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H.R. 4322, THE INDIAN TRUST

REFORM ACT OF 2005

LEGISLATIVE HEARING

BEFORE THE

COMMITTEE ON RESOURCES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

Thursday, December 8, 2005

Serial No. 109-38

Printed for the use of the Committee on Resources

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

or

Committee address: http://resourcescommittee.house.gov

(II)

COMMITTEE ON RESOURCES

RICHARD W. POMBO, California, Chairman

NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska

Jim Saxton, New Jersey

Elton Gallegly, California

John J. Duncan, Jr., Tennessee

Wayne T. Gilchrest, Maryland

Ken Calvert, California

Barbara Cubin, Wyoming

Vice Chair

George P. Radanovich, California

Walter B. Jones, Jr., North Carolina

Chris Cannon, Utah

John E. Peterson, Pennsylvania

Jim Gibbons, Nevada

Greg Walden, Oregon

Thomas G. Tancredo, Colorado

J.D. Hayworth, Arizona

Jeff Flake, Arizona

Rick Renzi, Arizona

Stevan Pearce, New Mexico

Henry Brown, Jr., South Carolina

Thelma Drake, Virginia

Luis G. Fortun ̃ o, Puerto Rico

Cathy McMorris, Washington

Bobby Jindal, Louisiana

Louie Gohmert, Texas

Marilyn N. Musgrave, Colorado

Vacancy

Dale E. Kildee, Michigan

Eni F.H. Faleomavaega, American Samoa

Neil Abercrombie, Hawaii

Solomon P. Ortiz, Texas

Frank Pallone, Jr., New Jersey

Donna M. Christensen, Virgin Islands

Ron Kind, Wisconsin

Grace F. Napolitano, California

Tom Udall, New Mexico

Rau ́l M. Grijalva, Arizona

Madeleine Z. Bordallo, Guam

Jim Costa, California

Charlie Melancon, Louisiana

Dan Boren, Oklahoma

George Miller, California

Edward J. Markey, Massachusetts

Peter A. DeFazio, Oregon

Jay Inslee, Washington

Mark Udall, Colorado

Dennis Cardoza, California

Stephanie Herseth, South Dakota

Steven J. Ding, Chief of Staff

Lisa Pittman, Chief Counsel

James H. Zoia, Democrat Staff Director

Jeffrey P. Petrich, Democrat Chief Counsel

(III)

CONTENTS

Page

Hearing held on Thursday, December 8, 2005 ...................................................... 1

Statement of Members:

Pombo, Hon. Richard W., a Representative in Congress from the State

of California ................................................................................................... 1

Prepared statement of ............................................................................... 2

Rahall, Hon. Nick J., II, a Representative in Congress from the State

of West Virginia ............................................................................................ 3

Prepared statement of ............................................................................... 4

Statement of Witnesses:

Cason, James, Associate Deputy Secretary, U.S. Department of the

Interior ........................................................................................................... 5

Prepared statement of ............................................................................... 6

Cobell, Elouise, Blackfeet Reservation Development Fund, Browning,

Montana ......................................................................................................... 27

Prepared statement of ............................................................................... 31

(1)

LEGISLATIVE HEARING ON H.R. 4322, THE

INDIAN TRUST REFORM ACT OF 2005.

Thursday, December 8, 2005

U.S. House of Representatives

Committee on Resources

Washington, D.C.

The Committee met, pursuant to call, at 10:07 a.m. in Room

1324 Longworth House Office Building, Hon. Richard W. Pombo

[Chairman] presiding. Present: Representatives Pombo, Rahall, Duncan, Christensen,

Drake, Hayworth, Inslee, Herseth, Kildee, Pearce, and Tom Udall.

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

The CHAIRMAN. The Committee on Resources will come to order.

The Committee is meeting today to hear testimony on H.R. 4322. Under Rule 4[g] of the Committee Rules, any oral opening state- ments at hearings are limited to the Chairman and the Ranking

Minority Member. This will allow us to hear from our witnesses

sooner and help Members keep to their schedules. Therefore, if

other Members have statements, they can be included in the hearing record under unanimous consent. Today’s hearing is on H.R. 4322, the Indian Trust Reform Act of 2005, a bill I introduced with the Committee Ranking Democrat,

Mr. Rahall. H.R. 4322 is a companion to S. 1439, a bill introduced

this summer by Chairman McCain and Vice Chairman Dorgan.

Our work on this issue has occurred on a bipartisan basis and

bicameral basis. I should stress that H.R. 4322 is not a done deal.

It is a work in progress, and I think it is safe to say all the other

sponsors feel the same way. As the title of the bill suggests, H.R. 4322 makes significant reforms in managing assets and accounts held in trust for Indians.

While today’s hearing concerns the entire bill, most of the focus

will be on Title I, which provides a direct and conclusive settlement

of the Cobell v. Norton lawsuit.

This lawsuit is not anything new to the Committee. It has been in district and appeals courts for nine years. As I have said in a

previous oversight hearing, the case has taken on almost legendary

proportions in its acrimony, which points to a need to settle it.

Having said that, I do not wish to dwell on the judicial combat

because it does not advance the goal of writing a legislative

settlement that is full, fair, and equitable.

2

Two decisions in the U.S. Court of Appeals for the District of

Columbia—one on December 10, 2004, and the other on

November 15, 2005—provide us with important information on the

laws pertaining to historic accounting of individual Indian money

accounts. I expect to hear different interpretations of these decisions from our witnesses today, and the Committee can rest assured we will also seek briefings from neutral experts on these developments.

But the fact remains that continuing to litigate the accounting

claims poses risk for both parties. The people at the heart of the

case, and I am talking about individual Indians, not trial lawyers

or government lawyers, still await a conclusion after nine long

years.

Before I turn to the Ranking Member for his opening statement,

I want to make one more remark. Title I contains a blank space

in the parts dealing with a settlement figure. This is deliberate. It

is one of the trickier issues to resolve. It has to be based on a combination of legal realities stemming from the recent Appeals Court

decision, of common sense, and of a moral obligation to Indians

touched by this case.

The Chairman now recognizes the Ranking Minority Member for

any statement he may have.

[The prepared statement of Chairman Pombo follows:]

Statement of The Honorable Richard W. Pombo, Chairman,

Committee on Resources

Today’s hearing is on H.R. 4322, the Indian Trust Reform Act of 2005, a bill I

introduced with the Committee Ranking Democrat, Mr. Rahall. H.R. 4322 is a companion to S. 1439, a bill introduced this summer by Chairman McCain and Vice

Chairman December 15, 2005Dorgan. Our work on this issue has occurred on a bipartisan and bicameral basis. I should stress that H.R. 4322 is not a done deal. It’s

a work in progress, and I think it’s safe to say all the other sponsors feel the same

way.

As the title of the bill suggests, H.R. 4322 makes significant reforms in managing

assets and accounts held in trust for Indians. While today’s hearing concerns the

entire bill, most of the focus will be on Title I, which provides a direct and conclusive settlement of the Cobell v. Norton lawsuit.

This lawsuit isn’t anything new to the Committee. It has been in District and Appeals Courts for nine years. As I’ve said in a previous oversight hearing, the case

has taken on almost legendary proportions in its acrimony, which points to a need

to settle it. Having said that, I don’t wish to dwell on the judicial combat because

it doesn’t advance the goal of writing a legislative settlement that is full, fair, and

equitable.

Two decisions in the U.S. Court of Appeals for the District of Columbia—one on

December 10, 2004, and the other on November 15, 2005—provide us with important information on the laws pertaining to historic accounting of individual Indian

money accounts. I expect to hear different interpretations of these decisions from

our witnesses today, and the Committee can rest assured we will also seek briefings

from neutral experts on these developments. But the fact remains that continuing

to litigate the accounting claims poses risks for both parties. The people at the heart

of the case—and I’m talking about individual Indians, not trial lawyers or government lawyers—still await a conclusion after nine long years.

Before I turn to the Ranking Member for his opening statement, I want to make

one more remark. Title I contains a blank space in the parts dealing with a settlement figure. This is deliberate. It is one of the trickier issues to resolve. It has to

based on a combination of legal realities stemming from the recent Appeals Court

decision, of common sense, and of a moral obligation to Indians touched by this case.

3

STATEMENT OF THE HON. NICK J. RAHALL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA

Mr. RAHALL. For more than a century, the Federal government

has been the trustee of funds for Indian tribes and individual

Indians. Dozens of reports over the years have documented the Department of Interior’s inability to accurately account for trust fund

money and manage the accounts on behalf of Indian Country.

This Committee has worked with account holders and administrations of both parties to clean up the management problems and

atone for inaccurate account balances. Frankly, we have been impeded by the administrations of both parties and undercut by various others who have sought to protect their own interests in this

debacle.

For some reason, the Administration, regardless of who is in the

White House, is convinced that, if they just move some authority

from one office to another, reorganize BIA, or buy another new

computer system, it will be fixed. I have watched this happen—and

fail—under every president since President Reagan.

The Cobell v. Norton lawsuit achieves its early goals of bringing

the problem to a head and getting the attention of all three

branches of government. I fear, however, that the case has mutated

into something I barely recognize from those early days.

The animosity between the parties is as bad as any I have ever

seen. While each side tries desperately to get the other to bend to

its will, the Indian account holders still have not gotten a true accounting, and I have come to believe they never will.

I greatly admire Ms. Elouise Cobell and have had the honor of

working with her on this issue since the mid-1980’s. Her tenacity

for justice for Indian account holders and her steadfast focus on

correcting decades of mishandling of Indian monies has been the

driving force in drawing attention to this issue. I believe her cause

is still as genuine as it was the day we first met. Unfortunately,

I cannot say the same for all others involved.

From my perspective, the Cobell Plaintiffs, long ago, proved their

point that the government has mismanaged the trust fund accounts

and the account holders need to be made whole.

Numerous attempts at settlement of the lawsuit have failed, including one sponsored by myself and Chairman Pombo, along with

Senators Campbell and Inouye during the 108th Congress. The

time and money being spent on this lawsuit is affecting every decision made at DOI with regard to Native Americans, and, as a result, programs are suffering.

Throughout our efforts to bring about settlement, we have been

asked by several interested parties to formulate a potential legislative settlement and reform of the management process. In response

to these requests, Chairman Pombo and I have introduced

H.R. 4322; a companion bill, S. 1439, was introduced in the Senate

by Indian Affairs Committee Chairman John McCain and Ranking

Member Byron Dorgan.

Today, we will receive testimony on Title I of the bill, which

deals solely with settlement of Cobell v. Norton. I hope we have not

lost the window of opportunity to gain congressional support for

such legislation.

4

I am, as always, committed to working with Chairman Pombo

and Indian account holders to bring about fair compensation to

those individuals wronged in the past and to ensure the integrity

of the system for the future.

This legislation could be an important opportunity to put the

‘‘trust’’ back in this government’s management of Indian monies.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Rahall follows:]

Statement of The Honorable Nick Rahall, Ranking Member,

Committee on Resources

For more than a century, the federal government has been the trustee of funds

for Indian tribes and individual Indians. Dozens of reports over the years have documented the Department of Interior’s inability to accurately account for trust fund

money and manage the accounts on behalf of Indian Country.

This Committee has worked with account holders and Administrations of both

parties to clean up the management problems and atone for inaccurate account

balances. Frankly, we have been impeded by Administrations of both parties and

undercut by various others who have sought to protect their own interests in this

debacle.

For some reason, the Administration, regardless of who is in the White House,

is convinced that, if they just move some authority from one office to another, reorganize BIA, or buy another new computer system, it will all be fixed. I have watched

this happen—and fail—under every President since President Reagan.

The Cobell v. Norton lawsuit achieved its early goals of bringing the problem to

a head and getting the attention of all three branches of government. I fear, however, that the case has mutated into something I barely recognize from those early

days.

The animosity between the parties is as bad as any I have ever seen. While each

side tries desperately to get the other to bend to its will, the Indian account holders

still have not gotten a true accounting, and I have come to believe they never will.

I greatly admire Ms. Eloise Cobell and have had the honor of working with her

on this issue since the mid 1980’s. Her tenacity for justice for Indian account holders

and her steadfast focus on correcting decades of mishandling of Indian monies has

been the driving force in drawing attention to this issue. I believe her cause is still

as genuine as it was the day we first met. Unfortunately, I cannot say the same

for all others involved.

From my perspective, the Cobell Plaintiffs, long ago, proved their point that the

Government has mismanaged the trust fund accounts and the account holders need

to be made whole.

Numerous attempts at settlement of the lawsuit have failed, including one sponsored by myself and Chairman Pombo, along with Senators Campbell and Inouye

during the 108th Congress. The time and money being spent on this lawsuit is affecting every decision made at DOI with regard to Native Americans and, as a result, programs are suffering.

Throughout our efforts to bring about settlement, we have been asked by several

interested parties to formulate a potential legislative settlement and reform of the

management process. In response to these requests, Chairman Pombo and I have

introduced H.R. 4322; a companion bill, S.1439, was introduced in the Senate by

Indian Affairs Committee Chairman John McCain and Ranking Member Byron

Dorgan.

Today, we will receive testimony on Title 1 of the bill, which deals solely with settlement of Cobell v. Norton. I hope we have not lost the window of opportunity to

gain Congressional support for such legislation.

I am, as always, committed to working with Chairman Pombo and Indian account

holders to bring about fair compensation to those individuals wronged in the past

and to ensure the integrity of the system for the future.

This legislation could be an important opportunity to put the ‘‘trust’’ back in this

government’s management of Indian monies.

The CHAIRMAN. Thank you. As I said, all other opening

statements will be included as part of the record.

5

At this point, I would like to turn to our first witness, Mr. James

Cason, associate deputy secretary of Interior. He is accompanied by

Ross Swimmer, the special trustee for American Indians.

I would like to take this time to remind all of today’s witnesses

that, under Committee rules, oral statements are limited to five

minutes. Your entire written statement will appear in the record.

Deputy Secretary, if you are ready, you may begin.

STATEMENT OF JAMES CASON, ASSOCIATE DEPUTY

SECRETARY, U.S. DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY ROSS SWIMMER, SPECIAL TRUSTEE FOR

AMERICAN INDIANS, U.S. DEPARTMENT OF THE INTERIOR

Mr. CASON. Mr. Chairman, I am pleased to be here today to discuss H.R. 4322, a bill that would attempt to resolve the Cobell v.

Norton litigation. We appreciate the time and effort the Chairman

and the Ranking Member and their staffs have taken to sponsor

the legislation in an effort to reach a full, fair, and equitable settlement to this case and to clarify our individual Indian trust duties,

responsibilities, and expectations. While many details remain to be

negotiated and clarified, the bill represents an important step toward seeking closure on this matter.

On November 15, 2005, the very day this legislation was introduced, the United States Court of Appeals vacated the district

court’s order reissuing the historical accounting injunction.

The Court said that since neither congressional language nor

common law trust principles establish ‘‘a definitive balance

between exactitude and cost,’’ the district court owed substantial

deference to Interior’s plan. The Court found that reissuance of the

historical accounting injunction was ‘‘not properly grounded in either fact or law. What is more, the district court completely disregarded relevant information about the costs of its injunction.’’

The Court also found that Interior’s decision to use statistical

sampling was especially reasonable, and the district court had

abused its discretion by barring the use of statistical sampling.

