal of time working on. But I did want to continue a
discussion about the issue of the regulatory authority with
respect to the Colorado decision and its impact on Indian
gaming, and that is the purpose of this hearing.
We don't know what we will do following this hearing
because it will take some time to digest and try to understand
and think through the comments that we will hear today.
I am pleased that the Acting Vice Chair, Senator Murkowski,
is with us, and I would call on her for any opening comments.
STATEMENT OF HON. LISA MURKOWSKI,
U.S. SENATOR FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I appreciate
your comments in laying out the priorities here as the Chairman
of this Committee.
Since the days of President Nixon, it has been this
Nation's policy to encourage Indian tribes to take control of
their own destiny. President Nixon ushered in the Federal
policy of self-determination over 30 years ago, and that legacy
of self-determination is not limited to the compacting and
contracting of government programs. It has also led many tribes
to take control of their economic destinies, to find ways to
stimulate economic development within Indian Country.
Some of these economic development efforts have succeeded.
Others have failed. And we all know that this isn't surprising
since the odds against success of any new business venture are
pretty high. But I am told that no single industry has
succeeded in Indian Country as well as gaming, conducted under
the regulatory framework of the Indian Gaming Regulatory Act.
More than 24.5 million Americans have visited tribal gaming
establishments and we know that that number is growing.
The National Indian Gaming Association reports that 225
tribes in 28 States are involved in Indian gaming activities.
These enterprises have created 670,000 jobs, generated $8.6
billion in Federal taxes, $2.4 billion in State payments, and
more than $100 million in payments to local governments. The
data strongly suggests that Indian gaming is the dominant
driver of economic opportunity in many corners of Indian
Country.
The issue before the Committee today, in my view, is
whether the current system for protecting the integrity of
Indian gaming is adequate. Is it adequate to ensure the
integrity of the tribal gaming enterprise? Is it adequate to
ensure that tribal casinos do not fall vulnerable to organized
crime and money laundering? And is it adequate to ensure that
Indian gaming operations maintain the level of public
confidence that brings more than 24.5 million Americans to
their doors?
The current regulatory system has been profoundly
influenced by the Colorado River Indian Tribe's decision. That
decision does not permit the National Indian Gaming Commission
to require that Class III gaming establishments adhere to the
commission's standards of minimum internal controls. Now, I
understand that some who will testify today think that that is
a good thing. They say that the existing two-tiered system of
tribal regulation and State enforcement of tribal State
compacts adequately protect the interests of the tribe and the
public.
I have heard concerns that the National Indian Gaming
Commission, if given a mandate to regulate Class III gaming,
will see the opportunity to impose broader, more proscriptive
controls on the tribes over and above those in the minimum
internal control standards, and pass those costs along to the
regulated entity.
But I have also heard concerns that uniformity in the
regulation of gaming is important to maintain that public
confidence and to allow the tribes to continue to grow their
enterprises. We have been asked to consider the possibility
that in some instances, reliance on State tribal compacts for
regulatory oversight may not be adequate. Ideally, the tribes,
the States and the NIGC would reach consensus on a regulatory
scheme, a regulatory scheme that ensures compliance with
applicable laws and that maintains public confidence in tribes
and their enterprises.
I don't know whether this is possible, but I do commend
you, Mr. Chairman, for bringing a very diverse group of voices
to the table to pursue that question. I am approaching the
hearing this morning with an open mind. I look forward to the
testimony and to the opportunity to question the witnesses.
The Chairman. Senator Murkowski, thank you very much. I
appreciate your service as Acting Vice Chair. As we have said
previously, all of us continue to miss and will miss our late
colleague, Senator Craig Thomas, the former Vice Chair, but I
am very pleased that we have an Acting Vice Chair that has a
background on Native American issues and she has a very special
interest with respect to Alaska Natives. So I think this will
be a real contribution to our Committee as well.
Because we have a vote that will occur about 11 o'clock,
and if we break then, it will be a rather lengthy break because
this is a consequential vote that is going to go on for some
while, what I am going to do is ask the witnesses to adhere to
the 5-minute limit. What we do, as you know, for our Committee
witnesses as a routine matter at every hearing is say that your
entire statement will be made a part of the record, and we ask
that you summarize.
I am going to ask the first two witnesses, the Honorable
Philip Hogen, Chairman of the National Indian Gaming
Commission, and Dean Shelton, Chairman of the California
Gambling Control Commission, who is testifying on behalf of
Governor Arnold Schwarzenegger, I am going to ask you to
testify first.
Then before we ask questions, with the permission of
Senator Murkowski, I am going to ask the three additional
witnesses, and one of our four witnesses has canceled because
of an airplane problem, to come forward and provide their
testimony, following which I would like to have all five at the
table so that we may ask questions of all of the witnesses.
Perhaps we will complete the hearing by 11 o'clock. My hope is
that that will be the case.
We have trap doors under the witness chairs, and I have a
button.
[Laughter.]
The Chairman. I have a button that I am able to push after
5 minutes. Mr. Hogen if you will keep that in mind.
[Laughter.]
The Chairman. Let me be serious and thank you for your
chairmanship of the National Indian Gaming Commission. We
appreciate that you have testified here a good number of times.
We appreciate your coming today. You may proceed.
STATEMENT OF PHILIP N. HOGEN, CHAIRMAN, NATIONAL INDIAN GAMING
COMMISSION
Mr. Hogen. Good morning and thank you, Chairman Dorgan and
Senator Murkowski. I bring you greetings on behalf of the
National Indian Gaming Commission. Commissioner Choney is out
in Oklahoma today. Commissioner DesRosiers is meeting with our
Tribal Advisory Committee working on minimum internal control
standards out at a meeting in Dallas. So they can't be here
today.
For the most part, I think regulators, like children, ought
to be seen and not heard. But nevertheless, I am here again and
I may be sounding like a broken record because I have been here
a number of times talking about a similar concern, but it may
be a little more shrill today and a little more urgent.
I think much of what I want to say will be echoed by the
tribes. That is, while IGRA, the Indian Gaming Regulatory Act,
was an intrusion into tribal sovereignty, that tribal
sovereignty for the most part is still intact, and tribes ought
to fight to protect that and ward off needless intrusions into
sovereignty.
IGRA intended that the tribes be the primary regulators of
Indian gaming, and they are. They are spending significant
dollars providing for this regulation, not just the regulation
they do, but reimbursing States for the role they play under
compacts and being the sole funder of the National Indian
Gaming Commission.
Most tribes are desperate for dollars to fund their
programs and meet the needs of their tribal members. And so
tribal gaming regulation that they pay for needs to be
efficient, and we will strive to help them do that. I think
overall the quality of tribal gaming regulation is very good. I
think where I may differ from some of my tribal counterparts is
whether and to what extent the overall integrity of regulation
or tribal gaming is enhanced by having an outside, perhaps more
objective party, participate in that regulation.
When there is unity between the ownership and the
regulation of a gambling operation, I think there is some cause
for concern. When the Indian Gaming Regulatory Act was written
back in 1988, Bingo was the primary vehicle. NIGC was given a
role with respect to the regulation of it. But as it turned
out, what developed in terms of the Indian gaming industry is
most of it is now casino gaming, Class III gaming. There is a
role pursuant to the compact process for State participation in
that regulation.
However, that State participation is very uneven. That is,
there are places where States intensely participate, spend a
lot of money, the tribes' money, participating in the
regulation pursuant to the compacts, and other places where the
States really didn't show up. There are a number of reasons for
that. I think primarily the reason is when it got started, the
States really had no experience in the regulation of casino
gaming. There were places they did, in Nevada and New Jersey,
but back in 1988, most States didn't have casino gaming.
Now, that has changed over the years, but the State
regulatory role has not caught up and in many cases those
tribal-State compacts are carved in stone. Some of them are
written in perpetuity and the State can't change their role.
So it was in that environment back in the 1990s when there
was this tremendous growth of Indian gaming, that the National
Indian Gaming Commission saw fit to draft minimum internal
control standards, which we have done. They gave us the
yardstick with which to measure the performance in the
regulation of tribal gaming in Class II and Class III, and a
rulebook the tribes could play by. Under that structure, Indian
gaming grew to over a $25 billion a year industry, as the
numbers were reported last year.
So I think there is still a need for a strong uniform set
of Federal standards to govern or help govern this major part
of tribal gaming regulation. The Colorado River Indian Tribes,
the CRIT decision, took that tool away from the National Indian
Gaming Commission, and I think we need it back. I don't think
the system was broken. I don't disagree that the court made a
wise decision, but the thing is, what was kind of on the
drawing board I think changed.
Now, we have a huge Class III casino gaming industry out
there, and in many cases the States are not equipped or are not
inclined to participate, and it is useful to have somebody
else, to wit, the National Indian Gaming Commission, there to
give validity to that good job that the tribal gaming
commissions do.
When we find ourselves in different models, we tailor our
involvement. That is, in Arizona and Washington State, where
there is great intensive State participation in the regulation,
we are less involved in those kinds of things.
Now, it is said that there are three levels of regulation
and there are. This chart that we have over here, and maybe Joe
you can put that up, shows the dollars that tribes spend on
this. You can see that of course the vast majority of the $400
million the tribes spend to regulate is for their own primary
tribal regulation. And then they spend about $70 million
reimbursing States for what they do. We are there on the top,
$12 million in the year that that was reported. So we are
hardly big enough to be dangerous, but we do play a significant
role. We just validate that good job, and where there are soft
spots, where there are weaknesses, we step in and play that
role.
So if a tribe is doing a great job, and the State is
helping, that is great. But if down the street in the next
State, some scandal occurs, it is going to affect all of the
Indian gaming and that is where we give them some insurance.
Now, section two of the draft legislation would in effect
restore what we were doing from 1999 to 2006, and we are very
supportive of section two.
Section three would create this Committee to, in effect,
permit States and tribes to opt out if they have an arrangement
that would satisfactorily address that, but I think there are
some concerns about the way it is written. We already tailor
our role with respect to the State involvement. We have a lot
of other Class III duties like approving ordinances, monitoring
use of gaming revenue. We don't know how this section would
affect that. We don't really know what that committee would
write. Would they write their own minimum internal control
standards or what?
So we think we need that authority back. The industry will
be stronger if we get it. But in terms of having that committee
there, we would like an opportunity to discuss that. Tribal
sovereignty is the strongest today as it has been in 100 years,
primarily because of Indian gaming. We have been part of the
reason that occurred because of the confidence the public has
in the gaming, and we want to keep it that way if we can.
Thank you.
[The prepared statement of Mr. Hogen follows:]
Prepared Statement of Philip N. Hogen, Chairman, National Indian Gaming
Commission
Good morning Chairman Dorgan 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.
Thank you for inviting me to discuss the draft legislation
regarding the regulation of Class III gaming. I would like to offer
some preliminary thoughts about it, and as you will see, those thoughts
are informed by the role NIGC plays in the regulation of Class III
gaming and the impact of the Colorado River Indian Tribes decision on
NIGC's regulation of the Indian gaming industry.
The NIGC strongly supports Section 2 of the bill, which clarifies
NIGC's regulatory authority over Class III gaming. In addition, NIGC
has some concerns about Section 3 of the bill, which sets up a new
mechanism for the regulation of Class III gaming. I must emphasize that
those concerns are preliminary as the Commission is still reviewing and
analyzing the draft. We stand ready to work with the Committee and the
Committee staff to further review this concept and to best produce an
effective structure to insure the continued integrity of the Indian
gaming industry and its regulation.
The Draft Legislation
The draft legislation contains three short sections. The first
simply names the act. The second section is what we have come,
internally, to call a ``CRIT fix.'' This refers to a recent decision by
the United States Court of Appeals for the District of Columbia Circuit
in Colorado River Indian Tribes v. National Indian Gaming Commission,
466 F.3d 134 (D.C. Dir. 2006). The second section would clarify that
NIGC generally has the same oversight authority over Class III gaming
that it has over Class II gaming and specifically that it has authority
to issue and enforce MICS for Class III gaming operations.
The third and final section of the proposed legislation provides an
alternative to NIGC regulation over some parts of Class III gaming. A
``Regulatory Committee'' appointed by the Secretary of the Interior
would draft ``minimum standards'' for the regulation of Class III
gaming. If NIGC then certifies that the regulatory standards in a
tribal-state gaming compact meet or exceed those ``minimum standards,''
this ``shall preempt the regulation of Class III gaming by the
Commission'' at the operation that is the subject of the compact.
As to Section 3, the Commission has not yet fully analyzed its
provisions, but I have a few preliminary observations. We will send you
a further and more complete analysis shortly.
I am aware of the appropriate concern that tribes and states may
have regarding how far NIGC might extend its oversight into Class III
gaming activities if the changes proposed in Sections 1 and 2 of the
draft legislation are enacted. I believe that the ``Class III
Regulatory Committee'' created by Section 3 of the draft legislation is
there, in part, to address this concern. The Committee would identify
criteria that tribal-state compacts could meet and thus preclude NIGC's
further participation in the oversight of that tribe's Class III
gaming.
First, I think that history and past practice demonstrates that
NIGC has always been careful to tailor its oversight of compacted
gaming to complement, not duplicate, the regulation that compacts
provide. As noted above, there is much diversity among compacts, and no
doubt as future compacts are written, they too will vary from those now
in effect.
NIGC is a relatively small organization, and the depth and breadth
of Indian gaming already tax its resources. Thus, where adequate
oversight arrangements are addressed and implemented by compact, the
Commission is careful not to replicate them. This practice saves budget
dollars for the Commission and of course saves dollars for the tribes
whose fees ultimately fund the Commission's efforts.
Second, history has revealed that in a number of instances, what is
provided for in the compacts (in many cases in permissive rather than
mandatory form) by way of a State oversight role is implemented only
minimally, if at all. In those instances, NIGC has found it appropriate
to be more engaged than it otherwise would. Were Section 3 of the
proposed legislation enacted, it is possible that standards written by
the Regulatory Committee could be met in approved compact language, but
if those standards are not implemented, a serious regulatory oversight
vacuum would develop, thereby impairing the integrity of the compacted
operation.
Third and finally, IGRA tasks NIGC with many regulatory tasks for
Class III gaming that are wholly independent from the NIGC MICS. These
include:
Approve and enforce provisions of Class III gaming
ordinances.
Approve and ensure compliance with Class III management
contracts.
Ensure that Class III gaming is conducted in conformance
with a compact.
Ensure that Class III gaming is occurring on Indian lands.
Ensure that net gaming revenues are used for the purposes
outlined in IGRA.
Ensure that tribal revenue allocation plans are followed.
Ensure that tribes have the sole proprietary interest in
their gaming activity.
Ensure that tribes provide annual audits to the NIGC.
Ensure that tribes issue facility licenses for their gaming
facilities.
Ensure that gaming facilities are constructed and operated
in a manner that adequately protects the environment, public
health and safety.
Ensure that background investigations are conducted on
primary management officials and key employees of gaming
operations.
Presumably there is not an intention in the draft legislation to
displace NIGC in those areas, but if the concept of a Regulatory
Committee remains in the legislation, clarity should be brought to this
area.
Draft Legislation Sec. 2, CRIT fix
As to Section 2, the need for a CRIT solution is paramount for the
NIGC. I have testified to the facts and figures many times before your
Committee. Recently, I testified before the California General Assembly
Government Organization Committee on the need for MICS in an effective
regulatory regime.
The battle in California over the need for MICS in their new
compacts highlights the importance of the Federal role in a balanced
approach to the regulation of Indian gaming.
IGRA envisioned a three legged stool, where balance depended upon
all three legs. With the NIGC leg now off the stool, the imbalance has
the very real prospect of upsetting the gains gaming has made for
Indian people.
In my view, what is at stake is the integrity of Indian gaming.
This is not meant to criticize either the tribes or the states. Rather,
it is a statement of the obvious. Gaming depends on the public
perception and belief in the integrity of operations they choose to
patronize. A balanced regulatory approach includes: (l) tribes as the
primary regulator with the day-to-day responsibilities and heavy
lifting; (2) states having whatever role is provided in the tribal-
state compact, usually oversight insuring state policy and applicable
laws are adhered to as well as assuring that any revenue sharing
payments agreed to are properly calculated and made; and (3) NIGC
having the role of making sure that the overall regulation is
consistent and fair. Consistent, fair and stable regulation and
oversight will continue to foster the growth of Indian gaming.
The model envisioned by IGRA worked for 18 years producing $25
billion in gaming revenue in 2006. The NIGC has the advantage of seeing
Indian gaming all over the country enabling it to spot trends and react
to negatives in ways that tribes and states are not usually equipped to
do. Further, the NIGC provides a clearinghouse for vital information
sharing between the three parties and other stakeholders, such as law
enforcement and public safety agencies.
It is the combination of the three that provides the balanced
approach that has allowed Indian gaming to succeed and thrive. The
proposed legislation in Section 2 addresses this concern by clearly
giving the NIGC authority to promulgate and enforce MICS for Class III
gaming.
As background about the CRIT case, in early 2001, NIGC attempted to
audit a Class II and III gaming operation owned by the Colorado River
Indian Tribes (CRIT). NIGC was looking to check compliance with minimum
internal control standards or ``MICS,'' 25. C.F.R. Part 542.
The MICS provide, in considerable detail, minimum standards that
tribes must follow when conducting Class II and III gaming. They are
intended to embody accepted practices of the gaming industry. To choose
a few of many possible examples, the MICS prescribe methods for
removing money from gaming machines and gaming tables and counting it
so as best to prevent theft; they prescribe methods 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 1 is a copy of the MICS table
of contents, which provides a more detailed overview of their
comprehensive scope. More than this, though, the MICS attempt to embody
overall controls that reasonably assure gaming transactions are
appropriately authorized, recognized and recorded. They thereby assure
the integrity of games and safeguard tribal assets, and they do so
without displacing internal control requirements that tribes and states
have negotiated into their compacts. In the event of a direct conflict
between the terms of a compact and the MICS, the MICS specifically
state that it is the compact terms that prevail and bind the operation.
In any event, CRIT refused to give NIGC access to its Class III
gaming records. The NIGC Chairman responded with a notice of violation
and civil fine. CRIT appealed to the full Commission, which upheld the
Chairman's actions. On appeal, the District Court for the District of
Columbia granted summary judgment in favor of CRIT, finding that IGRA
does not confer upon NIGC the authority to issue or enforce MICS for
Class III gaming. The District Court found that while IGRA grants NIGC
authority over certain aspects of Class III gaming, MICS are not among
them.
On October 20, 2006, the U.S. Court of Appeals for the District of
Columbia affirmed the District Court. Though some read the CRIT
decision to say that the NIGC has no authority over Class III gaming,
the actual holding was narrow: Congress did not give the NIGC the
authority to promulgate minimum internal control standards for Class
III gaming.
