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S. HRG. 109–50, Pt. 1

GAMING

HEARING

BEFORE THE

COMMITTEE ON INDIAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

ON

OVERSIGHT HEARING ON THE REGULATION OF INDIAN GAMING

APRIL 27, 2005

WASHINGTON, DC

PART 1

(
COMMITTEE ON INDIAN AFFAIRS

JOHN McCAIN, Arizona, Chairman

BYRON L. DORGAN, North Dakota, Vice Chairman

PETE V. DOMENICI, New Mexico

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

LISA MURKOWSKI, Alaska

MICHAEL D. CRAPO, Idaho

RICHARD BURR, North Carolina

TOM COBURN, M.D., Oklahoma

DANIEL K. INOUYE, Hawaii

KENT CONRAD, North Dakota

DANIEL K. AKAKA, Hawaii

TIM JOHNSON, South Dakota

MARIA CANTWELL, Washington

JEANNE BUMPUS, Majority Staff Director

SARA G. GARLAND, Minority Staff Director

(II)
(III)

C O N T E N T S

Page

Statements:

Coburn, M.D., Hon. Tom, U.S. Senator from Oklahoma ............................... 20

Colombe, Charles, treasurer, National Indian Gaming Association and

president, Rosebud Sioux Tribe ................................................................... 24

DesRosiers, Norman H., commissioner, Viejas Tribal Government Gaming

Commission ................................................................................................... 22

Devaney, Earl, Inspector General, Department of the Interior .................... 7

Dorgan, Hon. Byron L., U.S. Senator from North Dakota, vice chairman,

Committee on Indian Affairs ....................................................................... 2

Heffelfinger, Thomas B., U.S. attorney, District of Minnesota, Department of Justice .............................................................................................. 10

Hogen, Phil, chairman, National Indian Gaming Commission .................... 3

Light, Steven, assistant professor, University of North Dakota .................. 29

McCain, Hon. John, U.S. Senator from Arizona, chairman, Committee

on Indian Affairs ........................................................................................... 1

Rand, Kathryn, associate professor, University of North Dakota School

of Law ............................................................................................................ 29

Van Norman, Mark, executive director, National Indian Gaming Commission Association ............................................................................................. 24

Washburn, Kevin, associate professor of law, University of Minnesota ...... 26

APPENDIX

Prepared statements:

Devaney, Earl ................................................................................................... 39

DesRosiers, Norman H. (with attachment) .................................................... 43

George, Keller, president United South and Eastern Tribes, Inc. ............... 53

Heffelfinger, Thomas B. (with attachment) .................................................... 62

Hogen, Phil (with attachment) ........................................................................ 76

Light, Steven (with attachment) ..................................................................... 101

Rand, Kathryn (with attachment) ................................................................... 101

Rose, Calvin, tribal chairman, Strawberry Valley Rancheria ...................... 343

Stevens, Jr., Earnest L., chairman, National Indian Gaming Association,

Washington, DC ............................................................................................ 346

Washburn, Kevin (with attachment) .............................................................. 363

Additional material submitted for the record:

Bullis, Paul, director, Arizona Department of Gaming, letter ...................... 378

(1)

GAMING

WEDNESDAY, APRIL 27, 2005

U.S. SENATE, COMMITTEE ON INDIAN AFFAIRS, Washington, DC.

The committee met, pursuant to notice, at 9:31 a.m. in room 485,

Senate Russell Building, Hon. John McCain (chairman of the committee) presiding.

Present: Senators McCain, Akaka, Burr, Cantwell, Coburn,

Conrad, Crapo, Domenici, Dorgan, Inouye, Johnson, Murkowski,

Smith, and Thomas.

STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM

ARIZONA, CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

The CHAIRMAN. In 1988, Congress enacted the Indian Gaming

Regulatory Act with the intent of providing a statutory framework

for the operation and regulation of gaming activities. At that time,

Indian gaming was a $100-million a year industry. Today, over 220

tribes participate in an $18-billion industry. This explosive growth

was not anticipated by Congress, the States or even the Indian

tribes. Gaming has transformed the face of Indian country and in

many respects people’s perception of it.

There is no doubt that Indian gaming has benefited many tribes.

It has produced economic opportunities where before there were

none; paid for critically needed governmental services and

strengthened tribal self-determination. In some States, the regulatory system appears to be working well. In Arizona, for example,

tribal regulators work closely with State regulators to oversee a

gaming industry that shares proceeds among all tribes and whose

operation was approved by the voters of my State.

There also are reports, however, that the purposes of IGRA are

not always being met. Rather than improve the lives of Native

Americans, we have heard of cases in which gaming has resulted

in non-Indian developers, investors and vendors making exorbitant

sums and of tribal leaders benefiting at the expense of their own

members. I hope our witnesses will address the extent to which

this is occurring and the extent to which information is available

that would allow an honest assessment of this.

On the issue of transparency in gaming operations, some tribes

have challenged the National Indian Gaming Commission’s very

ability to regulate class III gaming. I disagree with this challenge,

though I believe that Congress has not provided adequate funding

for NIGC to carry out its charge. I recognize that there is a tension
2

between claims of tribal sovereignty and ensuring that the Federal

law that governs Indian gaming is enforced. I believe it is time that

this committee and the responsible Federal agencies engage in a

constructive dialog with the gaming tribes on where the act can be

positively improved or meet its original intent.

Just yesterday, the Secretary of the Senate sent the committee

a legislative proposal from NIGC for amendments to IGRA. I look

forward to working with the NIGC and others to implement needed

changes to the laws.

Senator Dorgan.

STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR FROM

NORTH DAKOTA, VICE CHAIRMAN, COMMITTEE ON INDIAN

AFFAIRS

Senator DORGAN. Mr. Chairman, thank you very much.

Let me thank all of those who have come to this hearing.

As you indicated, Indian gaming is something that is relatively

new. It is just a little over a decade-and-a-half old. There is very

little research that has been done on these issues. The Congress

has done what it can and what it felt was appropriate to create a

regulatory system, working within the issues of sovereignty as well.

We obviously have received comments from those who contend that

Indian gaming is not sufficiently regulated. Others feel that the

regulation is not working appropriately.

On the other hand, Indian tribes have argued that Indian gaming is the most heavily regulated gaming industry because it is

overseen by Federal, State, and Tribal Governments. I think because it has grown as rapidly as it has into an $18-billion industry,

it is very important that we monitor it and work to make improvements in the law where necessary. I really appreciate the people

that we have coming to testify today to help us think through some

of these issues.

I did want to mention that, Mr. Chairman, we have two witnesses, Kathryn Rand and Dr. Steven Light, who co-founded what

is called the Institute for the Study of Tribal Gaming Law, coincidentally at the University of North Dakota. I believe because it is

a relatively new industry, there is very little research done. I think

we will have some testimony from them today, and I think it will

be interesting testimony as well.

I look forward to all of the witnesses’ testimony today, and I look

forward to working with you, Mr. Chairman, to sort through all of

the recommendation we receive for future policy courses.

The CHAIRMAN. Thank you very much.

Our first panel is Phil Hogen, chairman, National Indian Gaming

Commission. Would you please come forward? Earl Devaney, inspector general, Department of the Interior; and Thomas B.

Heffelfinger, U.S. attorney, District of Minnesota, Department of

Justice.

Welcome to our first panel of witnesses. We will begin with you,

Chairman Hogen. Welcome.
3

STATEMENT OF PHIL HOGEN, CHAIRMAN, NATIONAL INDIAN

GAMING COMMISSION

Mr. HOGEN. Good morning, Chairman McCain and Vice Chairman Dorgan. The National Indian Gaming Commission is here in

total. I am Phil Hogen, chairman, Nelson Westrin, vice chairman,

and Commissioner Choney are with me this morning.

The CHAIRMAN. Welcome.

Mr. HOGEN. I think they concur in what we have said.

I have prepared a written statement and I would ask that be included in the record. I will attempt to summarize the points that

I made therein.

The CHAIRMAN. Thank you. All the written statements will be included in the record, without objection. Thank you.

Mr. HOGEN. I am very happy to report that the Indian gaming

industry is quite healthy. It is growing. It is doing what I think the

authors intended, that is, it is bringing economic development to

Indian country that desperately needed it. This success is due in

no small part, of course, to the ingenuity, the hard work of the

gaming tribes. But it is also due to the regulatory efforts that have

been put forth from several quarters. That is, those involved in the

gaming industry know that if they are going to get customers to

their facilities, there has to be a degree of confidence there, and

that is best generated by a well-regulated, transparent structure.

The most effort is exerted by the tribes themselves with their

tribal regulatory bodies, tribal gaming commissions, and tribal

gaming authorities. They are there on-site all day every day, and

the other players, States when there are class III compacts and the

NIGC, oversee what is done there and are partners in that effort.

So regulation has been key to the success and helped the industry

grow to this multi-billion dollar proportion that it has reached.

The National Indian Gaming Commission does what it does with

about 80 staff members. When we, this commission, came onboard

in December 2002, there were 60 folks that worked for NIGC. The

limit on the amount of revenue that we could run the agency with

was $8 million. That has since changed to $12 million. With that

additional money, we have hired additional auditors, additional investigators. They operate out of five regional offices, and four satellite offices. About one-half of our staff is in the Washington, DC

office. The other one-half is out in the field.

In 2004, we spent about $10.6 million to run the National Indian

Gaming Commission. All of that, of course, is fees that are paid by

the gaming tribes. We expect in this year to expend about $11.2

million, which of course is starting to approach that $12 million

limit. If the industry continues to grow, as we expect it will, we will

be asking Congress to increase the amount of funds available to us

so that we can increase the staff to meet the challenges.

In terms of challenges that face the National Indian Gaming

Commission, Mr. Chairman, you mentioned in your opening remarks the challenge to the NIGC’s authority over class III gaming.

Class III gaming is where the money is. That is the vast majority

of the gaming in Indian country that is conducted pursuant to the

tribal-State compacts. We developed in the last century minimum

internal control standards. Those I think were initially suggested

by you, Senator McCain. The industry itself jumped on that idea,
4

and came up with recommended standards, and shortly thereafter

the National Indian Gaming Commission embraced those as regulations. They now apply to class II and class III gaming activity.

As we have rules, we say to tribes, you have to, at a minimum,

do these things with respect to tracking the money from the time

it comes in the door until it goes to the tribal bank account. There

are many checks and balances therein.

However, litigation has been commenced by a tribe where we did

an audit challenging our class III authority on the grounds that

class II is to be regulated by the tribes with the NIGC oversight,

but class III is to be regulated pursuant to the tribal-State compacts. It is the NIGC’s view that we have full class III authority

in as much as we are authorized to take enforcement action if there

are violations of the Indian Gaming Regulatory Act, NIGC regulations or tribal gaming ordinances.

The CHAIRMAN. Where is that in the judicial system?

Mr. HOGEN. The action entitled Colorado River Indian Tribes v.

Hogen is in U.S. District Court here in the District of Columbia.

Oral arguments were held earlier this month, and we expect that

the trial court level will be rendering a decision in the coming

weeks.

The CHAIRMAN. Thank you.

Mr. HOGEN. So we will be, of course, watching that with great

interest. I am sure however that comes out there will likely be an

appeal. But if we lose that authority, the ability to use these minimum internal controls over the vast majority of tribal gaming activity, we will be asking Congress to fix that for us.

The CHAIRMAN. I do not mean to interrupt you. You have to excuse me. I do not understand the logic of the suit that the Colorado

River Indian tribes. The purpose of IGRA was to regulate class III

gaming, the primary purpose. Now, they are challenging that authority under IGRA?

Mr. HOGEN. That portion of the commission’s authority is being

challenged, yes, Senator.

The CHAIRMAN. On what grounds? Tribal sovereignty?

Mr. HOGEN. On the grounds that the act divided up the regulatory tasks; that class III was left to the tribes and States. Of

course, we argue that, no, we have an oversight role with respect

to all of it.

The CHAIRMAN. Thank you. Please proceed.

Mr. HOGEN. S. 1529 as introduced in the last Congress would

have addressed this, would have clarified that NIGC’s authority extended to both class II and class III.

The CHAIRMAN. Would it help you if that were passed by Congress?

Mr. HOGEN. It certainly would. It would resolve the questions before the court.

A second major challenge that faces the National Indian Gaming

Commission relates to how you distinguish class II electronic aids

to class II gaming, from electronic facsimiles that are class III gaming and are permitted only pursuant to tribal-State compacts.

When Congress enacted IGRA in 1988, it said tribes can use computers and technology to play these class II games, bingo, pull-tabs

and so forth. They have successfully utilized that technology. But
5

technology has now reached the point where if you look at one of

these class II devices or purportedly class II devices, it looks a lot

like a slot machine. It will have slot machine reels that the players

view, although they really are not part of the game. They tell the

player whether they have won or lost, and you push the button and

the game is over.

So we, NIGC, is concerned that this has crossed the line, but we

find ourselves hampered in terms of enforcing that by a lack of

standards. So we are trying to write some standards. We have

formed a tribal advisory committee. We have held meetings, consultation with tribes; held public hearings. We have attempted to

get to the right place to reflect what Congress intended in 1988.

We think that Congress clearly intended that there was going to

be a difference between class II and class III.

We also think that one of the main characteristics of that difference was the class II activities were going to be activities where

the players participated. We think that if the machine so aids the

player so it is one touch and the game is over, you have crossed

that line. There has got to be more player participation in the play

of bingo and games of that nature. So we are trying to develop

standards that will clearly set that out.

It is important that the industry have standards because tribes,

as they use class II and they will use it in the situation where they

cannot get a compact with the State. They will use it in the situation where they have a compact, but it limits their class III game

numbers and so forth, and just in the traditional venues where

they have always had bingo and pull-tabs and that sort of thing.

