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S. HRG. 109–50, Pt. 4

GAMING

HEARING

BEFORE THE

COMMITTEE ON INDIAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

ON

OVERSIGHT HEARING ON THE REGULATION OF INDIAN GAMING

SEPTEMBER 21, 2005

WASHINGTON, DC

PART 4

(
COMMITTEE ON INDIAN AFFAIRS

JOHN McCAIN, Arizona, Chairman

BYRON L. DORGAN, North Dakota, Vice Chairman

PETE V. DOMENICI, New Mexico

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

LISA MURKOWSKI, Alaska

MICHAEL D. CRAPO, Idaho

RICHARD BURR, North Carolina

TOM COBURN, M.D., Oklahoma

DANIEL K. INOUYE, Hawaii

KENT CONRAD, North Dakota

DANIEL K. AKAKA, Hawaii

TIM JOHNSON, South Dakota

MARIA CANTWELL, Washington

JEANNE BUMPUS, Majority Staff Director

SARA G. GARLAND, Minority Staff Director

(II)
(III)

C O N T E N T S

Page

Statements:

Akaka, Hon. Daniel K., U.S. Senator from Hawaii ....................................... 2

Conrad, Hon. Kent, U.S. Senator from North Dakota .................................. 2

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

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

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

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

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

Van Norman, Mark, executive director, National Indian Gaming Commission ................................................................................................................. 11

Washburn, Kevin, associate professor of law, University of Minnesota ...... 13

APPENDIX

Prepared statements:

Hogen, Phil (with attachment) ........................................................................ 23

Van Norman, Mark .......................................................................................... 29

Washburn, Kevin .............................................................................................. 38

Additional material submitted for the record:

Allen, W. Ron, chairman, Washington Indian Gaming Association and

tribal chairman, Jamestown S’Klallam Tribe, letter ................................. 43

Eddy, Jr., Daniel, tribal council chairman, Colorado River Indian Tribes,

letter ............................................................................................................... 45

(1)

GAMING

WEDNESDAY, SEPTEMBER 21, 2005

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

The committee met, pursuant to notice, at 9:30 a.m. in room 325

Senate Russell Office Building, Hon. John McCain (chairman of the

committee), presiding.

Present: Senators McCain, Akaka, Conrad, Dorgan, and Inouye.

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

ARIZONA, CHAIRMAN, COMMITTEE ON INDIAN AFFAIRS

The CHAIRMAN. T1LAST MONTH, A FEDERAL DISTRICT COURT

ISSUED A RULING WITH POTENTIALLY FAR-REACHING EFFECTS ON THE

REGULATION OF INDIAN GAMING. IN Colorado River Indian Tribes v.

the National Indian Gaming Commission, the court held that the

Indian Gaming Regulatory Act as it is now written does not give

the NIGC authority to issue or enforce regulations which address

the day to day operations of class III gaming facilities, the so-called

minimum internal control standards, or MICS.

Class III gaming represents the lion’s share of revenue created

by Indian gaming. The focus of today’s hearing is not whether or

not the court’s decision was correct. Instead, the question before us

today is, among tribes, States, and the Federal Government, how

do we make sure that there is adequate regulation of class III gaming?

Before we begin the hearing, I have a comment on another regulatory matter. In April, I requested that the Department of Justice

[DOJ] and NIGC put their heads together to see if they could come

up with a proposal to address the ongoing litigation and controversy surrounding class II bingo machines. I understand that

the DOJ and NIGC have concluded their discussions regarding a

potential statutory fix. While the department has not shared this

proposal with the committee, I look forward to seeing it in the near

future.

Senator Dorgan.

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

NORTH DAKOTA, VICE CHAIRMAN, COMMITTEE ON INDIAN

AFFAIRS

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

Today, we are going to hear testimony from Federal and tribal

advocates, along with an independent analysis of what roles each
2

government are playing and should be playing with respect to class

III gaming. I hope this testimony today will inform this committee

in a significant way as to the practical impact of the recent court

decision on this matter.

I think you posed the question implicitly with your opening statement with respect to the integrity of Indian gaming. It would necessitate a change in Federal law, whether such a change should

be immediate, whether such a change should in fact be made. It

is an important issue, and I look forward very much to hearing the

testimony of the witnesses that have come before us today.

The CHAIRMAN. Senator Akaka.

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

HAWAII

Senator AKAKA. Thank you very much, Mr. Chairman. Thank

you for holding this hearing. It is very, very important to our country.

Today’s oversight hearing on the regulation of class III gaming

under the Indian Gaming Regulatory Act follows a recent decision

by the U.S. District Court for the District of Columbia regarding

the case of Colorado River Indian Tribes v. National Indian Gaming Commission.

As we address the regulatory authority of NIGC, I believe that

it is important that we preserve the sovereignty of Indian nations

and provide them with the necessary support in the exercise of

their sovereignty. They can help themselves economically, politically and governmentally.

I look forward to the testimony in the hearing, and I thank the

witnesses here today. I thank the Chairman for holding this hearing. Thank you very much.

The CHAIRMAN. Senator Conrad.

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

NORTH DAKOTA

Senator CONRAD. Thank you, Mr. Chairman. Thank you for holding this hearing.

The court determination obviously raises a whole series of issues.

I think it is important that this committee attempt to address

them. At the same time, I think it is important that while there

is a reaction, there is not an over-reaction. The history of regulation throughout Indian country in gaming has been quite strong.

As I have looked across regulation in my State, they really have

done a sound job of regulating gaming.