Background
I would like to attempt to explain, in somewhat more detail, my
position through the history of the development and implementation of
the regulation of this segment of the Indian gaming industry; the tools
NIGC has developed and used over the years in which Class III gaming
has grown to its present size; how the aforementioned court ruling has
had a significant impact on this regulation; and how I think
legislation might help insure that the integrity in the operation and
regulation of Class III gaming, which has permitted it to become so
successful, might be best maintained. As NIGC recently reported, in
2006, tribal gaming generated over $25 billion in gross gaming
revenues. While precise numbers are not required in this connection,
NIGC and those who closely watch the Indian gaming industry estimate
that nearly 90 percent of this revenue is generated by compacted, Class
III gaming--far and away the dominant means by which tribes generate
gaming revenues.
History of IGRA
It is the NIGC's belief that in IGRA, Congress intended that the
Federal entity established to provide oversight of Indian gaming would
have an oversight role with respect to the dominant form of gaming in
the industry, whether bingo in 1988 or Class III gaming now. 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 likely will not.
When the NIGC came on the scene in October 1988, 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 about gaming and to advance IGRA's
overriding purposes. These are to ensure that tribal gaming promotes
tribal economic development, self-sufficiency and strong tribal
governments; to shield gaming from organized crime and other corrupting
influences; to ensure that the tribes are the primary beneficiaries of
their gaming operations; and to ensure that gaming is 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.
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 potentialities for criminal involvement 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.
Regulation of Tribal Gaming
IGRA mandates that tribes may conduct Class III gaming only in
states where such activity is permissible under state law and where the
tribes enter into compacts with states relating to this activity, which
compacts require approval of 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. 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.
In 1987, 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. At that time, 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 southeastern 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 when IGRA was adopted in 1988, 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 non-compacted,
gaming. After 1988, when tribes began negotiating compacts for casinos
with slot machines and banked card 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 those earlier compacts, some of which
were entered into in perpetuity, do not. Further, the dispute
resolution provisions to resolve issues identified by a State's
oversight authority 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 2 is a chart summarizing the internal control and
dispute resolution provisions of the compacts in these 22 states.
Typically, the regulatory role a particular state undertakes in its
compact was taken from and modeled on that state's experience with the
regulation of its own legalized gaming at the time the compact was
negotiated. Where such states develop effective regulatory programs,
the need for NIGC oversight is greatly reduced. For example, in states
where the tribal-state compacts call for regular state oversight,
institute technical standards and testing protocols for gaming machines
and establish internal control requirements, the NIGC's oversight role
will be limited. This is the case, for example, in Arizona. Some states
such as Michigan and North Dakota, however, have assumed a minimal
regulatory role. In some cases, compacts have become little more than a
revenue sharing agreement between the state and the tribe.
Consequently, under circumstances where the states do not have a
significant regulatory presence, the NIGC must be in place to undertake
a broader range of oversight and enforcement activities.
The History of MICS
The diversity of tribal gaming operations is great. Both rural
weekly bingo games and the largest casinos in the world are operated by
Indian tribes under IGRA. As the industry grew from its modest
beginnings, NIGC needed the appropriate tools to implement its
oversight responsibilities. What the Commission 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.
During the early stages of the dramatic growth of the Indian gaming
industry, 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.
Using this model as a starting point, in 1996, the NIGC assembled a
tribal advisory committee to assist us in drafting minimum internal
control standards applicable to Class II and Class III gaming. These
were first proposed on August 11, 1998, and eventually became effective
on February 4, 1999. With the adoption of the NIGC's MICS, all tribes
were required to meet or exceed the standards therein, and the vast
majority of the tribes acted to do so. NIGC's approach during that time
was to assist and educate tribes in this regard, not to cite violations
and penalize. When shortcomings were encountered by NIGC at tribal
operations, NIGC's assistance was offered and grace periods were
established to permit compliance.
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 MICS were embraced by state regulators, several of whom adopted or
incorporated NIGC MICS, or compliance therewith, in their compacts.
For 6 years, NIGC oversight of Class II and Class III gaming with
the use of minimum internal control standards went quite smoothly. When
necessary, NIGC revised its MICS, and it employed the assistance of
tribal advisory committees in doing so. At the time of adoption, of
course, many tribal gaming operations and tribal regulatory authorities
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.
NIGC Enforcement of MICS
NIGC employed three methods of monitoring tribal compliance with
its MICS. First, the MICS required the tribe to engage an independent
Certified Pubic Accountant to perform what are called ``agreed upon
procedures'' to evaluate the gaming operation's compliance with the
regulations. The NIGC recommended testing criteria to be used by the
external accountant. The results were provided to the tribe and NIGC
within 120 days of the gaming operation's fiscal year end. Next, on a
regular basis, NIGC investigators and auditors made site visits to
tribal gaming facilities and spot checked tribal compliance. Finally,
NIGC auditors conducted a comprehensive MICS audit of a number of
tribal facilities each year. Typically those audits identified
instances wherein tribes are not in compliance with specific minimum
internal control standards. Almost always, the non-compliance was then
successfully resolved by the tribe. As a result, NIGC was pleased that
tribes have a stronger regulatory structure, and tribes were pleased
that they have plugged gaps 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 issued a closure order or
taken an enforcement action resulting in a fine for tribal non-
compliance with NIGC MICS. It is worth noting that the NIGC recognizes
that its success in ensuring tribal gaming operations function in a
manner sufficient to safeguard the interests of the stakeholders
depends upon the tribes' voluntary compliance. Consequently, the
ultimate objective of our audits was to persuade.
Although drawing conclusions based solely on the number of MICS
compliance exceptions detected in an audit can be misleading, a look at
some of our numbers in this regard can be instructive. Audit reports
have reflected as few as ten findings and others over a hundred.
However, of the 51 comprehensive audits conducted, only a few have not
revealed material internal control weakness. Attached as Exhibit 3 is a
table summarizing the number and kinds of MICS violations found from
January 2001 through February 2006. Attached as well are representative
MICS compliance audit reports.
MICS Compliance
The oversight responsibilities of the NIGC give it a unique view
from which to report the variety of challenges confronting Indian
gaming in terms of regulatory violations and enforcement actions taken.
As said above, the primary responsibility for meeting these challenges
is and ought to be on the shoulders of the tribes. The NIGC encourages
strong tribal regulation and applauds the resources that Indian gaming
currently applies to regulation and other oversight activities. As
Indian gaming continues to grow and the sophistication of operations
expands and as the levels of the revenues increase accordingly,
regulation must stay ahead of this growth if the integrity of the
industry is to be protected. I have attached as Exhibits 4 and 5 a
timeline and growth chart depicting the growth of tribal gaming
operations and revenues, the growth of the National Indian Gaming
Commission's staff, and some of the benchmark developments that have
occurred during this history. It is in this context that the following
examples of the numbers and types of MICS violations the NIGC has
uncovered are offered.
The NIGC has compiled the following review of Minimum Internal
Control Standards (``MICS'') Compliance Audits--January 2000 to May
2007. The number of tribal gaming operations is taken from those
reporting financial information to NIGC.
------------------------------------------------------------------------
Number of NIGC Total MICS Average MICS
Gaming Operations Audits Violations Violations
------------------------------------------------------------------------
367 51 3,335 65
------------------------------------------------------------------------
Findings common to most 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 player
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.
Although exact data is not available regarding losses to tribal
gaming operations resulting from the above control deficiencies, based
on the past experience of commercial gaming, we can conclude the amount
to be in the millions each year. These violations show that certain
tribes are not adequately protecting their gaming assets.
In California, for example, between 2002 and 2006, the NIGC
conducted 8 audits that produced findings indicating that one gaming
operation possessed an exemplary system of internal controls, four were
reasonably effective but had multiple material control weaknesses and
three had a system of internal controls considered to be dysfunctional.
Breakdown in Tribal Regulation
Beyond the MICS, the NIGC oversight has uncovered serious
breakdowns in regulation at Class II and Class III tribal gaming
operations throughout the country. This is true even where there is
apparent adequate tribal regulation and control in place.
Examples of instances where tribal gaming operational and
regulatory efforts have been found deficient include the following:
During the course of investigations and MICS compliance
audits, NIGC investigators and auditors discovered that an
extraordinary amount of money was flowing through two Class III
off track betting (OTB) operations on two reservations. The
amount of money was so high in comparison to the amount that
could reasonably flow through such OTB operations that our
investigators immediately suspected money laundering or similar
activities. These two operations were the first referrals to
the FBI's working group in which we participate. The FBI
investigations found that these operations were part of a wide
spread network of such operations with organized crime links
and several Federal criminal law violations. Unfortunately, the
tribes' gaming management allowed them to gain access and
operate as part of their Class III tribal gaming operations,
and the tribes' gaming regulators completely failed to take any
action against these illegal OTB operations.
There are also examples where tribes continued to operate,
without modification or correction, a gaming facility that
permitted gaming activities to be conducted by companies owned
by individuals with known criminal associations; distributed
large amounts of gaming revenues without requisite approved
revenue allocation plans or the financial controls necessary to
account for them; knowingly operated gaming machines that were
plainly illegal; and appointed gaming commissioners and
regulatory employees and licensed and employed gaming employees
whose criminal histories indicated that they were unsuitable
and serious risks to the tribes' gaming enterprise. An accurate
assessment of Indian gaming regulation must also reflect the
unfortunate examples of tribes that are so politically divided
that they are unable to adequately regulate their gaming
activities, as well as instances where tribal officials have
personally benefited from gaming revenues at the expense of the
tribe itself. In addition, there have been many instances where
apparent conflicts of interest have undermined the integrity
and effectiveness of tribal gaming regulation. In all of these
troubling situations, it was necessary for the NIGC to step in
to address the problems. The above examples illustrate that
Indian gaming has many regulatory challenges that without
comprehensive, well informed oversight and enforcement the
integrity of the industry would be in jeopardy.
The NIGC has compiled a list of potential risks to Indian gaming if
strong oversight is not maintained:
Risk of not detecting employee embezzlement;
Risk of not detecting manipulations and/or theft from gaming
machines;
Risk of not detecting criminal activity or the presence of
organized crime influence;
Risk of not detecting misuse of gaming revenues by tribal
officials;
Inability to effectively determine whether third parties are
managing the gaming facility without an approved contract;
Inability to effectively determine whether imminent jeopardy
exists with regard to the safety of employees and patrons of
the gaming establishment;
Inability to effectively determine whether individuals other
than the recognized tribal government are asserting authority
over the gaming operation;
Inability to effectively determine whether outside investors
have unduly influenced tribal decision-making or made improper
payments to tribal officials;
Inability to effectively perform operational audits, which
track the movement of money throughout the casino;
Risk that tribal surveillance and gaming commission funding
could decrease rapidly, as these are expensive and are not seen
as increasing the casino bottom line.
Potential Impact of CRIT Decision
Finally, I would like once again to return the significance of the
CRIT decision and the importance that NIGC places upon a CRIT fix.
IGRA, in effect, anticipated the wide range of regulatory structures in
the various tribal-state compacts through the establishment of the NIGC
as an independent Federal regulatory authority for gaming on Indian
lands. With respect to NIGC's regulatory oversight responsibilities,
IGRA authorized the Commission to penalize violations of the Act,
violations of the Commission's own regulations, and violations of the
Commission-approved tribal gaming ordinances by the way of imposition
of civil fines and orders for closure of tribal gaming facilities.
A luxury that tribal gaming regulators have, when contrasted to the
NIGC and state regulators, is that ordinarily their regulatory
responsibility is confined to one, or in some cases several, tribal
gaming facilities. The laser-focus this permits undoubtedly has
advantages. However, states, and NIGC, have an advantage not permitted
in such an arrangement, and that is ability to look at a broad range of
gaming operations, permitting them to contrast and compare
methodologies and trends, and perhaps thereby identifying issues that
would not be apparent to a regulator with primary exposure to only one
operation. (Such operation being owned by the entity which controls the
purse strings for the tribal regulatory body itself.) Thus, the
combined approach--tribes having the heavy lifting--the all day, every
day responsibility and the NIGC and the states having a less immediate
but independent oversight perspective, seeing multiple operations,
affords an important perspective which would otherwise not be
available. In an arrangement where states do not bring this perspective
to the arrangement--or where NIGC cannot bring it, this synergy
envisioned by the authors of IGRA is lost.
More specifically, since the Colorado River Indian Tribes decision,
the NIGC has discontinued the practice of Class III gaming reviews
conducted by our 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 May of 2007, it is the clarification that NIGC has a role
in the regulation of Class III gaming.
Not everyone agrees, of course. Some tribes argue that the CRIT
decision should be read broadly to eliminate any NIGC authority over
Class III gaming. This interpretation may impact on the ability ofthe
NIGC to enforce its regulations as follows:
------------------------------------------------------------------------
Activity Impact
------------------------------------------------------------------------
Bingo Unchanged
Pull-Tabs Unchanged
Card Games Unchanged
Keno No enforcement authority
Pari-Mutuel Wagering No enforcement authority
Table Games No enforcement authority
Gaming Machines No enforcement authority
Cage Scope limited--Bingo/Pull--Tab/Card
Game Inventory Items
Credit Scope limited--Bingo/Pull--Tab/Card
Game Inventory Items
Information Technology Scope limited--Bingo/Pull--Tab/Card
Game Related Software and Hardware
Complimentary Services and Items Scope limited--Bingo/Pull--Tab/Card
Game Transactions
Drop and Count Scope limited--Bingo/Pull--Tab/Card
Game Cash, Cash Equivalents and
Documents
Surveillance Scope limited--Bingo/Pull--Tab/Card
Game Areas
Internal Audit Scope limited--Bingo/Pull--Tab/Card
Game Transactions
------------------------------------------------------------------------
One of the daunting challenges facing the NIGC is answering the
question: ``Where does the Class II end and the Class III begin? '' In
most Indian gaming establishments there is no segregation of internal
controls between Class II and Class III. We can audit Class II games
without auditing Class III, for instance bingo versus blackjack.
However, when it comes to comps and surveillance and other more general
areas it gets tricky. In most instances, the proceeds are combined or
commingled and auditors then can't look at one revenue stream without
observing the other. This gray area has the potential to hinder our
mission.
The above examples illustrate that the regulation of Indian gaming
is a complicated matter. At the tribal level it can often be impacted
by political discord that may lead to uneven enforcement or at times
little effect regulation regardless of overall intention. It is
nevertheless clear that tribes have a very strong interest in assuring
that their operations are adequately regulated.
Challenges to the Independence of Tribal Regulation
That said, some gaming commissions are not sufficiently independent
of the tribal governments or the managers that operate the gaming
operation. In this connection, the history of Nevada's regulatory
structure may be instructive. Effective gaming regulatory authority in
Nevada was 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 gaming regulatory authority did oversight of the industry
have an effective champion. Beginning in the late 70s, significant
progress was made into the identification and removal of individuals
and entities intent upon exploitation and corruption. Although many
factors contributed to corruptive influences in Nevada, one aspect
stood out. At the time gaming was legalized in Nevada, the state and
local governments were in a rather deprived financial position
therefore the governmental agencies charged with regulatory oversight
were also dependent, albeit desperate, for the potential revenues this
growing industry could provide. The Nevada experience demonstrates a
critical policy question when gaming regulations are considered: that
as the government charged with regulation becomes increasingly
dependent upon the profitability of the industry being regulated, the
effectiveness of the regulatory effort may diminish.
Generally, in tribal gaming, the tribal council is the ultimate
governmental authority responsible for ensuring the gaming operation
generates the greatest return on investment and that, in doing so, is
effectively regulated. Such an organizational structure has challenges
because the motivations lack congruity. Inevitably, from time to time,
one objective may be foregone in pursuit of the other and, many times
it is the oversight function. Although some tribes have recognized the
organizational weakness and have installed procedures to counteract its
effect, others have not and, as a result, the effectiveness of their
regulatory processes is significantly diminished.
In sum, the result of the CRIT decision is that Class III gaming is
left with tribal-state compacts as the remaining vehicle for oversight
and enforcement. The information I have attempted to present here
shows, I believe, many of the structural weaknesses of that situation.
While NIGC has no role, compacts are lacking in the area of
enforcement. 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 two states, Arizona and
Washington, the tribal-state compacts call for regular state oversight,
institute technical standards and testing protocols for gaming
machines, and establish internal control requirements. Most states,
however, have assumed a minimal regulatory role. In many cases,
compacts have become little more than a revenue sharing agreement
between the state and the Tribe. The absence of the NIGC in the
regulation of Class III gaming removes an essential component of
oversight and enforcement.
The Chairman. Chairman Hogen, thank you very much for
summarizing. We appreciate your testimony.
Next, we will hear from the Chairman of the California
Gambling Control Commission, Mr. Dean Shelton, who is
appearing, as I understand it, on behalf of Governor Arnold
Schwarzenegger.
STATEMENT OF DEAN SHELTON, CHAIRMAN, CALIFORNIA GAMBLING
CONTROL COMMISSION; ON BEHALF OF
GOVERNOR ARNOLD SCHWARZENEGGER
Mr. Shelton. Yes. I will read a short statement. I am sure
we will follow it up with a lengthier written statement in the
2-week period.
Good morning, Mr. Chairman and Vice Chairperson, my name is
Dean Shelton. I am the Chairman of the California Gambling
Control Commission. Governor Arnold Schwarzenegger has
requested I appear on his behalf in support of language in the
draft bill that clarifies the National Indian Gaming
Commission's authority over Class III minimum control
standards.
California is unique in that it has 107 federally
recognized Indian tribes. At present, 66 of those tribes have
tribal-State gaming compacts. There are 57 tribal casinos in
operation in California and several more casinos are in the
planning and development stage.
The Gambling Control Commission has responsibility of
oversight of tribal casinos to the extent authorized under the
tribal-State gaming compacts and performs fiduciary and audit
responsibilities associated with tribal gaming. Given the
number of gaming tribes and the scale of the tribal gaming
industry in California, this draft bill has a potential to
significantly impact our State.
Governor Schwarzenegger believes that NIGC should be
authorized to formally inspect and enforce the MICS, as they
have done in the past. His position is based on the belief that
strong State, Federal and tribal regulation and oversight of
Class III gaming best serves the public interest and serves the
goals of the Indian Gaming Regulatory Act. This three- prong
approach has worked well in our State, creating a good balance
among the three sovereign responsibilities for regulation and
oversight of tribal gaming. We would encourage and support
enhanced coordination and open lines of communication among all
of these regulators.
I personally have enjoyed a professional relationship with
Chairman Hogen. He has been most cooperative. His agency has
assisted us. We coordinate our activities and we don't trample
on one another. While we support language in the draft bill
that clarifies NIGC's authority with respect to Class III
gaming, we believe that section three of the proposed bill is
unnecessary. As we understand it, the proposed language would
authorize the commission to determine whether it should be
preempted from regulatory Class III gaming in the State based
on its review of regulatory activity under a tribal-State
compact.
This review would be based on the standards to be
established by a newly created Class III Regulatory Committee.
The Committee also would develop minimum standards for
regulations of Class III gaming. We see no need to develop this
additional layer of bureaucracy. We believe the NIGC has the
expertise to carry out its responsibilities and creation of the
committee is unnecessary at this time.
Additionally, given the number of gaming tribes in the
State of California, we believe there is more than enough room
for both Federal and State oversight of Class III gaming and
that preemption also is unnecessary. Our approach in California
has been to complement NIGC's activities, rather than duplicate
them.