So what does this all mean? Interior is no longer obligated to

conduct an historical accounting costing billions of dollars. Interior’s more reasonable effort is entitled to substantial deference. Interior has expended more than $100 million to date and has made

substantial progress on our historical accounting task. Today, it is

abundantly clear that the plaintiffs’ public claim that $176 billion

is owed is vastly overstated, to say the least. Such assertions have

misled many individual Indians and created expectations that are

false. More recently, the plaintiffs’ lawyers have offered to settle for

$27.5 billion. This figure, too, is based on assumptions that available evidence simply does not support. What remains to be determined is how much more accounting needs to be done before we

can resolve these claims through administrative, judicial, or legislative means.

The accounting work done to date has identified differences

between our accounting ledgers and the supporting documentation.

These differences tend to be few. They tend to be small. They involve both overpayments to individual Indians and underpayments

to individual Indians, and when added together, net out with a net

6

overpayment. That overpayment principally involves the payment

of interest to a broad range of accounts. Thus, the facts to date are in stark contrast to the rhetoric that

surrounds this case. While more accounting work can be done,

there is a base of substantial evidence upon which to begin forming

conclusions about the merits of the case and the magnitude of any

settlement offers that should be considered. The Administration

supports the Committee’s efforts to bring this matter to a close,

provided the terms of the settlement are objective, reasonable, and

consistent with the facts.

We stand ready to work with the Committee and the Senate counterparts to seek comprehensive resolution of the case. We understand that there is still risk and uncertainty for the parts of the

history that we have not examined yet and that we would prefer,

if possible, to bring a complete resolution to this matter rather

than continuing down an historical accounting path that ultimately, in the end, will likely prove unsatisfactory to all parties

concerned.

So with that, Mr. Chairman, I would be happy to answer

questions.

[The prepared statement of Mr. Cason follows:]

Statement of James Cason, Associate Deputy Secretary, and Ross Swimmer, Special Trustee for American Indians on the Cobell Lawsuit, U.S. Department of the Interior

I am pleased to be here today to discuss the legislation before the Committee that would attempt to resolve the Cobell v. Norton litigation. We appreciate the time and

effort the Chairman and Ranking Member and their staffs, along with their Senate

counterparts, have taken to develop this legislation in an effort to reach a full, fair

and final settlement of this case and to clarify individual Indian trust duties, responsibilities, and expectations. The introduction of H.R. 4322 and S. 1439 is the

first serious congressional effort we have seen to comprehensively resolve the issues

involved in the Cobell lawsuit. While many details remain to be negotiated and

clarified, the bill represents an important step towards seeking closure on this

matter.

This Administration has appeared before this Committee on this issue numerous

times. The landscape for the resolution of this case and the underlying trust challenges changes with each new court decision. We continue to narrow the magnitude

and scope of the potential settlement terms as we learn more through our historical

accounting work. Today’s effort is a critical step in providing statutory guidance. It

is important though to understand what the Court of Appeals has done since we

testified in July on the Senate bill identical to this one.

On November 15, 2005, the very day this legislation was introduced, the United

States Court of Appeals for the District of Columbia Circuit vacated the district

court’s order reissuing the historical accounting structural injunction.

The Court noted in the opinion that the district court, in issuing a contempt citation against Secretary Norton, disregarded ‘‘Interior’s affirmative accomplishments

on Norton’s watch’’.

The Appeals Court went on to note that while the American Indian Trust Fund

Management Reform Act of 1994 (1994 Act) includes an accounting requirement,

‘‘its text offers little help in defining the accounting’s scope.’’ Even plaintiffs’ counsel,

the Court notes, conceded some need for practicality when asked hypothetically

about spending $1 million in accounting expenses for a $1,000 trust. The Court took

note of the fact that in the 1994 Act ‘‘Congress was, after all, mandating an activity

to be funded entirely at taxpayers’ expense.’’ Because the Individual Indian Money

(IIM) trust differs from ordinary private trusts in a number of ways, the Court said

‘‘the common law of trusts doesn’t offer a clear path for resolving statutory

ambiguities.’’

The Court also took note of the fact that for two fiscal years in a row, Congress

limited Interior’s annual expenditures for historical accounting to $58 million, an

amount that includes funding for tribal accounting as well. If that pattern continued

with the district court’s historical accounting structural injunction in place, it

7

reasoned, the district court’s accounting would not be completed for about two hundred years.

More importantly, the Court said that since neither congressional language nor

common law trust principles establish ‘‘a definitive balance between exactitude and

cost,’’ the district court owed substantial deference to Interior’s plan. They said that

the district court ‘‘erroneously displaced Interior’’ as the body that should work out

compliance with the 1994 Act and erred by reinstating its September 2003 injunction in February 2005 without considering the Court of Appeals’ 2003 decision and

subsequent developments after 2003. The reissuance of the injunction, according to

the Court, was ‘‘not properly grounded in either fact or law. What is more the district court completely disregarded relevant information about the costs of its injunction.’’ In summary, the Court said the district court acted ‘‘on the ill-founded assumption that the 1994 Act gave it the freedom of a private-law chancellor to exercise its discretion.’’

The Court did say that this opinion was issued without prejudice to the plaintiffs’

argument on appeal that execution of the reissued injunction is impossible or to future claims such as challenges to the correctness of specific account balances. It also

addressed the district court’s bar on using statistical sampling as part of the accounting. The Court found Interior’s decision to use statistical sampling in its proposed plan ‘‘especially reasonable’’ because the cost of accounting for transactions

valued under $500 would exceed the average value of those transactions. They found

the district court had abused its discretion by barring use of statistical sampling.

So what does this all mean? Interior is no longer obligated to conduct an accounting costing billions of dollars. Interior’s more reasonable effort is entitled to substantial deference. Interior has expended more than $100 million to date and has made

substantial progress. Today, it is abundantly clear that the plaintiffs’ public claim

that $176 billion is owed is vastly overstated, to say the least. Such assertions have

mislead many individual Indians and created expectations that were false. More recently the plaintiffs’ lawyer offered to settle for $27.5 billion. This figure is also

based on assumptions that the available evidence simply does not support. What remains to be determined is how much more accounting needs to be done before we

can resolve these claims through administrative, judicial or legislative means.

HISTORICAL ACCOUNTING: WHAT DO WE KNOW TO DATE?

As we have stated to this Committee repeatedly, as part of the Cobell litigation,

Interior collected over 165,000 documents for the historical analysis of IIM trust

fund activity through December 31, 2000, for the named plaintiffs and agreed-upon

predecessors. Of these documents, about 21,000 documents were used to support the

transactional histories, which dated back as far as 1914, and which included a total

of about 12,500 transactions.

Pursuant to the requirement in Section 131 of the FY 2003 Appropriations Act,

on March 25, 2003, the Department of the Interior provided Congress with a summary of the expert opinion of Mr. Joseph Rosenbaum, a partner in Ernst & Young,

LLP, regarding the five named plaintiffs in Cobell v. Norton. This report describes

the process the contractor went through and also contains a summary of his opinions. These conclusions included:

• The historical IIM ledgers were sufficient to allow DOI to create virtual ledgers

that were substantially complete for the selected accounts.

• The documents gathered by DOI supported substantially all of the dollar value

of the transactions in the analyzed accounts.

• The documents gathered by the Department of the Interior do not reveal any

collection transactions not included in the selected accounts, with a single exception in the amount of $60.94 that was paid to another account holder, due

to a transposed account number entered in the recording process.

• An analysis of relevant contracted payments, evidenced primarily by lease

agreements, showed that substantially all expected collection amounts were

properly recorded and reflected in the IIM accounts.

• There was no indication that the accounts are not substantially accurate, nor

that the transactions were not substantially supported by contemporaneous documentation.

This analysis, including the named plaintiffs and the selected predecessors in interest, found both non-interest transaction overpayments to class members (37 instances totaling $3,462) and underpayments (14 instances totaling $244).

As of September 30, 2005, Interior’s Office of Historical Trust Accounting (OHTA)

had reconciled more than 22,900 Individual Indian Money (IIM) judgment accounts

with balances totaling more than $57.6 million and 25,551 additional judgment

accounts with no balance as of December 31, 2000. This accounting effort found nonVerDate 11-MAY-2000 12:27 Feb 17, 2006 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 J:\DOCS\25102.TXT HRESOUR1 PsN: HRESOUR1
8

interest overpayments (2 instances totaling $2,205) and underpayments (21

instances totaling $52). As of September 30, 2005, OHTA had also reconciled 5,708 IIM per capita accounts with balances of over $43.9 million and an additional approximately 6,214

accounts with no balance as of December 31, 2000. In this per capita accounting effort, only one individual on a tribal roll did not receive a payment of $100. Interest recalculations identified a particular set of IIM judgment transactions (786 instances totaling $25,000) where principal had been distributed without associated interest amounts (an underpayment). More broadly, interest amounts for

judgment and per capita accounts appear to have been overpaid (a net amount approximating $365,000 on about 13,800 accounts). Based upon the historical accounting results so far, Interior suggests that Congress consider exempting Judgment and Per Capita funds from any proposed

legislation. The National Opinion Research Center (NORC) at the University of Chicago, a national organization for research and statistics, was contracted in 2001 to assist

Interior with interpreting historical accounting data and results. On September 30,

2005, the NORC issued a progress report entitled ‘‘Reconciliation of the High Dollar

and National Sample Transactions from Land-Based IIM Accounts,’’ looking at landbased IIM accounts that were open on or after October 25, 1994. The goal of the

project is to assess the accuracy of the land-based IIM account transactions contained in the two IIM Trust electronic systems (Integrated Records Management

System and Trust Funds Accounting Systems) for the electronic era 1985-2000. Accuracy is being tested by reconciling all transactions of $100,000 or more and a large

statistically representative random sample of non-interest transactions under

$100,000. That historical accounting initiative ended in August 2005. The NORC

has found:

• Over 99% of the sampled transactions needed for preliminary estimates have

been reconciled for all twelve BIA regions as have 99% of all the transactions

greater than or equal to $100,000.

• A completion rate of 99% is extremely high in a sample such as this. The report

states: ‘‘This very high completion rate for searching and locating documentation should put to rest concerns about the impact that the 1% remaining

unreconciled transactions might have on results.’’

• The reconciliation identified both overpayments (63 instances totaling $53,797)

and underpayments (48 instances totaling $62,250).

• Reconciliation shows the debit difference rate to be 0.4%.

• Reconciliation results show the credit difference rate to be 1.3%.

As of September 30, 2005, OHTA also resolved residual balances in 9,452 special

deposit accounts, identifying the proper ownership of more than $47 million belonging to individual Indians, Tribes, and private entities.

H.R. 4322, THE INDIAN TRUST REFORM ACT OF 2005

We appreciate the fact that legislation has been introduced to attempt to address

the issues in Cobell. We are pleased to see the bill focuses on consolidation of

fractionated Indian lands and supports a more aggressive land acquisition program

than the one currently under way. We do, however, have some serious concerns with

the bill as currently drafted.

Title I. H.R. 4322 would provide a yet undetermined number of dollars to resolve

the historical accounting claims of the class members of the Cobell litigation. However, it does not provide for settlement of all of the elements of the Cobell litigation.

In addition, in determining what is a reasonable amount, Congress should be aware

that the $27.487 billion requested by the plaintiffs as settlement does not include

money to resolve damage claims for potential mismanagement of trust assets that

could be filed in the future. Such a future claim may begin by plaintiffs demanding

an historical accounting. The legislation therefore should resolve or restrict any

claims that might permit the reinstatement of historical accounting litigation comparable to the Cobell case. We also believe that Congress should look carefully at

the distribution system provided in legislation for the settlement funds. It would be

far better to provide clear guidance as to the amounts to which individuals are entitled, rather than leaving the decision of what individuals receive to a formula developed by the Secretary. Congress should craft a distribution method with as much

clarity and direction as possible. Congress should also be aware that 25 tribal trust

cases involving similar issues have also been filed.

Indian Trust Asset Management Demonstration Project Act. H.R. 4322 includes provisions allowing for a pilot project for 30 tribes to take over management

of Indian trust assets. Many Indian trust assets are already managed by the tribes

through PL 93-638 compacts and contracts. In the legislation, it is critical to

9

transfer the responsibility for results along with authority and funding. We do not

believe the United States should remain liable for any losses resulting from a

Tribe’s management of its trust assets under the demonstration project. This is

particularly true because the bill would allow Tribes to develop and carry out trust

asset management systems, practices, and procedures that are different and

potentially incompatible with those used by Interior in managing trust assets. In

a normal trust, this action would be considered a merger of Trustee and beneficiary

and thus end the Trust relationship. Of course this would have no impact on the

government-to-government relationship. We look forward to discussing further the following key aspects of this provision. For example, if program reassumption became necessary, how would Interior take

back program responsibilities and integrate information back into our trust asset

management environment when it has been collected and processed in different systems? What kind of monitoring of tribal activities will Interior have to do to ensure

the tribe is living up to the standards in the bill? What performance standard would

apply: the imminent jeopardy standard associated with PL 93-638 or the ‘‘highest

and most exacting fiduciary’’ standard being required of Interior? Under the 1994

Act, Tribes are permitted to withdraw and manage their trust funds and the Secretary is held harmless for losses or mismanagement that may occur. A similar provision related to other trust assets would be a logical extension of self-governance. Fractional Interest Purchase and Consolidation Program. The bill also

places a priority on developing an aggressive program for the purchase of interests

in individual Indian land. The President’s FY 2005 budget request included an unprecedented $70 million request for Indian land consolidation. Congress chose to appropriate $34.5 million for the program in FY 2005. In light of this, we requested

and received $34.5 million for FY 2006.

As structured, the program in H.R. 4322 provides incentives where a parcel of land is held by 20 or more individuals and where an individual sells all interests

in trust land. In cases where a parcel of land of land is held by over 200 individuals,

the bill provides procedures for noticing interest holders and moving ahead with

consolidation of the interests. These provisions will greatly help consolidate interests and reduce the costs of management of the individual Indian trust. Care must be given, however, to ensure that this bill does not work as an incen- tive to further fractionate land so that individuals can become eligible for the bill’s

incentives. So far, there has been no lack of willing sellers. In addition, we would

like to work with you further on the criteria, thresholds and amounts included in

this title. We have some serious concerns as to the cost of the significant premiums

provided in the bill. In addition, we would like to explore the possibilities for consolidation sale authority to reduce the associated public financing burden of addressing

the fractionation issue. We need to analyze the costs of the new incentives, the

mechanisms for funding land acquisitions and the impact of the American Indian

Probate Reform Act on the rate of fractionation as a part of our implementation

plan.

Restructuring the Bureau of Indian Affairs and the Office of the Special

Trustee for American Indians. H.R. 4322 includes a number of concepts that

were discussed by the Joint Department of the Interior/Tribal Leaders Task Force

on Trust Reform in 2002. This task force was formed during the period when the

Department was examining ways to restructure the trust functions of the Department in response to the trust reform elements of the Cobell court. The task force

ended in an impasse with regard to implementing legislation on matters that were

not related to organizational alignment. In the face of no legislation, the Department implemented a reorganization plan that could be achieved administratively.

This title of the bill also extends the Indian preference hiring policy to the new

Office of Trust Reform Implementation and Oversight created by the bill and abolishes the Office of the Special Trustee for American Indians. Interior would appreciate the opportunity to discuss these policy choices in some detail.