It is an important tool for them to have, but they need to know the

scope of that. The people that build the equipment need to know

the scope of that. We need to know the scope of that so that we

can adequately regulate. So we are trying to draft these regulations.

Now, the effort has been I think transparent. We have written

four drafts of these standards, published them on our Web site,

met with the Tribal Advisory Committee. But the tribes are giving

us a great deal of criticism, saying we are way too conservative, we

are too restrictive; that the one-touch-and-it-is-over is okay.

Then on the other hand, our brethren from the Justice Department take a different view with respect to the scope of the Johnson

Act. The Johnson Act was enacted in 1951 to deal with illegal gambling. It was amended in 1962 to broaden the definition of these

gaming devices to which it applies. I think it was intended to address unregulated gaming. Well, class II Indian gaming is regulated gaming. I think it is a horse of a different color, so to speak.

But nevertheless, the Justice Department takes a perhaps more

conservative view than the National Indian Gaming Commission

with respect to what the Johnson Act excludes without a compact.

I think they might say, even though you may have a class II bingo

game, if it has some electronics connected to it, it would have to

have a compact to be played.

The courts have addressed this. In many cases, those courts have

sided with those who have said this is carved out from the Johnson

Act. But clarity is desperately needed out there. There are over

30,000 of these devices that we think go probably beyond the pale
6

in play now, and there are going to be more if we do not bring some

clarity to this.

If this committee thinks that we are on the wrong track, that

player participation is not a crucial element, we would love to have

that guidance. We are going to try to get to the right place. We are

going to try to work within the Federal family. We are going to try

and get where we need to get in this connection.

The CHAIRMAN. I cannot speak for the entire committee, but I do

not think you are on the wrong track.

Mr. HOGEN. Thank you, Senator.

Senator DORGAN. Mr. Chairman, I share that view.

Mr. HOGEN. Thank you.

In any event, that is one of the big challenges. S. 1529 as introduced in the last Congress would also have clarified that fact that

the Johnson Act would not apply to these technologic aids. That

would not completely resolve the differences that we have within

the Federal family, but it would help clarify this. So we are on the

way to getting these technical classification standards written, but

we do want to sort out some of the issues with our fellow agency,

the Department of Justice.

Things are good for the most part, but there are some problems

in Indian gaming. Not all tribes that are generating lots of revenue

from their gaming activities have the mechanics in place to appropriately spend their gaming revenues. The Indian Gaming Regulatory Act limits what you can use the revenues for, although it

gives them great flexibility. In some cases, there have been abuses.

We have issued an NIGC bulletin dealing with use of tribal gaming

revenues. This I think has helped address that. We have worked

directly with some tribes that we think have not had the appropriate objective due process mechanisms in place, and progress is

being made.

There are instances where tribal gaming authorities are not getting the resources that they need and we are encouraging tribes to

expand that. But for the most part, the effort is good, the effort is

adequate, and the success of the industry speaks for itself.

So the National Indian Gaming Commission will continue to try

to play an effective role in the regulation of Indian gaming, working with our regulators at the tribal level, and when there are compacts with regulators from the State level, trying to avoid inefficiency and duplication, yet getting the job done. If the industry

grows, we will need to grow. I think that the more open communication we have with Congress, with the tribes we are working

with, and with our fellow Federal agencies such as the Department

of the Interior’s Office of Inspector General and the Department of

Justice, the more successful we will be.

I stand ready to attempt to respond to any questions the committee might have with respect to the NIGC’s role in this regard.

[Prepared statement of Mr. Hogen appears in appendix.]

The CHAIRMAN. Thank you very much.

Mr. Devaney.
7

STATEMENT OF EARL E. DEVANEY, INSPECTOR GENERAL,

DEPARTMENT OF THE INTERIOR

Mr. DEVANEY. Mr. Chairman, I want to thank you and the members of the committee for inviting me up here today to talk about

regulation of Indian gaming. In the last decade, my office has conducted a number of audits on issues directly related to Indian gaming regulations under IGRA, and the financial management activities of the NIGC, particularly tribal gaming revenue allocation

plans and the taking of land into trust.

We have investigated or prosecuted individuals for theft and/or

embezzlement from Indian gaming establishments, investigated allegations surrounding the Federal recognition process, and we are

currently working with our Federal law enforcement partners on

several criminal investigations related to the Indian gaming industry.

All of these audits and investigations, coupled with my personal

observations and a background as a law enforcement professional

for over 30 years, leads me to believe it is time to seriously consider regulatory enhancements and potential legislative changes to

reflect the realities of an $18.5-billion industry.

My experience and intuition also tells me that when there is this

much money involved, bad guys will come. To think otherwise or

to imagine that Indian gaming will somehow escape the evils faced

by non-Indian gaming equates to the proverbial ostrich sticking its

head in the sand.

While the investigations we have conducted into allegations involving particular tribal recognitions made by the Department have

rarely uncovered any improper behavior, we are nonetheless troubled by the invariable presence of wealthy individuals and companies invested heavily in the recognition outcome for seemingly one

reason only, that is to ultimately fund and then reap the financial

benefits of a new gaming operation.

As this committee well knows, one of IGRA’s primary purposes

was to ensure that the proceeds from Indian gaming were used to

fund tribal operations, economic development and the general welfare of its members. Therefore, any loss of gaming revenue as a result of criminal behavior will obviously negatively impact the ability of the tribes to provide vital services such as health care, law

enforcement, housing and education.

Our audits of IGRA and the NIGC dating back as far as 1993

chronicle the lack of Federal resources available to effectively oversee Indian gaming. For instance, in a 1993-audit report, we reported that the NIGC had only a field staff of 24 and a budget of

$2 million to oversee 149 tribes which had already initiated 296

gaming operations. When we recently took a snapshot of NIGC, we

found that the commission had a budget cap of $12 million and

only 39 auditor-investigators in the field tasked with overseeing

more than 200 tribes with over 400 gaming operations. By contrast,

the Nevada Gaming Commission has a budget of $35 million with

a staff of 279 folks to oversee 365 gaming operations, with total reported revenues of $19.5 billion.

One also has to consider the fact that today’s Indian gaming operations range from a 30-seat bingo parlor in Alaska to a tribal op-
8

eration in Connecticut with six separate casinos, nearly 7,500 slots,

388 table games, 23 restaurants, and three hotels.

In our opinion, the NIGC needs additional resources to fulfill

their expanding role commensurate with the escalating growth of

the Indian gaming industry. However, we continue to be concerned

with the dual role that NIGC’s field staff often performs. One role

is to act as liaisons to the gaming tribes. In this capacity, the field

staff consults with the gaming tribes and provides compliance

training regarding statutory requirements and regulations. On the

other hand, these same staff member are also asked to issue preliminary violation notices against tribes for civil gaming violations

and to refer criminal matters to the FBI.

While I understand that the NIGC does not see this as a conflict,

our view is that these dual roles are wholly incompatible. Put another way, it is hard to wear a white hat on a Monday and Tuesday, and then switch to a black hat on a Friday and a Saturday.

Recently, under the direction of the attorney general’s Indian

country subcommittee, and specifically under the leadership of my

good friend Tom Heffelfinger, the U.S. attorney for the District of

Minnesota, various Federal law enforcement and local and State

law enforcement entities came together to form the Indian Gaming

Working Group. We are proud to be part of this effort. None of the

Federal, State or local law enforcement members of this Working

Group have the resources to address the potential crimes in Indian

country gaming alone. Therefore, leveraging our investigative resources in a common alliance not only makes perfect sense for us,

but I would submit is the kind of good government action that the

American public would expect us to take.

Mr. Chairman, my greatest fear is not that the integrity or accountability of Indian gaming will be compromised from the inside

of the actual casinos, but rather by the horde of paid management

advisers, consultants, lobbyists and financiers flocking to get a

piece of the enormous amount of revenues being generated by this

industry.

For instance, when tribes enter into management contracts for

the operation of their gaming activities, those contracts are submitted to and approved by the chairman of the NIGC. Included in the

NIGC’s review is a background investigation of the principals and

investors. Some tribes have circumvented this review, approval and

background process by entering into consultant agreements which,

although called by a different name, do not significantly in substance differ from management contracts. As a result, the terms of

these consulting agreements, including the financing and compensation, are not subject to review and approval by the NIGC, nor

do the backgrounds of the consultants, principals and investors get

scrutinized.

Another concern we have is the Federal statute that carves out

an exception to the usual recusal period for departing Department

of the Interior officials. The statute permitting these officials to

represent recognized Indian tribes in connection with any matter

pending before the Federal Government immediately after leaving

the Department perpetuates a classic revolving door. This law was

enacted in 1998 because Indian tribes often lacked effective representation in front of Federal agencies. At the time, the only per-
9

sons with expertise in Indian matters were DOI employees. Today,

that dynamic has obviously changed and the statute has outlived

its original intent. In fact, it is hard to find a law firm in Washington today that does not have a thriving Indian practice area.

IGRA prohibits gaming on trust lands acquired after 1988 unless

the lands meet specific statutory exemptions. Both BIA and NIGC

share responsibility for reviewing applications for converting existing trust lands into gaming. Our recent evaluation of this process

found 10 instances in which tribes have converted the use of lands

taken into trust by the Bureau of Indian Affairs [BIA] after 1988

from non-gaming purposes to gaming purposes without the approval of BIA or NIGC. Surprisingly, we also learned that neither

the BIA nor NIGC even had a process for identifying these converted lands.

In an audit report issued in 2003, we discovered that neither the

BIA nor the NIGC were monitoring gaming tribes to determine

whether they were complying with their BIA-approved revenue allocation plans, or whether the tribes were making per capita distributions on gaming revenues without an approved plan. While

IGRA provides that the tribes make per capita payments of net

gaming revenues only after BIA’s approval of their plan, it does not

provide the BIA or the NIGC the authority to monitor them once

they are approved. Absent a process for monitoring tribal revenue

distributions, BIA’s approval authority and NIGC’s enforcement

authorities serve little practical purpose.

Because Indian casinos are a cash-rich enterprise, they are, in

our opinion, particularly attractive to money launderers. In these

instances, criminals use casinos to cash-in illegal proceeds for

chips, tokens or coins in amounts that do not trigger reporting requirements and then game for short periods of time to redeem

clean money. Tribal financial institutions without Federal or State

charters and attendant regulations are also particularly vulnerable

to manipulation. For instance, the U.S. Reservation Bank and

Trust is an Indian-controlled banking institution. Although represented as a bank to other financial institutions and investors, it

is alleged to have been established solely to execute a Ponzi

scheme. Twenty-million dollars was seized in Arizona shortly before the operators of this bank could wire the funds to an off-shore

account.

Finally, as this committee so recently demonstrated, great care

must be exercised by gaming tribes when they are approached by

unsavory lobbyists promising imperceptible services for astonishing

fees.

Mr. Chairman and members of the committee, we are currently

reviewing our authorities in Indian country to determine whether

we can establish an even more vigorous presence in the gaming

arena. In the meantime, we have had the opportunity to review the

proposed technical amendments to IGRA advanced by the NIGC.

Overall, we support NIGC’s efforts in regards to funding flexibilities and regulatory enhancements, particularly the provisions that

would allow in-depth background investigations to be conducted on

a much broader range of individuals working in or on behalf of the

Indian gaming industry.
10

In the meantime, should this committee have specific issues of

concern that might benefit from an audit, evaluation or an investigation by my office, I stand ready to assist the committee in any

way I can.

Mr. Chairman and members of the committee, thank you for the

opportunity to testify here today. I stand ready to answer any questions you might have.

[Prepared statement of Mr. Devaney appears in appendix.]

The CHAIRMAN. Thank you very much.

Welcome, Mr. Heffelfinger.

STATEMENT OF THOMAS B. HEFFELFINGER, U.S. ATTORNEY,

DISTRICT OF MINNESOTA, DEPARTMENT OF JUSTICE

Mr. HEFFELFINGER. Chairman McCain, Vice Chairman Dorgan

and members of the committee, thank you very much for the opportunity to appear before you.

I am Tom Heffelfinger. I am not only the U.S. attorney for the

District of Minnesota, but I also am the chairman of the Native

American Issues Subcommittee of the Attorney General’s Advisory

Committee. The NAIS is the responsible body for developing policy

recommendations and practical recommendations for the Attorney

General, related to the Department of Justice’s involvement in Indian country.

Since 2001, the U.S. attorneys on my committee have focused on

five primary priority issues, one of which is Indian gaming. In that

connection, I appreciate the opportunity to speak before you today

regarding the Department of Justice’s role in the enforcement of

Indian gaming.

There are several different components, numerous components

actually, within the Department of Justice responsible for issues

related to regulation and enforcement in Indian gaming. First of all

are the U.S. attorneys; second, the FBI, the Criminal Division; the

Environmental and Natural Resources Division; and the Office of

Tribal Justice.

First of all, I would like to address one of the issues raised by

my good friend Chairman Hogen, an area where there may be some

disagreements as to strategy and outcomes, but there is no disagreement as to the issue, and that is on the need to clarify the

distinction between class II and class III games. There has been

considerable litigation regarding tribal gaming enterprises and the

need to classify types of games as either class II or class III.

It is the Department of Justice’s position and continues to be

that whether a machine is characterized as class II or class III, the

Johnson Act prohibits gambling devices absent a State-tribal compact. It is also the Department of Justice’s position that both Congress and the Indian Gaming Regulatory Act intended that there

be a clear distinction between class III games that require a compact and class II games that do not. In this era of creativity, the

manufacturers of gaming equipment have attempted to use creative engineering and graphic design to blur the lines between

these two classes.