We will continue that approach, and according to this
position, only section one and two of the draft bills should be
created at this time.
This is a short statement, and I will be available for
questions later as you have asked.
[The prepared statement of Mr. Shelton follows:]
Prepared Statement of Dean Shelton, Chairman, California Gambling
Control Commission; on behalf of Governor Arnold Schwarzenegger
Good morning Mr. Chairman and Members of the Committee. My name is
Dean Shelton and I am the Chairman of the California Gambling Control
Commission.
Governor Arnold Schwarzenegger has requested that I appear on his
behalf in support of language in the draft bill that clarifies the
National Indian Gaming Commission's authority over the Class III
Minimum Internal Control Standards or MICS.
California is unique in that it has 107 federally-recognized Indian
tribes. At present, 66 of those tribes have tribal-state gaming
compacts. There are 57 tribal casinos in operation in California and
several more casinos are in the planning and development stage. The
Gambling Control Commission has the responsibility of oversight of
tribal casinos to the extent authorized under the tribal-state gaming
compacts, and performs fiduciary and audit responsibilities associated
with tribal gaming.
Given the number of gaming tribes and the scale of the tribal
gaming industry in California, this draft bill has the potential to
significantly impact our state. Governor Schwarzenegger believes that
NICG should be authorized to formally inspect and enforce the MICS as
they have done in the past. His position is based on his belief that
strong state, Federal, and tribal regulation and oversight of class III
gaming best serves the public interest and furthers the goals of the
Indian Gaming Regulatory Act. This three-pronged approach has worked
well in our state, creating a good balance among the three sovereigns
responsible for regulation and oversight of tribal gaming. We would
encourage and support enhanced coordination and open lines of
communication among all of these regulators.
I personally have enjoyed a professional relationship with NIGC and
find Chairman Phil Hogan and his staff to be open and cooperative with
our commission. We believe that the past work of NIGC has helped
promote, and increase public confidence in, the integrity of gambling
on Indian land.
While we support language in the draft bill that clarifies NIGC's
authority with respect to Class III gaming, we believe that section 3
of the proposed bill is unnecessary. As we understand it, the proposed
language would authorize the Commission to determine whether it should
be preempted from regulating Class III gaming in a state based on its
review of the regulatory activity required under tribal-state compacts.
This review would be based on standards to be established by a newly
created Class III Regulatory Committee. The Committee also would
develop minimum standards for the regulation of Class III gaming.
We see no need to develop this additional layer of bureaucracy. We
believe NIGC has the expertise to carry out its responsibilities and
that creation of the committee is unnecessary. Additionally, given the
number of gaming tribes in the State of California, we believe there is
more than enough room for both Federal and state oversight of Class III
gaming and that preemption also is unnecessary. Our approach in
California has been to complement NIGC's activities, rather than
duplicate them, and we will continue to follow that approach.
Accordingly, it is our position that only sections 1 and 2 of the draft
bill should be enacted.
Thank you for the opportunity to speak today on this important
matter. I would be pleased to answer any questions you may have.
The Chairman. Mr. Shelton, thank you very much for coming
from California to give us your views.
Mr. Shelton. Our pleasure.
The Chairman. What I would like to do now is to call the
additional witnesses to the table. Chairman Hogen and Chairman
Shelton, if you would remain available, then I would have you
come back and we will have questions for all of the witnesses.
The next panel will be the Honorable Myra Pearson, the
Chairman of the Great Plains Indian Gaming Association, the
Chair of the Spirit Lake Tribe in Fort Totten, North Dakota,
accompanied by Kurt Luger, Executive Director of the Great
Plains Indian Gaming Association, Bismarck, North Dakota; the
Honorable W. Ron Allen, Chairman, Washington Indian Gaming
Association, and Chairman of the Jamestown S'Klallam Tribe in
the State of Washington; the Honorable Valerie Welsh-Tahbo,
Council Member of the Colorado River Indian Tribal Council at
Parker, Arizona.
I appreciate very much all of you being here. I did mention
that Tracy Burris, who is the Commissioner of the Chickasaw
Nation Gaming Commission in Norman, Oklahoma had an airplane
problem this morning and is not able to be here for this
testimony.
We have been joined by our colleague from Hawaii, the
former Chairman of this Committee for many, many years, Senator
Inouye. Senator Inouye, would you like to make any comments?
Senator Inouye. No, thank you, Mr. Chairman.
The Chairman. I think everyone understands the contribution
Senator Inouye has made over so many decades on this Committee,
and we appreciate very much your being here, Senator.
Why don't we begin with you, Myra Pearson, who is the
Chairman of the Great Plains Indian Gaming Association. Welcome
and why don't you proceed? We would ask what we have asked of
the previous panel, if you would be willing to summarize in
about 5 minutes. We have all had the opportunity to read the
entire statement and all of the entire statement will be part
of the permanent record.
STATEMENT OF MYRA PEARSON, CHAIRWOMAN, GREAT PLAINS INDIAN
GAMING ASSOCIATION; CHAIRWOMAN,
SPIRIT LAKE SIOUX TRIBE; ACCOMPANIED BY KURT LUGER, EXECUTIVE
DIRECTOR, GREAT PLAINS INDIAN GAMING
ASSOCIATION
Ms. Pearson. Thank you and good morning, Chairman Dorgan,
Vice Chairwoman Murkowski, and Members of the Committee.
My name is Myra Pearson and I am Chairwoman for the Spirit
Lake Sioux Tribe in North Dakota, and I am also the Chairperson
for the Great Plains Indian Gaming Association, which includes
28 Indian nations from North and South Dakota, Nebraska, Iowa
and Kansas. Accompanying me this morning is Kurt Luger,
Executive Director of the Great Plains Indian Gaming
Association, and a member of the Cheyenne River Sioux Tribe,
who has a family home on the Standing Rock Indian Reservation
in North Dakota.
Before I begin my comments, I would like to take a few
seconds to recognize the troops and their families in the war,
who are currently fighting for our freedom. I want to express
my gratitude, and that comes from Indian Country, Senator.
Thank you for that.
The Chairman. Thank you very much.
Ms. Pearson. This morning, I am here to comment on the
discussion draft of a bill to amend IGRA. Before I comment on
the draft, I would first like to talk about Indian gaming and
what it is doing for the citizens of North Dakota. There is no
question that Indian gaming has had a significant and positive
impact on all the citizens of North Dakota. Tribal governments
have created 2,400 direct jobs through Indian gaming. These
jobs help families on reservations that face greater than 80
percent unemployment rates. While the majority of these jobs go
to tribal citizens, many help employ non-Indians living near
the reservations.
Tribal government payrolls contribute $121 million annually
to the North Dakota economy. Tribal government gaming
operations purchased over $40 million in goods and services in
North Dakota. Without these sales, the State of North Dakota
would lose $70 million of economic activity each year. The
total economic impact of the Indian gaming in the State since
1997 exceeds $1.2 billion.
These are only some of the reasons why the tribes of North
Dakota and throughout the Great Plains are opposed to amending
the Indian Gaming Regulatory Act. Now, I understand that the
primary purpose of this hearing is to address concerns with the
regulation of Indian gaming in light of the recent Colorado
River Indian Tribes decision.
Mr. Chairman, I want you to know that Indian tribes in
North Dakota and throughout the Nation are fully committed to
strong regulation. Our tribal leaders understand that we need
solid regulation to protect the government revenue that Indian
gaming provides. As you know, we run relatively modest
operations. However, in 2006 alone, tribal governments spent
$7.4 million on tribal and State regulation and employed more
than 325 tribal regulators and staff.
Our tribal regulators work hand in hand with State Attorney
Generals' offices to address Class III gaming regulatory
issues. Our compacts provide for a strong partnership between
the tribes and the States. Our tribe expressly adopted minimum
internal control standards through our tribal-State compacts,
which incorporate the NIGC MICS by reference.
The tribes in North Dakota have worked very hard to
preserve the relationship with the State and the State, for its
part, has worked in good faith with the tribes. As you will see
in our submitted testimony, Attorney General Stenjhem has
complimented the tribal governments on our record of strong
regulation and has cooperated with the tribal regulatory
agencies to apprehend and prosecute those who attempt to cheat
our casinos.
From our point of view, we don't see a need to amend IGRA.
Nothing changed after the CRIT decision with regard to
regulating Indian gaming in North Dakota. Regulation of Indian
gaming remains as strong as ever, not only in North Dakota, but
throughout the Great Plains region.
We believe that the Act is working as intended. However,
when we heard that the Committee was considering amending IGRA
to address the CRIT decision, we put it to a vote of our 28
member tribes. The Great Plains Indian Gaming Association met
in May of this year. The association passed a resolution
opposing any amendments to IGRA. We think that any NIGC issues
can be addressed through model tribal ordinance provisions
under existing law.
If this Committee moves forward, we will oppose any
legislation unless several conditions are met. Congress should
respect the existing framework of IGRA, tribal-State compacts,
and tribal ordinances established in regulatory rules for Class
III gaming, not Federal regulation. NIGC oversees tribal
enforcement of tribal ordinances, so any substantive standards
should be included in tribal ordinances.
Congress must guarantee protection of the integrity of
IGRA, and commit to moving legislation through regular order.
IGRA amendments must include provisions to address the Seminole
decision. We also request a provision to affirm Class II
technological aids and Congress should require NIGC to work
with tribes on a basis of government-to-government relations
and use negotiated rulemaking.
Finally, any amendments should grandfather existing tribal-
State compacts.
While we appreciate that the Committee has offered the bill
as a draft, in our view the bill does not promote strong tribal
government as IGRA does, because it relies on Federal
rulemaking and ignores tribal lawmaking. The existing tribal
ordinance process should be respected. NIGC approves our tribal
ordinances process as consistent with minimum Federal statutory
standards and retains authority to enforce against any
violations of IGRA, proper NIGC regulations, and tribal
ordinances.
Furthermore, the provision to address the Seminole case
falls far short of what is needed to restore the balance to the
compacting process. The discussion draft bill overturns the
existing tribal-State compact process by giving NIGC blanket
unchecked authority over all aspects of Class III gaming. This
unchecked authority will endanger the future of Indian gaming
under NIGC leadership. That doesn't honor the existing tribal-
State compact process and tribal ordinance process.
My second point in opposition to the draft is that it will
feed the Federal bureaucracy at the expense of local tribe and
State decisionmaking. The bill would create a new compact
committee within the Department of Interior and grant the NIGC
authority to approve regulatory provisions in tribal-State
compacts. This will further complicate the already burdensome
compacting process and it permits the NIGC to judge the reach
of its own jurisdiction. Under the provisions of the bill, NIGC
would never cede authority to State regulators and tribal
gaming commissions. It would keep its new Federal authority
across the board.
No other form of gaming in North Dakota is subject to
Federal agency regulation. Indian gaming is fully regulated.
Chairman Hogen testified before the California Assembly that
even in light of the CRIT decision, the NIGC has the authority
to regulate Class III gaming.
We ask that the Committee help us to look for opportunities
short of legislation to address NIGC concerns, and we are
willing to work cooperatively on model tribal ordinance
provisions that respects the existing statutory framework of
IGRA and honors the serious commitment that both States and
tribal governments have vested in the tribal-State compact
process.
In other words, please look to address any concerns within
the existing framework of IGRA. Congress could simply call upon
our tribal governments to maintain MICS in our tribal
ordinances. Indeed, we can do this on a voluntary government-
to-government basis. This would preserve tribal law-making
authority, create an objective statutory standard, and ensure
that tribal governments are not subjected to the whims of a
bureaucracy.
The Chairman. Are you nearly done? I have to ask that you
summarize.
Ms. Pearson. OK. I am going to jump right down to the
bottom.
In conclusion, I want to say that Indian gaming is doing
well. It is working and Indian gaming in North Dakota and
throughout the Great Plains is beginning to rebuild their
economies. It is doing something great for the Indian people
and we hope that we can see that continue.
Thank you very much for this opportunity, Senator Dorgan.
[The prepared statement of Ms. Pearson follows:]
Prepared Statement of Myra Pearson, Chairwoman, Great Plains Indian
Gaming Association; Chairwoman, Spirit Lake Sioux Tribe; accompanied by
Kurt Luger, Executive Director, Great Plains Indian Gaming Association
Introduction
Good Morning. Chairman Dorgan and Members of the Committee thank
you for inviting me to testify today concerning the regulation of
Indian gaming and the authority of NIGC to regulate Class III gaming.
My name is Myra Pearson and I am Chairwoman of the Spirit Lake
Sioux Tribe in North Dakota. I also serve as Chair of the Great Plains
Indian Gaming Association, which includes 28 Indian nations from North
and South Dakota, Nebraska, Iowa, and Kansas. We work closely with both
the National Indian Gaming Association and other regional Indian gaming
associations, including the Minnesota Indian Gaming Association.
I am accompanied by Kurt Luger, Executive Director of the Great
Plains Indian Gaming Association. Kurt is a member of the Cheyenne
River Sioux Tribe but he and his family maintain their home and ranch
on the Standing Rock Sioux Reservation in North Dakota. At Great Plains
Indian Gaming Association, his job is to work with our Member Tribes to
address challenges that we face in Indian gaming and to provide
training and technical assistance to our tribal government officials,
tribal gaming commissioners, gaming management and staff.
At the outset, let me say that Indian gaming is working in rural
areas of America. Indian tribes that faced 50, 60, and even 70 percent
unemployment are now generating jobs not only for their own tribal
members, but for neighboring non-Indians as well. I live and work in
North Dakota so I will use the North Dakota Tribes as a representative
example.
In North Dakota, Indian gaming has a significant economic impact.
Our tribal government gaming operations provide employment, essential
tribal government revenue that funds essential services and community
infrastructure, and generates much needed revenue for communities
statewide through the economic multiplier effect. Our Tribes have
created 2,400 direct, full-time jobs with pension and health care
benefits. The payroll from the gaming operations exceeds $39 million,
and approximately $30 million of that payroll goes to tribal members
who live in rural North Dakota. More than 70 percent of our gaming
employees are Native Americans and 40 percent of our employees were
formerly unemployed and survived on welfare.
Our tribal government payroll contributes $121 million annually to
the total economy of the state. Tribal government gaming operations
purchased over $40 million in goods and services within North Dakota.
Purchases were made in 93 communities throughout the state. Without
these sales, the state would lose $70 million of economic activity in
cities throughout the state. We have estimated our total economic
impact in the state since 1997 to have exceeded $1.2 billion.
In short, we believe that it is not necessary to give the NIGC a
new role under IGRA. They merely want to expand their agency authority,
when our tribal governments have already adopted either the MICS
standards through tribal ordinance, negotiated Tribal-State Compacts to
address these issues, or both. We believe the NIGC should sit down with
us and work out issues they have through model tribal ordinance
provisions because that is what the existing framework of IGRA calls
for. It is wrong to ask us to both negotiate a regulatory framework
with the state, which equals or exceeds state law requirements for
gaming, and then to add on a new layer of Federal bureaucracy on top of
that. We take our Tribal-State Compact requirements seriously and they
are working.
Indian Tribes in North Dakota
In North Dakota, 5 tribal governments operate Indian gaming
facilities: the Three Affiliated Tribes of Fort Berthold--Mandan,
Hidatsa, and Arikara; the Spirit Lake Sioux Tribe, the Turtle Mountain
Chippewa Tribe, the Standing Rock Sioux Tribe and the Sisseton-Wahpeton
Sioux Tribe. Both the Standing Rock Sioux Tribe's reservation and the
Sisseton-Wahpeton Sioux Tribe's reservation straddle the border with
South Dakota.
Three Affiliated Tribes. The Three Affiliated Tribes, Mandan,
Hidatsa, and Arikara, operate as a unified tribal government. These
Tribes have occupied the Missouri valley for hundreds and thousands of
years, planted corn, squash, and beans on the fertile flood plains, and
hunted buffalo and wild game. Living in stockaded villages, the Three
Affiliated Tribes were devastated by smallpox epidemics in 1792, 1836,
and 1837.
Early on, the Three Affiliated Tribes established friendly
relationships with the United States. They welcomed the Lewis and Clark
expedition into their villages and assisted them on their journey. In
1825, the Mandan, Hidatsa, and Arikara Tribes entered into Treaties of
Friendship and Trade with the United States, which states:
Henceforth, there shall be a firm and lasting peace between the
United States and the [Mandan, Hidatsa, and Arikara Tribes] . .
.. The United States . . . receive the [Tribes] into their
friendship and under their protection.
The United States' treaty pledges of protection forms the basis for
the Federal Indian trust responsibility. The traditional lands of the
Mandan, Hidatsa, and Arikara encompassed an area of 12 million acres
from eastern North Dakota to Montana and as far south as Nebraska and
Wyoming. The Fort Laramie Treaty of 1851, congressional acts and
executive orders reduced the Tribes' lands to 1,000,000 acres in
western North Dakota.
In the early 1950s, the Three Affiliated Tribes were asked to
undertake a tremendous sacrifice by allowing the United States to dam
the Missouri River and flood their reservation. The original tribal
headquarters was flooded and families were moved away from the fertile
Missouri River flood plain up on to the high prairie. When Lake
Sakakawea was formed by the dam, the new lake divided the reservation
into three parts. The Tribes suffered an enormous loss of natural
resources, including the most fertile land on the reservation, their
community was divided and the small village life that many had known
along the Missouri River was gone. The tribal headquarters were
relocated four miles away in New Town, North Dakota. Today, the tribal
population is about 10,000 with about 5,000 living on the reservation.
Spirit Lake Sioux Tribe. The Spirit Lake Sioux Tribe is composed of
the Sisseton-Wahpeton and Yankton bands of the Dakota or Sioux Nation.
Originally residing in Minnesota and eastern North Dakota, the Spirit
Lake Sioux Reservation was established by the Treaty of 1867 with the
United States. The Treaty of 1867 provides that: ``The . . . Sioux
Indians, represented in council, will continue . . . friendly relations
with the Government and people of the United States . . ..'' The Treaty
recognizes the Spirit Lake Sioux Reservation as the ``permanent''
reservation of the Tribe.
The Tribe has worked to develop jobs through manufacturing,
providing Kevlar helmets and military vests to the Pentagon through
Sioux Manufacturing Corporation, yet with a reservation population of
over 6,000 people, the Tribe has struggled with 59 percent unemployment
as the Defense Department budget was cut in the 1990s. The Spirit Lake
Reservation encompasses 405 square miles north of the Sheyenne River in
northeastern North Dakota.
Turtle Mountain Chippewa Tribe. The Chippewa or Ojibwe people
originally inhabited the Great Lakes Region and began to hunt and trade
in North Dakota in the late 18th and early 19th Centuries.
Historically, the Chippewa and the Dakota fought wars with each other,
but they settled their differences through the Treaty of Sweet Corn in
1858.
In 1882, Congress set aside a 32 mile tract in Northeastern North
Dakota for the Turtle Mountain Band of Chippewa 11 miles from the
Canadian border. With the passing of the great buffalo herds, the
Chippewa turned to agriculture and ranching, and faced many
difficulties due to encroachment by settlers. Today, almost 20,000
tribal members live on the 612 mile Turtle Mountain
reservation, and Belcourt, North Dakota has become the 5th largest city
in the state.