While Interior is receptive to the concepts of establishing an Undersecretary position and merging Indian programs under new leadership, we would like to discuss

the objectives of such a proposal. In Interior’s view, such an initiative is unlikely

to materially alter Indian trust performance due to the presence of other, more

pressing, structural concerns about the trust, such as the lack of a clear trust agreement to guide responsibilities and expectations, appropriations that do not track

with all program trust responsibilities, the lack of an operative cost-benefit paradigm to guide decision-making priorities, the challenges of incorporating PL 93-638

compacting and contracting, and the requirements associated with Indian preference

hiring policies. These issues have frustrated the beneficiaries, the administrators,

and a various times Congress throughout the lifespan of this trust. We encourage

Congress to speak clearly in whatever legislative direction it chooses to write, and

10

carefully consider the impacts the language will have in allowing us to meet the

objectives of your constituents.

It is clear that moving from today’s organization into a beneficiary servicesoriented organization of excellence will demand the highest of financial, information

technology and managerial skills. American Indians make up less than one percent

of the American public. When we restrict hiring to this small fraction of potential

employees, instead of reaching out to whomever may be most qualified, we deprive

ourselves of 99% of the available talent pool. While the Indian preference hiring policy does permit the hiring of non-Indians, it serves as a significant disincentive for

non-Indian applicants. To improve Indian program performance and results, we

would like the opportunity to serve Indian Country by including a broader range

of applicants so as to create an applicant pool large enough to ensure we are hiring

well qualified employees.

Audit of Indian Funds. The last title of H.R. 4322 requires the Secretary to

prepare financial statements for Indian trust accounts in accordance with generally

accepted accounting principles of the Federal Government. The Comptroller General

of the United States is then required to contract with an independent external auditor to audit the financial statements and provide a public report on the audit. The

Secretary is required to transfer funding for this audit to the Comptroller General

from ‘‘administrative expenses of the Department of the Interior’’ to be credited to

the account established for salaries and expenses of the GAO. For the last ten years,

the trust funds have been audited by independent public accounting firms. In addition, Interior encourages additional discussion to ensure that accounting is accomplished under proper fiduciary accounting standards to avoid any conflicts with

standard fiduciary accounting practices.

In closing, I want to make it clear that we believe the November 2005 Court of

Appeals decision was an extremely important one. As Congress assesses what is a

reasonable amount to provide for settlement of the plaintiffs’ claims, Congress must

consider that we are no longer looking at a $13 billion accounting cost nor are we

looking at an accounting in which statistical sampling cannot be used. Further,

Congress should also take into consideration what we have learned so far from the

more than $100 million we have spent looking at IIM accounts to date.

Thank you. I’d be happy to answer any questions you might have at this point.

The CHAIRMAN. Thank you. I will start off, Mr. Cason, and ask,

what is the Interior Department’s position with regard to reaching

a settlement of the claims brought by the Plaintiff? Is the Department prepared to support a legislative solution?

Mr. CASON. Yes, Mr. Chairman.

The CHAIRMAN. Land-based accounts represent about 75 percent

of all individual Indian money accounts and hold about half of the

total balance of all such accounts. The other accounts are judgment

accounts, per capita accounts, and special deposit accounts. Is that

accurate?

Mr. CASON. Yes, Mr. Chairman, it is.

The CHAIRMAN. Can you tell me what documentation the

Department has for the transactions, including leases, payments,

and deposits, in the land-based accounts?

Mr. CASON. Mr. Chairman, we have a substantial base of information regarding all types of accounts that we have. In the

historical accounting effort that we have done thus far, we have

accounted for around 50,000 of our judgment per capita accounts

and, in large part, have all of the information necessary to do

those. Those relatively are simple to do. They involve a judgment

or a settlement of some type that is paid to numerous accounts

from a single core event, and then it is initially deposited in an account plus interest transactions. Those are relatively simple.

In the case of land-based accounts, we have a substantial record

of those as well. Depending on the time period involved, the availability of the records varies somewhat, but the experience that we

11

have had so far is generally we have somewhere between 85 percent and 99 percent of the records necessary to do the reconciliations that we are doing in our accounting project.

The CHAIRMAN. Is the accuracy of the accounting in the other accounts at all likely to be repeated in an accounting of the landbased accounts?

Mr. CASON. It is my understanding, Mr. Chairman, that we do

have difference that involve both our judgment per capita accounts

and land-based accounts, but as I said in my opening statement,

they tend to be few, they tend to be small, and they tend to net

near zero when you add both overpayments and underpayments together.

So a conclusion is there are errors or differences between what

is in our ledger and what the supporting documents say, but there

are not many of them. I have asked our Office of Historical Trust

Accounting to inquire with the firms that are actually conducting

the accounting, and it is my understanding these represent four of

the five largest accounting firms in the country that are involved,

to ask the question whether there appears to be any evidence of

systemic error in our accounting processing system or whether

there has been any evidence of fraud or whether there has been

any evidence of our electronic data being altered by hacking or

other intrusions in our systems, and the answer to those questions

so far has been no, that what we have identified in error so far appear to be random errors associated with just human work as opposed to any systemic problems with our system.

The CHAIRMAN. How do you respond to the argument that a statistical sampling analysis does not consider missing documents?

Specifically, does a statistical sampling just confirm the existence

of documents already in the possession of the Interior Department?

Mr. CASON. Well, the way we approach the statistical sampling

process is, in our land-based accounts, we have basically gone

through a process of looking at the 1985-to-2000 tranche, which

represents approximately $5.5 billion of throughput through these

accounts, and in so doing, using the electronic information, we had

a statistical accounting firm select a statistically based set of accounts and then within those accounts select statistically selected

transactions to do further evaluation of. In that particular tranche,

we basically identified all of the documents we needed to do the

reconciliation that we were undertaking.

It is my understanding, Mr. Chairman, that we basically had 99

percent plus of all of the documents that we sought to do the reconciliation, and the document types that are involved are checks,

incoming checks or copies of checks; the internal transaction documentation that we use to deposit checks and distribute the checks

to where they belong.

As an example, what I mean by that is if I have a tract of land

that is leased and has 500 different owners on it due to fractionation, we have to have documentation of how we distributed one

common check to the 500 recipients of the check.

We also have documentation when we are making disbursements

from accounts, and that is used as part of the reconciliation process

for looking both at the incoming and the outgoing transactions in

an account. In that particular tranche, in land-based accounts, we

12

have virtually all of the documents that we needed. I think it is

fair to say, if you go further back in time, the further back you go,

the more likelihood that you will have to find that there are missing documents, and it would be up to the statisticians in this case

to make an interpretation of how significant the missing information is.

The CHAIRMAN. Thank you. I am going to recognize Mr. Rahall.

Mr. RAHALL. Thank you, Mr. Chairman.

Deputy Secretary Cason, let me ask you, how do the error rates

that you have calculated in a judgment and the per capita accounts

compare to the error rates in other programs that are run by the

Federal government?

Mr. CASON. I am sorry, Congressman Rahall. I am not aware

that we have actually gone through an exercise of trying to calculate error rates of program performance across the Federal government to do that kind of comparison. When we have done the

historical accounting process, the focus has been on the differences

that we identify between ledger amounts and supporting documentation in our historical accounting effort. I imagine that it

would be possible to cobble together some sort of comparison to

other programs, but I am not aware of that.

Mr. RAHALL. Could you do any of that cost comparison?

Mr. CASON. Yes. I imagine that is possible.

Mr. RAHALL. If it is not too much time and effort involved, if you

could have somebody do that and just submit it for the record.

Mr. CASON. Sure.

Mr. RAHALL. OK. Is it reasonable to assume that modern accounting accuracy is a good proxy for what took place for the first

50 to 75 years for the trust?

Mr. CASON. Congressman Rahall, I cannot really give you a good

answer on that. What I can tell you, we are attempting not to speculate about what will happen in older time periods without actually

having gone to look at the them through the accounting process.

Our experience so far in the historical accounting effort is very

limited in the older time periods, so what information we have

available right now would suggest that there is not a materially

higher rate of error for the older time periods, but it is completely

insufficient to draw an accurate, fact-based conclusion on.

We have more information about a more current time period that

represents about $5.5 billion of the throughput, and before we

could really give you an accurate answer, we would actually have

to go do some work in that area, and we have not done that work

yet. So we are trying not to speculate one way or the other as to

what the error rate would be with older periods.

Mr. RAHALL. In your testimony, you state: ‘‘What remains to be

determined is how much more accounting needs to be done before

we can resolve these claims through administrative, judicial, or legislative means.’’

Mr. CASON. Yes.

Mr. RAHALL. My final question would be, how do we determine

how much more accounting is needed?

Mr. CASON. Congressman Rahall, I do not think there is any one

specific definition that would get there, and from our standpoint as

we are going through this, it will be a combination of effort

13

between what is occurring in the judiciary system, what is occurring here on Capitol Hill, and the discussions we have within the

Administration.

What is happening right now is, if you look at where we were

four or five years ago, we basically had no historical accounting effort or facts that had been completed at that time, and now we are

$100 million into the process. We have done 50,000 judgment per

capita accounts and found very few errors. We have done a statistical sampling of the data base for the last 15 years and found relatively few errors. We have a body of evidence associated with the

Arthur Andersen accounting and tribal accounts from 1972 to 1992.

So if you go back another 15-year tranche, basically back to 1972,

the error rate associated with the tribal accounts was very, very

low.

So we are having a growing body of evidence that suggests to us

we do not have, at least, so far, any appearance of a systemic problem with our accounting system or any evidence of systemic fraud

involved with our employees who account for these monies, and at

some point in time, we will get to a point where Congress, as an

institution, will say, ‘‘OK. I have enough evidence to draw a conclusion,’’ or the Administration will come to Congress and say, ‘‘We

think we have enough evidence to draw a conclusion about where

this is all headed.’’

We are hopeful that the efforts to settle this will actually precede

that level of accounting, that we can actually bring this thing to

close because we think it is more positive if we can actually reach

a mutually acceptable solution to this process through legislation

and bring the issue to a close. In the absence of that, then it looks

like we have years more of accounting that we will need to do and

years more of constant to’ing and fro’ing in court.

Mr. RAHALL. Thank you for your response.

Mr. CASON. You are welcome.

Mr. RAHALL. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Duncan?

Mr. DUNCAN. Thank you, Mr. Chairman, and I appreciate and

understand and respect what you and Mr. Rahall are trying to do

because this, as I understand it, has been in the courts for nine

and a half years, and we want to bring this to some type of conclusion. I believe that you probably feel the same way that I do that

because this does involve probably many billions of dollars, that we

need to be very careful of this legislation. Right now, we do not

have enough information on how many legitimate claimants there

are, how much they would get per claimant, and what is the total

cost of the bill. The bill, as you said, is a work in progress, but it

contains more blanks than any bill I have ever seen. Section 103

says blank billions on the initial deposit, also blank percentage on

attorneys’ fees, blank percentage on the cost of administration. Section 104 has blank billions on the general distribution and share

of the claim. In Section 108, blank per hour on attorneys’ fees.

That is what concerns me the most, I think, because I was a

lawyer and a judge before I came to Congress. Sadly, we have sent

so many millions of good jobs to other countries for so many years,

we have half of the kids in the country either going to law school

or thinking about it. We have such a surplus of lawyers out there,

14

we have really good lawyers who would come in and work on this

for $100 an hour, and yet these Washington law firms charge just

ungodly fees, and we have to put some kind of limits on these attorneys’ fees. I know, in the early nineties, in the savings and loan

scandal, there were firms up here charging $650 and $850 an hour,

and that was in the early nineties. I hate to think what some of

them might charge now if we do not put some limits on it.

In addition, in many of the major bankruptcies, the bankruptcy

trustees and the bankruptcy lawyers have been awarded almost all

of the money in some gigantic bankruptcies where the creditors got

very little. This blank on the cost of administration concerns me,

and I think we need to put some real strict limits on these things,

or there are going to be some scandalous ‘‘60 Minutes,’’ ‘‘20/20,’’

‘‘Dateline’’-type shows out of this legislation.

I do not have any questions, but I did want to, at least, put those

remarks on the record. Thank you.

The CHAIRMAN. Thank you, Mr. Duncan. I know that Mr. Rahall

and I agree with much of what you said in terms of the concerns

about the overall cost, which is why when this bill was drafted, we

did look at addressing those specific areas. I think when we get

into filling in some of those blanks, hopefully you will be more comfortable, and I know I will be more comfortable where we are going

with the legislation, but that is a very legitimate point you bring

up.

Mr. Kildee?

Mr. KILDEE. Thank you, Mr. Chairman. Thank you again for

your efforts in this very difficult question.

I have been involved in legislative attempts to bring justice to

our Native Americans for 41 years next month, and I would like

to back up just a bit for maybe some of the newer Members here.

We have been at this nine years, I think, in this Committee here.

Generally speaking, what led to where we are today is a combination of nonfeasance, misfeasance, and malfeasance, just to give

an historical background to the cause for this.

Mr. CASON. Well, Congressman Kildee, I would take a different

position. There is certainly lots of public rhetoric about the lack of

feasances, all three of those, within the Department of the Interior

and the implementation of this program. I think there is a different

causal factor that is associated with this than that, and it is my

sense that if you take a look at the statutory history of this trust,

there has never been any instruction from Congress regarding

what sort of accountings needed to be done at any point prior to

1994.

So when you take a look at the operation of this trust over time,

there has not been any instruction from Congress that said do this

kind of accounting provided in this time period and have this kind

of information involved. That first happened in 1994. Where we are

with this litigation is that the Plaintiffs have made a point with

the court, and the court agreed, that there is some inherent obligation to do accounting that the Department had not complied with

and that we have been in nine years’ worth of effort to try and define what exactly that accounting requirement is. Even after nine

years of litigation, it is still not clear exactly what is required of

the Department to do an accounting.

15

What we have at this point is the Department’s plan, which we

submitted to Congress and to the court, and Congress thus far has

not decided to even fund that plan. We also have the district court’s

plan that has been vacated now by the Court of Appeals twice.

That was a much more expensive, much more exacting plan that

Congress equally was unwilling to fund.

So I would say the root of it is not so much malfeasance, misfeasance of the case; it is, rather, there has not been any clear direction over the last 100 years as to what the expectations are, and

that is one of the fundamental flaws or problems associated with

managing this trust.

Mr. KILDEE. I thank you for your response, and I think, too, also

we have to recognize here in the Congress that the trust responsibility toward the Native Americans is with the entire Federal

government.

Mr. CASON. That is correct.

Mr. KILDEE.—not just the Department of the Interior. It is the

Congress also, and, therefore, we cannot dodge maybe our nonfeasance, if that be that.

So the trust responsibility certainly is not just in the Department

of the Interior or the BIA; it is also here with the Congress. We

are trying to ferret out all of the facts and trying to get justice in

this.

Let me ask you this question. Judge Lamberth feels that the

comprehensive accounting would cost about $12 billion, and I think

the Department figures that can be done for about $335 million.

How do you account for the wide disparity between Lamberth’s

costs for the accounting and what you feel the cost of the accounting will be?

Mr. CASON. That is a great question. The principal differences

that lead to the dollar figure differences: first, is the class for whom

you would do an accounting. In our case, we basically defined the

class of who we would do an accounting for as those individuals

who had an account open on or after the date of the 1994 Act. So

we would be doing around 275,000 to 300,000 accounts.