This clarification is actually not only in the best interests of just

the Department of Justice and the regulators at the NIGC, but also

of the industry itself and of the tribal gaming operators. Certainty
11

is what is needed here. We continue to work with and will continue

to work with the NIGC to attempt to develop a united strategy to

present to you if appropriate.

There is a unique legal and political relationship that exists between the United States and the tribes. On September 23, 2004,

President Bush recognized this relationship when he reaffirmed the

longstanding policy of the United States to work with federally recognized tribes on a government-to-government basis and to support

and respect tribal sovereignty and tribal self-determination.

The Office of Tribal Justice within the Department of Justice is

the entity which serves to coordinate activities pursuant to this relationship between the tribes and the Department of Justice. Federal law in the area of criminal responsibility vests the Department

of Justice with primary jurisdiction over most felonies that occur

in Indian country. The FBI and the U.S. Attorneys’ offices are the

Federal law enforcement agencies primarily responsible for investigating major felonies that occur in Indian country. This includes

the area of Indian gaming.

Within the Department, the FBI is the Federal criminal investigative agency primarily responsible for investigating criminal acts

related to casino gaming operations, including operations that

occur in Public Law 280 or State jurisdictional criminal venues.

Similarly, within title 18 of the U.S. Code, there are provisions

at section 1167 and 1168 for which the FBI and the U.S. attorneys

are responsible, addressing theft from Indian casinos. This is one

of those areas, however, in which most States, in which the States

also have parallel jurisdiction either under the Public Law 280 status or under the terms of their compact, for the prosecution and investigation of theft cases. The Johnson Act criminally prohibits

among other things the transportation and operation of all gambling devices, including slot machines in Indian country, absent the

existence of a tribal compact.

Within the FBI, oversight for efforts devoted to Indian country

lies with the Indian country Unit Special Jurisdiction Unit. The

NAIS’s role is to coordinate and support the efforts of the various

U.S. Attorneys around the country. In the area of Indian gaming

in particular there are a variety of FBI sub-programs, the Department of Justice components I mentioned, and representatives of as

many as seven other Federal agencies that have varying degrees of

interest in Indian gaming.

In early 2003, the FBI and the U.S. Attorneys decided to fundamentally change our response to this rapidly growing industry,

to change from a reactive posture where we waited for referrals to

be received from the tribes or from other agencies, to a proactive

posture in which we are developing policies and practices designed

to enhance the number of referrals of criminal activity arising in

the context of Indian gaming.

As part of that proactive effort, the Indian Gaming Working

Group was developed by the FBI. The Indian Gaming Working

Group’s purpose is to identify resources through multi-agency,

multi-program approaches to address the most pressing and significant criminal violations in Indian gaming. This group consists of

representatives from not only the FBI and the U.S. attorneys’ offices, and the criminal division within the Department of Justice,
12

but also, as Mr. Devaney has mentioned, the Office of the Inspector

General at DOI, the NIGC, the Internal Revenue Service Office of

Indian Tribal Governments, the Treasury Department’s FinCEN,

and the BIA’s Office of Law Enforcement Services.

The Indian Gaming Working Group met several times during fiscal year 2003 in order to get structured, and since that time on a

monthly basis has conducted telephone conferences among its

members to address matters of a national significance and also the

needs of ongoing investigations being conducted by the member

groups.

The Indian Gaming Working Group is currently providing analysts, financial assistance, functional area expertise and coordination assistance in cases that have national significance or are of

significant impact to the industry and to the tribes that the industry serves.

The FBI’s Indian country unit offered regional training starting

in fiscal year 2004 on the area of Indian gaming. Those trainings

have been conducted to date in Groton, CN; San Diego, CA; Oklahoma City, and the next one is scheduled for Minneapolis in June.

The purpose of these regional trainings being conducted by the FBI

with the support of the NIGC and the U.S. attorneys, is to develop

expertise and to encourage the establishment of local working

groups. These regional conferences to date have resulted in the establishment of local groups in both Oklahoma and Arizona, this in

addition to local Indian Gaming Working Groups that already exist

in Sacramento, CA, and Minnesota.

In addition, in its efforts to be proactive and to marshal the resources of the FBI, in February 2004 the criminal division of the

FBI sent out a communication to all of its field offices alerting the

FBI nationally of the existence of the Indian Gaming Working

Group, the resources it could apply, in an attempt to generate additional referrals and make resources available nationally.

Similarly in a proactive mode, in September 2003, the Native

American Issues Subcommittee held a 3-day summit of Federal,

State, and tribal agencies engaged in Indian gaming regulation and

enforcement. The net effect of that conference and our experience

in this area has been the development of a series of best practices

which has been communicated to all the U.S. attorneys in an attempt to assist the U.S. attorneys in more aggressively responding

to this rapidly growing industry.

Among those best practices is the suggestion that U.S. attorneys

consider outreach and consultation with tribal operators and with

State gambling regulators. It is also recommended that each U.S.

attorney’s office designate a specific assistant U.S. attorney who

will gain expertise in this industry, therefore being able to be responsible for enforcement in his or her respective district, and for

coordination with other Federal, State, and tribal regulators.

It is also recommended that each U.S. attorney’s office participate in the trainings that are being offered and conduct trainings

at a local level, not only for their own assistant U.S. attorneys, but

for enforcement officers both at a State and Federal level.

Another recommendation is that each U.S. attorney’s office consider flexibility in charging thresholds in order to increase the

number of cases that are prosecuted at the Federal level. There is
13

a recognition within the Department of Justice that the Federal

Government bears a unique trust relationship and a governmentto-government relationship with the tribes and their gaming operators, and therefore cases which have a significant impact on the

tribal gaming operation should be considered for Federal prosecution even if the amounts in question are lower than we might usually use for determining whether or not to take on a fraud case.

It is also recommended U.S. attorneys actively support the National Working Group and develop a local working group within his

or her specific district. The idea of a local working group and a national working group operating in tandem is to provide an effective

vehicle for the exchange of intelligence upwards and downwards

and inwards and outwards among the various districts within the

United States.

Another one of our policy recommendations is that the U.S. attorneys in the Department of Justice support the development of national information sharing and cooperation arrangements within

the industry, whether that development is conducted either by the

NIGC or by the industry itself, such as the National Indian Gaming Association. Information sharing and national cooperation are

essential to having effective background investigations and criminal investigations.

The Department of Justice is making important strides in the

prosecution of criminal activity arising from the conduct of Indian

gaming operations. As with most law enforcement efforts, limitations exist due to resources. However, as is also true in most law

enforcement operations, coordination, communication and cooperation can compensate for many of those lack of resources.

I want to thank you very much for the opportunity to speak to

you. We feel that our proactive approach in response to this major

industry is making major strides in improving our ability to respond to the growth in this industry. I stand ready for questions,

Mr. Chairman.

[Prepared statement of Mr. Heffelfinger appears in appendix.]

The CHAIRMAN. Thank you very much.

You just stated you are making strides in enforcement in prosecution. What have you been doing lately?

Mr. HEFFELFINGER. We have tracked the statistics for the last

few years and found that roughly on an average since 2000 there

are about 60 cases annually that are referred to the U.S. attorneys’

offices for prosecution nationally. We believe that statistic under

reports the number of cases that have been referred because it only

tracks those that are referred under the two sections I mentioned,

1167 and 1168. Those referrals also do not pick up the cases that

are referred to prosecution in Public Law 280 jurisdictions or pursuant to compact to our State counterparts.

The CHAIRMAN. In your view, is there a problem out there? If so,

is it growing less or what is the status?

Mr. HEFFELFINGER. Our view is that the number of cases reported under represents the problem that exists within the industry, that the theft incidence is in fact greater than that. Part of our

effort here is to improve the referral rates from the tribes, as well

as improve our own ability to detect these independent of a referral.
14

The CHAIRMAN. I understand that there is a difference between

you and the Indian Gaming Commission as to how we can define

class II gaming. I certainly would like to see those differences reconciled if at all possible because we need to act on this issue. I

agree with the witnesses that now the definition is so badly blurred

thanks to advances in technology that there is gaming under,

quote, ‘‘class II’’ that is clearly not class II, certainly not the intention of the original act.

So I would hope that you could get us, first, to sit down together

and see if you can work out the differences; and second, if there

are differences maybe we can help work them out because I think

it is very likely we may have to act legislatively on that issue.

Would you all increase the level of communication and see if we

cannot come up with a common position. I do believe that it is a

serious problem. Do you agree, Mr. Devaney?

Mr. DEVANEY. Yes; I do. Absolutely. It has to be resolved.

The CHAIRMAN. Okay, so we need to act on that.

On the issue of managing contracts versus consultants, obviously

it was the intent of the law to limit the amount of money that a,

quote, ‘‘management contract’’ would entail, so they just changed

the name to consultant. Am I right, Mr. Hogen?

Mr. HOGEN. That has happened in a number of instances, and

after that trend was discovered or perceived by the National Indian

Gaming Commission, we asked all tribes to send to NIGC all the

agreements of this nature that they were entering into so that we

could look at them even though the label said something else, ‘‘did

it constitute a management contract?’’

The CHAIRMAN. And some of them have been exorbitant?

Mr. HOGEN. Yes; we found many instances where at least initially on the drawing board that would have given the lion’s share

of the revenue to the developer. Fortunately, in some cases we got

that resolved. There are still situations we are looking into, and

hopefully we can make sure that in fulfilling the trust responsibility that we have, the tribes get their fair shake.

The CHAIRMAN. I think we may have to legislatively act to define

the role, because they can continue to change the name, so we may

have to describe exactly what that activity is or that relationship

is, as opposed to a specific name.

One of the issues that is extremely sensitive here and that has

aroused a lot of controversy is the taking of lands into trust status

for the purpose of initiating gaming operations. I would be interested in the opinion of all three of the witnesses on that issue, beginning with you, Mr. Hogen.

Mr. HOGEN. Well, from the National Indian Gaming Commission’s point of view, those are really tough questions. Fortunately

for us, the Department of the Interior often is the first place that

question has to be answered. But we often have to address it ourselves. For example, if a management contract arrives, we consider

it. Does this really deal with gaming on Indian lands as defined

under the Indian Gaming Regulatory Act?

The easy places to do Indian gaming have already been taken advantage of. It is going to take some creativity to develop new or

perhaps competitive ones.
15

When these questions arise, they often deal with tribes that were

terminated and have been restored, perhaps newly recognized

tribes, and in most cases tribes that are remotely located and do

not have a good opportunity to do gaming. So they want to go in

some cases to old homelands and so forth.

It is not a model of clarity the way it is set up, and you cannot

expect something that goes back historically through some very

tragic changes in Federal Indian policy to necessarily be simple.

But we need to scrutinize those instances when they come before

us. We want to do justice where it is deserved, but if some developer is the driving force and there is really not a legitimate claim,

we ought to say no in those instances.

The CHAIRMAN. Mr. Devaney.

Mr. DEVANEY. Senator, my critique, first of all the audit I mentioned earlier in my testimony is still in draft stage. When it is

done, I will get it up to every member of the committee.

The CHAIRMAN. You have to pull the mike a little closer please.

Mr. DEVANEY. The audit that I mentioned earlier is at the draft

stage and I will get it up to everybody when it is finally done. The

scope of it was rather limited. We were looking at lands taken into

trust prior to 1988 that had subsequently been converted to gaming

without the knowledge of BIA. That is a problem. The BIA did not

know it happened. So we are going to hopefully show that to the

Secretary and see if we can get some closer monitoring.

But like other issues where NIGC has approval authority or BIA

has approval authority, the difficulty comes after it has been approved. The monitoring of, for instance, the per capita distribution

does not occur. The approval is granted and then after that nobody

monitors to ensure that what was approved is actually happening.

So there may be some legislative fixes needed there to give BIA

and the NIGC the authority to monitor and enforce subsequent to

approvals that have been given.

The CHAIRMAN. Do you have any views, Mr. Heffelfinger?

Mr. HEFFELFINGER. Yes; I do, Mr. Chairman. I agree with Chairman Hogen. This is an industry where location, location, location

are the three rules and all the good locations are taken. The pressure therefore, because of the amount of money that can be had,

is to identify new lands on which gaming can be operated under

some kind of an arrangement. This creates great opportunities or

temptations, if you will, from people outside of tribes to enter into

cooperative arrangements, et cetera.

I think that the future holds a whole bunch of cooperation agreements between Indian and non-Indian entities in an attempt to develop land which can be taken into trust for purposes of gaming.

As those relationships become more and more bizarre, the need for

the Department of Justice to look into those is going to become

greater and greater because of concerns of theft, fraud or abuse.

The CHAIRMAN. We would appreciate any legislative recommendations if you think they are necessary. I think this is a

huge problem. One of the first hearings we have had this year on

this committee was the designation of a place in downtown Oakland as a gaming establishment that was put into an appropriations bill, a bizarre situation to say the least.
16

My final question, Mr. Devaney, you have been looking at this

issue of Federal employees leaving the Government and immediately beginning to work for the tribes. I understand in IGRA

while we may have at the time we wrote the legislation, because

the only experts on Indian gaming may have been Federal employee. It seems to me there has clearly been abuses of that. Is that

your view?

Mr. DEVANEY. Well, my view is that it is not necessary any

longer. I think in 1988 when this came about, there was a real

need for tribes to have people that had the knowledge to be representing them before the Federal Government. Today, that dynamic has changed and it is not necessary to exclude, to carve out

this exception which otherwise would be a conflict of interest violation for any other Federal employee departing Federal Government.

The CHAIRMAN. Thank you very much. I thank the witnesses.

Senator Dorgan.

Senator DORGAN. Mr. Chairman, thank you very much.