Standing Rock Sioux Tribe. The Standing Rock Sioux Tribe is
composed of Sitting Bull's Band, the Hunkpapa, and the Yanktonai, with
some Black Foot Sioux on the South Dakota side. In the Fort Laramie
Treaty of 1868, the United States pledged that: ``The Government of the
United States desires peace and its honor is hereby pledged to keep
it.'' The Treaty also provides that the Great Sioux Reservation was to
serve as the ``permanent home'' of the Sioux Nation.
Yet, in 1876, General Custer and the 7th Cavalry came out to Sioux
country to force the Sioux tribes on to diminished reservations. In
1889, the Federal Government once again called on the Sioux Nation to
cede millions more acres of reservation lands, and the Standing Rock
Sioux Reservation was established by the Act of March 2, 1889. Sitting
Bull had opposed the land cession and in 1890, he was murdered by BIA
police acting in concert with the U.S. Cavalry.
The Standing Rock Sioux Reservation is composed of 2.3 million
acres of land lying across the North and South Dakota border in the
central area of the state. Like the Three Affiliated Tribes, the
Standing Rock Sioux Tribe was asked to make a substantial sacrifice for
flood control and ceded almost 56,000 acres of the best reservation
land for Lake Sakakawea. Tribal members were removed from their
traditional homes along the Missouri River flood plain and relocated
well up above the river. Today, the population of resident tribal
members is almost 10,000.
Sisseton-Wahpeton Sioux Tribe. Located in Southeastern North Dakota
and Northeastern South Dakota, the Sisseton-Wahpeton Sioux Tribe has a
total enrollment of over 10,000 tribal members and a resident
population of about 5,000 tribal members. The Tribe was originally
located in Minnesota, but pressure from white settlers pushed the Tribe
westward. The Treaty of 1858 with the United States established the
Sisseton-Wahpeton Sioux Reservation, which today has approximately
250,000 acres in North and South Dakota.
Indian Gaming in North Dakota
Since the beginning of tribal gaming in North Dakota, the primary
function has been to provide employment and economic development
opportunities. Indian gaming has also provided vital funding for tribal
government infrastructure, essential services including police and fire
protection, education, and water and sewer services, and tribal
programs, such as health care, elderly nutrition, and child care.
There are five Indian gaming facilities in the state--Four Bears
Casino & Lodge (Three Affiliated Tribes), Sky Dancer Casino & Lodge
(Turtle Mountain), Spirit Lake Casino (Spirit Lake Sioux), Dakota Magic
Casino (Sisseton-Wahpeton), and Prairie Knights Casino & Lodge
(Standing Rock).
The Tribal-State Compact Process in North Dakota
In North Dakota, tribal governments have worked hard to maintain
our sovereign authority and territorial integrity, so that we can
provide a life for our people on our own homelands. The Indian Gaming
Regulatory Act acknowledges the governmental status of Indian tribes
and seeks to promote ``tribal economic development, self-sufficiency,
and strong tribal governments.''
Historically, state law does not apply to Indian tribes or Indians
on Indian lands in the absence of an express congressional delegation
of authority. That means that under general principles of Indian
sovereignty, Indian tribes are able to conduct gaming under tribal law,
not state law. Yet, through the Indian Gaming Regulatory Act, Congress
made a compromise between tribal interests and state interests and
established the Tribal-State Compact process for the regulation of
Class III gaming. The Senate Committee Report explains:
It is a long and well-established principle of Federal Indian
law as expressed in the United States Constitution . . . that
unless authorized by act of Congress, the jurisdiction of State
governments and the application of state laws do not extend to
Indian lands . . .. [U]nless a tribe affirmatively elects to
have State laws and State jurisdiction extend to tribal lands,
the Congress will not unilaterally impose or allow State
jurisdiction on Indian lands for the regulation of Indian
gaming activities. The mechanism for facilitating the unusual
relationship in which a tribe might affirmatively seek the . .
. application of state laws . . . is a Tribal-State Compact.
The Administration Expressly Rejected a Primary Federal Regulatory Role
Recognizing that the extension of State jurisdiction on Indian
lands has traditionally been inimical to Indian interests, some have
suggested the creation of a Federal Regulatory Agency to regulate Class
II and Class III gaming activities on Indian lands. Justice Department
officials were opposed to this approach, arguing that the expertise to
regulate gaming activities and to enforce laws related to gaming could
be found in state agencies, and thus there was no need to duplicate
those mechanisms on a Federal level.
Senate Report No. 100-497 at 5-7 (1988)
Accordingly, when tribal governments conduct Class III gaming, IGRA
first requires three things: (1) a tribal gaming regulatory ordinance
that meets minimum statutory standards, approved by the NIGC; (2) the
Tribe is located in a state where Class III gaming is allowed for any
purpose by any person, entity or organization; and (3) a Tribal-State
Compact. The Tribal-State Compact provides the rules for Class III
gaming:
(i) 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;
(ii) the allocation of criminal and civil jurisdiction between
the State and the Indian tribe necessary for the enforcement of
such laws and regulations;
(iii) the assessment by the State of such activities in such
amounts as are necessary to defray the costs of regulating such
activity;
(iv) taxation by the Indian tribe of such activity in such
amounts comparable to amounts assessed by the State for
comparable activities;
(v) remedies for breach of contract;
(vi) standards for the operation of such activity and
maintenance of the gaming facility, including licensing; and
(vii) other subjects that are directly related to the operation of
gaming activities.
25 U.S.C. sec. 2710(d)(3)
Tribal gaming regulatory ordinances support the Tribal-State
Compact provisions. Tribal gaming ordinances must include: (1) the
tribe has sole ownership of the gaming facility; (2) net revenues are
used first and foremost for essential government purposes and tribal
infrastructure; (3) annual audits are provided to NIGC (including
independent review of contracts in excess of $25,000); (4) standards
for construction and maintenance of the facility; and (5) a background
check and licensing system for management and key employees. The tribal
ordinance process is intended to provide a measure of respect for
tribal law-making authority, so the NIGC can only disapprove of a
tribal ordinance if it does not meet the statutory criteria.
North Dakota Tribal-State Relations
In North Dakota, both our Tribes and the States have taken the
Tribal-State Compact very seriously. Our first Tribal-State Compacts
were approved in 1992 and they were renewed in 1999. We follow a broad,
inclusive process of negotiation where all 5 Tribes work together and
we negotiate with the Executive Branch, including the Governor's office
and the Attorney General. The State Senate Majority and Minority
Leaders and the State House Majority and Minority Leaders are invited
to sit in on our compact negotiation meetings. The Tribes participate
in six public hearings throughout the state to gather public input.
Then our Tribal-State Compacts are approved through the normal
legislative process, including committee hearings and approval by a
vote of the State Legislature.
All of the North Dakota tribes have worked to maintain positive
government-to-government relationships with the State of North Dakota.
We meet every 2 years with the same group of state officials that
negotiate Tribal-State Compacts to review tribal progress and any
regulatory or implementation issues that may arise.
Our Tribes expressly adopted Minimum Internal Control Standards
through our Tribal-State Compacts--which incorporate the NIGC MICS by
reference:
Minimum Internal Control Standards
``Tribes shall abide with such Minimum Internal Control
Standards as are adopted, published, and finalized by the
National Indian Gaming Commission and as may be in current
effect.''
The State Attorney General is vested with authority to regulate
gaming under state law, so Attorney General has expertise in this area:
The State Attorney General regulates the State Lottery, horse-
racing and charitable gaming, alcoholic beverages, tobacco
retailers, enforces consumer protection laws, and operates the
Bureau of Criminal Investigations. The Attorney General's
Gaming Division regulates, enforces and administers charitable
gaming in North Dakota. The division provides training,
performs audits and investigations of gaming organizations;
reviews gaming tax returns; issues administrative complaints;
conducts criminal history record checks of gaming employees and
Indian casino employees; and ensures compliance with tribal-
state casino gaming compacts.
The Attorney General's office works with our tribal gaming
commissions to address any significant issues that arise in Class III
gaming conducted pursuant to our compacts. Our compacts provide: (1)
GAAP and IGRA standards for accounting; (2) regulation, testing and
reporting for electronic machines to the state; (3) regulation for
table games; (4) background checks conducted by the State Attorney
General's office and licensing standards for our tribal gaming
commissions; and (5) random inspections by the State Attorney General's
office and tribal gaming commissions. The Tribes in North Dakota have
worked very hard to preserve a strong relationship with the State, and
the State for, its part, has worked in good faith with the Tribes.
In North Dakota, tribal governments employ more than 325 tribal
regulators and staff. In 2006, tribal governments spent $7.4 million on
tribal and state regulation of Indian gaming in North Dakota. That's
$1.48 million per tribal government and we run relatively modest
operations. We just had our biennial meeting with state officials and
no regulatory issues or deficiencies were identified by any party. The
Attorney General has said that his office is comfortable that we have
achieved our original intention to create a safe, secure and effective
tribal-state regulatory system.
Attorney General Stenjhem has complimented the tribal governments
on our record of strong regulation and has cooperated with the tribal
regulatory agencies to apprehend and prosecute those who attempt to
cheat our casinos. The Attorney General has recognized that Indian
gaming has created important jobs and generated vital revenue for
tribal self-government. He made it clear that he is proud that the
State has not asked for revenue sharing. State officials in North
Dakota know that tribal governments have many unmet needs and it helps
the whole state, when tribal governments have a way to create jobs and
generate essential governmental revenue.
Summary of the Discussion Draft
Senator Dorgan's bill would amend IGRA to grant the NIGC the
following authority over Class III gaming:
1. To monitor Class III gaming conducted on Indian lands on a
continuing basis;
2. To inspect and examine all premises located on Indian lands
on which Class III gaming is conducted; and
3. To demand access to and inspect, examine, photocopy, and
audit all papers, books, and records respecting gross revenues
of Class III gaming conducted on Indian lands and any other
matters necessary to carry out the duties of the Commission
under this chapter.
By granting the NIGC this new authority, Senator Dorgan's bill
would overturn the Federal Court's decision in Colorado River Indian
Tribes, which reflects the correct understanding of existing law. As a
result, NIGC would then argue that its rulemaking authority for Class
III gaming has increased.
The bill also calls for the establishment of a new Class III
Regulatory Committee made up of regulators with either 1 year
experience in regulating Class III gaming or at least 3 years
experience at a tribal gaming operation. This Committee will be tasked
with developing ``minimum standards for the regulation of Class III
gaming,'' which could cover anything including scope of games, bet and
wager limits, hours of operation, etc. In other words, this new Federal
regulatory authority--although couched as ``minimum standards''--would
actually completely duplicate the issues already covered under our
Tribal-State Compacts required by existing law.
The bill requires the NIGC to then establish a process for
certifying that tribes meet the minimum standards developed by this new
committee. The draft bill also provides tribes with the ability to
``opt-out'' of the scheme if NIGC ``certifies that the regulatory
activity required under the Tribal-State compact meets the standards
established by the Class III Regulatory Committee.'' Actual experience
shows that the NIGC would not cede jurisdiction willingly. For almost
20 years, the NIGC has not done so for Class II gaming under the self-
regulation provisions.
Finally, the Senator's proposed bill appears to provide for a
``Seminole fix.'' However, the proposal does not address the States'
11th Amendment immunity to suit and is far short of the remedy needed
to truly address the imbalance in Tribal-State compact negotiations.
Problems With the Discussion Draft
First, we are concerned that the NIGC itself has failed to comply
with the NIGC Accountability Act of 2006, enacted by Congress last year
as part of Public Law No. 109-221 (2006). That Act increases NIGC
authority to impose regulatory fees on tribal governments of .080
percent of gross Indian gaming revenues and requires NIGC to establish
a 5 year plan, including a technical assistance and training program,
in consultation with tribal governments. The NIGC is using its
increased fee authority to raise fees to increase its personnel levels,
yet the NIGC has not begun the consultations mandated by the statute.
Before new legislation is introduced, we believe that Congress should
ensure that NIGC has fulfilled the mandate of Public Law No. 109-221.
Proper implementation of Federal technical assistance could minimize or
eliminate the need for legislation.
Second and most importantly, IGRA Amendments are not necessary at
this time. As our example from North Dakota shows, Tribes already have
strong regulatory rules in place through Tribal-State Compacts and
tribal ordinances. We have worked hard to develop a working
relationship with the state and our compacts include reference to state
law and practice as well as the NIGC MICS. In North Dakota, the Tribal-
State Compact negotiation process works well, without the intervention
of new Federal rules or agencies.
The NIGC does not need new authority to work with us in North
Dakota. We already have tribal gaming regulatory ordinances that meet
IGRA's minimum statutory standards and have the approval of the NIGC.
(Our Tribal-State Compacts also require that our tribal gaming
ordinance be at least as stringent as the compacts.) Under IGRA, 25
U.S.C. sec. 2713, the NIGC has authority to come to our facilities and
meet with the tribal gaming commission to ensure that our tribal
ordinances are enforced. Section 2713 provides:
[T]he Chairman shall have authority to levy and collect
appropriate civil fines, not to exceed $25,000 per violation,
against the tribal operator of an Indian gaming or a management
contractor engaged in gaming for any violation of this chapter,
any regulation prescribed by the Commission . . . or tribal
regulations, ordinances, or resolutions approved under section
2710 or 2712 of this title.
If a Civil fine is not sufficient, the Chairman may issue a
temporary closure order. If the problem is not resolved, the Chairman
may then issue a permanent closure order. There has never been a
permanent closure order issued in the Great Plains because Tribes have
always worked with the NIGC on the rare occasion when a temporary
closure order was issued.
Our tribal gaming ordinances are incorporated by reference into our
compacts, so the State Attorney General also has enforcement authority
for violations of our tribal regulatory ordinance. We work
cooperatively with the Attorney General, so generally our tribal gaming
commissions have an opportunity to resolve the issue after notifying
the Attorney General. Then we notify the Attorney General of the
resolution.
It would complicate our Tribal-State Compact negotiations if the
NIGC were given new authority to issue Federal regulations for Class
III Indian gaming. That would happen if the NIGC were given authority
to ``monitor'' Class III gaming on a ``continuing basis,'' as the draft
bill recommends, because it would overturn the Colorado River Indian
Tribes decision and trigger the NIGC's existing rulemaking power.
Adding in a new Department of Interior Committee to develop MICS
regulations would just be a duplication of existing efforts and
promotes wasteful bureaucracy. Furthermore, the bill would leave the
NIGC to judge the reach of its own jurisdiction, and it is not likely
to give deference to our Tribal-State system since the Interior
Committee will be developing new standards.
If the Senate Committee wants to give the NIGC authority to
regulate Class III Indian gaming, then it should do away with the
Tribal-State Compact process and take the State out of the picture. Our
guess is that the Committee does not want to do that because our State
Governor, Attorney General, and State Legislature have invested a lot
of time and effort under the current Tribal-State Compact system.
Another question arises. NIGC seems to be seeking expanded
authority for Class III gaming--is the Senate going to treat all gaming
fairly and adopt a policy of Federal oversight for other gaming.
Working with the North Dakota Attorney General we have at least as good
a system as any state licensed gaming, so why should we be required to
have more Federal regulation than state licensees?
Alternative Legislative Provisions
If the Committee decides to go forward despite our objections, then
we strongly believe that it should avoid new Federal rulemaking that
would interfere with Tribal-State Compacts. Instead, Congress should
simply call upon our tribal governments to maintain MICS in our tribal
ordinances. This would preserve tribal law-making authority, create an
objective statutory standard and ensure that tribal governments are not
subjected to the whims of a, sometimes, arbitrary bureaucracy. At
times, it seems as though the NIGC writes new rules just to keep busy.
If the Committee goes forward with legislation requiring Tribes to
call upon tribal governments to maintain MICS in our tribal ordinances,
then it should also address the following issues that Tribes are
concerned about:
Seminole Fix--Provide access to secretarial procedures in
lieu of compact when a state raises and 11th Amendment defense
to good faith negotiation. While the proposed bill appears to
provide for a ``Seminole fix,'' the proposal does not address
the States' 11th Amendment immunity to suit. This is far short
of the remedy needed to restore the imbalance in Tribal-State
compact negotiations;
Class II Technologic Aids--Affirm the IGRA and Federal Court
of Appeals decisions that allow the use of technologic aids for
Class II gaming;
Grandfather existing Tribal-State Compacts and Grandfather
Tribal Ordinances that already address the MICS; and
Require NIGC to work with Tribes on a government-to-
government basis, including negotiated rulemaking with tribal
governments.
Conclusion
Instead of looking to Congress to legislatively overturn this
decision, the NIGC should rely on its ability to provide technical
assistance to Tribal regulators to fulfill any perceived gaps in its
authority. Increased technical assistance and consultation by the NIGC
will avoid the need for any amendments to the Indian Gaming Regulatory
Act.
Naturally, if legislation goes forward, we ask that the Senate
Committee on Indian Affairs defend its jurisdiction to prevent
``legislative riders'' on Appropriations bills. We are firmly opposed
to such riders because historically they have done much mischief in
Indian country. Indeed, it was an Appropriations ``rider'' that ended
treaty-making with Indian tribes in 1871. Thereafter, we were relegated
to congressional agreements. This is not asking too much, since
Congress has pledged to do so under its procedural reform efforts. We
also ask that the Committee proceed in a deliberative manner, with
hearings after any bill is introduced, and such a bill should move as a
technical bill through regular order on the unanimous consent calendar.
IGRA should not be subject to amendments in an ``ad hoc'' manner on the
floor of the Senate.
Moreover, any legislation to amend IGRA must respect the existing
Tribal-State Class III regulatory framework and tribal law-making
authority. We have worked too hard to fulfill IGRA's mandates to see
the existing framework of the Act overturned. The Federal Court ruling
in CRIT simply held that the NIGC may not draw up new Federal standards
for the operation of Class III Indian gaming over and above Tribal-
State Compacts. The Federal Court left in place the original
understanding of IGRA and that understanding should be maintained. Any
amendments can rest on tribal ordinances, which respect tribal law-
making. We reject Federal regulatory mandates to be imposed on
sovereigns who have worked in ``good faith'' to fulfill congressional
purposes.
Thank you for considering our views. We look forward to working
with you to preserve the existing framework of the Indian Gaming
Regulatory Act. Pidamaya.
Attachments
State of North Dakota Office of Attorney General
Bismarck, ND, September 18, 2006
Hon. Byron L. Dorgan,
Chairman,
Senate Committee on Indian Affairs,
Washington, DC.
Dear Senator Dorgan:
Provisions of S. 2078 fail to recognize that some tribal/state
gaming compacts and some tribal/state relationships adequately address
problems the bill seeks to solve. In particular, the bill significantly
expands the National Indian Gaming Commission's (NIGC) authority to
regulate Class III gaming.