The Judge Lamberth plan basically is an accounting for all accounts that have ever been since 1887, so there is a much wider

panoply of accounts that needed to be done.

The second major driver is the approach used to do the accounting. The big driver for money is in the land-based accounts, and it

is particularly a problem due to fractionation of Indian individual

allotments, and in that particular case, for land-based accounts,

what we had proffered to do was to use a statistical sampling process for reconciling transactions with the underlying supporting

data. So we would not attempt to do every transaction. We would

do a statistical sample of them to do that reconciliation. In Judge

Lamberth’s plan, reconciliation way exceeds the value of the transaction. So those are two principal drivers.

There was also a requirement to do an accounting for all landbased transactions that occurred since 1887. That materially added

to the cost as well.

Mr. KILDEE. Thank you very much, Mr. Cason.

Mr. CASON. You are welcome.

Mr. KILDEE. Thank you, Mr. Chairman.

16

The CHAIRMAN. Mr. Hayworth?

Mr. HAYWORTH. Thank you, Mr. Chairman. Mr. Cason, thank

you and my colleagues. When I was listening to my good friend

from Michigan, I thought back to the Trust Fund Task Force that

he and I co-chaired nearly a decade ago, and listening to both his

comments and those of our friend from Tennessee, this challenge

of trying to get our arms around this is considerable, to say the

least, and I commend the Chairman and the Ranking Member, as

well as Senator McCain in the other body, for trying to make

order—we really cannot call it order out of chaos; it is, to a large

degree, order out of the unknown.

Mr. Cason, you pointed out, again, historically, the difference in

the assessments of Judge Lamberth, going back to the 19th century. A point more recently as you take a look, there is a lot to get

our arms around.

Let me take something that is of great importance to a tribe in

the Fifth Congressional District of Arizona. I represent the Salt

River Pima-Maricopa Indian community as part of what is known

as the ‘‘Section 122 tribes,’’ the Tribal Trust Reform Demonstration

Project. One of the concerns the tribe has mentioned to me is obtaining some of the funding it is entitled to under this demonstration project. Could you give me an update as to where the Department is with regard to funding the Section 122 tribes?

Mr. CASON. Sure. Congressman, I, personally, meet periodically

with the 122 tribes. I think it used to be 139 tribes and 131 tribes

before that because it has been going through a succession of appropriations bills and being placed in different sections. But we go

through a periodic meeting schedule with the tribes to talk about

what is involved in their demonstration project, what sorts of accommodations they want from the Department of the Interior.

The principal core funding that comes to these tribes is in the

form of compacts or contracts that they get through our Indian selfdetermination process, and each of these tribes is given those funds

that they are entitled to under self-determination and have been

for the last several years and would be under 2006. We also had

requirements through those sections to do audits of each of those

groups to make sure that they were implementing their programs

properly. The OST—Ross could comment on—has done that, and,

in large part, we found that they were doing a job that was equally

as proficient as what we were doing.

So I think that the process is ongoing and that they are getting

the funding to which they are entitled, and we are looking to ensure that there is a good, solid relationship to facilitate and enable

their ability to make more decisions for themselves.

Mr. HAYWORTH. So, again, just to make sure I understand, this

is being funded through the compacts and contracts commensurate

with self-determination.

Mr. CASON. Right.

Mr. HAYWORTH. By and large, the audits are showing a proficiency equal to what is transpiring.

One other question. Gosh, we are always dealing with money up

here.

Mr. CASON. It is a problem.

17

Mr. HAYWORTH. To say the least. How much funding do you

anticipate distributing to these tribes?

Mr. CASON. I am sorry. I do not know off the top of my head.

I have not added up how much that particular subset of tribes gets.

I know, overall, in our appropriations, for instance, for 2006, we

are anticipating sending out on the order of $760 million through

compacts and contracts to all tribes that fit there, but I do not

know about this particular subset.

Mr. HAYWORTH. And when these Section 122 tribes are, in fact,

funded, do you intend this to be a one-time appropriation, recurring

appropriation, phased in?

Mr. CASON. The intent of the program is it is basically recurring

appropriations, as we do with a wide variety of other tribes that

are subject to Indian self-determination compacting and contracting. So each year, we are passing out funds through those programs.

Mr. HAYWORTH. All right, sir. Thank you very much.

Again, Mr. Chairman, Ranking Member, and colleagues on the

Committee, it is a challenge, to say the least, putting it

euphemistically. I thank you, Mr. Chairman.

The CHAIRMAN. Thank you. Ms. Christensen?

Ms. CHRISTENSEN. Mr. Chairman, I would pass on to my colleague to my left, if that is all right with you, and come back later.

The CHAIRMAN. OK. Mr. Inslee?

Mr. INSLEE. Thank you. There is such a sour history here, I can

understand why settlement discussions may be difficult. I am wondering if you can suggest some positive actions to help to increase

trust, to the extent that that is possible, on either side. What can

the Federal Government and your Department specifically do in

the next 90 days that could help restore trust with the claimants

that it has not done, even if not compelled by Congress or a court,

but that you could take on your own merits?

That is my first question, and, second, what do you think the

claimants could do in that same direction that have not been compelled by law or statute?

Mr. CASON. A good question, and one thing I would like to challenge just a little bit is the opening premise about the animosity

stuff. Certainly, this is a very difficult issue, and it is very complicated and has been complicated with nine years’ worth of history

in litigation and 100 years’ worth of history of the Federal government implementing our trust. There is certainly lots and lots of

rhetoric and lots and lots of real experiences associated with how

the trusts have been implemented over time.

What I think we in the Department have attempted to do is to

not personalize the issues that are involved and to actually be open

and candid and forthright in what we are trying to do and what

we think is reasonable under the circumstances, and I would suggest we would continue to do that. But I would also suggest that

there is a very wide gap in perception about what is reasonable in

this field.

For example, based on the facts that we have collected so far——

Mr. INSLEE. Can I interrupt you just for a second?

Mr. CASON. Yes.

Mr. INSLEE. I usually do not like to interrupt, but——

18

Mr. CASON. No, go ahead.

Mr. INSLEE.—I really am looking for a positive statement here.

When you say there is maybe not emotion on this or anger, I want

to tell you there is a lot of anger about this because I am very

angry about this. I am very angry that the Federal government

treated these people like Enron treated its shareholders for years

and decades, in a continued pattern with a people that underwent

a lot of this for centuries. And I want to tell you, I am very angry

about this, so I do not want you to explain to me why people are

not angry about this. I would like you to explain to me what you

can do to try to get this off dead center to do more than you have

done to date, if there is anything that could possibly get this thing

moving forward, and the same thing with the claimants, and if

there is nothing, just tell us, and we will just take it from there.

Mr. CASON. OK. Well, I think the reason that we are here is to

try to find some amicable solution to this and that we in the Department of the Interior have been active participants, at least in

this Administration while I have been involved in the process, active participants in a variety of efforts to try to find solutions to

this. Those have not been successful so far, not because of personal

rancor but because of the differences of opinion about what is fair

and reasonable.

We have gone through a very exhaustive process during the last

four years to do historical accounting to actually build the fact set

so that we could properly inform Congress and properly inform the

Department of Justice, who is managing this litigation, as to what

the facts are.

So what I was suggesting to the panel is that we try to divorce

personal feelings about it, and I am sorry you are angry about the

process. There are lots of people in the process who are angry for

a variety of reasons on both sides of the fence, but the anger does

not solve any problem, and what we are trying to do is be reasonably dispassionate about what are the facts, what is reasonable

under the circumstances, and what can we find common ground on,

and that is what we have been doing, what we would continue to

do, and that is what our plan would be, to work with the Committee to try to find that common ground.

I would suggest that the Plaintiffs have the same sort of obligation, if we are going to bring it to settlement, because I think there

is a reasonable point in the middle somewhere, and what we need

to do is define what that reasonable point is in a way that both

Congress is willing to settle there and that the Plaintiffs and the

Administration are willing to settle there, and that is a big, undefined area that has risk and uncertainty for all parties. We are at

the table trying to do that, and we appreciate the fact that the

Committee is at the table trying to do that.

Mr. INSLEE. I listened very carefully to what you said, and I

failed to hear a single thing suggested that you could do to go in

the directions that I requested. Did I miss something?

Mr. CASON. What direction are you requesting?

Mr. INSLEE. Well, I am sorry to go over my time, Mr. Chairman,

if you would give me another minute, if that is permissible, thank

you.

19

What I am asking you about is, is there anything you think that

your Department could do that you have not done to date to increase the level of trust that exists in the hopes that we can continue this ball rolling and to ask what the claimants could do in

that direction? What could you do? What additional thing could you

do to increase the trust level of the people on the other side of this

dispute?

Mr. CASON. Do you want to comment on that?

Mr. SWIMMER. If I might, I think, as Mr. Cason has stated before, there has been a lot of disagreement in the past about the

level of responsibility in this trust and how it has been administered. One of the things that I believe has been lacking in that

sense is what I call and we have coined as a ‘‘beneficiary focus.’’

For many, many years, this trust was treated as a program. In

the early years, it was treated as the agency, BIA, being the banker on the reservation for individual Indian people, collecting the

money, giving them money for their house, for their horse, for

whatever it might be, and the ledger is replete with that kind of

information.

In more modern times, because of the fractionation issue, it has

been extremely difficult to have personal contact with the beneficiaries. It is not unusual to have 200 to 300 or 1,000 owners of

an 80-acre or 160-acre parcel of land. So that distance between the

manager of the trust and the beneficiary, I think, has caused a lot

of the animosity that we see today outside from the accounting

issue.

What we have tried to do, certainly in the last three years, is,

through a comprehensive study of how this trust is administered

to how it should be, how we think it should be, administered, with

the help of the beneficiaries, with the help of lay people and lots

of resources in the field, to reform the trust and to do it with a

sense of a beneficiary focus, setting up, for instance, trust administrators and trust officers.

One of the things the court mentioned in the beginning is that

there was no one at the Department of the Interior that had a fiduciary trust background. It is not something you would normally

find in a Federal agency unless they were dealing with banking

matters or trust matters, as such. What we have done is made it

a conscious effort to bring people into this program with a trust

background. We made a conscious effort, then, to reach out to beneficiaries by setting up a call center where, not unlike other trust

companies, an individual can call, identify themselves, and get information almost immediately on whatever matter it is they want

to know about: What is in my account? When was the lease issued?

When does the lease expire? When do you expect the oil and gas

payments to be made? What about my probate? What is the status?

So we are trying to set up a mechanism where instead of someone walking into an agency and trying to button hole someone to

get information and then being routed to a dozen different people,

they have a phone number they can call. They have a trust officer

whose sole responsibility at that agency is to the beneficiary. That

is all they have to do is work with the beneficiaries trying to find,

for instance, ‘‘whereabouts unknown,’’ as we call them. We have

46,000 people with about $60 million in their accounts, and we

20

cannot locate them. We are making a conscious effort, an extremely

strong effort, with tribes, with relatives, with newspapers, with the

Internet, any way we can, to locate those people to get that money

out there.

We have made many adjustments in the way that the trust is operated itself in bringing new software in, coordinating systems,

bringing the title systems current, working on getting probates

brought up to date, bringing a state-of-the-art accounting system so

that when a person receives their quarterly statement, they know

what they own, they know what came in on their income, and they

know what went out on their income.

So those are the kinds of things that we are trying to do now

with the beneficiaries to make a difference, and that is all in addition, really, to the lawsuit issue over the accounting, and the accounting is to go back and, of course, provide them with a history

of what they have received in the past. But going forward, it is the

beneficiary focus, I think, that is going to make a difference in how

the relationship works between the individual Indian beneficiary in

the field and the Department of the Interior.

Mr. INSLEE. Thanks for your courtesy, Mr. Chair.

The CHAIRMAN. Ms. Drake?

Ms. DRAKE. Thank you, Mr. Chairman. Certainly, as a new

Member of Congress, I have not heard this every extended debate

on this issue, and as a representative from Virginia where we do

not have federally recognized tribes or Indian lands, my first question, sitting here, that I really do not want you to answer is, how

in the world did we ever get here?

I thought it was interesting, Mr. Cason, when you talked about

defining the inherent obligation, since there was no instruction

from Congress, I would think that you would have an absolute obligation to account for someone else’s money, whether it is something

that is very informal like helping a relative or something that is

very formal with the Federal government managing people’s

money.

So all that said, I have two questions, and the first is, are we

continuing to have problems from 1994 on, or is everything that we

are talking about now 1994 and before?

And the second question is, you have explained that you have

found very little error in what you have looked at so far, yet this

has been in court for nine years. You mentioned $176 billion in a

claim and a proposed settlement of $27.5 billion. Have you or someone in the Department reviewed why do they think this amount of

money is owed, and why do you think it is not, and what is going

on in between that the Department would think this is probably

not a lot of error, yet there are people who receive the money who

think there is, obviously, a very glaring error. So those are my two

questions.

Mr. CASON. Good questions. As you said, I won’t explain the

history because it is long and complicated.

Regarding the $176 billion and why the Plaintiffs think that is

owed, they are going to be up next, so I would suggest that you just

ask them to explain.

Ms. DRAKE. I think that is where Mr. Inslee is coming from. I

mean, obviously, if someone thinks you owe them $176 billion, I

21

would have hoped you would have gone to look and say, is there

any reason for this? If someone told me I owed them a month’s rent

that I had not paid them, I would go see if I made that payment,

and did they not get my check.

Mr. CASON. Yes.

Ms. DRAKE. So, to me, if you are not willing to look at that

question——

Mr. CASON. Well, that is exactly what we have been looking at.

Ms. DRAKE. You have looked at it. We will get them to explain

why they think they owe so much.

Mr. CASON. Good.

Ms. DRAKE.—but, I guess, my question is, I would think, if I

were in that department, and someone thought I owed that amount

of money, and I do not think I owed it, I would at least have an

explanation why I thought there was a discrepancy in the two

numbers.

Mr. CASON. Yes. That is fine, and that is exactly what the historical accounting process is all about. There is an assertion that the

funds that have come into the Department have not been accurately managed. There is an assertion that opening balances of all

of the accounts that we currently have on the books does not reflect

an accurate opening balance.

The historical accounting process is basically designed to go back

and take a look at the transactions that have occurred in those accounts to see if that opening balance carried on from 1994 represents an accurate opening balance. So what we have is an assertion that there is not accuracy, that the funds have been mistreated over time. What we are doing in the historical accounting

process is basically going account by account looking backwards

and saying, ‘‘Well, tell me about the transactions that have occurred in this account.’’ It is a fairly complicated process in that

when you take an account by account, you find an opening balance,

you find all of the transactions that occurred in that account, both

incoming checks and outgoing checks, and you go to an ending balance, just like your bank statement. So that is basically what we

are going through.

Our assessment of the $176 billion issue is it is entirely specious,

that the assumption, as we understand it, is that the assertion is

that $13 billion came in, never a penny was paid out, and then you

put compound interest on it for 100 years, and that is how you get

the $176 billion. I think that completely is inconsistent with the

facts. But the assertion is there, and it is my understanding of the

$27.5 billion is instead of assuming that 100 percent of the money

did not go out, you just assume that 20 percent of the money did

not go out, and then you add compound interest on that, and that

is how you get the $27.5 billion.