I have a couple of questions, but just a curiosity item. I know one

of the issues with respect to Indian gaming is recognition of tribes.

I am curious, what are the smallest or what is the smallest tribe

that has been recognized that has a gaming operation?

Mr. HOGEN. I do not know of the National Indian Gaming Commission keeps statistics of that nature. I believe that there is a

tribe that had a single adult member.

Senator DORGAN. One person?

Mr. HOGEN. Yes.

Senator DORGAN. I had heard as well, there is one person that

sought recognition as a tribe and has a casino. I also heard that

there are either three or five people that gained recognition and

now have a casino. Would you send us some statistics about that,

because that is another part of this issue.

Commissioner Hogen, you heard the Inspector General’s assessment, which I thought was reasonably pessimistic about the challenges and the ability with the current resources to address the

challenges. Would you respond to the Inspector General’s testimony

generally?

Mr. HOGEN. Well, I think there are a number of concerns that

are legitimate concerns, for example, tracking the use of tribal

gaming revenues and following up on the revenue allocation plans.

I guess the first thing that I think could be said, we have to remember that Indian gaming is not a Federal program. The Indians

invented Indian gaming. They are doing it and they are doing it

very well, and the Great White Father should not tell them where

to spend every penny.

Nevertheless, it is a specialized industry. There is a regulatory

structure there. And when there are rules, you can only use the

dollars for this or that, they ought to be adhered to.

When the check gets written from the casino to the tribal general

fund, then those funds go in with mining and timber and grazing

revenues and so forth. NIGC really is not equipped to follow that

through.

Senator DORGAN. When you say ‘‘not equipped,’’ what do you

mean by ‘‘not equipped’’?
17

Mr. HOGEN. We are experts on gaming and we know how a casino ought to be run, but in terms of distinguishing which dollars

in the general fund got spent for this housing program or to send

these people to that, is really not what we do, nor do we see a real

mandate in the Indian Gaming Regulatory Act to do that. But it

is a challenge. It ought to be better addressed. The Inspector General’s report that was done here a couple of years ago clearly identified that concern and we share that concern.

Senator DORGAN. Let me ask, one of the points Mr. Devaney

made that I think is important, I think Senator McCain asked a

question about it, and that is the circumvention of the management

contracts by calling them consulting contracts, which in one instance can cause a substantial amount of revenue to be drained

away. Even more importantly, I think Mr. Devaney pointed out, it

can become a feeder for organized crime and other undesirable elements to get into the system because you do not have the background check requirement.

Now, you indicate that you are taking a look at these consulting

contracts in terms of the finances and whether it would bleed some

of these Indian gaming operations. But are you in fact looking at

any that exist with respect to background checks on all of those involved in the contracts?

Mr. HOGEN. The scenario that is often followed is, we ask the

tribe, send us the agreement you have with your developer. They

send us the consulting agreement, the development agreement,

whatever. We look at it to determine is it a management contract

that may require background investigations. IGRA only requires

NIGC background investigations if it relates to class II gaming or

class II and class III gaming. We think that is an area that needs

to be addressed, a concern that should be fixed.

So usually if we say this looks like a management contract, they

say, well, let us fix it. We will take the part out that gave us the

control, so it is not a management contract. They do that, then

there is no legal requirement that we do background investigations.

Now, tribes may require those individuals to be licensed at the

tribal level to do investigations in that connection, but we would

be out of that direct loop.

Senator DORGAN. I think the concern expressed by the Inspector

General is that when you have an $18-billion industry, we have

elements that will flock to that money to try to find a way to get

a piece of it. I think there are several things that have been discussed today that need addressing.

With respect to the court case that you described earlier, it

seems to me that the minimum internal control standards, which

is apparently the subject of the lawsuit, probably especially needs

to apply to class III, right? I mean, is the lawsuit contending that

it should not apply to class III gaming?

Mr. HOGEN. Yes; that is what it contends.

Senator DORGAN. Wouldn’t it be logical that it especially should

apply to class III? Is that your position?

Mr. HOGEN. Well, that is where the money is. That is where the

major action is. Yes, I think we would be a much less effective

oversight body, watchdog so to speak, if we could not go there.
18

Senator DORGAN. I think all of you have raised a number of

points. Mr. Heffelfinger, I do not know that you answered in brief

form the chairman’s question. Are there real causes for alarm here

with respect to law enforcement and potential criminal activity? Or

is this just a kind of a normal thing that you put together a working group to deal with?

Mr. HEFFELFINGER. No; we have not been able to quantify the actual theft losses, but let me share with you the figure that I have

found compelling. In our meeting a couple of years ago, we had a

presentation from Nevada gaming authorities. In Nevada, they estimate that 6 percent of their net gaming revenues are lost to theft,

fraud, and embezzlement every year.

Now, I have no idea whether the 6 percent figure would apply

in Indian gaming. Even if it is a 3-percent or a 5-percent figure,

we are still talking hundreds of millions of dollars of theft losses

and fraud losses in this industry every year, even assuming good

enforcement and regulation such as exists in Nevada.

That amount of money being lost is money that is not going to

the benefit of tribal people, as Congress intended, and it is more

money than is reflected in the number of cases that have been referred to us to date. Therefore, our efforts have concluded that we

had to change the way we did business. Instead of being reactive,

we had to be proactive and go out and seek out referrals from the

tribes and new ways to get those referrals.

Senator DORGAN. Mr. Chairman, Indian gaming is legal. Tribal

sovereignty, it exists. It was not given to the tribes. They are sovereign. I think we, however, have established an architecture or a

mechanism for regulatory control. The purpose of this hearing is to

evaluate how effective that is, what changes if necessary should

apply. I think the testimony of all three of you has been very helpful and I appreciate your being here.

The CHAIRMAN. Thank you.

Senator Thomas.

Senator THOMAS. Thank you, Mr. Chairman. I will be very brief.

The purpose of this whole operation is to have a fair, efficient

and effective regulatory system. I guess I would like to ask each

of you very briefly what would be your highest priority for change

to cause that to happen?

Mr. DEVANEY. Senator, I think the issue that we have already

talked about, the one where the term ‘‘consultant’’ is being substituted for ‘‘management.’’ It gives me great concern. It is primarily due to the lack of backgrounds that get done on these folks

that are now flocking to this money. I really worry about the players that are on the peripheral of this industry, that now see this

enormous amount of cash there.

There is always going to be embezzlement and theft from inside

the casinos themselves. I think that the tribes and the States and

to the extent that we get involved in that, we are always going to

be able to contain that problem. My fear is the sophisticated whitecollar scheme that the tribes may not know about, that we may not

know about.

Senator THOMAS. All right. Thank you.

Mr. Chairman.

Mr. HOGEN. If I were to list three or four of the priorities——
19

Senator THOMAS. List one. Your highest priority.

Mr. HOGEN. Just one, okay, one. I think we need to clarify that

the National Indian Gaming Commission in its oversight role extends to all of the Indian commercial gaming, class II and class III.

If that is in doubt, our role and our effectiveness in the structure

of the Indian Gaming Regulatory Act is at risk.

Senator THOMAS. Okay. Thank you.

Yes, sir.

Mr. HEFFELFINGER. Senator, the system established under IGRA

is a splintered system of shared responsibility between the tribes,

the State and the Federal Government, depending on the class of

gaming. But the Federal Government’s role should be one, in my

opinion, of organization in order to ensure that splinters don’t go

splintering and doesn’t allow cracks to develop.

I am very, very concerned about the lack of resources that are

available to oversee an industry that is generating about $18 billion of revenues. California represents this, and is growing at a

rate of about $1 billion a year. It is anticipated that in California

the net gaming revenues will exceed Nevada’s within a year or two.

Yet if you look at the State of Nevada, and what we have found

is that Nevada has hundreds of regulators to regulate just that

State. We do not have those resources at a Federal level, even to

fulfill our portion of the responsibility in this shared area.

Senator THOMAS. All right. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Inouye.

Senator INOUYE. Thank you, Mr. Chairman.

There are slightly over 200 tribes, and those tribes operate a little over 400 gaming operations. Of that number of tribes, how

many have been investigated for criminal activity?

Mr. HOGEN. At the National Indian Gaming Commission, I do

not think we have categorized it annually or totally. Certainly, the

vast majority of those tribes have not been the subject of criminal

investigations, and there have not been reports to us that we have

not followed-up on indicating criminal activity there.

Now, there may well be instances where they internally have revoked gaming licenses, referred things for local prosecution and so

forth that we would not necessarily hear about, although we do

have an improving line of communication in that connection.

I expect we could try to put together numbers that we have, but

I cannot quantify it at this moment.

Senator INOUYE. I would appreciate that because otherwise one

may have a picture of these tribal leaders or these nations are

crooked. We speak of embezzlement and theft. Have any involved

tribal leaders?

Mr. HEFFELFINGER. Senator Inouye, our experience has been that

the vast majority of tribal leaders are working their hardest to realize the benefits of Indian gaming for their people. As Chairman

Hogen has said, the industry has been very successful in that regard. In fact, the number of prosecutions, I do not have a number,

but based on my experience both inside and outside of government,

it is a very small handful of tribal leaders who have ever been indicted for anything arising from Indian gaming.
20

In fact, of the cases that we have seen within the Department

of Justice over the last 5 years, the vast majority involve thefts or

embezzlements or gaming scams either committed by outsiders

against the casino or committed by lower-level insiders such as

cashiers and the like who are doing an embezzlement.

I am not as pessimistic. This is a segue to your question. I am

not as pessimistic regarding this as some others, because I believe

that tribal governments and tribal members recognize the importance of profitable operations to their people. So it is difficult for

someone who is outside the tribe to gain control over the money to

a level that allows them to steal in great quantities.

However, there are exceptions, and it is the exceptions that

worry me. But the vast, vast majority of tribal leaders and tribal

members simply, in my experience, would not allow this level of

embezzlement to take place by a non-tribal member.

Senator INOUYE. Would you advise the committee as to how

many tribal members have been convicted?

Mr. HEFFELFINGER. Off the top of my head, I cannot, Senator

Inouye, but I will do the research and we will send you a response

with whatever we find.

Senator INOUYE. Do you know if any have been?

Mr. HEFFELFINGER. I do not know of a single leader who has

been convicted of a violation related to Indian gaming. There have

definitely been tribal leaders, one of which I know is in the district

of North Dakota, Senator, within the last 3 years, who was convicted of activity independent of the gaming operations. The problem with Indian gaming is that once the revenues are realized by

the tribe, it funds many other tribal operations in which tribal

leaders have involvement.

So it is not quite so simple as to say that you do not stop the

money at the casino door because it funds, as I said, other operations in which misconduct can occur, and I am afraid in a small

number of cases has.

Senator INOUYE. I asked those questions because I wanted to

commend you for protecting the Indian tribes from outside conmen.

Mr. HEFFELFINGER. Thank you, Senator.

The CHAIRMAN. Senator Coburn.

STATEMENT OF HON. TOM COBURN, M.D., U.S. SENATOR FROM

OKLAHOMA

Senator COBURN. Thank you, Mr. Chairman, for holding this

hearing. I apologize for being late. I was chairing another hearing.

This is a significant issue in my home State. We have 39 recognized tribes. Indian territory law is different than the reservation

law. Oklahoma has compacted with a number of them. There are

a couple of questions. The Nevada Gaming Commission is a rigorous commission to deal with. They are all business. They have absolute requirements. In my personal experience, I was in on the development of a coin acceptor. It was based on disruption of the

magnetic field. We could not even submit bids until myself, my

family and my children submitted information to the Nevada Gaming Commission before we were ever even allowed to enter a bid.
21

If we really want to make sure that tribal gaming money goes

to the tribes, we need to change the rules under which people deal

with the tribes. We need to have a structure that assures the same

kind of structure as that of Nevada gaming. You just testified they

lose six percent, and they are the most rigorous in the world. For

us not to have that, I think create it or create the outlines so that

the tribes can have that kind of structure to assure that those moneys are going to the very people who are supposed to benefit from

it. We are keenly interested in seeing that tightened up in Oklahoma.

The other thing that I would just inject is trust lands and the

determination of trust lands determines the winners and losers in

Oklahoma by tribe. The fact is, the observation that I have made

representing all 39 tribes in Oklahoma, is that it is not necessarily

a fair process. At times, those that are in the game want to keep

those that are not in the game from being in the game. I think that

is something else that we need to look at. Again, that is distinct

for Oklahoma because of Oklahoma Indian Territory laws and the

treaties that were signed for Oklahoma that are different than the

other reservations.

I would love to hear your response from the Department of the

Interior on that, and have you looked at the granting of trust status lands for smaller tribes, even though legitimate tribes that

have been there for years, and their inability to gain trust status,

to have a gaming operation.

Mr. DEVANEY. Senator, I have been in the position of investigating allegations about land into trust, as opposed to being involved

in the process, which is the Department of the Interior itself that

does that. There are a number of things that bother me. One of

which I mentioned earlier is that every time we look at one of

these, there are a lot of wealthy individuals and wealthy companies

that seem to be involved in the process. It appears to us that they

are there for one reason, and that is to come in at the end of the

game and be the financier and reap the profits.

As an old law enforcement type, I am suspicious. But having said

that, the few tribal recognitions that we have looked at, we have

not really uncovered those kinds of problems. Now, it is a byzantine process and it is extraordinarily slow.

The CHAIRMAN. Unless it is put into an appropriations bill.

Mr. DEVANEY. Unless it is taken out of the Department of the Interior. But if it is in the Department of the Interior, it is slow and

byzantine. So I am concerned. I am more concerned with, as I have

said several times today, with the outsiders than I am with the

problems that might exist inside.