I cannot comment on the effectiveness of gaming oversight in other
states, and whether there is a need for added regulation, but I do know
about the efforts my office undertakes in working with tribal casinos
here in North Dakota. North Dakota gaming compacts provide for
considerable regulation of Class III gaming. Another regulatory layer
is questionable, at least in North Dakota.
The Senate Report 109-261 that accompanies S. 2078 states that
``many Indian tribes and states developed sophisticated regulatory
frameworks to oversee tribal gaming operations,'' and describes such
frameworks as ``effective.'' North Dakota has developed an effective
regulatory regime overseeing Class III gaming. Furthermore, and of
equal importance, when regulatory issues arise, North Dakota tribes
cooperate with state officials. In my experience, issues are routinely
resolved promptly and effectively.
If the Senate finds a need to expand NIGC's regulatory authority, I
suggest an exception should be considered for those tribes being
adequately regulated under their gaming compacts. If not, the bill will
burden an agency with unnecessary work, subject well-run casinos to
unnecessary oversight, and compromise tribal self-government and the
compact process.
I also question provisions in the S. 2078 giving NIGC authority to
review ``gaming related contracts'' that tribes may wish to enter. The
paternalism of these provisions expresses a policy long ago abandoned
by the Federal Government. In my discussions and negotiations with
tribal officials on a variety of matters, they bring sophisticated,
talented resources to the table. They are able to negotiate contracts
without Federal oversight.
I appreciate an opportunity to offer some thoughts on efforts in
Congress to strengthen oversights of Indian gaming.
Sincerely,
Wayne Stenehjem,
Attorney General.
______
The Chairman. Thank you very much. We appreciate your
testimony.
Next, we will hear from the Honorable Ron Allen, Chairman
of the Washington Indian Gaming Association. Chairman Allen,
you may proceed.
STATEMENT OF W. RON ALLEN, CHAIRMAN, WASHINGTON
INDIAN GAMING ASSOCIATION AND CHAIRMAN,
JAMESTOWN S'KLALLAM TRIBE
Mr. Allen. Thank you, Mr. Chairman. It is always an honor
to come before this Committee to testify on a variety of
legislative issues that affect our tribes across the United
States.
I am the Chair of the Jamestown S'Klallam Tribe up in
Western Washington. I have been Chair for 30 years, and I have
been very active in Indian Country on many levels. I do want to
thank you and Senator Murkowski and Senator Inouye and the
others who have been very strong champions for us over the
years.
The question of the day here is, and you have our testimony
that identifies some of the issues that concern us and that are
in the testimony that we have identified with our colleagues in
Washington State. But the question of the day is should IGRA be
amended. Quite frankly, in my opinion, all legislation needs to
be amended. There isn't any perfect legislation out there.
There never was and never will be.
We come to you regularly talking about legislation that
needs to be improved. The Health Care Improvement Act, you know
of all the different provisions that we have talked about in
that Act alone. The SDA, the Self-Determination Act, we
improved with the self-governance legislation. And these pieces
of legislation all are about empowering the tribes to exercise
our sovereignty, our governmental authority, our jurisdiction
as tribal governments so that we can control our destiny, as
you and the Senator have advocated.
So with regard to gaming, the jury is already in with
regard to its success. It is successful and you know it. You
know it is true all across Indian Country. Are there blemishes
and are there issues out there? Yes, there are issues out
there, and you can say that everywhere. You can say that with
regard to the gaming industry in Nevada. You can say it in New
Jersey or Louisiana. You can say it everywhere.
So gaming has its challenges like any other industry. Is it
being well regulated? The answer to that is yes. I think that
it is a credit to our tribal governments. It is a credit to you
in Congress who have empowered the tribes and have elevated our
governmental capacity to be able to administer our
responsibilities and regulate these affairs. We all care about
the integrity of the gaming industry on our reservations, and
we all care about it because no one is more beat on by the
public or the general perception than Indian Country. Nobody is
beat up by the general public and media more than we are.
And so we have a great interest in this legislation, in the
integrity of our gaming, and our right to be able to advance
its agenda. Nothing Congress or the State or anyone has ever
done has made a difference in our community like gaming. So we
want to protect our rights.
But we also want to be treated fairly, and we want to be
treated fairly with respect to our ability to engage in
regulatory oversight over the game. We are the primary
regulators and we have done an absolutely fabulous job.
Chairman Hogen has pointed out the hundreds of millions of
dollars we spend on regulation at all levels.
So we are doing our job. The compacts that we are
negotiating, not all compacts address this thing, but the
majority of the compacts are addressing exactly what IGRA
envisions. IGRA intended that the States would have a role. It
was recognizing the sovereignty of the State and their
responsibility with regard to their relationship with the
tribes as it applies to this industry. So it envisioned this
relationship and it envisioned that it would be addressing
those internal controls. My testimony talks about how it is
successful out in Washington State, and I know it is successful
elsewhere as well.
So the bottom line is as we approach legislation, the issue
is what should be corrected. How much power should NIGC have?
We do not want to empower them with the provision that
basically says that the tribes and the States have to come to
this agency and say ``mother may I.'' We do not want that kind
of legislation, because they could go awry. We have examples
where, quite frankly, we believe that they have misused their
authority.
So the issue is what is their role. We have to be very
careful when we design legislation that amends a regulatory
oversight's authority and what that role should be so that it
is not unnecessarily burden our industry. That is just
reasonable. I think that with regard to this matter, are we
doing the same thing to Nevada? Are we doing the same thing to
New Jersey? No, we are not. I can tell you that we would need a
bigger room if they were at the table with the same matter.
But the issue here, Senator, is what are we going to do
about it. I think that your draft legislation poses some
questions. I would remind you that Senator Inouye had proposed
a couple of amendments in the last session with the same issue
that was being raised with regard to the Seminole case, which
has to be fixed so the States don't have the right to not in
good faith negotiate with the tribes, so that they can exercise
their rights. So that issue is out there to be corrected.
What are the conditions? You have a number of conditions
that you have identified in some sections in your proposed bill
that need to be thoroughly discussed in terms of how would it
really act, how would it really function in the field at the
tribes and/or the States interface with this agency with
respect to the quality and the integrity of these internal
controls.
So the bottom line here is are we supportive of amendments
to the Act? Yes, but we have to be very careful. I will close
with, it is not just being careful about the empowerment of
NIGC; it is also being careful about all those other
mischievous pieces of legislation that want to be attached to
these proposed legislative amendments to put more tentacles
around Indian Country, to continue to badger us with a
historical paternalism that we have been experiencing.
We can't go down that road.
Thank you, Senator.
[The prepared statement of Mr. Allen follows:]
Prepared Statement of W. Ron Allen, Chairman, Washington Indian Gaming
Association and Chairman, Jamestown S'Klallam Tribe
Senator Dorgan, Members of the Committee, my name is Ron Allen and
I am Chairman of the Jamestown S'Klallam Tribe of Sequim, Washington
and Chairman of the Washington Indian Gaming Association, an
organization of 25 federally recognized tribes who have entered into
gaming compacts with the State of Washington and one tribe currently in
negotiations. I also serve on the Board of the National Congress of
American Indians. I am here today, on very short notice, to discuss a
discussion draft of amendments to the Indian Gaming Regulatory Act.
When the original IGRA legislation was being considered by
Congress, Indian tribes fought very hard to preserve, to the greatest
extent possible, our sovereign right of self-government and our right
to regulate our own affairs. State governments fought very hard to
include a regulatory role for themselves over gaming in Indian Country
within their borders. The resulting Act was a compromise which
established a regulatory framework between Tribal, State, and Federal
governments.
IGRA clearly delineated Class II gaming regulation as a matter for
Tribal gaming agencies and the National Indian Gaming Commission and
reserved Class III gaming regulation as a matter for Tribal-State
gaming compacts.
Nonetheless, we are here today because the D.C. Court of Appeals
addressed something that states attorneys general and tribes thought
they already knew--whether or not the Indian Gaming Regulatory Act gave
the National Indian Gaming Commission authority to promulgate
regulations establishing mandatory operating procedures for Class III
gaming in tribal casinos. The court said it did not. We agree.
We do not disagree with NIGC over the importance of gaming control
standards or regulations. We simply agree with the court--that Congress
intended that the state-tribal compact process would govern the
operation of Class III gaming and that is how the Indian Gaming
Regulatory Act (IGRA) was constructed. Every gaming compact for a
tribal casino in Washington requires minimum internal control standards
which are negotiated between each Tribal gaming agency and the
Washington State Gambling Commission. I have attached two exhibits to
my testimony from the compacts which list the subject areas for
operational standards for table games and the tribal lottery system
(electronic games).\1\,\2\ These cover all of the areas that
NIGC is concerned about--accounting, audits, cash handling, security,
surveillance, game standards, and player relations. These are just the
Table of Contents--the actual documents are huge, and written
specifically for each gaming facility.
In addition, each tribal gaming operation is subject to an annual
audit by an independent certified public accountant, in accordance with
the auditing and accounting standards for audits of casinos of the
American Institute of Certified Public Accountants.
The bill under consideration today, ``Indian Gaming Regulatory Act
Amendments of 2007,'' would create a confusing, unnecessary, and
ultimately conflicting construction of regulations between three
government jurisdictions--Tribal, State, and Federal.
And it is completely unnecessary. NIGC has substantial existing
authority: IGRA authorizes the NIGC to review and approve tribal gaming
regulatory laws, review tribal background checks and gaming licenses,
receive independent annual audits of tribal gaming facilities, approve
management contracts, and work with tribal gaming regulatory agencies
to promote tribal implementation of tribal gaming regulatory
ordinances.
In Colorado River Indian Tribes v. NIGC, which has inspired this
bill, the court held that IGRA does not authorize the NIGC to
promulgate or enforce Minimum Internal Control Standards (MICS) over
Class III Indian gaming. NIGC apparently believes that a national
standard is necessary for every aspect of Indian gaming. Senator
Dorgan, let me give you an example of NIGC's MICS cited by the court:
``The regulations take up more than eighty pages in the Code of
Federal Regulations. No operational detail is overlooked. The
rules establish standards for individual games, see, e.g., 25
C.F.R. Sec. 542.7, .8, .10, customer credit, id. Sec. 542.15,
information technology, id. Sec. 542.16, complimentary
services, id. Sec. 542.17, and many other aspects of gaming. To
illustrate, tribes must establish ``a reasonable time period''
not to exceed 7 days for removing playing cards from play, but
``if a gaming operation uses plastic cards (not plastic-coated
cards), the cards may be used for up to three (3) months if the
plastic cards are routinely inspected, and washed or cleaned in
a manner and timeframe approved by the Tribal gaming regulatory
authority.'' Id. Sec. 542.9(d), (e).
We know that cleaning or replacing playing cards in order to
prevent players from ``marking'' cards and thereby cheating is an
important operating procedure, but is a national standard really
necessary to address this? Why has NIGC established 7 days to replace
cards? What if the tribal gaming agency and the state gaming agency
said 10 days? We would be out of compliance. Why aren't we considering
standards for all the commercial casinos as well? Wouldn't the Nevada
Gaming Commission benefit from similar Federal oversight that this bill
would place on the Washington State Gambling Commission and every
tribal gaming commission in the state? Or would it be more reasonable
to implement internal controls in a Tribal-State co-regulatory process
that IGRA created? We think it would.
All of the operational areas that NIGC is concerned about are
addressed in the internal control standards developed jointly between
the Washington Tribal gaming agencies and the Washington State Gambling
Commission. They are specific to the games and the gaming facilities.
They are updated for changes in technology or new game play features,
in a process that is continuous and ongoing. In fact, new internal
controls are being written by our regulators as we discuss this, to
accommodate new game features of the compact amendments for 27 tribes
which were approved by the Department of Interior on May 30, 2007.
I would like to include for the record copies of letters written by
the Chairman of Washington State Gambling Commission, Curtis Ludwig,
and Washington Governor Christine Gregoire addressing this same issue
(MICS), but in the context of S. 2078 introduced by Senator McCain last
year\3\,\4\,\5\ (attached).
Governor Gregoire (who is also a former three-term state attorney
general) states in her March 28, 2006 letter to Sen. McCain,
``[a]n additional level of enforcement will negatively impact
our state's long-standing relationship with the tribes
regarding Class III gaming, without providing any substantial
benefit, and will interfere in our state's authority to
regulate gambling activity.''
Washington Gambling Commission Chairman Curtis Ludwig writes on
January 13, 2006:
``Pursuant to the compacts with Washington Tribes, Commission
staff has been involved with Class III gaming regulation for
more than 13 years. Our Tribal Gaming Unit has 19 agents, whose
work is solely devoted to tribal gaming, and an Electronic
Gambling Lab that tests and approves all Class III electronic
games offered in tribal casinos.
The Commission believes that an additional layer of regulation
is unnecessary for Washington's Tribal casinos. Although the
MICS provide a starting point for internal controls and should
be available as a resource for states and Tribes, they are not
specific to Washington gaming. Moreover, they do not provide
regulations for some critical gaming activities, such as our
State's electronic Tribal Lottery System, which we regulate
according to a detailed, 46-page appendix to each compact.''
Senator Dorgan, the Washington State Gambling Commission says that
the national standards in NIGC's MICS are not specific to Washington
gaming and do not cover some critical gaming activities. However, the
internal controls established by the Tribal gaming Agencies and the
State gaming agency are specific and address all gaming activities.
And yes, Senator, I do understand that the draft language of this
bill includes an ``opt-out'' clause giving NIGC the option of excusing
from NIGC regulation, a tribe with a tribal-state compact which
includes minimum standards that meets the standards established by
NIGC. So, if you follow that circular reasoning, NIGC still sets the
standards, regardless of the standards that the tribal and state
regulators establish in the compacts. The only language that tribes
would support is if the option to ``opt-out'' would be a decision of
the tribe, not NIGC. As I said before, we believe that internal
controls should be specific to games, technology, and facilities, and
that can best be done by tribal and state regulators working together.
Finally, we have not seen any record established that shows that
Indian tribes are incapable of regulating their own affairs. We have
seen no record established that there is a crisis or scandal in Indian
gaming operations. The amendments in this discussion draft are
unnecessary. Thank you.
Attachments
1. Standards of Operation and Management for Class III
Activities.
2. Rules Governing Tribal Lottery Systems.
3. Letter from Governor Gregoire to Sen. John McCain, March 28,
2006.
4. Letter to Governor Gregoire from Gambling Commission
Chairman Curtis Ludwig, January 13, 2006.
5. Chart of Gaming Jurisdiction Subject areas by Washington
State Gambling Commission, April 2006.
Appendix A--Confederated Tribes of The Chehalis Reservation (State of
Washington)--Standards of Operation and Management for Class III Gaming
Section Subject Matter Page
1 Definitions A-1
2 Accounting Records A-3
3 System of Internal Control A-3
4 Forms, Records, Documents and A-4
Retention
5 Annual Audit and Other A-5
Reports
6 Cosed Circuit Television A-6
System
7 Organization of the Tribal A-7
Operation
8 Personnel Assigned to the A-10
Operation and Conduct of
Class III Gaming Activities
9 Cashier's Cage A-11
10 Accounting Control Within the A-12
Cashier's Cage
11 Drop Boxes A-13
12 Drop Boxes, Transportation To A-14
and From Gaming Stations and
Storage in the Count Room
13 Procedure For Exchange of A-14
Checks Submitted by Gaming
Patrons
14 Procedure For Depositing A-16
Checks Received From Gaming
Patrons
15 Procedure For Collecting and A-16
Recording Checks Returned to
the Gaming Operation After
Deposit
16 Procedure For Accepting Cash A-17
at Gaming Stations
17 Acceptance of Gratuities From A-17
Patrons
18 Adoption of Rules For Class A-18
III Activities
19 Station Inventories and A-20
Procedure For Opening
Stations For Gaming
20 Procedure For Distributing A-21
Gaming Chips and Coins to
Gaming Stations
21 Procedure For Removing Gaming A-24
Chips and Coins From Gaming
Stations
22 A. Procedure For Shift A-26
Changes at Gaming Stations
B. Procedure For Closing A-27
Gaming Stations
23 Count Room: Characteristics A-29
24 Procedure For Counting and A-30
Recording Contents of Drop
Boxes
25 Signatures A-33
______
______
State of Washington Office of the Governor
Olympia, WA, March 28, 2006
Hon. John McCain,
Chairman,
Senate Committee on Indian Affairs,
Washington, DC.
Dear Senator McCain:
I am writing to share my concerns and those of the Washington State
Gambling Commission (WSGC) about action the Senate Indian Affairs
Committee will soon take on S. 2078 regarding the Indian Gaming
Regulatory Act (IGRA).
A critical component of IGRA is the local control that it provides
for negotiating state-tribal gaming compacts, particularly in relation
to Class III gaming. Washington has entered into gaming compacts with
27 of our state's 29 federally recognized tribes. Each compact has been
negotiated in a government-to-government manner, taking into account
the unique circumstances present in Washington and in the local
communities where tribal casinos will be located.
The WSGC has successfully regulated Class III gaming, in
cooperation with the local tribes, for more than 13 years. The WSGC has
a specific Tribal Gaming Unit composed of 19 agents, whose work is
solely devoted to tribal gaming regulation. This unit has developed an
expertise in the regulation of Class III gaming within Washington and
works closely with each tribal gaming authority. In addition, the WSGC
operates a state-of-the-art Electronic Gambling Lab, which tests and
approves every Class III electronic game offered in a Washington tribal
casino.
Increasing the National Indian Gaming Commission (NIGC) authority
to regulate Class III gaming infringes upon local control and is
unnecessary, considering Washington's strong regulatory controls. The
NIGC internal controls are not specific to Washington gaming and do not
provide regulations for some critical gaming activities in our state.
For example, our electronic Tribal Lottery System, which we regulate
according to a detailed, 46-page appendix to each compact, would not be
regulated under NIGC controls. An additional level of enforcement will
negatively impact our state's long-standing relationship with the
tribes regarding Class III gaming, without providing any substantial
benefit, and will interfere in our state's authority to regulate
gambling activity.
I hope you will reconsider expanding the authority of the NIGC over
Class III gaming in Washington. Our state is proud of its tribal gaming
regulatory program and believes local control over Class III gaming is
in its best interest, having proven successful for the past l3 years.
Again, thank you for your consideration of this matter.
Sincerely,
Christine O. Gregoire,
Governor.
cc: Senator Patty Murray, Washington State; Senator Maria
Cantwell, Washington State; and Senator Byron Dorgan, Vice
Chair, Committee on Indian Affairs.
______
State of Washington Gambling Commission
January 13, 2006
Hon. Christine Gregoire,
Washington State Governor,
Olympia, WA.
Dear Governor Gregoire:
We are writing to seek your assistance in expressing our concerns
regarding two current legislative efforts in Congress which would
subject Washington Tribes to an increase in fees paid to the National
Indian Gaming Commission (NIGC), and would authorize an unnecessary
expansion in the regulatory authority of the NIGC. We respectfully
request your assistance in contacting Washington's Congressional
delegation and lobbyist regarding these problems.
First, Senate Bill 1295, which was passed by the U.S. Senate on
December 12, 2005, contains a provision that would authorize the NIGC
to impose a fee on each compacted gaming Tribe not to exceed 0.080
percent of the gross gaming revenues for all tribal gaming operations.