What we are trying to do is get beyond the rhetoric and get to

actual accounting facts. On an account-by-account basis, what are

the facts about this account? Are there errors in this account? Does

the ending balance represent what should be in the account? And

in large part, what we have found is the answer is yes, so far. We

have not done all of the accounting. It is possible that as we go further and further back in time, we will find some issue of fraud or

find some issue where the accounting system was not working

22

properly, but so far, after $100 million worth of accounting, we

have not found that. We found a few random errors.

Ms. DRAKE. How about the 1994 question? That should be easier.

Are there still problems alleged, 1994 on, or is this all before 1994,

other than the account balance in 1994?

Mr. CASON. Yes. The way I would answer that is, since 1994, we

use that as how we define the class of who we would do the accounting for, and we basically, in our plan, said we would account

for anybody that had an open account from 1994 forward. In terms

of the accounting process, we were using electronic means to account 1994 and after, and we have actually converted about 1999

into a new system called SEI, and they do a lot of the trust accounting in the country, and we use their system from 1999 forward.

So it is arguable whether there was any issue between 1994 and

1999. We have not found any material issue there, but it is arguable. Since about the year 1999-2000, we have been putting out

periodic quarterly statements to people, and we have balanced the

accounts down to the penny every day. So we think that there is

no issue there at all.

The CHAIRMAN. Mr. Udall?

Mr. TOM UDALL. Thank you, Mr. Chairman.

Secretary Cason, in the course of this case, the judge made a ruling that shut down your computer system, and you were unable to

pay many people, and many out in my district were hurt by that.

Has that been completely resolved now? Is that system up and running and people getting paid?

Mr. CASON. Yes, at the moment. The issue is not completely resolved. We just finished a 59-day, evidentiary trial in the district

court. The district court judge issued a decision on that. We appealed. The decision was basically an order for us to disconnect

from the Internet and the Intranet any computer that housed or

provided access to individual trust data. We asked for a stay from

the court, and within about 18 hours got an administrative stay

from the Court of Appeals. It is being briefed right now in terms

of getting a permanent stay, and the appeal documents are being

filed now.

So the issue is not completely resolved at this point. We are up

and running right now. We are able, with the administrative stay,

to keep our computer systems up and collect the information necessary to actually make payments to Indians, and we are doing

that right now was a routine part of business, but the issue itself

has not been resolved.

Mr. TOM UDALL. But as far as you know, the Indians are being

paid——

Mr. CASON. Yes.

Mr. TOM UDALL.—on their accounts, and there is not anybody

that is not being paid.

Mr. CASON. Not that I am aware of, no.

Mr. TOM UDALL. OK. Because that was a situation where many

people, as you probably know, were living on those checks on a

monthly basis, and it is very, very important to them and their

families and their livelihood and all of that, so we appreciate you

getting it up and running.

23

Has the Department or you taken a position on terminating the

trust?

Mr. CASON. Are you talking about on individuals or overall?

Mr. TOM UDALL. Yes.

Mr. CASON. I think there is a pretty consistent opinion within

the Department of the Interior that no one is talking about terminating the trust. There is a lot of discussion, Congressman, about

the character of the trust, that there are elements of this trust that

do not make any sense, and we would sure like to work with

Congress and continue to work with Congress to try to amend some

of those. And what I mean by that is we have a terrible problem

with fractionation, that individual Indian allotments that passed

on over time are passed down on divided interests, and we have

circumstances where we have individual allotments that have more

than 1,000 owners on them. So no one ends up with real beneficial

use, and the property gets devalued as a result of having multiple

owners. So we would like to have a better way of consolidating

those interests together so that some Indian individual would be

able to have beneficial use of their property.

Ross has circumstances where he has thousands of accounts that

have less than a dollar in them that we end up having to pay an

administrative fee to keep track of in trust on an amount that is

less than a dollar, for thousands of accounts. That does not make

any sense. In the banking world, you would close those out through

administrative fees.

So there are certain elements of the trust that do not make a lot

of sense in terms of trying to produce a dollar’s worth of benefit for

a dollar’s worth of invested appropriations, and we would like to

see if there is some way that we can address some of those. But

it is not a repudiation of the trust that we are really talking about;

it is more of how can we ensure that we spend money wisely to actually produce material benefits where we do it?

Mr. TOM UDALL. Congressman Inslee asked the question about

settlement and how you were moving forward on settlement.

Mr. CASON. Yes.

Mr. TOM UDALL. Is it your sense that in the next six months or

a year, you would be able to bring to us a proposal with regard to

settlement, something that will give us something to work on and

to bite into on this? Are those kinds of discussions going on?

Mr. CASON. The discussions certainly have been going on for

quite a while, and it is our intent to work with this Committee and

the Senate counterparts, Senators McCain and Dorgan, to see if

there is some way we can actually define a common ground for settlement. We need to develop together some sort of paradigm of how

you would actually construct a number and how you would construct a payout from that number to get it down to the individuals

that feel like they are aggrieved in the process.

We stand ready to do everything that we can to help with that.

We have been exploring it for a long time. We have proffered different methodologies that could be used to approach developing a

number and a settlement, but so far, we have not found one that

has actually gained traction where everybody says, ‘‘Oh, yeah. That

is the right way.’’

24

So we plan to work with this Committee in looking at all of the

options that the Committee would like to explore. We certainly

have ideas on it, and we would like to share those as well.

Mr. TOM UDALL. Thank you, and if you come up with something,

we would like to work with you on it.

Thank you, Mr. Chairman.

The CHAIRMAN. Ms. Herseth?

Ms. HERSETH. Thank you, Chairman Pombo and Ranking Member Rahall, for the opportunity to discuss the Indian Trust Reform

Act of 2005. This is obviously an issue of great importance for communities within South Dakota and the entire region. Roughly onethird of the individual Indian money account holders reside

throughout the Great Plains region.

I want to talk through a little bit with you about grappling with

this problem of fractionation.

Mr. CASON. Yes.

Ms. HERSETH. Chairman Pombo had a hearing—I believe it was

either early this year or at the end of last year in which one of my

constituents, Charlie Pallone, testified about this problem in particular, and then, in July, this Committee held a joint hearing with

the House Financial Services Committee on improving land-grant

title procedures for Native Americans, and Mr. Arch Wells, acting

director of the Office of Trust Services, testified about DOI’s efforts

to modernize and improve its trust records.

Now, in particular, he referred to an effort to clean up data used

to process title status requests in the trust asset and accounting

management system. Can you tell me this morning how close this

project is to completion, Mr. Cason?

Mr. CASON. Well, we have a plan that we are operating against

right now that it is our hope to get all of our title records up to

date in the computer system by November 30, 2007. There is a substantial amount of backlogged information that has not been put

in the computer systems, and as Arch probably explained to you,

we have gone through a process here recently during the last four

years of moving from the legacy system, the Land Record Information System, to a new system called TAMS, and we have converted

all of the software. It is available to all of our regions now, so that

has been done. The data base has been converted over from

ELWES to TAMS, so that is done. What we are doing right now

is basically all of the records that have not been entered into either

system that is backlogged right now; we have a plan for bringing

all of that up to date, and the due date is November of 2007.

Ms. HERSETH. And at this stage, do you feel you have adequate

funding to fully implement the system?

Mr. CASON. That is a good question. We are hopeful that the resources we have available and that we would anticipate as part of

the 2007 budget would be adequate to get the job done. We are actually partnering with OST and BIA together to utilize funds in

both houses to make sure that we get the resources on the ground

to do the job, and we are hopeful that those resources will be

adequate.

Ms. HERSETH. And do you have any concerns that the personnel

dedicated to the conversion and implementing the plan fully take

25

away from the office’s ability to do the accounting under the process that you have set forth?

Mr. CASON. Well, I would say yes and no. I am sorry to be ambiguous. We do have an issue, and that is our land title records office

is a nexus point for a number of efforts that we have ongoing. One

of those efforts is getting all of the information into our TAMS system so that it is current. Part of it is our probate process where

we need to get records from them to conduct probates, and we have

four or five different efforts like that that all have a nexus point,

the LTROs. It is one of the things that we are watching very closely to make sure that we do not overwhelm the system at that

nexus point, and if we are getting to that point, we will be looking

fairly routinely at adding more resources or prioritizing the workload so we can get the most important stuff done within that organization.

Ms. HERSETH. OK. I appreciate your responses. It is an issue of

particular concern, so I will be working with you to monitor the

progress.

If I could just switch gear with another question, I think you replied to a question from Mr. Kildee that under the accounting process that DOI prefers that would cost roughly the $335 million, you

are looking at accounts after 1994, and so you would be analyzing

approximately 275,000 to 300,000 accounts.

Mr. CASON. Yes.

Ms. HERSETH. How many individual Indian money accounts does

the Department manage overall?

Mr. CASON. That would include all that we manage right now,

so if you pick $300,000, it includes all of the ones that we do right

now. Those would be part of the process, and then the differentiation is we are considering the historical accounting period to be

those accounts that were open in the year 2000 plus all of the ones

that had been opened as of 1994 and closed prior to 2000. Those

are in the historical accounting period. Then we have a current accounting process that does all of the ones that were open after

2000, and all of those individuals get a quarterly statement routinely.

Ms. HERSETH. May I follow up with one more question, Mr.

Chairman?

I will seek a little bit further clarification from you on that. As

you described the differences between the accounting process that

Judge Lamberth set forth that I understand, on appeal, questions

have been raised, but then as you described the differences from

that process versus DOI’s process, the $335 million, talking about

the differences, did DOI ever consider a more expensive accounting

procedure? In other words, when you decided upon the one that you

would prefer, did DOI examine, say, three or five alternatives and

estimate what they would cost, and where did the $335 million accounting process fall in that category? I am just wondering the

breadth of DOI’s evaluation, dealing with various factors that

would be fair to the Plaintiffs as well as the costs to DOI.

Mr. CASON. Yes, we did. If you would like, I will get you a copy

of the plan that we submitted to the Court because part of what

we looked at is what were the relative variables associated with an

accounting, and it had variables for whom do you an accounting,

26

over what time do you do an accounting, how much information

you would need to constitute an accounting? Do you look at land

as well as cash or cash only? So there were a number of variables

that we looked at, and the considerations that we built into that

process were things like how much will it cost, how long will it

take to reach a conclusion, what is the relative level of accuracy

that would be the output of this product or process?

So we looked at those variables in line with the variables of what

would constitute an accounting and drew a conclusion about what

we thought was the most productive way to go about this between

cost and time and accuracy, and that is where we ended up with

the plan that we have. Clearly, it is subject to debate. Other people

who look at that have other opinions about how it ought to be done,

but that is what we were trying to get to is a point of reasonable

accuracy with reasonable time and reasonable cost to provide an

assurance that the accounting system either was working reasonably well, or there were systemic flaws, and we needed to do a

much broader, grander effort. So that is how we got to where we

were.

Ms. HERSETH. And the process is the last expensive, the one that

you——

Mr. CASON. No. I would not say it is the least expensive. Certainly, you could find an accounting that would cost less than $335

million, but it was one that we thought was a reasonable plan

under the circumstances. And part of it is right now the balance

for individual accounts as of that 2000 time period was $400 million, so what we were proffering as a plan cost $335 million to assure that the opening balance of $400 million was reasonably representative of what should have been there.

So, at some point, when we are introducing the cost element into

it, you go, there is a balance of $400 million. How much do you

want to spend on ensuring that $400 million is an accurate representation of what should have been there?

Ms. HERSETH. I appreciate it, and, Mr. Chairman, thank you for

extending additional time. I will look forward to seeing the document you submitted to the Court, as well as what Mr. Rahall had

requested in terms of putting together an assessment of different

error rates and different programs and processes. So, Mr. Chairman, thank you.

The CHAIRMAN. Thank you. I want to thank the witness for the

testimony. Members of the Committee may have additional questions. Those will be submitted to you in writing, if you can answer

those in writing so that they can be included as part of the hearing

record. I know several Members have asked you for additional information. I am sure other Members will have additional questions

as well.

Mr. CASON. That is fine, Mr. Chairman. Thank you for the opportunity to be here.

The CHAIRMAN. Thank you very much.

I would like to now call up our second witness. Welcome, Elouise

Cobell, a Blackfeet Indian from Montana and the lead Plaintiff in

the Cobell v. Norton litigation. She is accompanied today by Keith

Harper of the Native American Rights Fund and a member of her

legal team in this litigation.

27

Ms. Cobell, welcome back to the Committee. Although I think we

are all happy to see you today, I wish we were not and that it was

over with, but it is nice to have you come back. Thank you again

for giving us your time to be here. Again, I will remind you that

your entire statement will be included in the record. If you could

limit your oral testimony to five minutes, it will help us move

along. So thank you, and when you are ready, you can begin.

STATEMENT OF ELOUISE COBELL, BLACKFEET RESERVATION

DEVELOPMENT FUND, BROWNING, MONTANA; ACCOMPANIED BY KEITH HARPER, ATTORNEY FOR THE NATIVE

AMERICAN RIGHTS FUND

Ms. COBELL. Good morning and thank you for those statements,

Chairman Pombo and Ranking Member Rahall and distinguished

members of this Committee. First, let me say how much I appreciate the work you and your staff have done on this important

issue. I welcome your continued involvement and leadership. We

join with you in the hopes that this will point the way toward a

resolution of this, thus far, intractable problem.

I know that I am not telling you anything new when I say that

the mismanagement of individual Indian trusts has been one of the

biggest injustices ever perpetrated by the representatives of our

government. Study after study by Congress itself, the GAO, and

many others, as well as now nearly 10 years of judicial findings

and opinions in both district and appellate courts, confirm that the

injustice is pervasive, longstanding, and continuing and that the financial loss to hundreds of thousands of Native Americans has

been incredibly large.

Let me read you just one statement. Secretary Norton has admitted and urged the court to adopt the undisputed facts in this statement: ‘‘Indian trust data is wholly unreliable and utterly useless as

an accurate measurement of anything except to confirm the manifest negligence and malfeasance inherent in Indian trust management.’’ I would like to just read that one more time. ‘‘Indian trust

data is wholly unreliable and utterly useless as an accurate measurement of anything except to confirm the manifest negligence and

malfeasance inherent in Indian trust management.’’

For the record, I have submitted a list of just some of these studies and reports that confirm the magnitude of this problem. I hope

you agree with me that this is the time; study and reflection is well

in the past. It is time to do something. You are well-acquainted

with this injustice, and we applaud you for moving to try to do

something constructive about it. I hope you share my frustration

that the United States government has not been similarly constructive.

In thinking about how to settle this case, we must bear in mind

certain salient considerations. First, it is the government that has

caused this problem. In a fit of paternalism, they imposed this

trust on us. They mismanaged our assets. They lost billions of

dollars. Our only role was to suffer the consequences of their

mistakes. The Cobell case is about saying no longer will we tolerate

this abuse.

Second, we must always bear in mind that this is our money,

and this is our land. This is not a Federal handout. This is not a

28

Federal program. We are asking for a full accounting of our money

and restitution of any of it that is missing. Over 500,000 Indians

have had their assets mismanaged. In the total amount of financial

loss and the total number of victims, this scandal dwarfs all of the

corporate misdeeds we have heard so much about. Enron,

WorldCom, and others are petty crimes in comparison.