Senator COBURN. I recognize tribal gaming is here to stay. Our

job has to be to create the framework so that those people who are

supposed to benefit from tribal gaming, do.

I again thank the chairman for having this hearing. I apologize

I will not be able to stay for the rest of it, but I look forward to

working with the chairman on clearing up some of these issues, especially the definition between class II and class III gaming. It

needs to be clear with the technology. We need to straighten that

out. And then we need to make sure that the structure is there for
22

the tribes in Oklahoma to manage this themselves, but also under

the regulatory framework that we create.

I would just suggest that we need a tighter regulatory framework

in terms of who can deal with the tribes and what they have to

qualify before they can.

Thank you.

The CHAIRMAN. Thank you, Senator Coburn.

We are going to have a hearing on this issue of taking land in

to trust for gaming purposes, how the process works, where it

needs to be fixed. I think that is a very, very important issue.

I thank the witnesses. Mr. Heffelfinger, if you are not the right

guy to negotiate with Mr. Hogen on the issue of class II, we will

see if somebody else can. If we do not get agreement between the

two of you, then it lessens the chances of us acting legislatively

dramatically. We either have opposition from one very important

player or another. So I hope we can resolve those differences because this is clearly one of the areas I think we need to act.

So Mr. Hogen, you will be ready to compromise, right?

Mr. HOGEN. We will talk long and hard, Senator. Yes.

Mr. HEFFELFINGER. Senator, I am on the team and we are meeting and we will continue to meet to get it done.

The CHAIRMAN. Thank you very much.

The testimony of all three witnesses has been very helpful, and

we thank you for appearing today.

Our next panel is Norman H. DesRosiers, commissioner, Viejas

Tribal Government Gaming Commission, Alpine, CA; Charles

Colombe, treasurer, National Indian Gaming Association and president, Rosebud Sioux Tribe, Rosebud, SD. He is accompanied by

Mark Van Norman, executive director, National Indian Gaming Association. Kevin Washburn, associate professor of law, University of

Minnesota; Steven Light, assistant professor, University of North

Dakota; and Kathryn Rand, associate professor, University of

North Dakota School of Law.

I know that the vice chairman is pleased that the University of

North Dakota is well represented here today.

Commissioner DesRosiers, would you help me with the pronunciation of your name?

Mr. DESROSIERS. DesRosiers.

The CHAIRMAN. DesRosiers. Thank you very much and please

proceed.

STATEMENT OF NORMAN H. DESROSIERS, COMMISSIONER,

VIEJAS TRIBAL GOVERNMENT GAMING COMMISSION

Mr. DESROSIERS. Thank you very much, Mr. Chairman, Mr. Vice

Chairman, and committee members.

It is genuinely an honor to have been invited here. To my knowledge, this may be the first time that a tribal regulator has been

given the opportunity to testify. We hear usually only from Federal

and State regulators. I have submitted written comments for the

record.

The CHAIRMAN. All the written statements will be made part of

the record.

Mr. DESROSIERS. Thank you.
23

You will probably hear a little different slant on things from

what you heard earlier from me. On behalf of myself and my colleagues, the hundreds of men and women that do what I do every

day, year-in and year-out, on-site regulation of tribal gaming facilities, we are a little bit frustrated that we continually hear how

tribal gaming is insufficiently regulated.

Let me tell you what we do and who we are. The Viejas Tribe,

for example, appropriates over $3.9 million just to support my

budget for my agency. I have over 52 regulatory personnel, and

this is to regulate one facility. This is more resources than some

States appropriate. We have the latest technology. We have facial

recognition technology, digital fingerprinting. We have background

service, computerized databases, and the list goes on.

My staff has over 350 years cumulative law enforcement and regulatory experience. We have former IRS and Secret Service agents,

and local, city, county, and State law enforcement agents on our

staff. We have auditors. We have investigators, criminal investigators. We have the background investigators. We have compliance

people, safety and health enforcement officers, all on our staff.

It is us that call in the Department of Justice. It is us that call

in, when we find the improprieties, that find the thefts and the embezzlements, the scams, the cheats. It is our people that call in the

county sheriff. We happen to be in a Public Law 280 State. The

county prosecutor prosecutes our cases, most of them, for us. We

have had one Federal prosecution which we asked the U.S. attorney to prosecute for us.

So we are the ones there every day doing this, and we are not

an exception; Viejas is not an exception. I have personally visited

dozens of tribal gaming commissions across the country, and am

continually impressed with the resources that the tribes are devoting to regulating their own facilities. These gaming commissions

are made up of former FBI agents, former gambling control agents

from New Jersey and from Nevada and from even the State of Arizona. So it is a very competent staff that are regulating these

tribes at the tribal level.

We have an excellent relationship with Chairman Hogen and the

National Indian Gaming Commission. We work regularly with

them.

So I am not going to sit here and of course tell you that it is a

perfect world. There are a percentage, a small percentage, and you

heard the prior witnesses testify that it is a small percentage that

are non-compliant. The vast majority are doing a good job. The exceptions that are not complying, or are unable or unwilling to appropriate the resources, they need help or they need enforcement.

But there are enforcement mechanisms in place, and I do not think

more legislation necessarily is the answer to gaining compliance by

those tribes that are unable or unwilling to do so. I think NIGC

has done a pretty good job in identifying those non-complying

tribes and initiating enforcement proceedings.

So that is who we are, what we do. You know, it is almost as

if we have not existed here. All we hear about is how the State and

the Federal regulators need to be doing more, but we do it. We do

it every day with competent staff and we do an outstanding job.
24

The other issue, and I know my time is very limited, that I would

like to address is the one that was addressed earlier with regards

to the class II gaming technological aids. I am privileged to sit on

the Advisory Committee to the National Indian Gaming Commission, along with about nine other very talented, experienced individuals, offering advice on the development of regulations for these

technological aids.

If anybody would have told me 11⁄2 years ago that bingo could be

this complex and legally complicated, I never would have dreamt.

But I do believe that the committee has their hands around this.

We have made very viable recommendations on two parallel tracks

of Federal regulations. One is the actual technical specifications for

these aids and the other one is the classification of the aids, as opposed to being a class III device. That includes the parameters on

the functionality of the game and how it must perform to be considered a class II aid as opposed to a slot machine.

We heard testimony earlier that technology has really blurred

this line. I would disagree. Technology has enhanced it. The package that you see, that you visually see on the floor, granted, resembles a slot machine. That is where it ends. It is not at all blurry

to those of us who know how slot machines work and how the electronic bingo games are operated, to know what is inside of these

boxes is entirely two different animals. The regulations that we

have developed with NIGC make that distinction. They are consistent with IGRA and they are consistent with what the court has

ruled on several occasions with regard to the classification of technological aids for class II games.

I could go on. I know my time is limited. I will leave it at that,

and be glad to answer any questions.

[Prepared statement of Mr. DesRosiers appears in appendix.]

The CHAIRMAN. Thank you, sir, for your testimony and thank you

for your outstanding work and the people you represent. We respectfully disagree on the issue of what a class II is. There are very

few benefits of old age, Mr. DesRosiers, but being one of the authors of the legislation, we envision class II to be the standard

bingo game, the standard pull-tab, not an electronic device that

closely resembles a slot machine, only it varies as to how you push

different buttons.

I believe that is has been blurred by technology and I am going

to try to act and this committee acts so that there is a distinction

because when we wrote the act, our vision of what class II gaming

was, and I am one of the authors of the act, drastically different

from what is viewed as class II gaming today.

Mr. Colombe.

STATEMENT OF CHARLES COLOMBE, TREASURER, NATIONAL

INDIAN GAMING ASSOCIATION, AND PRESIDENT, ROSEBUD

SIOUX TRIBE, ACCOMPANIED BY MARK VAN NORMAN,

EXECUTIVE DIRECTOR

Mr. COLOMBE. Thank you and good morning Chairman McCain,

Senator Dorgan and members of the committee.

My name is Charles Colombe. I am president of the Rosebud

Sioux Tribe of South Dakota and treasurer of the National Indian

Gaming Association. With me this morning to my left is Mark Van
25

Norman. He is a member of the Cheyenne River Sioux Tribe and

also the executive director of NIGA.

The CHAIRMAN. Welcome.

Mr. COLOMBE. Thank you.

The Indian Gaming Regulatory Act is working. Indian gaming is

highly regulated. At the tribal, State, and Federal levels, more

than 3,350 expert regulators protect Indian gaming. Tribes employ

former FBI and police officers, former State regulators from New

Jersey, Nevada and other States, military officers, auditors and

bank surveillance officers.

Tribes employ 2,800 regulators. State governments help regulate

Indian gaming. States have over 500 regulators and police to regulate Indian gaming.

Phil Hogen, chairman of the NIGC, is a former U.S. attorney.

Vice Chairman Nelson Westrin is a former executive director of

Michigan Gaming Control Commission and State deputy attorney

general. Commissioner Chuck Choney is a former FBI agent. NIGC

employs 80 Federal regulators. Tribal governments employ state-ofthe-art surveillance and security equipment. For example, the

Pequot use the most advanced high technology available, including

facial recognition, digital cameras and picture enhancement technology.

The Pequot system has more computer storage capacity than the

IRS or the Library of Congress. The Pequots helped their State police after the tragic nightclub fire by enhancing a videotape so they

could study the fire in detail. Tribes dedicate tremendous resources

to Indian gaming regulation. Last year, tribes spent over $290 million nationwide on regulation. That breaks down as $228 million

for tribal government regulation; $55 million for State regulation;

and $12 million for Federal regulation.

Indian gaming is also protected by the FBI and the U.S. attorneys. Tribes work with financial crimes enforcement network to

prevent money laundering. We work with the IRS to collect taxes,

and we work with the Secret Service to prevent counterfeiting. We

have stringent regulatory systems. Tribes meet or exceed any Federal or State requirement. We have strong regulation because our

sovereign authority government resources and business reputations

are at stake. If you have advice on how to improve our systems,

we will review it with tribal leaders.

Now, let me tell you how regulation works in a casino. I say this

as maybe the only former operator in the room here. I ran our

tribe’s casino. I built it. I financed it and operated it for 5 years

under a contract with the National Indian Gaming Commission. At

Rosebud, we have 21,000 people living on our reservation and

37,000 people total living in a 50-mile radius. In our casino and

hotel, we employ approximately 200 people. We have 250 slots,

about 8 table games, and 1 bingo hall. We are small and rural, but

we follow the same rules and same internal controls that the largest casinos in the world follow.

IGRA and our tribal-State compact dictate that our internal controls are at least as stringent as the State’s. Ours are more stringent. We have 24 regulators on our Gaming Commission. Our commission operates a surveillance system separately and independently. When you enter our property, we have 180 cameras. Every-
26

one is on-camera full-time from the parking lot to the casino floor

to the cage. We have three full-time inspectors who have full access

to the casino at all times.

South Dakota does our gaming background checks. South Dakota

puts its State seal on our slot machines, which means we cannot

change the payout percentage without a State regulator being

present. We also have a slot tracking system that gives us full-time

monitoring of coin or cash into a machine. That system also tells

us how much money is in that machine at any time.

Some would look at Little Rosebud and say, you do not need to

do all this stuff, but we do. Our casino was built, like many other

Indian casinos, in a time when people thought we were incapable

of running a gaming operation. So we did an overkill on regulation

to ensure the public that these were honest and fair games.

We are a poor tribe, so no one wants our operation to be a success more than we do. No one wants to make sure our money gets

to the bank more than we do. NIGA is engaged in a series of discussions with tribal leaders throughout the Nation. We invite you

to our next meeting. We also invite you to come and visit our facilities so we can show you first-hand that our regulators are experts

and our technology is state-of-the-art.

In closing, we work closely with the NIGC to ensure that we

have the most productive regulation possible, and we work to preserve our sovereignty. We remember what our grandfathers have

told us as boys: Protect the land and take care of the people.

Thank you again, and I am happy to answer any questions you

may have.

The CHAIRMAN. Thank you very much.

Professor Washburn.

STATEMENT OF KEVIN WASHBURN, ASSOCIATE PROFESSOR

OF LAW, UNIVERSITY OF MINNESOTA

Mr. WASHBURN. Thank you, Mr. Chairman, Mr. Vice Chairman.

I am going to limit my comments to some of the issues that have

risen so far, just to hopefully have a bit of a conversation about

some of the problems out there. I think some of the serious problems have been identified. Vice Chairman Dorgan even brought up

the problem and question, really, about small tribes. I admire the

chutzpah of the Senator from North Dakota raising the question

about maybe some tribes being too small, but it is a difficult problem, perhaps, that has no real good solutions, no solutions that

really lend themselves

The CHAIRMAN. Maybe it has something to do with the process

for recognition.

Mr. WASHBURN. Well, it may. The problem is a lot of the tribes

are no longer vital. Tribes did not become small necessarily for

good reasons. We should not blame tribes for being small, in some

ways, just like we should not blame North Dakota for being small.

We should not perhaps try to fold North Dakota into South Dakota

and create one big State because we would create political problems like how do we, who gets to be the Senators in that case. It

is a difficult political issue.

Senator DORGAN. Mr. Washburn. [Laughter.]
27

Mr. Washburn, I would observe that North Dakota is 10 times

the size of Massachusetts. [Laughter.]

Mr. WASHBURN. Fair enough.

Let me leave that issue aside. [Laughter.]

It is only going to get me in trouble.

One of the things that I would like to talk about is the management contract provisions. I think it is probably fair to say that as

a regulatory matter perhaps, putting politics aside, as a regulatory

matter the most serious failure of IGRA was the management contract provisions. We have 200 tribes engaged in gaming, doing 300

or 400 gaming operations and we have only had the NIGC approve

45 management contracts. It is not because tribes are doing this all

by themselves. There are people involved in gaming that we do not

know about. We have not been able to take a look at them and figure out who they are. That is a very serious problem.