Washington Tribes could pay close to $1 million in additional Federal
regulatory fees each year under this proposal.
Under its compacts with Washington's Tribes, regulatory enforcement
in Tribal casinos is accomplished through a partnership between the
Tribes and the Washington State Gambling Commission (``Commission'').
Each Tribe is required to have its own Tribal Gaming Agency (TGA),
independent from the Tribe, which provides on-site regulation for
casino operations. Under the compacts, the Tribes reimburse the
Commission for the costs that the Commission incurs in its regulatory
work with the Tribes. The Commission incurred over $1.4 million for
state costs to regulate Class III gaming for the l2-month period
between October 2004 and September 2005. These costs were billed to the
Washington Tribes. These fees do not include amounts paid by the Tribes
for their own on-site regulatory programs.
Second, the Commission is even more concerned about the NIGC's
request to ``clarify its authority'' over Class III gaming activity.
During a hearing before the Senate Committee on Indian Affairs, the
NIGC Chairman testified that his Commission had submitted a draft bill
to Congress to ``clarify the NIGC's authority to regulate Class III
gaming generally, and to promulgate and enforce its MICS (Minimum
Internal Control Standards) regulations for Class III gaming
specifically.''
This request was in response to the decision by the U.S. District
Court in Washington D.C., where the court held that the NIGC's MICS for
Class III gaming exceeded the agency's statutory authority. Colorado
River Indian Tribes v. National Indian Gaming Commission, (2005 WL
2035946). The court recognized that, under the Indian Gaming Regulatory
Act, Class III gambling is subject to regulation by Tribes and states
pursuant to the provisions of compacts between the Tribes and states.
The NIGC has extensive regulatory authority over Class II gaming, but
none over Class III gaming.
Pursuant to the compacts with Washington Tribes, Commission staff
has been involved with Class III gaming regulation for more than
thirteen years. Our Tribal Gaming Unit has 19 agents, whose work is
solely devoted to tribal gaming, and an Electronic Gambling Lab that
tests and approves all Class III electronic games offered in tribal
casinos.
The Commission believes that an additional layer of regulation is
unnecessary for Washington's Tribal casinos. Although the MICS provide
a starting point for internal controls and should be available as a
resource for states and Tribes, they are not specific to Washington
gaming. Moreover, they do not provide regulations for some critical
gaming activities, such as our State's electronic Tribal Lottery
System, which we regulate according to a detailed, 46-page appendix to
each compact.
Because of the strong regulatory structure in our gaming compacts,
the Commission believes that fee increases and an additional level of
internal control enforcement will negatively impact the Tribal-State
relationship without providing any substantial benefit. If these
proposals are passed in either pending or future legislation, the
Commission would strongly urge that states like Washington that have
effective Tribal-State regulatory programs be exempted from such
requirements. We respectfully request your assistance in contacting
Washington's Congressional delegation and lobbyist regarding these
concerns.
Sincerely,
Curtis Ludwig,
Commission Chair.
cc: Senator John McCain, United States Congress--Arizona;
Senator Maria Cantwell, United States Congress--Washington
State; Senator Patty Murray, United States Congress--Washington
State; Representative Jay Inslee, United States Congress--1st
Congressional District; Representative Rick Larsen, United
States Congress--2nd Congressional District; Representative
Brian Baird, United States Congress--3rd Congressional
District; Representative Doc Hastings, United States Congress--
4th Congressional District; Representative Cathy McMorris,
United States Congress--5th Congressional District;
Representative Norm Dicks, United States Congress--6th
Congressional District; Representative Jim McDermott, United
States Congress--7th Congressional District; Representative
Dave Reichert, United States Congress--8th Congressional
District; Philip Hogen, Chairman--National Indian Gaming
Commission; Randy Sitton, Regional Director--Region 1--National
Indian Gaming Commission; and John Lane, Governor's Executive
Policy Office--Washington State Gambling Commission.
______
The Chairman. Mr. Allen, thank you very much for being with
us, and your testimony today.
Next, we will call on the Honorable Valerie Welsh-Tahbo, I
hope I have pronounced that correctly, who is a Council Member
of the Colorado River Indian Tribes Tribal Council in Parker,
Arizona. You may proceed.
STATEMENT OF VALERIE WELSH-TAHBO, COUNCIL MEMBER, COLORADO
RIVER INDIAN TRIBES TRIBAL COUNCIL
Ms. Welsh-Tahbo. Thank you, Senator. Good morning, Mr.
Chairman and Members of the Committee. Thank you for providing
the Colorado River Indian Tribes with the opportunity to
testify this morning. My name is Valerie Welsh-Tahbo. I am of
the Chiricahua-Apache Tribes, as well as the Mojave Tribe,
which is the indigenous nation of the Colorado River Indian
Reservation. I am currently the tribal Secretary.
At the outset, I wish to express our gratitude for your
willingness to work with the tribes in exploring a possible
amendment of IGRA. We understand that the Federal court's
decision in our litigation against the National Indian Gaming
Commission have rightly or wrongly fed the perception that
there is a need for increased Federal regulation of Class III
gaming.
Before directly addressing that question, I would like to
very briefly describe that litigation before I do that. From
time to time, deficiencies are identified. CRIT wants to
address comments previously made by Chairman Hogen regarding
the length of time taken to address these deficiencies. We want
to assure the Committee that each of these deficiencies were
addressed as expeditiously and thoroughly as possible.
The background of CRIT v. NIGC, as we have repeatedly
stressed, CRIT did not seek out its challenge to the NIGC's
regulatory authority. Like every other tribe in the Country, we
questioned the commission's statutory authority to mandate
Class III minimum internal control standards. When the NIGC
began an audit of our compliance with its MICS in January of
2001, 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 $10,000 fine against the tribes.
At that point, we had no choice but to defend ourselves.
Our defense was a simple legal position that we shared with
most other tribes: The commission did not have the authority
under the Indian Gaming Regulatory Act to mandate Class III
MICS. The Federal District Court agreed with our position and
the Court of Appeals of the District of Columbia circuit
affirmed that decision last fall.
As a result of those court decisions, some members of this
Committee and others have expressed concern that their now
exists a regulatory void, requiring the grant of increased
powers of NIGC to regulate Class III gaming. Certainly in our
case there is no regulatory void. CRIT's gaming activity is
vigorously regulated by both the tribe under tribal law and by
the State of Arizona through the mechanisms of the tribal-state
compact required by IGRA.
The draft bill, in considering legislation to address the
CRIT decision, it is important to bring the discussion back to
the limited subject of what our litigation involved and what
the courts actually held. We did not claim that the courts did
not hold that the NIGC has no regulatory authority over Class
III gaming. They held only that the NIGC lacked the authority
to impose mandatory minimal internal control standards on Class
III gaming. Those standards regulate the details of how Class
III games are conducted for the sole purpose of ensuring that
gaming revenues are properly tracked and accounted for.
The fix for the CRIT ruling, if needed at all, is quite
narrow. Expressly authorize the commission to adopt and require
such standards, subject to an opt-out provision for tribes
whose tribal law and compacts are sufficiently rigorous. The
draft bill we address today goes far beyond that limited need.
Indeed, it would authorize the regulatory committee and the
NIGC to develop minimum standards for the regulation of Class
III gaming. This scope of regulation goes far beyond minimum
internal control standards and would confer Class III
regulatory authority that not even the NIGC has previously
claimed or sought.
The draft bill's grant of authority for the regulation of
Class III gaming encompasses every aspect of the tribe's Class
III gaming operation. It would give the NIGC the broad
authority to adopt whatever regulation it wished, subject only
to a requirement that it be rationally related to the purpose
of IGRA. The elephant gun of total regulation is
disproportionate to the perceived flea of control standards. It
would also eliminate, for all practical purposes the regulatory
role of the tribes and the compacting role of the States.
It is unnecessary, overbreadth, and the draft bill also
incorporates one of the most troubling aspects of Senate 2078
considered by this Committee during last session. The mere
addition of the words of ``Class III gaming'' to subsections
2706(b)(1)(2) and (4) effectively guts the tripartite scheme of
the statute as originally conceived by giving NIGC equal or
preemptively superior regulatory authority over the tribes and
the States. This seemingly straightforward amendment would set
up the likelihood of inconsistent regulations and render much
of the compacting process meaningless.
We would propose instead an amendment limited to the issues
of minimum internal controls incorporated through the existing
ordinance approval process. We submitted proposed language to
the Committee last year and would be happy to provide it again.
We did also submit as part of our testimony recommendations to
the draft bill.
We would like to close on a positive note. We are pleased
that the draft bill recognizes that many compacts impose
rigorous tribal regulations and State oversight that does not
need an additionally expensive layer of Federal activity. If
the opt-out process contemplated by the draft bill is
ultimately adopted, we hope to participate actively in
formulating a procedure that fully respects the experience and
wisdom developed by the tribes and the States and avoids
needless intergovernmental conflict.
I thank you again for giving CRIT the opportunity to offer
its views on the important issue. We look forward to working
closely with the Committee to develop a bill that
satisfactorily addresses the issue on internal controls,
without destroying the delicate intergovernmental balance that
has largely worked extraordinarily well for nearly 20 years.
Thank you, Senator.
[The prepared statement of Ms. Welsh-Tahbo follows:]
Prepared Statement of Valerie Welsh-Tahbo, Council Member, Colorado
River Indian Tribes Tribal Council
Good Morning Mr. Chairman and Members of the Committee. Thank you
for providing the Colorado River Indian Tribes with the opportunity to
testify this morning. My name is Valerie Welsh-Tahbo, and I am a member
of the Tribal Council of the Colorado River Indian Tribes (CRIT).
At the outset, I wish to express our gratitude for your willingness
to work with the tribes in exploring the possible amendment of IGRA. We
understand that the Federal courts' decisions in our litigation against
the National Indian Gaming Commission have, rightly or wrongly, fed the
perception that there is a need for increased Federal regulation of
Class III gaming. Before directly addressing that question, I'd like
very briefly to describe that litigation for those members new to this
Committee.
Background of the CRIT v. NIGC Litigation
As we have repeatedly stressed, CRIT did not seek out its challenge
to the NIGC's regulatory authority. Like every other tribe in the
country, we questioned the Commission's statutory authority to mandate
Class III Minimum Internal Control Standards (MICS). When the NlGC
began an audit of our compliance with its MICS in January of 2001, 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 $lO,OOO fine
against the tribe. 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 did not have the authority under
the Indian Gaming Regulatory Act to mandate Class III MICS. The Federal
district court agreed with our position, and the Court of Appeals for
the District of Columbia Circuit affirmed that decision last fall.
As a result of those court decisions, some Members of this
Committee and others have expressed concern that there now exists a
regulatory void, requiring the grant of increased powers the NIGC to
regulate Class III gaming. Certainly in our case, there is no
regulatory void. CRIT's gaming activity is vigorously regulated by both
the Tribe under tribal law and by the State of Arizona through the
mechanism of the tribal-state compact required by IGRA.
The Draft Bill
In considering legislation to address the CRIT decision, it is
important to bring the discussion back to the limited subject of what
our litigation involved and what the courts actually held. We did not
claim, and the courts did not hold, that the NIGC has no regulatory
authority over Class III gaming; they held only that the NIGC lacked
the authority to impose mandatory minimal internal control standards on
Class III gaming. Those standards regulate the details of how Class III
games are conducted for the sole purpose of ensuring that gaming
revenues are properly tracked and accounted for.
The ``fix'' for the CRlT ruling, if needed at all, is quite narrow:
expressly authorize the Commission to adopt and require such standards,
subject to an opt-out provision for the tribes whose tribal law and
compacts are sufficiently rigorous.
The Draft Bill we address today goes far beyond that limited need.
Indeed, it would authorize the Regulatory Committee--and the NIGC--to
develop ``minimum standards for the regulation of Class III gaming.''
This scope of regulation goes far beyond minimum internal control
standards, and would confer Class III regulatory authority that not
even the NIGC has previously claimed or sought. The Draft Bill's grant
of authority ``for the regulation of Class III gaming'' encompasses
every aspect of a tribe's Class III gaming operation. It would give the
NIGC the broad authority to adopt whatever regulation it wished,
subject only to a requirement that it be rationally related to the
purposes of IGRA. The elephant gun of total regulation is
disproportionate to the perceived flea--minimum internal control
standards. It would also eliminate for all practical purposes the
primary regulatory role of the tribes and the compacting role of the
states.
In its unnecessary overbreadth, the Draft Bill also incorporates
one of the most troubling aspects of S. 2078, considered by this
Committee during the last session. The ``mere'' addition of the words
``and Class III gaming'' to subsections 2706(b)(1), (2) and (4)
effectively guts the tripartite scheme of the statute as originally
conceived. By giving the NIGC equal (or preemptively superior)
regulatory authority with the tribes and the states, a seemingly
straightforward amendment would set up the likelihood of inconsistent
regulations and render much of the compacting process meaningless.
We would propose instead an amendment limited to the issue of
minimum internal controls, incorporated through the existing ordinance
approval process. We submitted proposed language to the Committee last
year and would be happy to provide it again.
Other Comments
Bearing in mind that the Draft Bill is the opening point of the
discussion, we have a number of additional comments.
First: We believe that a minimum of 1 year's experience in the
regulation of Class III gaming is insufficient for service on the
proposed Class III Regulatory Committee. We recommend that the minimum
be at least 3 years.
Second: We strongly recommend that the Bill require that at least
two members of the Committee be Native Americans.
Third: If constitutionally permissible, we propose that the
Committee be comprised of five individuals, one individual being
appointed by each of the Secretary, the Senate Majority Leader, the
Senate Minority Leader, the Speaker of the House, and the House
Minority Leader.
Fourth: We recommend that the prohibition on Committee members
being Commission employees be expanded, to prohibit Committee
membership for anyone employed by the Commission within the immediately
preceeding 12 months.
Finally: We close on a positive note. We are pleased that the Draft
Bill recognizes that many Compacts impose rigorous tribal regulation
and state oversight that does not need an additional--and additionally
expensive--layer of Federal activity. If the opt-out process
contemplated by the Draft Bill is ultimately adopted, we hope to
participate actively in formulating a procedure that fully respects the
experience and wisdom developed by the tribes and states, and avoids
needless intergovernmental conflicts.
I thank you again for giving CRIT the opportunity to offer its
views on this important issue. We look forward to working closely with
the Committee to develop a Bill that satisfactorily addresses the issue
of internal control standards without destroying the delicate
intergovernmental balance that has largely worked extraordinarily well
for nearly twenty years.
I would be happy to answer any questions the Committee may have.
The Chairman. Ms. Tahbo, thank you very much for your
testimony.
I would like to ask if we could have Chairman Hogen come
back to the witness table, and Mr. Shelton as well. Take a
couple of chairs. I apologize that we are a little bit cramped
there, but I appreciate very much all of you being willing to
stay and be available for questions.
Let me begin by stating that, this issue of regulation or
the regulatory mechanism for gaming is a very important issue.
We have a lot of experience, for example, with the development
of a gaming industry in Las Vegas, Nevada, which kind of became
the first and the largest. We have a lot of experience with
this issue of what kind of regulation is needed with respect to
Las Vegas, for example, when someone builds a major new
facility with gaming. I assume they provide for their own
regulatory capability inside the facility.
And then in addition to that, there is a very stringent
regulatory system by the State of Nevada, by a control board of
some sort. So you have two different levels. If Mr. Wynn, for
example, who is a very big builder there, he opens up a new
facility with gaming, he I am sure, with his professional
people, are creating their level of regulatory schematics
inside the company, and then the State has a very certain
regulatory capability.
In my opening statement, I talked about the need to have
regulatory oversight outside of the entity that owns the
facility itself. The entity that owns the facility in almost
all cases will have the best opportunity to create standards,
but there needs to be another level.
Now, Mr. Allen, first of all, do you agree with that, and
second, if that is the case, the second level in most cases
with respect to the compact would be State governments. Am I
correct about that?
Mr. Allen. Yes. The way you characterized it isn't quite
right. The owner, Mr. Wynn, or the tribe, will have their own
internal controls and accountability and security measures, so
the system will be structured to account for the management of
our assets and the operation of the business. Then you are
going to the regulatory oversight to assure you are compliant
with all regulations and any agreements that the tribes have
made with the State and then subsequently compliant with IGRA.
So then our regulatory agency is insulated and it is
independent. It is commissioned by the tribe as a government
regulatory agency to do that. The States do the same thing.
Nevada does the same thing. So that is how they are authorized
in order to provide that regulatory oversight. Then the State,
for us, oversees how well we have done that, and how well we
have committed to the agreement that we have had with regard to
the regulatory oversight of the operation.
The Chairman. I want to understand that. Mr. Wynn doesn't
create his own oversight system.
Mr. Allen. No, he doesn't.
The Chairman. It is the State of Nevada that then provides
that oversight.
Mr. Allen. That is correct.
The Chairman. My question is this. With respect to the
tribes that own the casinos themselves, they provide their own
internal systems and then the States, according to the compact,
would provide its oversight system. Is that correct?
Mr. Allen. Well, it is two-fold. Imagine the business
itself as one level. The regulatory oversight, as a government,
because we are the government just like the State of Nevada, so
we have our own regulatory agency that we established.
The Chairman. But you are a government that owns the
facility.
Mr. Allen. Yes, that is true. But then so States who run
lotteries provide the same oversight for their lotteries. It is
the same. They are establishing independent regulatory
oversight of their own gaming operation. They own the lottery,
so it is the same with them. And no one questions their
integrity, so that is our point. We think that we are doing a
good job.
Now, are they meeting the standards? The question of the
day is are we meeting the standards to provide credibility and
integrity with regard to the public interest. That is the
question. We think that IGRA is requiring that.
Now, I know Phil has raised issues about there are some
areas where the compacts don't address that, and the issue is
what is the appropriate course of action to try to improve
those areas where the compacts don't address those internal
controls.
The Chairman. Mr. Shelton, in the State of California,
describe to me the system in the State of California that now
exists.
Mr. Shelton. At this time, the first compacts were issued
in 1999 to address and recognize IGRA and the role of NIGC as
approving regulations that the tribes submit. California
believes in the compacts. We have the authority to do the
oversight, but at this time what we have done is financial
audits for the special distribution fund that comes to the
State and is distributed to different entities.
Doing that, we do look at internal control standards around
financial issues, but we have not gone further. The Division of
Gambling Control, which comes under another constitutional
officer, which is the Attorney General, has sworn personnel
that do go out and do spot checks on minimum control standards,
but not to the extent neither of us have done due to resources
that NIGC has done.
So we felt and believe strongly that they complement what
we do. We don't question the integrity of the tribes. As a
matter of fact, the audits that we have performed have shown
great operations, great integrity. But the Governor believes
transparency is very necessary for the gaming public to have,
and we need the oversight to do that and do the inspections to
verify what is actually occurring.
The Chairman. Mr. Hogen, respond to Mr. Allen's point. Mr.