Third, settlement is entirely possible. There is an impediment to

settlement: the Departments of Justice and Interior. We have participated in complete good faith. They have not. Consider this: This

Committee and the Senate Indian Affairs Committee, early in

2005, requested that Indian Country work together to develop a

comprehensive plan to resolve this case. We did exactly that. In a

united effort, we worked closely with leaders throughout Indian

Country. The product was a detailed set of 50 principles with specific explanations for why each is important.

Then Senators McCain and Dorgan introduced their settlement

bill. We continued to work in good faith. We provided specifics on

what we liked and what we needed to be revised. We have engaged

the Senate and presented detailed comments on its draft. We regularly met with the staff. We have come forward with proposed settlement numbers.

The government’s response to your effort stands in stark contrast. Oh, they certainly pay lip service to cooperating, but what

proposals have they put on the table? They have never said, not

once, what they believe specific terms and their acceptable settlement amounts. They have refused to take a position on the bill.

Members of the Committee, if you wish to exert leadership, you

must call the government to account. Do not allow their foot dragging to continue. Call them to task. Demand that they participate

in the legislative process. Demand that they inform you of the specific contours of a settlement they will support. If there is hope for

a legislative settlement, they must no longer be allowed to simply

sit back and say no to all settlement offers without members of this

Committee denouncing their objections. If not, a legislative settlement will never occur.

Use your influence to raise the profile of this issue to call their

continued delays what they are, a continuing slap in the face to

Indians and to innate sense of justice of all Americans. That magnifies the underlying wrongdoing. By failing to acknowledge the

problems and refusing to work to resolve it, government officials

continue the more than century-old tradition of kicking the problem to the future as victims die off. Meanwhile, beneficiaries who

have been mistreated their entire lives do not see a resolution as

even possible in their lifetime. Many have given up hope after so

many false starts.

As you proceed, I cannot, in good conscience, fail to remind you

that the government’s behavior in this matter has gone well beyond

delay and obstruction. It includes a sad history of misrepresentation and deceit. That sorry record includes a glossy progress report

put out this summer that is deceptive, misleading, and inaccurate

from beginning to end. Sworn testimony before the courts and

Congress and, more recently, a complete misrepresentation of the

Cobell XVII decision; after 10 years of litigation, we have been

forced to the sad conclusion that the word of the government

29

officials is not trusted. The government has seized on some language in Cobell XVII that is not relevant to the issue at hand, and,

more importantly, not controlling in this case.

They will not tell you about something called ‘‘the first-in-time

rule.’’ This rule, a very basic rule in the D.C. Circuit and virtually

all other circuits, says that when there is discrepancy between the

language of appellate panels, the first in time controls. The

rulemakes clear that Cobell VI, Cobell XII, and Cobell XIII remain

the controlling law in this case and that the words that the government has so fondly seized upon and that we heard so much from

Mr. Cason are not important. This is a legal matter I have covered

more thoroughly in my written testimony. More importantly, it

would be a serious mistake for the members of this Committee or

anyone else to be persuaded by government officials who have been

repeatedly cited by the courts for misrepresenting judicial decisions

that anything in Cobell XVII lessens by one penny the government’s huge liability in this case.

I want to talk about H.R. 4322 as a starting point. We are encouraged that you have said that H.R. 4322 is a starting point and

a placeholder and that dialog, discussion, and negotiations are encouraged. I hope that we will be able to begin a constructive dialog

with this Committee similar to the one we have engaged in with

Senator McCain and Senator Dorgan.

I believe there are some critical shortcomings to the bill as presently drafted. There are two sources of guidance that should inform

any appropriate legislative settlement: first, the 50 Principles for

Settlement, which present a consensus roadmap to resolution from

Indian Country; second, the decision that the courts have issued in

Cobell litigation over the past nine and a half years, which must

be honored. We believe the bills should better reflect the ideas and

legal concepts encapsulated in these two sources. We appreciate

that you are actively soliciting our input on the bill.

With that in mind, we offer a number of additional specific comments on the bill in our written testimony. I would like to highlight

three of the most important. The Treasury Department should not

be in charge of the settlement funds. It is one of the historic wrongdoers in the case, and putting it in charge of the settlement is like

letting the fox guard the hen house. Treasury is not only a Defendant but has also been held in contempt of court for violating court

orders. Moreover, it has routinely and intentionally destroyed trust

records to hide its malfeasance. In one documented instance, the

Treasury Department destroyed 162 boxes, untold millions of pages

of irreplaceable data. Simply put, it cannot be trusted any longer

and should not be involved in any way with the distribution of

funds.

The courts have the greatest institutional competence to make

distributions in a fair manner and are the appropriate institution

to do so. Importantly, the Indian Land Working Group, the largest

national association of allottee groups, has specifically said that

they do not want Treasury involved. As we do, they have endorsed

the Federal courts as the appropriate body to handle any distribution.

The Cobell case is far more than the past mismanagement. It is

also about the trust lands and monies of Indian people and how it

30

will be managed in the future. Quite obviously, a settlement of this

case requires cessation of the persistent and continuing wrongdoing; in other words, a real trust reform.

My written submission has detailed what we believe it must include. The settlement that Native American leaders proposed is a

good deal, especially for taxpayers. The proposed amount of $27.5

billion is a large number, but large crimes incur large consequences. Moreover, it is a bargain for a government that has acknowledged its responsibility for a 118-year-old mess.

First, it would resolve a dispute that Members of Congress have

said has run too long and cost too much. It is estimated that the

government alone has spent more than $100 million on this lawsuit. Those expenses grow every single day. The government’s

liability is growing. The courts have declared that Indian trust

beneficiaries are entitled to both the principal amounts that should

have been recorded in their accounts plus compounded interest. A

fundamental principle of trust law confirmed by the Court of Appeals is that the government is liable for any funds that it cannot

prove with appropriate and competent evidence that it paid to the

beneficiaries.

Since both sides agree that the government should have paid

roughly $13 billion into the individual Indian trusts since 1887,

that means that the government must be able to prove each of

those transactions. Any amount not proven to have been paid plus

interest is what is owed. This puts potential liability of the Federal

government well in excess of $100 billion.

The historical accounting will continue to be costly. The Interior

Department is now telling you that it will cost at least $12 billion

to try to reconstruct those records. That is far too expensive for an

accounting. Well before the Court of Appeals reached that conclusion, we were saying that in court.

A 2002 study conducted by the Interior Department and made

public in our lawsuit places the liability for the government on

trust accounts at anywhere between $10 billion and $40 billion.

These are the government’s own experts. That is why Indian Country’s $27.5 billion proposal is a bargain. I would argue that it is far

better for the taxpayers to be spending this money directly on giving Indian account holders what is rightfully theirs than wasting

money on what we and the courts regard as a highly questionable

accounting and delaying exercise.

We have put out a settlement number in good faith for all to see.

We encourage the government and the Congress to do the same.

On a final note, the Court of Appeals recently remanded the case

of the district court, as we had requested. The court made clear

that the district court was well within its authority to hold a trial

on whether it is impossible for the government to perform an accounting required by law. We will now proceed to ask for an evidentiary hearing on the impossibility of doing an accounting. We

believe that this will lead to a more expedited resolution than we

had previously expected.

Make no mistake about it: We think a settlement will be good

for everyone, but if this process of looking for a just settlement

fails, we will continue the litigation, and we will expect to win and

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prevail. Any statements to the contrary by the government are

nothing more than wishful thinking.

Finally, I would like to say that I do not just speak for myself;

I speak for a class of 500,000 victims of this travesty. The largest

allottee group, the Indian Land Working Group, specifically endorses the decisions I have made and trusts my judgment and that

of my team. I have attached the Indian Land Working Group’s recent resolution of support to the written submission, and I ask that

it be made part of the record. I also ask that my total written

statement be made part of the record at this time.

I would like to thank you very much for your leadership on this

important issue, and we look forward to working with you in the

coming weeks. Thank you.

[The prepared statement of Ms. Cobell follows:]

Statement of Elouise C. Cobell,

Lead Plaintiff in Cobell v. Norton

The Trust Debacle has Gone on for Too Long

Good morning, Chairman Pombo, Ranking Member Rahall, and distinguished

Members of the Committee on Resources. First, let me say how much I appreciate

the work you and your staffs have done on this important issue. I welcome your continued involvement and leadership. We join with you in the hopes that this will

point the way towards a resolution of this, thus far intractable, problem.

The mismanagement of the Individual Indian Trusts has been one of the biggest

injustices ever perpetrated by representatives of our government. As the Court of

Appeals has said, ‘‘the trusts at issue here were created over one hundred years ago

through an act of Congress, and have been mismanaged nearly as long.’’ Study after

study by the Congress itself, the GAO, and now nearly ten years of judicial findings

and opinions in both the district and appellate courts confirm that the injustice is

pervasive, longstanding, and continuing—and the financial loss to hundreds of thousands of Native Americans has been incredibly large. For the record, I’d like to submit a list of just some of these studies and reports that confirm the magnitude of

this problem. (See Appendix A.) It truly is amazing how many times and for how

many years there has been a recognition of this massive problem, going back to the

very inception of the Trust, in 1887. ‘‘Fraud, corruption and institutional incompetence almost beyond the possibility of comprehension’’ is how one bipartisan report characterized it. I hope you agree with me that the time for study and reflection is well past. It is time to do something about it. You and your staffs are well

acquainted with this injustice, and we applaud you for moving to try to do something constructive about it. I hope you share my frustration that the U.S. Government has not similarly been constructive.

Quite the contrary. The U.S. Government is responsible for this outrage. Lands

and resources—in many cases the only source of income for some of our nation’s

poorest and most vulnerable citizens—have been grossly mismanaged. The Government forced this trust on Indian peoples in 1887 because it thought it knew better

than we how to manage our own property. Adding injury to insult, the Government

then completely failed to faithfully discharge even the most basic trust responsibilities. A couple of examples are helpful. Although since the late 1970s, reports from

all corners—including internal auditors—have stated that a lack of an accounts receivable system is an intolerable material weakness, even now, decades later, Interior has not even instituted this most basic reform. Further, they cannot tell beneficiaries how much they have in their accounts. Indeed, they cannot even produce

an accurate list of beneficiaries. The Government itself is responsible for bringing

us to this sorry state by failing to maintain and even destroying records. What is

even worse, government now utilizes every possible mechanism of bureaucratic and

legalistic delay, obfuscation and misrepresentation to prevent the wrong it did from

being made right. This is shocking behavior, and as long as we work on this issue,

none of us should ever lose sight of that fact. It is one thing to look at the sorry

state of the trust and think that this is a wrong from the past. It is quite another

to see that the wrong persists up to the present day and is magnified and perpetuated by the government’s continued failure to do the right thing.

If you went to your personal bank to ask how much you had in your account, and

the bank could not tell you how much money you had, what interest you were owed,

32

what would you do? How would you feel? And if you were to find that the bank itself

had deliberately destroyed the records of your account and continued to destroy your

records even after you had asked for an accounting, and if your bank then tried to

duck responsibility because of lack of records, what would you do? That’s just what

has happened for over a hundred years. We have come to the courts and to you,

our elected representatives, to seek justice. Over 500,000 Indians have had their assets mismanaged. In total amount of funds mismanaged, this scandal—and lets call this what it is—a scandal—dwarfs all of

the corporate misdeeds we’ve heard so much about. Enron, WorldCom, and others

in the headlines are truly petty crimes next to the magnitude of this century-long

and continuing injustice. Yet the Government has not been constructive at all in trying to find a fair and final resolution. Time after time in the litigation, they have proven to be obstinate,

difficult, and foot-dragging. But don’t take my word for it—the Court of Appeals has

criticized:

[the] ‘‘record of agency recalcitrance and resistance to the fulfillment of its

legal duties’’ and ‘‘intransigent’’ conduct. Cobell v. Norton, 391 F.3d 251,

255, 257 (D.C. Cir. 2004).

Time and again, both the district court and the appellate court have called out the government for its bad behavior. When anyone complains that this process has

gone on too long and been too complex, they have only to look at these unfortunate

tactics pursued by the Government in this case to see why this has been so.

A mediator was appointed to try to find common ground and work toward a settlement of this case. Our side worked in good faith with the mediator for a year and

a half. In that time, the Government did not make one proposal for resolving the

case. Not one: not even a counter-offer. Ultimately, the mediation process collapsed

under the weight of the Government’s arrogance and intransigence.

Now, as committees of jurisdiction in both houses of Congress have taken up the

matter, the Government is still actively countering progress. We have done our part

in furthering this legislative settlement effort. We worked with Indian Country to

develop 50 Principles for settling the case—including specifics on the amount of a

fair resolution. After the settlement bill was introduced in the Senate, our side continued in good faith. We made clear what we agreed with as well as our concerns.

We came to the table to negotiate and discuss. We have heard nothing from the

Government that suggests it will approach this process any more constructively

than it has approached the litigation and mediation. They have not provided any

specific suggestions whatsoever. They have yet to say specifically what a fair number for resolving the historical accounting is or what they believe is an acceptable

amount. In short, they have taken no position and offered no guidance.

Members of the Committee, if you wish to exert leadership in bringing this terrible injustice to an end, you must call the Government to account. Do not allow

their foot-dragging to continue. Call them to task. Demand that they participate in

the legislative process. Demand that they inform you of the specific contours of a

settlement they will support. If there is hope for a legislative settlement, they

should no longer be allowed to simply sit back and say ‘‘no’’ to all settlement offers

without members of this committee denouncing their recalcitrance. If not, a legislative settlement will never occur. Use your influence to raise the profile of this issue

to call their continued intransigence what it is—a continuing slap in the face to

Indians that magnifies the underlying wrongdoing. For by failing to acknowledge

the problem and working to resolve it, they continue the more than a century old

tradition of kicking the problem to the future with no justice for anyone in sight.

Meanwhile, beneficiaries who have been mistreated their entire lives do not see a

resolution as even possible in their lifetimes. Many have given up hope after so

many false starts in the past.

H.R. 4322 is a Starting Point, But More Work is Needed

We are encouraged that you have said that H.R. 4322 is a starting point and a

placeholder and that dialogue, discussion and negotiation are encouraged and welcomed. We have been engaging in a very constructive dialogue with Sen. McCain

and Ranking Member Morgan on their bill, and we look forward to a similarly constructive process with you, Chairman Pombo and Ranking Member Rahall.

We are encouraged by some aspects of this preliminary bill. The fact that any settlement would be paid out of the Claims Judgment Fund is indeed necessary so that

fixing this problem will not diminish the Interior Department’s budget. This would

further punish the victims by reducing funding for vital Indian programs.

We are also encouraged that the bill recognizes that the settlement amount must

range in the billions of dollars, although we also believe it is time for those in

Congress to put forward a specific proposed settlement amount.

33

Further, since any settlement would be a return of the victims’ own money, we are pleased that the bill insures that beneficiaries will not be disqualified from any

other benefit for which they are eligible and that it will not be treated as taxable

income.

However, I believe there are some critical shortcomings to the bill as presently drafted. There are two sources of guidance that should inform any appropriate legislative settlement. First, the 50 Principles for Settlement which present a consensus

roadmap to resolution from Indian Country. The 50 Principles for Settlement represent an unprecedented coming together of Indian Country at the request of both the leadership of this Committee and the Senate Indian Affairs Committee to offer guidance. The result was an extraordinary

product that set out detailed principles and the rationale for each Principle. No

longer can it be said that Indian Country does not—in the main—agree on the proper approach to fixing this century of malfeasance and mismanagement. To the extent that a resolution followed the roadmap set out by the owners of the land and

assets in question, it would be a success.