Senator Coburn talked about the very good and rigorous regulatory system that we have in Nevada for dealing with people who

are making millions of dollars from working in the gaming industry. We need to have a system like that that does not have holes

in it, just by changing the name of a contract, calling it a development agreement or a construction agreement.

So I desperately believe that we need to increase the NIGC’s authority to background investigate, to do suitability determinations

of those people.

The CHAIRMAN. Would that be by making the definition of a,

quote, ‘‘management contract’’ an inclusive one?

Mr. WASHBURN. Perhaps, or not even use the term.

The CHAIRMAN. Maybe not use the term.

Mr. WASHBURN. Yes, Senator; I believe that is right. I think we

need to get at all economic relationships, significant ones involving

tribes. Those outsiders should be background investigated.

Now, what I want to encourage you to think about, though, is

that perhaps that is where the regulatory interest stops, however,

and that we ought not be looking at the economics of those deals.

We can trust, as Mr. Colombe said, tribes want to make the most

money for their people. We can trust tribes to strike their own economic decisions.

The CHAIRMAN. Doctor, in light of the hearings we have had recently, I do not think that is the case, at least in some parts of Indian country.

Mr. WASHBURN. That may well be true, Senator, but let me——

The CHAIRMAN. You are talking about an $80-million ripped off.

It is more than may be true.

Mr. WASHBURN. Well, the problem is, Senator, is that who is the

other option? The other option of who would be overseeing those

economic decisions is the Federal Government, and the Cobell decision dwarfs

The CHAIRMAN. I will get into this debate with you. We have an

obligation to protect all citizens, whether Native Americans or not,

from exploitation. This is not a laissez faire society where people

are not protected from exploitation.

Mr. WASHBURN. The problem is, Senator, is that in my view

what we do is we do not protect them. Now and then, tribes strike

bad deals, even tribes that have management contracts. What they
28

have is an approved management contract, and even if it was a bad

deal in hindsight, they have a Federal document that says that was

a good deal that has been approved. Even if there was malpractice

in entering that deal, if there was some bad business advice or bad

legal advice in entering that deal, if the NIGC has approved it,

then it is deemed approved and the tribes do not have anywhere

to go to get redress for that wrong. I think that that is a problem.

I think by and large that there are some problems, and often

there is another way to get at them, fraud or those kinds of things

that have caused tribes to enter bad agreements occasionally. But

I think that there may well be legal ways at getting at those problems.

I am not sure that the fine financial analysts at the NIGC, there

are two of them, are the people that should be looking over the

tribes shoulder when the tribes are represented with very savvy

business advisers and very savvy law firms. My sense is that we

wouldn’t second guess—we would have trouble with the Department of the Interior second-guessing those in this day in age, the

age of self-determination, and we would have trouble given the

Navajo Nation case out of the Supreme Court a couple of years ago,

the Cobell litigation. The Federal Government has lost its legitimacy to a great degree when it is involved in regulating the economic decisions that the tribes make. And so I would respectfully

encourage the committee to think about placing that decisionmaking in another place, other than in the NIGC, and perhaps

with the tribes themselves.

Why don’t I stop there and I will take questions if you have

them.

[Prepared statement of Mr. Washburn appears in appendix.]

The CHAIRMAN. Do you have views on the class II, class III issue?

Mr. WASHBURN. I do, Senator. Let me preface this with, one of

the problems in the Indian gaming regulatory industry, across the

board is regulatory uncertainty. That is why these bad actors are

willing to do these other kinds of contracts other than management

contracts. They are willing to go into these things. It keeps the

good people out, because they say, boy, I do not know, that looks

kind of shady to me, so I am not going to even bid for that work.

The same thing happens in the class II Johnson Act kind of environment. Bad actors are willing to skate that line and do class II

technological aids that arguably cover the Johnson Act. In light of

the risk of Department of Justice prosecution, they are willing to

do that, and so they reap the rewards of that. The bad actors do.

The good companies, the solid people that have been involved in

gaming for years and years, tend to stay out of those markets because they risk the threat of Federal prosecution.

Unfortunately, the Department of Justice has not been able to

bring successful Federal prosecutions, and it has lost in three Circuit Court cases. The courts seems to be generally of the mind that

if it fits within the definition of class II, tribes ought to be able to

do that. That ultimately could be a real benefit to Indian tribes because Indian tribes can make greater revenues.

The problem is they are having to share those revenues with

shady actors in the current situation. So in my view, the Johnson

Act or the Indian Gaming Regulatory Act ought to be amended just
29

to say that the Johnson Act does not apply to lawful Indian gaming.

I think that that would allow good people to come into that industry and bid for the work. In essence, that would drive the prices

down so Indians tribes get to keep more of the money. It would also

allow, well, it would help to drive the bad actors out of Indian gaming. That is really what happened in Nevada, is that the background investigation process started working with people, and it

really drove the bad actors out because good people could come in

and do the work.

I think that that is a good model. I think strong background and

licensing is a really good model, and I think that clarifying regulatory authority is very important because that will make for a

clearer regulatory structure.

The CHAIRMAN. Do you agree with that, Mr. DesRosiers?

Mr. DESROSIERS. I do, Mr. Senator. I think that we have experienced that. Our agency and many of us are doing background investigations on vendors that are not required by IGRA; that are not

required even by COMPACTS. But we have a very in-depth background vendor licensing program, as do many tribes, that exceed

the requirements, and I think that is what has helped keep us

clean and kept the bad guys out.

The CHAIRMAN. Thank you.

Dr. Light, welcome.

STATEMENT OF STEVEN ANDREW LIGHT, ASSISTANT PROFESSOR OF POLITICAL SCIENCE AND PUBLIC ADMINISTRATION,

UNIVERSITY OF NORTH DAKOTA; AND KATHRYN RAND, ASSOCIATE PROFESSOR, UNIVERSITY OF NORTH DAKOTA

SCHOOL OF LAW

Mr. LIGHT. Thank you, Senator.

Good morning, Mr. Chairman and Mr. Vice Chairman. We are

very thankful to be here. As a reflection of our interdisciplinary research on the law and politics and policy of Indian gaming, Kathryn Rand and I will be testifying jointly, so Kathryn will begin.

Ms. RAND. Good morning, Mr. Chairman, Mr. Vice Chairman. We

thank the committee and its members for this opportunity to appear before you today. My name is Kathryn Rand, and with me is

Steven Light. We are the co-founders and co-directors of the Institute for the Study of Tribal Gaming Law and Policy, a component

of the Northern Plains Indian Law Center at the University of

North Dakota School of Law and the only university-affiliated research institute dedicated to the study of Indian gaming.

Our testimony today is based on our research in the field of Indian gaming law and policy over the last nine years, and on short

excerpts from our two forthcoming books on the subject.

Our research suggests that discussions of Indian gaming regulation often overlook three important points: First, that there currently is an elaborate web of Government agencies and regulatory

authorities that administer the law and policy that applies to Indian gaming; second, that criticism of Indian gaming regulation

often focuses on tribal regulation, but fails to take into account the

unique status of tribes in the American political system; and third,

that tribal regulation of Indian gaming plays a primary role in trib-
30

al government institution building, a necessary exercise of tribal

sovereignty that serves tribal and Federal interests in strong tribal

governments, as well as tribal self-sufficiency and self-determination.

Finally, we suggest that any policy reform in the area of Indian

gaming fundamentally should be based on accurate and complete

information informed by tribal opinions and interests, and guided

by the tribe’s inherent right of self-determination.

Tribal gaming is the only form of legalized gambling in the

United States that is regulated at three governmental levels.

Under the Indian Gaming Regulatory Act, tribal, Federal and State

agencies and actors determine the regulatory environment in which

tribal gaming occurs.

IGRA’s policy goals created a regulatory environment for Indian

gaming in which the exercise of government authority reflects a

markedly different intent than does that for the regulation of commercial gaming. By fostering economic development and strengthening tribal governments, IGRA’s regulatory scheme promotes

healthy reservation communities and effective and culturally appropriate tribal institutional capacity building, the hallmarks of

tribal sovereignty and tribal self-determination.

Although regulation of Indian gaming sometimes is equated with

the National Indian Gaming Commission and its extensive authority, the multi-layered and complex regulatory web governing Indian

gaming involves a number of other Federal agencies, along with extensive tribal and State agencies, actors and resources.

To fulfill their regulatory role under IGRA, tribes typically create

gaming commissions to implement tribal gaming ordinances and to

ensure compliance with IGRA, tribal-State compacts, and other relevant tribal and Federal laws. Tribal regulators interact with tribal, State and Federal law enforcement agencies, tribal casino surveillance and security operations, and tribal court systems, as well

as State and Federal authorities.

Despite the extent and sophistication of tribal regulation, critics

of Indian gaming frequently are dismissive of tribal government

authority, as we will revisit in just 1 moment. Under IGRA, Congress authorized States, through the tribal-State compact requirement, to regulate casino-style gaming. Typically, State gaming

commissions are responsible for monitoring compliance with governing Tribal–State compacts, in concert with State laws as well as

IGRA.

Despite this extraordinary regulatory scheme involving regulators and law enforcement at three levels of government, critics

charge that Indian gaming is under or even unregulated. A closer

look at such criticism, we suggest, particularly as it is lodged

against tribal regulation, reveals further misapprehensions about

Indian gaming.

Our research suggests that how we talk about Indian gaming informs how we act on Indian gaming. As you know, there is a lot

of talk. Before allowing public discourse to set agendas for tribal

gaming policy, policymakers should assess carefully the accuracy

and context of criticisms of Indian gaming regulation.

Tribal governments frequently are portrayed as untrustworthy

stewards of newfound gaming wealth and political clout. They are
31

variously accused of being too naive or inexperienced to realize

their own best interests; easily corruptible; guilty of seeking to influence the political system to their own benefit; or out for revenge.

Time magazine’s 2002 expose on tribal gaming, for instance, acknowledged tribal regulation of Indian gaming, but added, ‘‘that is

like Enron’s auditors auditing themselves.’’

Criticism of tribal regulation of Indian gaming often is grounded

in ignorance, purposeful or otherwise, of tribal sovereignty. Rather

than an accurate understanding of tribal regulation as a reflection

of tribal sovereignty and self-determination, these critiques often

rely on the assertion that tribal sovereignty is simply an unfair advantage or race-based ‘‘special rights,’’ rather than the defining aspect of a tribe’s unique status in the American political system.

Mr. LIGHT. Our research indicates that the exercise of tribal sovereignty underpins tribal self-determination and self-government,

which are of course the goals of current Federal Indian law and

policy. Strong institutions with the capacity to exert legitimate authority in the name of tribal members are at the heart of building

healthy reservation communities an interest that is appropriately

shared by tribes, States and the Federal Government.

One of the largely untold success stories of Indian gaming, we

believe, is the role that it has played in tribal institution building.

Each gaming tribe has created its own regulatory authorities that

are responsible for administering the myriad regulatory challenges

of Indian gaming. In assuming responsibility for gaming regulation

and for other policies, tribes determine the character and the capacity of their own governing institutions.

Tribal governments decide how to provide essential public services to their members; negotiate and contract with non-tribal commercial vendors and banks; and interact with State and local governments.

We believe it is plain that there are three key distinctions between the regulation of commercial gambling and that of Indian

gaming. First, a frequently expressed concern in regulatory administration is the evolution of what is called a ‘‘capture effect.’’ That

is, that regulatory agencies begin to partner with the industry to

create a regulatory environment that maximizes the benefits to industry players. Although similar accusations of capture have been

levied against tribal gaming commissions, there is relatively little

evidence of this capture.

Additionally, IGRA conditions how tribes can use gaming revenue for the benefit of tribal members. Gaming profits, therefore,

are channeled directly into the provision of essential public services

or community infrastructure. A profit motive does not in fact become the sole determinant of how tribal casino enterprises, tribal

gaming commissions, and tribal governments interact.

As our research shows, this perhaps is exemplified by the experiences of tribal gaming enterprises on the Great Plains, where we

are from, where job creation is the primary impetus for gaming.

Related to this first point, the policy goals of Indian gaming, and

thus the regulatory scheme established by IGRA, are fundamentally different than are the goals and regulatory scheme governing

commercial gambling. The vast majority of gaming tribes such as

those on the Great Plains by necessity are in the business of job
32

creation and economic development. IGRA stringently governs how

gaming revenues are to be used.

Third, critiques of Indian gaming also seem to rest disproportionately on the thesis that tribes themselves are ill-equipped to regulate their gaming operations or unwilling to do so. Again, there is

relatively little evidence to back up those assertions. Subject to

three levels of regulation and law enforcement authority, the Indian gaming industry perhaps is better equipped to deter or to deal

with potential crime or corruption than is any other form of legalized gambling.

We do not suggest that the regulation of Indian gaming is perfect. We do, however, encourage policymakers to critically assess

the critiques of Indian gaming. Misapprehensions about tribal governments, tribal sovereignty and Indian gaming should not set the

terms for public policy.

One standard criticism of regulatory administration generally is

that it stifles productivity, growth and innovation, and thus it

dampens economic performance. We believe IGRA’s regulatory

scheme has accomplished precisely the opposite. The complex and

comprehensive regulatory web created by IGRA in which tribal

governments play a primary role has reinforced tribal sovereignty

and comports with the Supreme Court’s holding in California v.

Cabazon Band of Mission Indians, 480 U.S. 202 (1987), and the

congressional goals enunciated in IGRA. Providing a foundation for

initiative and expertise, IGRA has catalyzed the dramatic growth

of an industry, as you know, and has created opportunities for economic growth and development for tribal and non-tribal communities across the United States.