Allen's point is that you have lotteries out there that are run
by the States. No one is overseeing that, or no one is coming
back at a second level. Why should it exist with respect to
tribal casinos?
Mr. Hogen. I think there are certainly some parallels that
can be drawn, but I think there are more differences than there
are similarities. That is, for the most part in tribal gaming,
tribal gaming is if not the only, the principal source of
funding. So the tribe in many cases is almost totally dependent
on that revenue stream. So the significance of the dollars is
different.
I think it is also economies of scale, trying to compare
the St. Augustine Rancheria and its membership and ability to
regulate and manage and separate those, with the State of Texas
and their State lottery, I think it is quite a stark contrast.
The State lotteries are a little different in terms of the
gaming that they operate. They don't deal blackjack. They don't
run slot machines. They don't do slot machines drops and so
forth.
So I think the principle is the same, but there are
significant differences, enough differences that I think that
it is very important and appropriate to have that independent
oversight.
The Chairman. Mr. Hogen, other testimony has indicated this
morning that they feel you do retain some authority over Class
III gaming. In your judgment, is that accurate? Tell me how you
view that testimony.
Mr. Hogen. Yes, we absolutely have and continue to have
after the CRIT decision authority to do a number of things.
Most of those, however, deal with the actual operation of the
gambling activity. We look at the use of gaming revenues; the
adoption of the tribal gaming ordinance. We continue to get
audits reflecting the report on an annual basis.
But in terms of that tool that we had, the minimum internal
control standards, that dealt with where the surveillance
cameras are, what the resolution has to be, how you protect the
playing cards and things like that, we have been kind of
ejected from that arena. And that is really important with
respect to the integrity of the gaming. I think Nevada learned
first the hard way that you have really got to have those rules
and that control.
The Chairman. Myra Pearson, in your testimony you described
the opposition of the Great Plains organization. How many
tribes exist in that organization?
Ms. Pearson. Twenty-eight.
The Chairman. I think you made the point, and I would echo
the point that all of you have made, this hearing isn't held
for the purpose of describing some significant national problem
that exists in Indian gaming. That is not the case and people
should understand that.
The question is, with respect to the CRIT decision, has
that decision impacted the oversight or the regulatory
capability with respect to Indian gaming in a manner that
should suggest this Committee adopt some modifications or some
legislative changes. That is the purpose of this inquiry. I
appreciate the comments, and I will have a couple of additional
questions, but let me call on the Vice Chair, Senator
Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
Mr. Hogen, I want to go back to you. We have heard here
this morning, and certainly previously, that this CRIT fix is
not necessary because the compacts include within their
provisions, provisions or standards that are similar to these
minimum controls or these MICS standards. In your judgment, are
the States in any way hindered from enforcing the internal
control standards of their compacts?
Mr. Hogen. I don't believe that there is a legal hindrance
there. I think there is, for a multitude of reasons, a lack of
inclination in many cases to be very involved or very
effective. In some cases, the language of the compact just
doesn't provide for that. In other cases, while the language
may address it, it is permissive. And second, the States have
not really devoted much resources to do that.
Senator Murkowski. So it would vary from State to State,
depending on the priority or the compact. Is that your
suggestion?
Mr. Hogen. Absolutely. There is a huge variety there. We
have compacts in 22 States and none of them are identical. Some
have some similarities. Some in fact adopt the NIGC minimum
internal control standards, but one size certainly does not fit
all.
Senator Murkowski. Let me ask a question, and I perhaps
suggested this in my opening remarks. With the language that we
have before us in this bill, there is some concern that perhaps
the NIGC could gain additional authority to regulate the Class
III establishments over and above the compliance with the MICS.
Is that your understanding? Is that what the NIGC is seeking,
that broader or more expansive authority?
Mr. Hogen. When I last testified about this subject, I
think the language I used was ``let me be crystal clear.'' We
are not trying to expand our authority at all. We just want to
keep doing what we at that time were doing, drafting, requiring
compliance with minimum internal control standards and having
the ability to go out there and audit to see if there was
compliance, and when there wasn't compliance, to try and help
tribes fix it, or if necessary to take enforcement action.
Senator Murkowski. As you have done that in these audits,
have you surveyed the States that have entered into Class III
compacts to determine whether or not they would welcome a
mandate that would allow these Class III establishments to
comply with or to follow the MIC standards? Has that type of a
survey of the States been done?
Mr. Hogen. I don't know that we have had a specific
discussion with each and every of those 22 States, but for
example, Mr. Shelton's agency, we often discuss this sort of
thing and we have in many places. I just returned from the
North American Gaming Regulators Association that had their
annual meeting in Kansas City. There, we meet with the State
regulatory agencies. We have a good open relationship with
those agencies, and I think for the most part they are
supportive.
Certainly, nobody wants to give up their turf, so to speak,
but when we go out and do our audits, we literally never run
into or stumble across or duplicate what States are doing.
Where States address those kinds of issues, we do it less
often. One of the requirements in our minimum internal control
standards is when the tribes do their annual audit, they have
to follow the auditors, the independent outside auditors,
follow agreed upon procedures. They have to look, is the tribe
in compliance with NIGC's minimum internal control standards.
They give that report to the tribe. They give it to us. That is
how we focus on those places that we go to do the audits, and
literally, we have never been there while the State was doing
the same thing, and I don't know any States that do exactly
what we do when we do the minimum internal control standards
audits.
We have never closed a facility for their failure to comply
with the MICS. When we found shortcomings, we have said, let us
help you fix it, and for the most part, that has worked.
Senator Murkowski. Well, let me ask you, Mr. Shelton, it is
not very often that we get somebody coming from the State
actually asking or urging us to step in and regulate in areas
that the court has determined that the Federal Government
should perhaps stay out of. So it is kind of unusual to have
you coming in and I appreciate the perspective that you have
shared with California. But can you tell me what the difference
is here, and perhaps answer my question? To the best that you
know, are there other States that are in the same situation as
California, where you are suggesting that the Federal
Government should have an increased role there?
Mr. Shelton. I wouldn't be presumptuous to speak for the
other States, but I came to Kansas City with Mr. Hogen at the
same time, and several States and Canada were represented. NIGC
received a wonderful welcome there in their reaction.
California has grown so immensely in gaming, from $1
billion and some in 2001, to 2006 over $7 billion. We had not
geared up to do what we should be doing. The tribes have been
very open. They are great to work with and we have great
communications, but the Governor sees NIGC filling a void at
this time, and it is very necessary. They have been just
recently in our State and did an audit. I don't know of any
ramifications from that audit that would be negative.
Most of the tribes I talk to, and I believe to the major
tribes in California, I have a good rapport with, and they told
me that we don't know which one we want in. We enjoy NIGC
coming in. We haven't experienced in the State of California a
full MICS inspection at this time. What we fear is both of you
coming in at the same time.
We understand that. Chairman Hogen and I have discussed
that. As long as we at the point California is at, we would
coordinate our activities. That is not what any of us want to
do. The Governor would not want that. He would not allow that.
He doesn't want the heavy-handedness. His respect for
sovereignty is too great. So I believe it is a good marriage
that works out.
Senator Murkowski. Let me ask you, probably Mr. Allen, you
had mentioned in your comments the need for just the openness
and the integrity, or an acknowledgment that in your opinion
these are attributes that we are staying with, in the content
of the gaming that is going on. We have not heard anything to
dispute that. In fact, I understand that there are some polls
out there that have been conducted for the National Indian
Gaming Association that say Indian gaming has an approval
rating between 61 percent and 75 percent, depending on the
question asked.
We would only dream of those kinds of approval ratings here
in the Congress.
[Laughter.]
Senator Murkowski. We recognize that whether you are the
Congress or whether a business enterprise, everybody stands
before that court of public opinion. And where we recognize
that sometimes that public opinion is a fragile base, how
important is it that the Indian gaming industry adhere to a
uniform national and kind of best practices set of standards
for the internal control, to maintain this integrity that you
currently have?
Mr. Allen. Well, it is important that there is a set of
standards that the general public and the policymakers know
that the tribes are adhering to, without a doubt. Many of us
believe that NIGC has sufficient authority right now in terms
of its oversight. They have to approve our tribal regulations
with our gaming agencies. So they review them, so they know
exactly what that is.
This whole process is a dynamic process in terms of our
regulatory independent agencies with regard to that regulatory
oversight. The issue before us is should NIGC approve the
standard internal controls that would be adhered to with the
tribes and/or the States with respect to that matter. The
question is, how that would be imposed.
The dialogue and debate is about is it an additional layer.
That is our concern, that the way it is being structured right
now, and what we are advocating with the Chair, is be careful
here because you could be adding a layer, even though it
appears like it is not a layer.
So the question is, if NIGC is given this authority and it
says that it has to have these internal control standards for
Class III activities, then now the issue is are they going to
now being engaged in our negotiations with our compacts, so
that those requirements are now in our compacts? So now it is
no longer a State-tribal relationship as authorized by IGRA.
Now, there is an NIGC role in that forum. You have this
triangular negotiation about what is acceptable and not
acceptable. It can be a little bit presumptuous.
Now, we are growing. Here is the fact. We are 20 years old
now in this industry. We have been growing together at the same
time. It is not about one entity or one agency has greater
superiority than the other. We have been growing. The only one
who has greater superiority or experience is Nevada and New
Jersey, et cetera. But the rest of us have grown and have the
same kind of expertise as anyone else.
So the question is, if the Act is amended, how is it
structured so that it is not paternalistic toward the tribe,
and is respectful of the tribal governments, as we impose these
conditions? And make sure you know exactly what is going on out
there, because the integrity of oversight, as we have all
testified, is at a very high level. There are no problems, as
the Chairman has pointed out. There aren't very many problems
out there. There is this concern that Phil and his staff can
point to.
I have some examples. You have to have some examples. But
what is the kind of corrective action you should take, and do
you already have the authority to do that, to fix those things?
How should you be encouraging higher levels of internal
controls and standards?
Senator Murkowski. Thank you.
Thank you, Mr. Chairman. I may have some additional
questions to submit for the record.
The Chairman. Senator Inouye?
Senator Inouye. Thank you very much.
May I make a statement in lieu of asking questions?
The Chairman. Absolutely.
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Mr. Chairman, I have had the pleasure of
serving on this Committee for many years, as either Chairman or
Ranking Member, since 1986. The first challenge that this
Committee faced was the Cabazon case. The Cabazon case was
decided by the Supreme Court in 1985, and it once again
reestablished and affirmed the sovereignty of Indian nations.
It was not considered an important case because you hardly saw
this matter being reported in the press.
When this Committee realized that we had a problem before
us, we immediately conferred with the Government of the United
States because it was our belief that the sovereignty of Indian
nations required a government-to-government relationship not
with the States, but with the Federal Government. At that time,
the Attorney General, the White House, all said no, we don't
want any part of this, and so we conferred with the States.
Mr. Chairman, I had the privilege of meeting every Governor
to discuss this matter because it was obvious to me that this
matter will someday become big. In the beginning, this
Committee, and for that matter the Congress of the United
States, with the Administration, had very little concern or
interest in Indian gaming. As one told me, well, these simple
folks won't know what to do. They just want to run bingo games
and such.
And the Indian tribes because they were not receiving any
help from the financial institutions of the United States,
because their lands could not be alienated, they could not put
it up for mortgage. They couldn't borrow any money. They had to
go elsewhere to borrow money, at times from unscrupulous
people, many times, across the ocean to foreign lands, paying
high interest rates, unheard of, outrageous regulations. But
they did this.
Mr. Chairman, I supported the Indians because I believe in
their sovereignty. And second, we have not kept up our side of
the bargain. There have been many treaties in which we promised
Indian Country that we would do this and that. Keep in mind
that this Country was once owned by the Indians, and they gave
up jurisdiction over these lands on the promise that they would
be cared for. And the way we have cared for Indians is just a
blight upon the democracy of this land. We should be ashamed.
So when this came about, I said, here is an opportunity
where the Indians may be able to help themselves. Well, they
began doing well. They regulated their industries they went
into, and said, OK, we will live with these outrageous
compacts, but we will go ahead and do it. They paid
extraordinarily large interest rates, but they still made
money. And they set up hospitals and schools and housing,
something that we should have been doing.
Now, Mr. Chairman, I don't wish to be part of any move that
would in any way erode the sovereignty that they have. And so
you will find me on the other side. I think the Indian nations
have done extremely well. We haven't had any major scandal.
Compare that with the so-called well-run activities of New
Jersey and Las Vegas, and see how the Indians have done. The
one big scandal that involved Indian gaming came about because
non-Indians tried to scam and con Indians. It wasn't initiated
by the Indians.
So Mr. Chairman, I think this is a good hearing. I should
tell you that I will do everything possible to see that this
bill disappears. Incidentally, there are two States in the
union that prohibit any form of gambling, Utah and Hawaii. I am
against gambling. I don't think that is the way to make money.
But I respect the sovereignty of Indian nations.
Thank you.
The Chairman. Senator Inouye, thank you very much.
[Applause.]
The Chairman. That is a wonderful description of the
history going back to the Cabazon case that has changed the
landscape with respect to the issue of Indian gaming, the
opportunity to develop a stream of income to be helpful to
Indian tribes around the Country. And your description of the
compacts and so on is an apt description.
One of the things that we have tried to make certain in
this Committee is about consultation and the Committee is about
understanding and recognizing sovereignty. That is very
important. Those are two things that I believe when people take
a look through the rearview mirror of history about this
Committee, they will understand, starting long, long ago, with
the stewardship of Senator Inouye, and I hope up to and
including now with Senator Murkowski and myself and many other
Members of the Committee, that people understand this Committee
was about consultation and respecting and recognizing the
sovereignty that exists.
Let me just ask one additional question. Mr. Luger, you are
the Executive Director of the Great Plains organization. You
accompanied Chairwoman Pearson today. Let me finally just ask a
question. I am going to submit questions to a number of you.
One of the reasons for a continuing discussion about this
is the need, or the feeling that there is a need for more than
one level of regulation. My understanding is that in some cases
in the Country, that there is common membership in the tribal
council and also the gaming authority, the regulatory authority
for that tribe's gaming facility. I don't know that that is the
case in many circumstances, but I understand it is in some. If
that is the case, then you don't have an arm's length
regulatory oversight of the gaming facility.
Is it your feeling and Chairman Pearson's feeling that
there needs to be at least two levels? I think in previous
discussions, you have indicated that there is with the State
compact a State level of regulatory authority, and the tribe.
Is there a feeling that there needs to be at least two levels
of regulatory authority?
Mr. Luger. Yes. The short answer is yes. We, as you know
better than I, the hard work of all of these. And the
frustrating part is that because of the Seminole decision, we
have put all of our time and energy in beefing up our own
tribal gaming commissions and our relationship with the States.
Quite frankly, and I will be very brief, as long as Phil is
here, it is something that just never comes up and it is a
constant consternation to Indian Country, and that is with
technical assistance, a lot of this would have been minimized
or eliminated. They have done poorly in that area. It is
hurtful, especially for your tribes at home, Senator Dorgan. I
can't call up NIGC. I have 14 training and regulatory seminars
last year. I have called the Minneapolis area every time, John
Peterson, and every time I get the same response: I don't have
an expert in that field, or I don't have the travel time, or
what have you.
I have to go back out into Indian Country to find those
experts in that regulatory area. I don't think there is a tribe
in here that wouldn't disagree with me that the technical
assistance aspect of NIGC has been less than star quality.
The Chairman. Mr. Hogen, you are welcome to respond to that
in writing if you wish.
Let me make a final point today. Senator Inouye, you
offered an amendment dealing with the Seminole case, which I
supported. That failed on a tie vote in this Committee. I don't
disagree that we need to resolve and deal with the Seminole
case. That is a related issue that we should be considering.
Our future discussions will ensue from the information we
have now received from our witnesses. I think the witness table
is probably a pretty accurate reflection of the division that
exists in the country on this subject. I am talking now about
Indian Country. As I indicated, we will digest and evaluate
what we have heard today, and what we feel we should do to
respond.
Having had this hearing, and now being able to study over
some period of time in the future the information we have
received, I want you all to understand again that the principal
priority of this Committee is going to remain health care,
housing, education, teen suicide, methamphetamine, and law
enforcement. Those are the items that will consume a
substantial amount of the passion and energy of this Committee
because we have a full-blown crisis in Indian Country on those
issues.
I did think it was important to have this hearing in order
to consider how to move forward with respect to this issue of
regulatory authority for Indian gaming. Indian gaming is very
important. It produces a very substantial $25 billion revenue
stream for Indian tribes, and it has been desperately needed in
much of this country. So I think no one in this room who comes
to this subject wishes in any way to injure or to cast doubt
upon these issues. We believe that this issue is a very
important issue and a very important source of much-needed
revenue for American Indians.
One final point, I would agree with my colleague, Senator
Inouye, that the Congress of the United States over many, many
decades has I think shamefully ignored its responsibility to
address the very issues I have described with tribes in many
ways. I think Presidents and Congresses have failed with people
living in Third World conditions in this Country on Indian
reservations, and it is shameful that that continues to exist.
This Committee and many others have a responsibility to
address it and address it aggressively, and that will remain
the major agenda for this Committee.
Let me thank the witnesses for coming. Let me thank my
colleagues for being here as well.
This hearing is adjourned.
[Whereupon, at 10:50 a.m. the Committee was adjourned.]
A P P E N D I X
Prepared Statement of Tracy Burris, Gaming Commissioner of the
Chickasaw Nation
Good morning Chairman Dorgan and distinguished Members of the
Committee.
On behalf of the Chickasaw Nation, allow me to extend our deep
appreciation for this opportunity to comment on this important
legislative proposal. My name is Tracy Burris and I serve as the
Commissioner of Gaming for the Chickasaw Nation, a post I have held for
approximately 12 years. The Chickasaw Nation strives always to provide
constructive comments, and I am honored to deliver the Chickasaw
Nation's view in relation to the proposed amendment on the issue of the
NIGC's authority over Class III gaming. We hope the Committee finds our
testimony today useful in its deliberations on this important issue.
Let me open with the observation that there is no debate in Indian
Country about the need for sound internal control standards. Effective
internal control standards represent a critical tool in safeguarding
critical tribal gaming revenues and ensuring operational integrity.
Neither is there a question as to the importance of regulatory
oversight and the enforcement of regulations designed to serve these
purposes. As a front line gaming regulator, the utility and necessity
of internal control standards is clear and we work hard to ensure
operational compliance at the Chickasaw Nation's gaming facilities.
In our view, the issue before us today is NOT whether regulatory
oversight is important or whether internal control standards are
necessary, but rather how best to allocate regulatory responsibilities
essential to the fulfillment of the purposes for which IGRA was
enacted. First and foremost, IGRA was enacted to establish a
comprehensive regulatory framework for tribal government gaming. The
act reflects a balance between the competing governmental interests by
assigning regulatory roles to tribal, state and Federal agencies based
on a classification system dividing gaming activities into three
classes with regulatory roles distributed among tribal, state and
federal governments in accordance with the class of the gaming
activity.