We are disappointed that the vast majority of the Principles have not, at this point, been included in this bill and request that you take another look at this historic document and the ideas it puts forward.

The second source of guidance for an appropriate settlement is the rulings in the Cobell case itself. Plaintiffs have waged a long and hard battle against difficult

odds, and have achieved a remarkable record of success. The plaintiffs cannot accept

a settlement that fails to honor the many victories won at the District Court and

the United States Court of Appeals.

We appreciate that you are actively soliciting our input on the bill before us. Candidly, we believe the bill needs a lot of work. We are heartened by your commitment

to this process and also by your comments that this bill is intended to mark a starting point on a possible road to resolution. With that in mind, we offer these specific

comments on the bill. These are not intended nor should they be construed as a

comprehensive list of the areas of concern. But these are the areas of greatest concern and require serious consideration and modification.

Any Settlement Should not be Overseen by One of the Wrongdoers

One of the most disturbing aspects of H.R. 4322 is the placing of the Secretary

of Treasury—a defendant in the Cobell lawsuit and one of the parties principally

responsible for the historic and continuing victimization of Indian trust beneficiaries—as the person in charge of the settlement funds. While it is certainly true

that the Treasury Department is better than the Interior Department as far as

failed trustee-delegates, frankly, that is not saying much. The Treasury Department

has been Interior’s partner in crime for far too long. It has been found in breach

of trust. It has failed to reform. Is it reasonable, given the history of this case, to

ask trust beneficiaries to accept their victimizer as the entity to provide for a fair

distribution? Of course not.

To make matters worse, the Department of Treasury has had a record of bad faith

in the Cobell litigation. In February 1999, after a three week trial, the Secretary

of Treasury along with the Secretary of Interior was held in contempt of Court for

flouting Court orders, orders that they had consented to. See Cobell v. Babbitt, 37

F.Supp.2d 6 (D.D.C. Feb 22, 1999). Adding insult to injury, the plaintiffs and the

district court learned months afterwards than during the contempt trial itself,

Treasury Department employees, in violation of court orders and in contradiction of

representations made to the Court, destroyed 162 boxes of disbursement related documents—including untold numbers of IIM account related information. Treasury

Department lawyers waited over three months to report the destruction to the

Court. See, e.g., Cobell v. Babbitt, 91 F.Supp.2d 1, 60 (D.D.C. Dec 21, 1999) (determining that the destruction of the 162 boxes and the government’s failure to report

the incident ‘‘misconduct’’).

Simply put, the Treasury Department has a record of cover-up, malfeasance,

breach of trust, lack of candor with the Courts, spoliation of evidence and contempt

of Court. The suggestion that any settlement fund be handled by such an entity cannot be acceptable to the beneficiary class.

I routinely go out to Indian Country to speak with members of the beneficiary

class. Virtually every time, I am asked whether we will agree to have the government—meaning the Executive Branch—handle the monies when we prevail. Always,

I promise, we will never agree to that to cheers from the allottees I speak with. I

can say with confidence that an Executive Branch entity will not be acceptable to

the beneficiary class.

Equally infirm is the appointed Special Master who answers to the

Administration. Bear in mind that Indian Country has considerable experience with

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this Administration appointing individuals that are to serve a salutary function on

behalf of the Indian Trust. Take by way of example the experience with the 1994

Indian Trust Fund Reform Act.

Mr. Chairman, I along with many other Indians sought for nearly a decade legis- lation to remediate the government’s failure as trustee for our assets. We worked

hand-in-hand with both the Houses—in particular, Representative Mike Synar and

his distinguished colleague Bill Clinger and the Senate. Finally, in October of 1994,

the Trust Reform Act was enacted. One of the core aspects of the law was to establish the Office of the Special Trustee. Indian Country representatives wanted the

Special Trustee to be independent. But the Interior Department vigorously objected

to that. So the Act was watered down and the Special Trustee reported to the Secretary of Interior. That was the first problem—inadequate independence. One of the

principal rationales for supporting the establishment of the OST was to get proper

direction and guidance in the management from individuals with considerable applicable reform and trust experience. Also, it was to keep people who did not know

what they were doing—like Ross Swimmer who was so disastrous as Assistant Secretary for Indian Affairs for beneficiaries—as far away from our money as possible. Then to my utter dismay, in 2003, Secretary Norton fired then Special Trustee Thomas Slonaker and replaced him with none other than Ross Swimmer. Imagine

all our hard work just to have our trust, our assets, and trust reform put in the

hands of a person universally recognized by Indian Country as hostile to Indian interest and a failed trustee-delegate. That, of course, is not the only example. After

all, Jim Cason as we speak is acting as Assistant Secretary for Indian Affairs.

It is with these considerations in mind that we analyze whether it makes sense

to work hard for nearly a decade to get a settlement and then have the settlement

put under the control of a person appointed by an Administration that has put Mr.

Swimmer in charge of trust reform. Under what rationale would that make sense

to us? I struggle to comprehend why anyone would think it would.

Worse than who the Bill empowers—namely Treasury Department and the Special Master appointed by Administration—is who the Bill disempowers—the Court.

Over the century of mismanagement, one entity has stood up for trust beneficiaries—the Court. Even detractors from our lawsuit—Steven Griles, Jim Cason,

Kevin Gover, Bruce Babbitt and many others—have admitted under oath that this

lawsuit has been the impetus for any improvements that have been made. Under

this legislation, the only ameliorative entity—the Court—would be eliminated from

the picture entirely.

That makes no sense for a number of reasons. Courts have the greatest institutional competence to make distributions in a fair manner. They are often called

upon to do just that. Courts are armed with Rule 23 and related case law that provides sound guidance in resolving difficult distribution issues. Courts are best at

providing an opportunity to be heard and other due process protections to the beneficiary class and weighing the evidence presented to it through well-settled rules of

procedure and evidence. More importantly, unlike the ‘‘political branches’’ (i.e. the

Executive Branch and Congress), Courts make judicial and not political determinations. A court sitting in equity—like the Cobell court—is charged with considering

the evidence and acting equitably in fashioning appropriate remedies. That is precisely the type of institution that should be figuring out how to divide the funds

among the beneficiary class. It is the most competent to do so.

And what possible justification is there to eliminate the Court’s role? Because the

Executive Branch doesn’t like this Court? The Administration has no legitimate interest in dictating how the settlement funds are distributed. None. If there is a settlement, their liability for the agreed-to period for the accounting claim would cease.

Who gets what after that is an issue for the beneficiary class and the court to determine. Nobody wants the involvement of the malfeasor in that process; they have

done quite enough damage in their century of mismanagement.

At bottom, this is an issue of trust. We cannot trust the people who have abused

us for a century. We can trust the courts and the judicial process.

Importantly, the Indian Land Working Group, the largest national association of

allottee groups has specifically said that they do not want Treasury involved. Specifically, they have said that they ‘‘support the named representatives of the class

and their counsel in making decisions on what is a fair settlement and a fair manner to distribute the funds.’’ As we do, they have endorsed the federal courts as the

appropriate body to handle any distribution. (See Appendix B)

A Settlement Must Include Real Trust Reform

The Cobell case is far more than merely about the mismanagement of our assets

in the past. It is also about the future—how the trust lands and monies of Indian

people will be managed in the future. Quite obviously then, a settlement of this case

35

requires cessation of this persistent and continuing wrongdoing, in other words, real

trust reform. If the underlying problems with administration of the trust are not

corrected, then much of our effort to ensure that our children will not suffer the

same indignities and abuse as their parents and grandparents will have been for

naught.

I have called for the appointment of a receiver during the period of reform. I continue to think that is the most effective way to make sure that the needed changes

are made, and we don’t all find ourselves with a trust problem needing your attention again in a few years and additional lawsuits in the future.

I understand that the government has resisted the receivership approach. While

we will continue to press for a receivership in the litigation, I believe that some

other measures may be sufficient for reliable and meaningful trust reform. Chief

among them is to codify in statute the trust duties and standards, provide for enforceability in courts of equity with meaningful remedies against a trustee breaching

its responsibilities, and independent oversight with substantial enforcement authority to ensure that beneficiary rights are protected. Right now, the Individual Indian

Trust is missing all of these elements, and that is part of the reason that this problem has persisted for so long. These missing elements of accountability are the sole

germane distinctions between this trust and all other trusts throughout this nation

that are safely and soundly managed. Without these elements, there is no accountability. If Congress truly wants to fix this problem once and for all, it must fundamentally reform the trust. Anything less will invite the same problems and

abuses we are all too aware of.

Without a resolution of these three issues, there is no use in moving forward with

settlement negotiations, since these three positions are critical to the beneficiary

class who are counting on me to make sure this problem gets resolved in a full and

fair manner.

A Fair and Just Settlement for Taxpayers and Indians

We have supported the 50-point settlement proposal that was developed by Native

American leaders this summer for several reasons. First, we believe it is in the best

interests of all Americans to resolve this dispute. Secondly, we would like to end

this unhappy chapter in our history in a spirit of compromise. Third, we want to

see the trust reorganized now to prevent a continuation of this massive failure.

Our lawsuit has dragged on for almost 10 years, largely because of the government’s policy of delaying any resolution. In truth, we stand ready to end this costly

litigation with the fair and just settlement proposed by Indian Country. Simply put,

too many of our Trust beneficiaries are dying while this case remains in the courts.

I want to get them access to their money—or at least a portion of it—now—in their

lifetimes.

The settlement the Native American leaders proposed is a good deal—especially

for taxpayers. While the price tag comes to nearly $27.5 billion, it is a bargain for

a government that has acknowledged its responsibility for this 118-year-old mess.

Here’s why:

First, it would resolve a dispute that Members of Congress have said has run too

long and cost too much. It is estimated that the government alone has spent more

than $100 million on this lawsuit. Those expenses will only grow as Attorney General Gonzales presses ahead with plans to hire even more lawyers for trust litigation.

Secondly, the government’s liability is growing. That’s because the courts have declared that Indian Trust beneficiaries are entitled to both the principal amounts

that should have been recorded in their accounts—plus compounded interest on that

money.

A fundamental principle of trust law, confirmed by the court of appeals, is that

the government is liable for any funds that it cannot prove with appropriate and

competent evidence that it paid to the beneficiaries. Since both sides agree that the

government should have paid roughly $13 billion into the individual Indian Trust

accounts since 1887, that means that the government must be able to prove each

of those transactions. And amount not paid plus interest on what is owed. This puts

potential liability of the federal government well in excess of $100 billion.

The historical accounting will continue to be costly. The Interior Department is

now telling you that it will cost at least $12 billion to reconstruct those records.

That’s far too expensive for an accounting. Well before the court of appeals reached

that conclusion, we were saying that in the district court.

A 2002 study conducted for the Interior Department—and made public in our lawsuit—places the liability for the government on trust accounts at anywhere between

$10 billion and $40 billion. That’s their internal number.

36

That’s why Indian Country’s $27.5 billion proposal is a bargain. After all, I would

argue that it is a far better bargain for the taxpayers to be spending this money

directly on making Indian account holders than wasting money on what both we—

and the courts—regard as a highly questionable accounting.

The proposed settlement makes a generous assumption on behalf of the government. It assumes for purposes of calculation that the government has enough

records to prove that it accurately made 80 percent of the payments it was supposed

to have made to trust beneficiaries and that it made them on time. That’s an exceedingly kind estimate considering that independent assessments of the ‘‘accountings’’ the government has completed to date plainly demonstrate that in actuality

they can account or prove less than 1% of the transactions that have occurred. In

other words, while they, as trustee-delegate, have the unconditional obligation to

prove each transaction, they can prove almost none of them, yet our proposal still

would presume they made the vast majority of them properly.

Moreover, these funds would not have to be appropriated. They would come from

the Treasury Department’s Judgment Fund. The funds would be disbursed by the

courts over several years based on provisions and guidance set forth in the settlement bill..

Remember, too, this is not welfare, a social program, or reparations for past

abuses and discrimination. This is money that all along belonged to the individual

Indians. It was never properly recorded to their accounts because of the government’s continuing inability to serve as a proper trustee. The government repeatedly

has acknowledged this failure and that failing has been documented in scores of reports. Now, the government has a chance to settle this issue for all time and at a

price that is far less than the account holders are entitled to by law.

Government Has Repeatedly Acted in Bad Faith

It is especially regrettable that the government’s unwillingness to deal in good

faith with the courts, the Congress, mediators, and the plaintiffs has been matched

by a continuing, persistent pattern of deception and misrepresentation. Two recent

examples are worthy of this committee’s attention.

Last month, the Court of Appeals granted a request from both sides of the Cobell

case that a structural injunction requiring a detailed accounting methodology be set

aside. We also requested that the case be returned to the district court for further

proceedings including the district court considering the issue of ‘‘impossibility’’ of

doing a traditional and fair accounting, and determining an alternative equitable

restitution methodology. The Court of Appeals, in its recent decision, opens the door

to just such a determination.

In essence, the Court of Appeals recognized that it is appropriate for the district

court to adjudicate whether the loss and willful destruction of records by government officials has made an historical accounting impossible. For years, we have consistently argued for and the government has vigorously opposed such a determination. This appellate mandate has set the table for an early and fair resolution of

the Cobell case by the district court. With the weight of an uncontested record of

evidence and the government’s admissions that a complete and fair accounting is

futile, impossibility will be conclusively demonstrated. At that point an alternative

to an historical accounting must be selected to decide what is a fair equitable restitution. We will be seeking such a proceeding at the proper time.

The government however, would have you believe that this decision was a victory.

It has seized on some comments or ‘‘dicta’’ from Judge Williams to suggest that this

decision has a favorable legal impact on procedural matters not even at issue before

this court. As you know, commentary, not necessary to the holding of the court on

issues before it is not binding on the district court or indeed any court. This dicta,

as lawyers call it, has no precedential impact. Moreover, where, as here, the judicial

commentary contravenes the decisions of prior appellate panels, it is entitled to no

weight whatsoever. The clear rule in this and almost every other federal judicial circuit is that when there is a conflict between panels of the circuit, the decision of

the panel that first decided the issue prevails over the later decision. This ‘‘firstin time rule’’ applies with great force in this matter since the language upon which

Interior Defendants rely directly contravenes at least three prior appellate panel

decisions. To illustrate what this means, we submit the following:

37

38

For further illustration of this point, see Appendix C. At the proper time, we intend to seek a ruling from the court that will make this explicit. In short, don’t believe what you may be hearing from the government about their legal victory. Like

so much else that they have said to the Courts, the Congress, and the public, it is

simply not the truth.

‘‘Progress Report’’ is No Progress

The second example is equally stark. In September, the government put out a

self-congratulatory ‘‘progress report’’ on its handling of trust issues. I am sure it was

made available to members of the Committee. It is deceptive, misleading and inaccurate from beginning to end. It would have you believe that the management of

Indian Trust accounts has been and is satisfactory, availability of financial records

is good, and losses suffered by Indians insignificant. None of that is true. Hundreds

of reports, findings, and studies from the Congress, the GAO, Inspectors General,

Federal Courts, and the Government’s own experts have concluded that the handling of these accounts has ranged from incompetent to fraudulent. And, the damage to Native Americans has been massive.