It is in fact extraordinary that more than 200 tribes have benefitted from this new economic engine. It is also remarkable, we

would note, that 30 States and myriad non-tribal communities

have benefitted as well.

Although by electing to open and operate gaming enterprises

within IGRA’s regulatory framework, tribes by definition have been

forced to give up some aspects of tribal sovereignty, the tradeoff for

many tribes has been the realization of the heretofore unthinkable:

The creation of well-paying jobs; a viable revenue stream with

which to provide essential government services; a means to leverage economic growth, development and economic diversification;

the chance to revitalize culture and tradition; and the opportunity

to strengthen the institutions of tribal governance that facilitate

meaningful government-to-government interactions with the Federal Government and State governments.

In this sense, IGRA has accomplished exactly what it was intended to do, and more. We would contend it therefore represents

an unparalleled regulatory success story.

Thank you very much.

[Prepared statements of Dr. Light and Dr. Rand appear in appendix.]

The CHAIRMAN. I want to thank the witnesses.

On this issue of the Federal Government’s role in regulating Indian gaming, I would remind the witnesses that when the Cabazon

decision came down, we sought some way of writing legislation that

would ease the relationship between States, the Federal Govern-
33

ment and the tribes so that there could be a process for implementing the Cabazon decision without ending up in just endless occasions for going to court.

When you say, Ms. Rand, that it is the only business that has

three levels of regulation, the fact is the reason why Nevada

cleaned up their act is because the Feds were investigating corruption. So it was not an initiative taken by the Nevada gaming industry. It was because they were about to be subject to some very severe scrutiny and perhaps oversight.

When we look at Nevada, it is not nirvana, but it certainly is an

effective way of regulating the gaming industry, which is multi-billion dollars. As I mentioned in my opening statement, we started

at $100 million in your industry and it is now an $18.5 billion or

$19 billion industry. It seems to me it is very appropriate for us

to review the law, how it has been implemented, what the effects

are intended and unintended, and we have serious questions.

We have serious questions about people leaving the Bureau of Indian Affairs [BIA] and the next day working for one of the tribes

that they played a role in affecting that tribe’s future. We have

questions about this blurring of distinctions between class II and

class III gaming. As I mentioned to Mr. DesRosiers, there was no

envision when we delineated class II and class III of these technologies which have blurred the distinction.

It is not the first time technology has blurred distinctions in various industries. Look at the telecommunications industry. But it requires us to exercise some oversight.

I do not want this hearing to be viewed as some attack on Indian

gaming. It is not. As Senator Dorgan said, and even Senator

Coburn, Indian gaming is here to stay. The question is: Do we protect the patrons of Indian gaming to fullest extent in keeping with

our responsibilities?

I think we have clearly identified some areas that need to be addressed, perhaps legislatively, if not in a regulatory fashion. I do

not think that the National Indian Gaming Commission has

enough funds. I do not believe it because I look at the comparable

regulation of gaming in Nevada. By the way, every one of those casinos, Mr. DesRosiers, has very highly qualified, highly

credentialed people who oversee the gaming within those casinos,

just as the tribes hire people like yourself to regulate those. But

it does not remove the requirement to have the Nevada Gaming

Commission from exercising its oversight responsibilities.

So I thank the witnesses, and I would be glad to hear any comments on those comments, beginning with you, Mr. DesRosiers.

Mr. DESROSIERS. Thank you. First of all, let me express my appreciation personally, and I think all of Indian country, for the efforts that you and your colleagues made in authoring the Indian

Gaming Regulatory Act. Certainly, I realize the struggle in trying

to balance the interests of three sovereigns. I think you did a remarkable job and the document has been very effective and worked

very well for all these years.

Are there some areas where there could be some improvements?

I am not going to say no. There certainly are. The Seminole issue

is one of them. But make no mistake, it has been a good document

and we have worked well within the framework of that. I just ap-
34

preciate the recognition of what tribal regulators do. I do not want

it to be construed that we want to be totally, or expect to be totally

independent.

We have the California Gambling Control Commission that we

work closely with; the Division of Gambling Control, and of course

the Federal Government. I view their roles as oversight. I personally feel there is sufficient legislation. There is sufficient regulation. It is up to us to now enforce it. I have no objection to State

regulators or Federal regulators watching me, coming onto our

premises, looking at what we are doing, and letting me know

whether we are in compliance or not. I fully recognize that as an

appropriate set of checks and balances.

I would just be very cautious of where we go with any contemplated future legislation. Thank you.

The CHAIRMAN. Thank you.

Mr. Colombe.

Mr. COLOMBE. Yes; thank you, Senator.

I think a couple of issues that I would like the opportunity to

have further discussion on. Certainly one of those is the difference

between the class II and class III. What was not here today is Justice’s opinions have been thoroughly trounced in a number of Federal courts, I think each and every time. There must be some respect for what Federal courts do. We certainly in Indian country

have to respect the outcome. That one, in its own right, I think

needs study on the committee’s part. I would appreciate that.

Second, I think opening up IGRA has no merit at this time. Further regulation, whether it be deed of trust, all of those issues I

think are fully covered within the act. Recently, we at the San

Diego conference, we did a pretty strong polling on those people

who think that IGRA ought to be reopened. Certainly, there are a

few people that do, but I think it is 98 percent that believe the act

is working.

I think we also could talk a little about how the National Indian

Gaming Commission can come to the field more. If that costs more

money, I think tribes are willing to step up to the plate there.

So it is not like we are wanting to be unregulated. Frankly, I can

show you at my reservation how we actually have more feet on the

ground on that reservation with 250 slot machines than Deadwood,

SD has with a number of licenses, a number of operators. We actually have more bodies than they do in the regulatory process.

So there is a lot to be said about what Indian gaming is doing

and the regulatory process. I think frankly you are always going

to have people that are chasing the almighty dollar. If it looks easy,

they are going to go after it. But I think, again, class II and opening the IGRA, I believe they need a lot of study before it happens.

The CHAIRMAN. Do you believe we ought to look at this issue of

the, quote, ‘‘management contract/consultant contract’’ issue?

Mr. COLOMBE. Frankly, it is all there. I think that

The CHAIRMAN. In other words, there are no tribes who are being

exploited by individuals with unfair contracts?

Mr. COLOMBE. Today, it would be very hard to do when you have

the Well Fargos who are out there willing to loan money. Obviously, you are always going to have unsophisticated people being

taken advantage of by very sophisticated people, but it is a rare
35

deal when I can see that happening. I had a management contract.

I know the process there. It is phenomenal. It is so cumbersome.

Someone said there were 45 of these. The reason there is not more

of them is most people do not live long enough to get one done.

[Laughter.]

The CHAIRMAN. Well, some unscrupulous people have lived long

enough to do extremely well by doing good.

Professor Washburn.

Mr. WASHBURN. Senator McCain, I want to come back to the

comments you ended with. There is this complex web of regulation

in gaming. The States came to you in 1987 and 1988 and said, we

need this act; we need to have a role here.

The CHAIRMAN. No; the States did not. We recognized that there

was a need for it because of the relationships between the tribes

and the State, and the decision by the U.S. Supreme Court drove

us to a process where we thought that we had to codify the relationship. It was not the States coming to us. It was the realization

that there was a need for some kind of process that would legitimize this decision. So you are wrong. The States did not come to

us. We saw that there was a problem and we acted, and it was a

long and difficult process.

Go ahead.

Mr. WASHBURN. Mr. Chairman, I have reviewed some of the testimony, and whether they came to you or you guys identified the

problem, one of the things that the States said in the hearings in

1987 and 1988 was that they need a regulatory hook. They need

to be able to help regulate these problems because they realized

what casinos posed, but did not show regulatory problems.

The CHAIRMAN. Well look, I am not going to argue history with

you, but after we passed the law, the Association of National Attorneys General strenuously objected to it, and wanted it changed,

and wanted it improved dramatically. We had numerous meetings

with them. So I am not going to argue with you history, sir, but

I am part of it so I am going to object to your interpretation of

something that I was part of.

Go ahead.

Mr. WASHBURN. I am sorry, Mr. Chairman. Let me get to my

point. My point is, if there was some concern that the States were

going to be involved in Indian gaming regulation, with the exception of your State and now California, States did not really show

up. Most States are not doing very much regulation of Indian gaming. What that tells me is that we need to have an independent entity doing that regulation. I think it is probably the NIGC.

So given that many State regulators have not taken the role that

they could have taken under their tribal-State compacts, we need

to locate strong regulatory power somewhere. I think that that is

probably within the NIGC. So in addition to giving them more

funding, I think you may need to give them much more substantial

regulatory authority, too.

The CHAIRMAN. For example?

Mr. WASHBURN. Clarifying their authority over class III, for example, so that we do not run into this minimum internal control

standards problem. You know, this problem, businesses do not like

to be regulated. We see the exact same debate going on in Sar-
36

banes-Oxley right now, the financial reporting issues in SarbanesOxley. Everybody is saying, we do not want to have internal controls about our financial reporting. That is what the financial industry is telling us.

Well, Indian casinos, some of them, Colorado River Indian Tribe

is saying we do not want, you know, the Feds imposing internal

controls on our class III gaming. Internal controls are a good idea,

and there ought to be clear authority for them to be imposed.

The CHAIRMAN. I thank you, Professor Washburn. I take it you

have written some other treatises on this issue?

Mr. WASHBURN. I have written a little bit, and I will write further.

The CHAIRMAN. Would you send us what you have already written? I think you have some very interesting perspectives and I

think it would be very helpful in this process.

Mr. WASHBURN. I will inform my tenure committee. [Laughter.]

The CHAIRMAN. Thank you very much. We appreciate your being

here.

Professor Rand or Professor Light, either one?

Ms. RAND. Thank you, Mr. Chairman.

We certainly understand why the committee would want to hold

a hearing on Indian gaming regulation. I think that you are absolutely right that there are issues that are worthy of the committee’s consideration. We certainly did not mean to suggest otherwise.

We would simply want the committee to bear in mind that Indian gaming serves a purpose that is very different than commercial gambling. Its regulatory scheme similarly serves a purpose

that is very different from the regulatory scheme of commercial

gambling. Part of that, of course, is because of the overarching context of tribal sovereignty, as well as the goals and the purposes of

Federal Indian law and policy.

So we would simply ask the committee to bear those contexts in

mind as it weighs its own policy options.

Mr. LIGHT. I would certainly support the idea of additional gathering of accurate information. We have heard the Senators this

morning ask for additional information, which is absolutely appropriate in thinking about the regulation of Indian gaming, as it

would be for the regulation of the commercial gambling generally.

We feel that there is somewhat of a dearth still remaining in

terms of accurate and complete information. We feel that hearings

like this are able to fill in some of those gaps. So we know that

policymakers like yourselves on the Committee are always looking

for the best available information with which to possibly legislate.

So in the context of possible amendments to IGRA, whether they

are technical amendments or more substantive, we think it is absolutely invaluable to acquire the best information possible. In that

regard, it is also important to bear in mind the considerations that

Professor Rand was speaking of, but the input also of tribes and

tribal members. We are sure that the Committee would absolutely

be doing that.

In that context, the idea of tribal self-determination is always a

theme that is going to be running through these kinds of hearings.

The CHAIRMAN. I thank you, and I am very grateful for the witnesses’ testimony today.
37

Senator Dorgan.

Mr. VAN NORMAN. Mr. Chairman? Could I add something?

The CHAIRMAN. Sure.

Mr. VAN NORMAN. Thank you. I am Mark Van Norman, the executive director of NIGA.

I just wanted to say a couple of things. I was up visiting the

Mashantucket Pequot Tribal Nation on Monday. One of the things

that their gaming commission emphasized was that they are different in operating a tribal government agency than it would be in

a commercial agency in a commercial gaming facility where it is

run by the operator. They have their regulators right on staff, and

that is a distinction and a strength of Indian gaming that is not

present in commercial gaming.

I think it is also important to point out that the class II industry

is a legitimate industry; that we have multimedia gaming as the

largest company in class II gaming. They are publicly traded, regulated by the SEC. We also have the largest publicly traded company in gaming. IGT is in the class II market.

So I think it is important to bear that in mind as we think about

class II.

The CHAIRMAN. Thank you very much.

Senator Dorgan.

Senator DORGAN. Mr. Chairman, thank you very much.

I think I am not going to ask a lot of questions. I think most all

of this has been covered. I think that it is important to point out

that the purpose of this hearing is not to cast aspersion on tribal

regulation of gaming. For example, Mr. DesRosiers and Mr.

Colombe, you described your regulatory system in some great detail

with great pride. I do not know the specifics of it, but it certainly

sounds impressive to me. I am sure there are other tribes that

have similar systems that they feel very strongly represent and

protect the interests of the tribal members.

There may well be, with all of the tribal gaming, circumstances

where that does not exist with certain tribes. I do not know that

either. There is actually precious little research that is available to

us, and for that reason I think Dr. Light and Ms. Rand, I hope you

will focus some of the research on some of the questions that have

been raised today.

Having said that, I think it is just natural that when you have

an industry that has grown within the time that it has to $18 billion a year now, that there will be those who want to break out

of the boundaries and the restraints. Mr. Washburn said it correctly. No one likes regulation. You know, people chafe at regulation. So the Colorado suit, the decision to try to break out of the

restraints here.

Regulation I think is critically important to protect, to protect Indian gaming in the long term. Sovereignty is very important to me

and to Indian tribes, but so, too, is regulation of this industry. It

needs to be done, done right, done effectively at several different

levels.