Class I gaming consists of traditional tribal social games. In
light of the superior tribal governmental interest in matters of
culture and tradition, tribal governments were accorded exclusive
regulatory authority over Class I games. Class II games include bingo,
lotto, pull-tabs, games similar to bingo and certain other enumerated
games as well as certain non-banking card games. Though similar,
Congress accorded greater weight to the tribal interest in Class II
games, according tribal government primary regulatory authority, though
establishing a Federal regulatory agency charged with regulatory
oversight responsibilities.
With regard to Class III gaming, which includes slot machines,
facsimiles, house banked card and table games and other wagering
activities, Congress did something novel. It created a consensual
mechanism, and then left tribal and state governments to work out their
differences. If negotiations succeeded in producing a tribal-state
gaming compact, and the compact met with the approval of the Secretary
of the Interior, tribal governments could lawfully engage in Class III
gaming activities.
In the beginning, there was considerable discontent on both sides.
Over the years, however, tribal and state governments for the most part
have succeeded in working through the compacting process. As a result,
the Class III gaming industry comprises most of the tribal gaming
industry. This fact underscores how effective IGRA has been in altering
the course of the tribal-state relationship in a more positive
direction. Given the tensions that once characterized the tribal-state
relationship over gaming, it's almost surprising that the issue that
brings us here today is the Federal interest in Class III gaming.
The crux of the matter is a decision by the Federal Circuit Court
of Appeals for the District of Columbia affirming the lower court's
ruling that IGRA does not authorize the NIGC to regulate Class III
gaming nor to promulgate and enforce its minimum internal control
standards in relation to Class III gaming activities. The committee is
now considering whether to amend IGRA to broaden its authority to
encompass Class III gaming. Bill language to do so has been drafted and
we thank Chairman Dorgan for the courtesy of circulating a discussion
draft.
We note that the bill would also establish an alternative
rulemaking process for the development of Class III minimum internal
control standards. To some extent, the fact that language is drafted
and a hearing convened would indicate that there is to some degree a
sense that the amendment is warranted. The purpose of this hearing is
to aid the committee in deciding if this is so and whether the proposed
language is acceptable to tribal and federal governments.
We see the proposal as an effort to again strike a balance between
competing governmental interests, yet it is important to recognize that
the amendment will alter the regulatory framework and the balance
reflected in it. We would prefer to avoid amending IGRA in this manner
because IGRA represents a compromise that has finally been accepted
after a very long and difficult period of time. Statutory amendments
introduce complexities and create uncertainties, which is not conducive
to a stable business environment. Moreover, it is not possible to
foresee every ramification, particularly where the amendment effects
such fundamental change. We know that where multiple jurisdictions have
overlapping functions and responsibilities, inefficiencies inevitably
result and costs increase. Redundancy is also conducive to conflict,
which creates instability.
By all indications, the tribal gaming industry is healthy. It has
enjoyed double digit growth in productivity each year for more than a
decade. On the whole the industry enjoys a wholesome public image and
maintains considerable public support. Tribal regulatory capacity and
expertise have strengthened over the years and tribal regulatory
agencies continue to achieve ever increasing levels of sophistication.
In every respect IGRA represents one of the most successful and
important pieces of Indian legislation ever enacted by the Congress. It
has provided tribal governments a substitute for the tax base they
lack, and in so doing, it has strengthened tribal governments
economically and institutionally.
In light of the success and importance of gaming to tribal
governments, it is only natural that tribal officials will have
misgivings about amending IGRA. Tribal officials are equally
apprehensive in relation to proposed rules, particularly regulations
such as the MICS which are legislative in nature and highly detailed
technically. In the first place, the responsibility for implementing,
monitoring and enforcing such regulations falls most heavily on tribal
gaming regulatory agencies. Yet, the NIGC's policies with regard to
tribal participation in the drafting process have been erratic. There
have been periods when the NIGC has welcomed participation and others
where it has been unreceptive. We believe that the quality and
workability of regulations suffers when those most directly affected by
the regulations, particularly those responsible for on-the-ground
implementation are not given a seat at the drafting table. The
development of internal control standards requires an intimate working
knowledge about the gaming environment as well as expertise in all
aspects of gaming operations.
The MICS have been the subject of longstanding complaints from both
the regulatory and the operational sides of the industry. In reviewing
the draft bill, we appreciated that a provision was included to address
these tribal concerns and felt that we might offer some insight that
may aid the committee's deliberations on the subject.
The dissatisfaction with the MICS arose soon after they were first
adopted. In implementing the MICS it soon became evident that the
standards were flawed in several respects. First, they were largely
borrowed from the Nevada Gaming Control Board's regulations at a time
when the industry was undergoing a period of significant technological
advancement. As a result, the MICS were already stale in several areas
at the time of adoption. They were also poorly suited to the Class II
gaming environment, though the NIGC resisted this premise based on its
belief that electronically aided Class II games are indistinguishable
from Class III gambling machines.
Another flaw was that the MICS initially reflected a one-size-fits-
all approach. The same standards applied to all tribal gaming
activities regardless of the size of the operation, which in Indian
Country ranges from some of the world's largest gaming operations to
some of its tiniest. The rigidity of the MICS was frustrating to
regulators and operators. Moreover, compliance with the MICS presented
so many practical difficulties that tribal governments were alarmed by
the implications. Federal enforcement action, as a result of these
difficult to implement provisions of the MICS was the concern that
prompted tribes to begin questioning the NIGC's authority to promulgate
and enforce the standards.
In 2000, tribal leaders and regulators approached the NIGC about
the problems. The commission agreed to review the MICS and consider
revisions to address the practical problems tribal governments were
experiencing. A tribal advisory committee was assembled and a
significant revision resulted, but the issue of the NIGC's authority
was not resolved until the decision in the Colorado River case.
We are aware of the NIGC's strong concerns about the court's
decision and its desire for a legislative solution. We can also
understand the committee's interest in discerning whether the court's
decision creates a regulatory gap. At the same time we know that tribal
governments are not so irresponsible as to abandon their internal
control standards. To do so would deprive them of their most valuable
regulatory tool and render operations vulnerable to panoply of harms.
Tribal governments are competent to promulgate and enforce tribal
standards without a statutory or regulatory mandate or the threat of
enforcement. Tribal governments desire strong effective internal
control standards because they are in the best interest of the tribe.
On the question of whether the rule making function should remain
with the NIGC or be delegate to a specially created entity, we view
this decision as less important from our perspective than ensuring that
tribal officials have a seat at the drafting table. Unless the
provision guarantees that a specially created entity would be more
receptive to collaborative processes than the NIGC has been we cannot
see its value. The draft does not mandate that tribal officials will be
accorded meaningful participation or ensure that the committee members
will have expertise and experience that will allow them to participate
in meaningful discussion. We encourage the committee to consider a
slightly different approach. As drafted, the proposed bill establishes
a drafting committee, but offers very little procedural guidance. The
Negotiated Rulemaking Act and the Federal Advisory Committee Act, on
the other hand, each contains procedures that if applied would go far
in alleviating our concerns.
We strongly believe that all rule making under IGRA should be
subject to collaborative processes. Besides the expertise tribal gaming
regulators can provide, they have important insights to offer as to the
practical strengths and weaknesses of the regulations. They will also
be better equipped to identify areas in need of attention. Moreover, it
is illogical to exclude tribal gaming regulators from the drafting
process, given that tribal regulatory agencies will have primary
responsibility for implementing, monitoring and enforcing the
regulation plus approving the necessary operating procedures. Providing
oral or written feedback on draft regulations is of limited use. Once a
draft is prepared, there is typically limited interest in exploring
alternative approaches or effecting significant revision. Too much time
and effort has been invested and important choices have already been
made.
I will close where I began. Tribal officials well understand the
importance of internal control standard and effective regulations.
Tribal governments rely on gaming revenues to fund essential
governmental functions, services and programs. These revenues fuel the
economic engine driving tribal economic growth and development. Gaming
provides permanent jobs, fair wages and benefits. Thanks to gaming,
there are business opportunities within the community. These jobs and
opportunities stay right where they are and this knowledge increases
confidence and stability in the economy which fosters continued growth.
These successes were not easily accomplished. Years of hard work
have been invested, and years more will be needed to achieve the
standard of living and quality of life our leaders envision for
ourselves and our posterity. As Governor Bill Anoatubby has observed
many times, we do not see the accumulation of wealth from gaming as an
end in itself, but as a means of achieving the goals to which we aspire
on behalf of the Chickasaw Nation.
Thank you.
______
Prepared Statement of Stanley R. Crooks, Chairman of the Shakopee
Mdewakanton Sioux Community
Good morning Chairman Dorgan, Vice Chairman Murkowski, and Members
of the Committee. My name is Stanley R. Crooks, and I am the Chairman
of the Shakopee Mdewakanton Sioux Community (``Community''), a
federally recognized Indian tribe located in the State of Minnesota. On
behalf of the Community, I appreciate the opportunity to provide this
written testimony on the draft legislation (``Draft Bill'') that would
amend the Indian Gaming Regulatory Act of 1988 (``IGRA'').
As explained in more detail below, because the Draft Bill would
give the National Indian Gaming Commission (``NIGC'') general
regulatory authority over Class III gaming, the Community does not
believe that the amendments to IGRA set forth in the Draft Bill are
warranted or necessary. Although the Community disagrees with the Draft
Bill, we would also like to provide the Committee with specific
comments on why we believe the Draft Bill in its current form is
overbroad, vague, and would prove unworkable in practice.
Notwithstanding the Community's objections, we look forward to
working with the Committee in a cooperative manner to ensure that any
concerns with the regulation of Indian gaming are addressed in a manner
consistent with the congressional intent of IGRA and are in the best
interests of all applicable regulatory authorities.
General Federal Regulatory Authority Over Class III Gaming is
Unwarranted
Among other things, the Draft Bill deviates from IGRA's careful
regulatory balance by insinuating the NIGC into matters that are now
within the exclusive domain of the states and the tribes. The Draft
Bill would do this by granting to the NIGC new, general regulatory
authority to regulate Class III gaming. As the Committee is aware, IGRA
in its current form does not provide the NIGC with such general
authority. As the U.S. District Court for the District of Columbia
noted in a case brought by the Colorado River Indian Tribes:
Upon a careful review of the text, the structure, and the
legislative history of the IGRA, and the entire record in this
case, the Court is compelled to agree with Colorado River that
the [IGRA] statute does not confer upon the NIGC the authority
to issue or enforce [minimum internal control standards] for
Class III gaming.. . . [T]he NIGC has overstepped its bounds.
Colorado River Indian Tribes v. National Indian Gaming Commission,
383 F. Supp. 2d 123 (D. D.C. 2005), aff'd, 466 F.3d 134 (D.C. Cir.
2006)(hereinafter, ``CRIT''). In affirming the CRIT decision, the D.C.
Circuit Court of Appeals concluded its analysis by posing a question
and then answering it: ``[W]hat is the statutory basis empowering the
[NIGC] to regulate class III gaming operations? Finding none, we
affirm.'' 446 F.3d at 140.
When Congress enacted IGRA in 1988, it was careful to ensure that
IGRA's statutory framework clearly enumerated the authority of the NIGC
with respect to Class II and Class III gaming. Because Indian tribes
that conduct Class III gaming must have in place valid, executed
Tribal-State compacts, Congress did not believe that a third layer of
Federal regulation for Class III gaming was necessary. Furthermore, the
Federal Government--through the Department of Justice--argued against
such Federal regulatory authority over Class III when Congress was
considering IGRA. The legislative history to IGRA states:
Recognizing that the extension of State jurisdiction on Indian
lands has traditionally been inimical to Indian interests, some
have suggested the creation of a Federal regulatory agency to
regulate Class II and Class III gaming activities on Indian
lands. Justice Department officials were opposed to this
approach, arguing that the expertise to regulate gaming
activities and to enforce laws related to gaming could be found
in state agencies, and thus that there was no need to duplicate
those mechanisms on a Federal level.
S. Rep. No. 100-446, at 5 (1988)(emphasis added).
Careful enumeration by Congress in 1988 of the NIGC's authority
over the various classes of gaming authorized by IGRA has proven to be
an effective and efficient regulatory scheme, and one that has
transformed Indian gaming into the most heavily regulated form of
gaming in the United States. The Tribal-State compact mechanism,
although not perfect, has allowed Indian tribes and state governments
to negotiate and allocate regulatory duties in a single document. These
compacts, some of which--such as the Community's compacts with the
State of Minnesota--are long term or are perpetual in duration--were
entered into on the basis of the assumption that Class III gaming would
be regulated exclusively by tribes and the states.
Just as the hearing record fails to support the creation of yet
another layer of regulation for Class III gaming, there is no
justification for the added regulatory costs the NIGC would undoubtedly
seek to impose on tribes. Indian tribes currently pay all costs of
tribal gaming commissions, the costs of state regulation under the
Tribal-State compacts, and the entire budget for the NIGC through the
NIGC's annual assessment of fees. To now provide the NIGC with blanket
Class III regulatory authority, as the Draft Bill would do, would upset
the delicate balance Congress struck in 1988 and that tribes and states
have relied on ever since.
If the NIGC is concerned that the CRIT decision may limit its
ability to audit Class III gaming facilities or ensure that Indian
tribes have adopted minimum internal control standards (``MICS''), the
Community believes that these issues can be addressed in a more
narrowly tailored manner and through direct consultation with tribal
leaders.
The Community's Comments on the Draft Bill
Section 1 of the Draft Bill sets forth the purpose of the
legislation, and Section 2 would generally provide the NIGC with
authority to regulate Class III gaming. Section 3 of the Draft Bill
would establish a mechanism whereby the NIGC's regulatory authority
over Class III might be preempted if the NIGC itself certifies that the
regulatory activity required under the Tribal-State compact meets the
standards established by the Class III Regulatory Committee (``Class
III Committee''). Section 3 further grants the Secretary of the
Interior authority to establish the Class III Committee, which would
consist of five to eight members appointed by the Secretary. No member
of the Class III Committee could be an employee of the NIGC, and the
NIGC would pay the Class III Committee's operating expenses.
The Community believes that even if the apparent assumption upon
which the Draft Bill was written--that a need exists to provide the
NIGC with regulatory authority over Class III gaming--was valid, which
it is not, the Draft Bill in its current form is flawed and unworkable.
Some examples include the following:
(1) The Class III Committee Would Have Unfettered Discretion to
Adopt Regulatory Standards. The Draft Bill provides the Class III
Committee with nearly unrestricted authority to promulgate substantive
regulatory standards. Indeed, the Draft Bill states that the Class III
Committee shall ``develop minimum standards for the regulation of Class
III gaming.'' In addition to providing the Class III Committee with
authority to establish standards for the operation of Class III games,
the Draft Bill's open-ended charge might also be construed by some as
granting the NIGC authority to venture--among other areas--into scope
of games issues and gaming classification standards.
The NIGC's unilateral efforts to establish gaming classification
regulations have been universally opposed by tribes as conflicting with
IGRA's stated purpose to promote ``tribal economic development, self-
sufficiency, and strong tribal governments.'' 25 U.S.C. Sec. 2702(1).
The broad scope of the Class III Committee authority, however, might
provide an avenue for that Committee to establish substantive standards
in areas where the NIGC has thus far been unsuccessful.
Also, the Class III Committee might use its broad mandate to create
substantive environmental, health and safety standards, a regulatory
area that IGRA reserves to Indian tribes. As a condition precedent to
the lawful operation of gaming activities on Indian lands, an Indian
tribe must adopt a gaming ordinance which must be approved by the NIGC.
25 U.S.C. Sec. 2710. Among other requirements, tribal gaming ordinances
must contain provisions ensuring that ``the construction and
maintenance of the gaming operation, and the operation of that gaming
is conducted in a manner that adequately protects the environment and
the public health and safety.'' 25 U.S.C. Sec. 2710 (b)(2)(E).
Although IGRA grants the NIGC the authority to approve gaming
ordinances that satisfy these broad criteria, it does not grant the
NIGC authority to prescribe the substance of these environmental,
health or safety regulations. These decisions rest with the individual
tribes. In 2002, the NIGC attempted to impose on tribal gaming
operations substantive environmental, health and safety criteria, but
abandoned the effort in the face of widespread tribal opposition. The
broad discretion granted to the Class III Committee in the Draft Bill
would establish a mechanism for the NIGC to use the Class III Committee
as a proxy to regulate in these and other areas in which the text and
structure of IGRA do not allow.
(2) No Grace Period for NIGC to Review Existing Tribal-State
Compacts and No Deadlines for Implementation of Class III Committee.
Section 2 of the Draft Bill grants the NIGC new authority to regulate
Class III gaming, while Section 3 establishes the Class III Committee
that will later develop standards that may provide a basis for a tribe
or a state to be exempt from the new authority provided in Section 2.
The Draft Bill, however, does not contain any time frames for when the
new NIGC authority in Section 2 will become effective. Presumably,
Section 2 will be effective immediately upon enactment of the
legislation into law.
Operating under this presumption, all Indian tribes will be
subjected to the NIGC's general Class III regulatory power until the
Class III Committee is established, the Class III Committee promulgates
standards, and the NIGC acts to certify Tribal-State compacts. Without
any deadlines for the establishment of the Class III Committee, the
promulgation of that Committee's standards, or for the NIGC to act to
certify a given Tribal-State compact, it will likely take years before
an Indian tribe--through no fault of its own--can be exempted from the
NIGC's Class III regulatory authority. The absence of a grace period or
associated deadlines for implementation renders the purported exemption
in Section 3 of the Draft Bill nothing more than an illusion.
(3) No Process for Appealing the NIGC's Refusal to Certify a
Tribal-State Compact. The Draft Bill provides no mechanism for a tribe
to appeal a determination by the NIGC that a Tribal-State compact does
not satisfy the standards established by the Class III Committee.
(4) Status of Nonconforming Tribal-State Compacts Unclear: The
Draft Bill does not address the status of those Tribal-State compacts
that the NIGC determines do not comply with the Class III Committee's
standards. This might lead some to demand that these ``nonconforming''
compacts be reopened for negotiation. This, in turn, could create an
opening for states that are parties to such compacts to demand new or
increased ``revenue sharing'' in exchange for the tribes' continued
ability to conduct gaming. At the very least, this omission would
create a cloud over the legality of these compacts. The Draft Bill
should explicitly state that compacts that the NIGC determines do not
conform to the Class III Committee's standards are not subject to
amendment or to renegotiation without the written consent of all
parties to the compacts.
If Congress opts to have the NIGC assume all regulatory control
over Class III tribal gaming, as the Draft Bill would do, then there is
no need for the Tribal-State compacting process that is now an integral
part of the IGRA. The Community does not believe that this is the
result the Committee intends.
Rather, the Community believes that to the extent the Committee
believes that a legislative response to the CRIT decision is necessary,
the Committee should consider including MICS as a component of tribal
gaming ordinances rather than handing the NIGC broad regulatory
authority. The Community, however, has grave concerns about the wisdom
of any attempt to amend IGRA in the current political climate.
I appreciate the opportunity to provide the Community's views on
the Draft Bill. The Community stands ready to work with the Committee
and its members on this and other issues affecting Indian gaming.