Mr. Chairman, we have called on the government to allow the Court to examine

this document for accuracy. They have, thus far, refused. And, there is good reason

for their reluctance. Ask government officials who come before you if they are prepared to swear to the truthfulness of this document in a court where sanctions for

perjury are available.

We have prepared a brief rebuttal to the Government’s brochure and I would like

to make it part of the record. (See Appendix D.) It clearly demonstrates that the

‘‘Progress Report’’ is just one more attempt to deceive the Congress and the public.

39

If the Government wants to test their report against our rebuttal, we would welcome it. Let’s see who is telling the truth.

Conclusion

Thank you very much for this opportunity to testify and your leadership on this

important issue. We look forward to working with you in the coming weeks to address these concerns and remain hopeful that a legislative settlement can be

reached that will best serve the interests of the government, the American people,

and the beneficiaries who have been victimized for far too long. But, we remain

mindful that should a legislative settlement that is fair to the beneficiaries not be

reached, we must and we will continue to press our case in the courts and we fully

expect that we will, in time, prevail.

NOTE: Attachments to Ms. Cobell’s statement have been retained in the

Committee’s official files.

The CHAIRMAN. Ms. Cobell, the recent appeals court ruling explicitly acknowledged the Department’s right to conduct an audit

using a statistical sampling. Should the Department have a chance

to complete that accounting?

Ms. COBELL. No. The Department knows it cannot do an accounting. There are too many missing documents, and the procedure

that was described by Mr. Cason today is not an accounting, and

you have to understand that. I think that the Department continues to mislead Congress by saying that the recent decision by

the appellate court does not provide for them to do an historical accounting. As I explained in my oral testimony, first-in-time rule

prevails, and in Cobell VI and Cobell XII and Cobell XIII, the government is obligated to do an accounting from 1887 forward.

If the government feels that it can actually do an accounting,

then we ought to go to Court and let them prove it.

The CHAIRMAN. Can you describe the method by which you calculated the amount of money that should be restored to the individual money account holders, and what is the data you used to arrive at that number?

Ms. COBELL. Well, both the Plaintiffs and the government agree

that $13 billion flowed through these accounts. The appellate court

ruling provided that compounded interest has to apply. If you take

that into consideration, that brings us up to $176 billion.

What we did in calculating the $27.5 billion is that we assumed,

just assumed, and gave the government the benefit of the doubt

that they had paid out 80 percent of that particular amount of

money, and taking that into calculation and then actually deducting certain issues such as waiving the taxes that would be applied

on this particular amount of payment and making sure that people’s payments, such as Social Security, were not affected by this

payment—so taking all of those calculation into effect, we came up

with $27.5 billion.

Let me tell you that the appellate court ruling where compounded interest applies is very important because the $176 billion

continues to grow. The liability of the government continues to

grow. So taking in that particular discounted amount and why we

discounted it is why we came up with $27.5 billion. I think maybe

Keith might want to add something.

The CHAIRMAN. Before he does, just so I understand this, the

$176 billion is making the assumption that none of the money was

paid out, and then you add interest on top of that. The $27 billion

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is based on 80 percent of it was paid out and 20 percent was not,

and you add the compounded interest on that.

Ms. COBELL. That is correct. We have to remember that the

Ernst & Young report, the only accounting report that has been

made public, verifies that 99 percent of the transactions cannot be

verified at all. They cannot account for 99 percent of the transactions. So we could actually go up to 99 percent, but we gave them

the benefit of the doubt of 80 percent.

The CHAIRMAN. But none of that is based on any kind of accounting of the actual accounts.

Ms. COBELL. Yes, it is. It is based on the amount of money that

has flowed through those accounts.

The CHAIRMAN. Wait a minute. You are confusing me even more.

Ms. COBELL. OK.

The CHAIRMAN. If 99 percent of the accounts—maybe I have misunderstood you, but if 99 percent of the accounts, they have no

records for, then how do you come up with a number?

Ms. COBELL. Well, we came up with the number of the amount

of money that flowed through those accounts. OK? In Trial 1.5, we

presented an alternative method of accounting which reflected $13

billion that flowed through those accounts. The government’s estimate was $13 billion, so we agreed on that.

The CHAIRMAN. So there was agreement on how much money

should have gone in. There is no agreement on how much was actually paid.

Ms. COBELL. Yes. They do not know how much is actually paid

because their own accountants cannot verify 99 percent of the

transactions, and that is the issue here because there are so many

documents that are destroyed, it is impossible, and we have known

that it has been impossible to do an accounting. So you take an alternative method of an accounting. That is what we did, and what

went through those accounts, the compounded interest, and then

giving the government the benefit of the doubt that they paid out

80 percent of the money, and we came out with the discounted

amount of $27.5 billion.

The CHAIRMAN. But you do not know whether they paid out 50

percent of the money or 90 percent of the money.

Ms. COBELL. They are the trustee.

The CHAIRMAN. But nobody knows.

Ms. COBELL. Nobody knows. Nobody knows what they paid. They

do not know what they paid. They destroyed so many documents,

they do not know what they paid. The Ernst & Young report that

they talked about in their testimony where only there is a small

amount missing; that report basically said that they could not account for 99 percent of the transactions.

The CHAIRMAN. Now, as far as dealing with my colleagues on

what the cost of this is, your numbers are an educated guess as to

what you think would be owed. Interior’s number is an educated

guess on what they think should be owed or what is owed on this,

and we are somewhere in that ball park.

Ms. COBELL. Well, I guess I would say that theirs is a total

guess; ours is more right on. And you have to understand that the

government experts themselves say that 10 to $40 billion of liability exists here. We bring the amount of $27.5 billion. Ours is not

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an educated guess; it is based on our methodology that we presented in our Trial 1.5.

The CHAIRMAN. Well, I am not disputing that at all. I understand

that, but you really do not know how much was paid out because

they do not know how much was paid out. You are making the assumption that 80 percent was.

Ms. COBELL. And it could be a lot less that was paid, yeah. We

are giving the government the benefit of the doubt. Probably there

are many beneficiaries that would like to see the total liability of

$176 billion paid out because according to common trust law standards, it is that you have to account for every single document. I am

a banker. I understand this. Every single document has to be accounted for. You do not get away with saying, ‘‘Oh, well, maybe we

can find 50 percent of the records, or maybe we can find 80 percent.’’ You cannot do that. So what we did is we gave the government the benefit of the doubt, if we want to come to a settlement

amount, in saying that they distributed 80 percent of the money,

and I think that is more than fair.

The CHAIRMAN. Thank you. Mr. Rahall?

Mr. RAHALL. Thank you, Mr. Chairman. Elouise, in your testimony, you indicate that the Plaintiffs have ‘‘achieved a remarkable

record of success.’’ You also say the recent ruling in the Appeals

Court for the D.C. Circuit has ‘‘set the table for an early and fair

resolution of the Cobell case by the district court.’’

So my question would be, do you consider the November 15,

2005, Appeals Court decision to be a victory for the Plaintiffs, and,

if so, do you still welcome a legislative settlement?

Ms. COBELL. Yes, I do. I welcome a legislative settlement, but we

do feel that Cobell XVII, the November 15th ruling was in our

favor. It basically vacated the structural injunction that the judge

laid out for a way that the accounting was to be done which would

have taken up until 200 years to accomplish, just by our calculations. But the judge did that because the government was not

responding to any of the other decisions of the court to do an

accounting.

So it basically took it back to the district judge that will now

hear a trial on the accounting that has to be done, and we look forward to that. We look forward to the Department of the Interior

getting up and telling us how they plan on doing an accounting before a judge because we know it is impossible.

Mr. RAHALL. How do you respond to, and do you accept, last

year’s Appeals Court for the D.C. Circuit when they said that the

Department’s trust duties are grounded in statute, not in the common law?

Ms. COBELL. I think I am going to refer to Keith. He is more an

expert on——

Mr. HARPER. Congressman Rahall, the question goes back to a

number of the different appellate court decisions. One thing that

is absolutely clear, and this comes from Cobell VI—there are now

17 of these decisions, so they get a bit confusing, but Cobell VI,

February 23, 2001, very clearly articulated the general principle,

which is that although the duty must be in statute, it does not

have to be express in statute. It can be implicit in the trust relationship itself that is created by that statute. So once the statute

42

creates the trust relationship, then it is inferred from that that all

of the normal trust duties, common law trust duties, are applicable

to this trust, and that has been the consistent rule in all of the appeals.

One of the things that Elouise touched upon a little earlier is

what is called the ‘‘first-in-time rule.’’ Cobell VI being the first appellate decision, is the one that has precedential value. Any later

decisions, including to the extent Cobell XVII, the most recent decision, is inconsistent with that prior one, that has no legal effect.

That is the rule of the D.C. Circuit as well as all of the other circuits.

Mr. RAHALL. Thank you. I appreciate that.

With respect to our legislation and who distributes a settlement,

this bill, of course, is a work in progress, as I am sure you recognize. Elouise, you have stated your position as far as having Treasury in charge, and I am sure that will be something we will consider, but I, quite frankly, do not see giving this job to the district

court. So if I am correct, what ideas would you have for managing

a settlement and distribution? You do not want Treasury in charge.

Right?

Ms. COBELL. Yes. Thank you, Congressman Rahall. It is important to understand——

Mr. RAHALL. You mean, no, you do not want Treasury in charge.

Ms. COBELL. It is important to understand that we do not want

Treasury. They are one of the defendants. They have been held in

contempt of court, and so we do not want them in charge of the

distribution. I think that the settlement funds have to be given to

the court, and I do have to tell you that Judge Lamberth has probably been one of the most fairest [sic] people in the history of the

United States in regard to making sure that we get true justice on

this horrible mismanagement mess. So if it is distributed in his

court, you know, that is fine. I do not know any other specifics on

how other than that it should be addressed. Maybe Keith can add

to that. I am only familiar with the district court.

Mr. HARPER. Congressman Rahall, we believe that the district

court or a court in general is the appropriate place to do a distribution, and that is because they have the institutional competence to

hear evidence, to waive various issues, and to make determinations

that are appropriate in light of the evidence that they receive, and

how that distribution gets done is very important to our class members.

We, as representatives of that class, have a fiduciary obligation

to make sure absentee class members are fairly represented, and

we think that the most appropriate entity, the one with the highest

competence to do that, are the courts. Also, they are not a political

branch. They apply legal rules, which, for us, and given the history

of this litigation, they have been the solace in a history of mismanagement, and so, for us, it really is the courts which are in the

best posture to do this.

Could I just mention one other thing because I think that there

has been an implicit—well, there has been a campaign—let us just

put it out there—there has been a campaign in some quarters

against this judge, and Elouise, I think, said it quite fairly. I do

not know what the complaints are. If you are a Federal judge, and

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you get lied to, and you call people out for it, is that a bad judge?

If you have a malfeasance that the Court of Appeals says is unconscionable—‘‘malfeasance,’’ that means evil doing—and you are a

Federal judge, a district court judge, and you call them out on that,

is that a bad judge? What makes this judge problematic other than

to make something that has been nonaccountable for a century

have some accountability?

So I caution a little bit the notion that this judge is somehow

misguided in his approach. Yes, this is a very complicated case,

and there have been individual legal issues that have gone to the

Court of Appeals, and they have disagreed with him, but there

have been many that they have agreed with him, and they have

affirmed him in toto in the most important of the decisions, Cobell

VI.

So I just put that out there because I want to counter the perception or the attempt out there to paint this judge as some kind of

rogue. We do not believe that is the case. We think that the record

is plain that what he has done is to treat the parties fairly.

Mr. RAHALL. I appreciate you laying that on the record. I did not

mean to join that campaign or cast any aspersions when I said

what I did about the D.C. court. That was not my intention whatsoever.

Thank you both your testimony, and, Elouise, again, as I said in

my opening comments, I certainly applaud your tenacity and your

determination and your persistence, and you are certainly a driving

force for a fair and equitable settlement here. Thank you.

The CHAIRMAN. Mr. Pearce?

Mr. PEARCE. Thank you, Mr. Chairman. Ms. Cobell, has the trust

relationship outlived its usefulness overall?

Ms. COBELL. I think that if the trust relationship was implemented properly, according to standards that were spelled out in

the 50 Principles, that it could work well for Indian people.

Mr. PEARCE. I am asking, do the Indian people need that trust

relationship to represent them?

Ms. COBELL. Well, there are certainly certain issues that we have

to take into consideration that have to be solved before any change

is made, and that is that people have to have an accounting of

their trust assets.

Mr. PEARCE. I am saying, once we clear the accounting up, has

the trust relationship outlived its usefulness? Do the Native Americans need someone to oversee their affairs?

Ms. COBELL. I think, Congressman, that once we have this resolved, that Indian people can be provided options, and we could

take a good look at those options.

Mr. PEARCE. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Kildee?

Mr. KILDEE. Thank you, Mr. Chairman, and thank you, Ms.

Cobell.

Abraham Lincoln referred to Harriet Beecher Stowe as the lady

who started the Civil War that freed the slaves, and I think you

have jump started this pursuit of justice for Indians, and while you

are not seeking it, your name will go down in history. It is a very

quantum leap that you started for justice for Indians, and if I can

play some small role in helping you achieve that justice and a

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remedy for the injustice, I feel I will have accomplished an important mission here in Congress.

I thank you for your courage. It is not that easy to put your

name out there and get both praise but a lot of stones, and I personally appreciate it. I have known your name for a number of

years now, and some people might not agree with you, but I think

that you have had the courage to really take on a gross injustice

that occurred toward the Indians in this country, and I deeply appreciate what you are doing. The trust responsibility does lie with

the entire U.S. Government, including this Congress here, and we

want to make sure that we are sensitive to really having as much

justice as we can achieve, and I, frankly, think your proposal, how

you have figured the 80 percent, is modest and reasonable and certainly not outlandish at all. I just want to commend you.

I do not think I can ask any question that you have not answered

already. I have read much of what you have said before. I have followed you and just commend you, keep up the work, keep us informed, and keep us aware of our responsibility to that trust that

we have.

Now, the trust responsibility really came in not as a patronizing

trust. The trust responsibility came in very often, and this is not

the case here because this is the Federal government abusing the

Indians—the trust responsibility came into being, to a great extent,

to protect you from the state government, and the Federal government is supposed to be the great protector, to protect you against

intrusion by state government. I know my own State of Michigan

intruded upon Indian rights. But when the protector who was in

that trust responsibility not only abdicated the role of protection

but abused the Indians, then we really have to find a solution for

that, and I think you have started this on a path that hopefully

will arrive at full justice for the Indians, as much justice as we, in

our frailty, can put together. But I think you have acted in a very

determined, tough, and reasonable way. Thank you very much. God

bless you.

Ms. COBELL. Thank you very much, Congressman Kildee. Your

words mean a lot to me.

The CHAIRMAN. Well, thank you to our witness. Ms. Cobell, there

may be additional questions that Members have. Those will be submitted to you in writing, if you can answer those in writing so that

they can be included in the hearing record.

I know this is something this Committee has been dealing with

for a long time. It has gone on way too long, and I think we are

at the point where, both in the House and the Senate, we want to

deal with this, and hopefully we will not be doing a lot more of

these hearings. So thank you very much for being here.

Ms. COBELL. You are very welcome.

The CHAIRMAN. If there is no further business before the Committee, I again thank our witnesses and the members of the

Committee. The Committee stands adjourned.

[Whereupon, at 11:57 a.m., the Committee was adjourned.]

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