So Mr. DesRosiers, I could tell the pride with which you conduct

your activities, and the pride with which you describe your employees and the processes. This hearing is not an attempt to diminish

or denigrate in any way what you and many others are doing. But
38

it is an attempt to try to determine, are there holes in this fence?

We develop a fence. I mean, that is what this is about. Because we

raised horses, I used to check the fence a lot. You know, that is a

simple way of describing what we are trying to do here today, to

understand what is happening.

Mr. Washburn, having a Minnesota lawyer describe North Dakota as small is——

[Laughter.]

Senator DORGAN [continuing]. Is an affront that I shall overcome.

[Laughter.]

But not soon. [Laughter.]

More seriously, I think all of the witnesses today, including this

panel, have contributed a lot to our understanding and given us

some food for thought on how to proceed.

Thank you very much.

The CHAIRMAN. I thank the witnesses. This has been a very helpful hearing. I appreciate all of you being here today.

This hearing is adjourned.

[Whereupon, at 11:34 a.m., the committee was adjourned, to reconvene at the call of the Chair.]
(39)

APPENDIX

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF EARL E. DEVANEY, INSPECTOR GENERAL, DEPARTMENT OF

THE INTERIOR

Mr. Chairman, I want to thank you and the members of the committee for inviting me here today to talk about the regulation of Indian gaming.

Over the last decade, my Office has conducted a number of audits on issues directly related to Indian gaming regulation such as the implementation of the Indian

Gaming Regulatory Act [IGRA], the financial management activities of the National

Indian Gaming Commission [NIGC] and, more recently, tribal gaming revenue allocation plans and the taking of land into trust. In addition, we have investigated and

prosecuted numerous individuals for theft and/or embezzlement from Indian gaming

establishments, investigated allegations surrounding the Federal recognition process

and we are currently working with our Federal law enforcement partners on several

criminal investigations related to the Indian gaming industry.

All of these audits and investigations, coupled with my personal observations and

background as a Federal law enforcement professional for over 30 years, lead me

to believe that it is time to seriously consider regulatory enhancements and potential legislative changes to reflect the realities of this $18.5 billion burgeoning industry. My law enforcement experience and intuition also tell me that when there is

this much money involved, bad guys will come. To think otherwise, or to imagine

that Indian gaming will somehow escape the evils faced by non-hidian gaming,

equates to the proverbial ostrich sticking its head in the sand. The gaming industry

in Las Vegas estimates that all casinos I typically lose 6 percent of their revenues

to fraud and theft. Applying that same percentage, Indian gaming operations potentially lost $1.1 billion in 2004.

While the investigations we have conducted into allegations involving particular

tribal recognitions made by the Department have rarely uncovered any improper behavior, we are nevertheless troubled by the invariable presence of wealthy individuals and companies invested heavily in the recognition outcome for seeming one reason only—that is, to ultimately fund and then reap the financial benefits of a new

gaming operation.

As this committee well knows, one of IGRA’s primary purposes was to ensure that

the proceeds from tribal gaming were used to fund tribal operations, economic development and the general welfare of its members. Therefore, any loss of gaining revenue as a result of criminal behavior will obviously negatively impact the ability of

the tribes to provide vital services such as health care, law enforcement, housing

and education.

IGRA envisioned a regulatory scheme where tribes, States, and NIGC would all

play a vital role. Since my office has never actually evaluated the capacity or the

effectiveness of tribes and states to implement IGRA’s vision in this regard, I will

confine my comments today to the role the NIGC and Federal law enforcement play

in this regulatory scheme.

Our audits of IGRA and the NIGC, dating back as far as 1993, chronicle the lack

of Federal resources available to effectively oversee Indian gaining. For instance, in
40

our 1993 audit report, we reported that the NIGC only had a staff of 24 and a budget of $2 million dollars to oversee the 149 tribes which had already initiated 296

gaming operations. When we recently took a snapshot of NIGC we found the Commission with a budget cap of $11 million, and only 39 auditors and investigators

tasked with overseeing more than 200 tribes with over 400 gaming. By contrast, in

2003 the Nevada Gaming Commission had a budget of $35.2 million dollars with

279 auditors and investigators to oversee 365 gaming operations with total reported

revenues of $19.5 billion.

One also has to consider the fact that today’s Indian gaming operations range

from a 30-seat bingo parlor in Alaska to a tribal operation in Connecticut with 6

separate casinos, nearly 7,500 slots, 388 table games, 23 restaurants and three hotels. A giant step forward was achieved in 2002 when NIGC promulgated the Minimum Internal Control Standards [MICS] which established minimum standards and

procedures for Class II and Class III gaming. However, the MICS also placed a

training, guidance and monitoring burden on an already beleaguered NIGC. In our

opinion, the NIGC needs additional resources to fulfill their expanding role commensurate with the escalating growth of the Indian gaming industry.

As the members of this committee also may recall, the National Gambling Impact

Study Commission’s report, issued in June 1999, encouraged Congress to assure

adequate NIGC funding for the proper regulatory oversight of the industry’s integrity and fiscal accountability.

While we support additional resources for the NIGC, we continue to be concerned

with the dual role that NIGC civil investigators perform. One is to act as NIGC’s

liaison to the gaming tribes. In this capacity, the investigators consult with gaming

tribes and provide compliance training regarding IGRA’s statutory requirements

and NIGC regulations. On the other hand, these same investigators issue preliminary violation notices against the tribes for civil gaming violations and refer criminal matters to the FBI. While I understand that the NIGC does not see this as a

conflict, our view is that these dual roles are wholly incompatible and contrary to

advancing compliance in Indian gaming. Put another way, it is hard to wear a white

hat on Monday and Tuesday and switch to a black hat on Friday and Saturday.

Historically, Federal law enforcement has been severely challenged to address

crime in Indian Country. Violent crime alone consumes most of the available resources. As a result, white collar crime relating to Indian gaining has, regrettably,

often gone unattended. Recently, however, under the direction of the Attorney General’s Indian Country Sub-Committee, and specifically under the leadership of Tom

Heffelfinger, the U.S. Attorney for the District of Minnesota, various law enforcement entities came together to form the Indian Gaming Workgroup. We are proud

to be part of this effort. None of the Federal, State or local law enforcement members of this Workgroup, alone, has the resources to address the potential crime in

the Indian gaining industry. Leveraging our investigative resources in a common alliance not only makes perfect sense to us but, I would submit, is the kind of good

government action that the American public would expect us to take.

Mr. Chairman, my greatest fear is not that the integrity or accountability of Indian gaming will be compromised from inside the actual Casinos, but rather by the

horde of paid management advisors, consultants, lobbyists and financiers flocking

to get a piece of the enormous amount of revenues being generated by Indian gaming. I would now like to briefly mention a number of obstacles and challenges that

we have identified over the years that hinder effective monitoring and enforcement

in Indian gaining.

When gaming tribes enter into management contracts for the operation of gaming

activities, those contracts are submitted to and approved by the Chairman of the

NIGC. Included in NIGC’s review is a background investigation of the principles

and investors. Some tribes have circumvented the review and approval process by

entering into consulting agreements which, although called by a different name, do

not differ significantly in substance from management contracts.

As a result, the terms of these consulting agreements, including the financing and

compensation, are not subject to review and approval by the NIGC, nor are the

backgrounds of the consultant’s principles and investors scrutinized. Ancillary

agreements related to gaining operations (such as construction, transportation, and

supplies) are also ripe for abuse.

This has resulted in the management and operations of some tribal gaming enterprises under financial arrangements unfavorable to those tribes. It has also opened

the window for undesirable elements to infiltrate the operations and management

of tribal casinos. During a recent FBI-sponsored conference on investigations of

crime in tribal gaining, it was the consensus of those law enforcement officials in

attendance that if they could only change one element of IGRA, it would be to en-
41

sure that gaming consultants are subject to the same requirements as management

contractors.

Another obstacle we have identified is the Federal statue that carves out an exception to the usual recusal period for departing Department of the Interior officials

25 U.S.C. §450 (j) permits former officers and employees of the United States to represent recognized Indian tribes in connection with any matter pending before the

Federal Government. The statute requires only that the former Federal employee

advise the head of the agency with which he is dealing of his prior involvement as

an officer or employee of the United States in connection with the matter at issue.

This exemption was enacted because Indian tribes, at the time, lacked effective

representation in front of Federal agencies. When the provision was enacted in

1988, virtually the only persons with expertise in Indian matters were Federal employees. Today, that dynamic has changed. Indian law experts (attorneys and lobbyists) are much more widely available to represent tribal interests.

Having outlived its original intent, this statutory exemption now perpetuates a

‘‘revolving door’’ where Federal employees who leave the government, after handling

sensitive tribal issues in an official capacity, go on to represent the very same tribes

on the same or similar issues before the government. Without the exemption, this

would be a violation of the criminal conflict of interest laws that apply to all other

departing Federal employees.

IGRA prohibits gaming on trust lands acquired after October 17, 1988 unless the

lands meet specific statutory exemptions. BIA and NIGC share responsibility for reviewing applications for converting trust land use to gaming.

Our recent evaluation of the process of taking land into Federal trust status for

Indian gaming found 10 instances in which tribes converted the use of lands taken

into trust by the Bureau of Indian Affairs after October 17, 1988 from non-gaining

purposes to gaming purposes without approval of BIA or NIGC. We determined that

neither the BIA nor NIGC has a systematic process for identifying converted lands

or for determining whether the IGRA exemptions apply. Therefore, unless a tribe

abides by the rules and applies for approval, conversion of trust lands to gaming

purposes goes essentially unchecked. Neither the Department nor NIGC has a way

to ensure that Indian gaming is being conducted only on approved lands.

In another OIG audit report issued in 2003, we discovered that neither the BIA

nor the NIGC was monitoring Indian tribes to determine whether gaming tribes

comply with BIA-approved revenue allocation plans [RAP] or whether tribes are

making per capita distributions of gaming revenues without an approved plan.

IGRA provides that tribes may make per capita payments of net gaming revenues

only after BIA’s approval of their RAP. IGRA provides the NIGC authority to enforce RAP requirements, but does not provide either BIA or NIGC the authority to

monitor. Absent a process for systematic monitoring of tribal revenue distributions,

BIA’s approval authority and NIGC’s enforcement authority serve little practical

purpose.

To illustrate this problem, we conducted a review of the per capita distribution

of the Table Mountain Rancheria Tribe of California at the request of BIA. BIA was

responding to complaints by tribal members. We determined that the Rancheria had

significantly exceeded their authorized per capita distribution and referred the matter to NIGC. In reply to NIGC’s letter citing the tribe with violating IGRA, the

Rancheria said the problem was caused by prior leadership and they would comply

with the plan. Without authority to do so, NIGC has been unable to make any further verification.

Finally, some Indian casinos and financial institutions are particularly vulnerable

to becoming the victims of financial fraud. Gaming tribes’ new-found wealth has

only added to that dynamic, and unfortunately, many tribes have little experience

managing or dealing with financial operations that are particularly vulnerable to a

myriad of fraud schemes.

Because Indian casinos are a cash-rich enterprise, they are, in our opinion, particularly attractive to money launderers. In this example, criminals would use casinos to cash in illegal proceeds for chips, tokens, or coins in amounts that do not

trigger reporting requirements. The criminals then game for short periods of time

to redeem ‘‘clean’’ money.

The failure to provide background investigations on all individuals involved in

tribal gaming is a serious weakness in the regulatory system. For example, in January 2005, a gaming regulator from the Santa Ynez Band of Chumash Indians was

convicted for a felony offense. The offense occurred in November 2004. Rather than

receiving notice from the tribe, the NIGC became aware of the conviction as a result

of an article in the Los Angeles Times.

Tribal financial institutions without Federal or State charters, and attendant regulation, are also particularly vulnerable to manipulation. In 1992 and 2001, the U.S.
42

Reservation Bank & Trust [USRB&T], an Indian-controlled banking institution, was

granted business licenses by the Rosebud Sioux Tribe in South Dakota and the Salt

River Pima-Maricopa Indian Community in Arizona. Although represented as a

bank to other financial institutions and investors, USRB&T is alleged to have been

a financial institution established solely to execute a ‘‘Ponzi’’ scheme. $20 million

was seized by the Federal Government in Arizona shortly before the operators of

USRB&T intended to wire the funds to an off-shore account.

Absent sound regulation, these Indian casinos and financial operations remain extremely vulnerable to criminal exploitation. As this committee so recently demonstrated, greater care must be exercised by gaming tribes when they are approached by unsavory Indian gaming lobbyists promising imperceptible services for

astonishing fees.

Mr. Chairman and members of the committee, as you can see, Federal regulators

and law enforcement personnel face a host of challenges in their effort to protect

the interests of individual Indians and tribes that emanate from Indian gaining operations and proceeds.

My office has been reviewing our audit and investigative authorities in Indian

country to determine whether we can establish an even more vigorous presence in

the gaming arena. In the meantime, we have had the opportunity to review the proposed technical amendments to IGRA advanced by NIGC. Overall, we support

NIGC’s effort in regard to funding flexibilities and regulatory enhancements, particularly the provisions that extend background checks to a broader category of individuals working in the Indian gaming industry.

The Office of Inspector General will continue to explore opportunities to identify

weaknesses and gaps in the Federal oversight and regulation of Indian gaming, and

formulate recommendations to correct these shortcomings. We will also continue to

conduct investigations into allegations of crime that adversely affects tribes and

gaming establishments. Should this committee have specific issues of concern that

might benefit from an audit, evaluation or investigation by the Office of Inspector

General, I stand ready to assist the committee in any way I can.

Mr. Chairman, members of the committee, thank you for the opportunity to testify

here today. I am happy to answer any questions you may have.
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Æ