Now, we may find that there are other places where that is not

the case. To the extent we find abuses, obviously they need to be

addressed. But I do hope that we do not have an over-reaction to

this one court’s decision.

Again Mr. Chairman and Senator Dorgan, as ranking member,

we appreciate the leadership that you are providing to this committee.

The CHAIRMAN. Thank you very much, Senator Conrad.

Mr. Hogen, welcome.
3

STATEMENT OF PHIL HOGEN, CHAIRMAN, NATIONAL INDIAN

GAMING COMMISSION

Mr. HOGEN. Good morning, Chairman McCain, Vice Chairman

Dorgan, and members of the committee. I am Phil Hogen, chairman of the National Indian Gaming Commission. I am an Oglala

Sioux from South Dakota. I am very delighted to appear here on

behalf of the commission and appreciative that the committee chose

to quickly convene this hearing in the wake of the court decision

that has been mentioned.

I bring you greetings from my fellow commissioners, Nelson

Westrin and Chuck Choney. They are on the Coeur d’Alene Reservation in Idaho today meeting with the Affiliated Tribes of

Northwest Indians at a long-scheduled consultation session. That is

where I would be but for this hearing.

I expect the committee is familiar with the history of how we got

to where we are, but let me try and quickly review that. Indian

gaming is not a Federal program. Indians invented Indian gaming.

They do it very well.

The CHAIRMAN. Mr. Hogen, could I ask you to take us back one

step further? The Cabazon decision triggered what action? In other

words, basically the Cabazon decision by the U.S. Supreme Court

triggered the Indian Gaming Regulatory Act. Right?

Mr. HOGEN. That is correct, Senator.

The CHAIRMAN. Okay.

And then that gave your commission the authority to regulate

what classes of gaming under what circumstance? I would like to

have this for the record. Go ahead.

Mr. HOGEN. Okay. IGRA divided Indian gaming into three categories. Class I is traditional or ceremonial gaming. It is basically

not commercial gaming. That was left exclusively within the domain of the tribes. Then there was created class II gaming, which

was bingo and pull-tabs and games of that nature such as poker

where you do not play against the house. Then the third category

was basically everything else, but primarily house-bank games and

casino-type gaming.

The CHAIRMAN. And there is some gray area concerning, because

of technology, between class II and class III. Right?

Mr. HOGEN. That is correct. Class II was permitted to use computers and electronic and other technologic aids, but there was not

a real clear definition of where that ended and where slot machines

and electronic facsimiles of games of chance began. So that is a

troublesome area that we are dealing with.

The CHAIRMAN. So then the Colorado River Indian Tribe decided

not to allow the National Indian Gaming Commission auditors to

look at their books. Is that correct?

Mr. HOGEN. That is correct. That occurred in the context of

NIGC attempting to conduct an audit of their Colorado River Indian Tribe’s compliance with the minimum internal control standards that NIGC had promulgated.

The CHAIRMAN. Over class III or class II?

Mr. HOGEN. Over all of the gaming operations.

The CHAIRMAN. Okay.

Mr. HOGEN. A reason that we have to look at the whole gaming

operation is gaming facilities integrate their operations. The dollars
4

may come from the bingo hall or they may come from the slot machines, but they go into the same cage, the same bank, and it is

very difficult to look at one without looking at the other.

In any event, we looked at class II at Colorado River and we

went to go look at class III and they said wait a minute, you do

not have the jurisdiction to do this. The reason they argued we did

not, is that IGRA provides for a tribal-State compact to frame the

class III gaming that will be permissible and permits the States

and the tribes to negotiate with respect to the regulatory structure.

The CHAIRMAN. Arguing that, once the State and the tribes have

reached this compact, the regulation or oversight of that gaming responsibilities now left the NIGC.

Mr. HOGEN. That is what they argued and we disagreed. As a result of that disagreement, we found them in violation of not giving

us access. On account of that violation, we assessed a fine. We

eventually negotiated an arrangement whereby we could, and we

did conduct an audit, but the tribe reserved the right to challenge

that principle: Did we have this jurisdiction.

The CHAIRMAN. And the court’s decision said?

Mr. HOGEN. It said NIGC, you have gone too far; you entered

into an area that was left to the tribes and the States and you cannot do what you are doing with respect to class III.

The CHAIRMAN. In other words, right now at this moment if you

went to any Indian tribe in America that has concluded a compact

with a State, they could bar you from looking at their books?

Mr. HOGEN. We do not view the decision that broadly, but the

ultimate consequence certainly could be that.

The CHAIRMAN. In other words, you would go out of business

then?

Mr. HOGEN. Yes; well, we would be out of most of the business

because 80 percent of the gaming is class III gaming. That is where

the money is. That is where the action is.

The CHAIRMAN. Do you expect other tribes in light of this to challenge your oversight authority?

Mr. HOGEN. We certainly do. We have already had, you might

call it push-back from tribes; tribes saying we know you have an

audit scheduled to come out and look at our compliance, but do not

bother coming because you do not have that authority under the

Colorado River Indian Tribe’s decision. We argue that, well, that is

still a work in progress. We are trying to sort that out. We are

going to continue business as usual.

The CHAIRMAN. Does the Administration plan to appeal this decision?

Mr. HOGEN. We are in negotiations or we are working with our

lawyers in the Department of Justice. I expect that we will. We will

be asking them to appeal. That decision has not been finalized yet.

The CHAIRMAN. What was the logic behind this judge’s decision?

Clearly in the law, it is stated that there would be a National Indian Gaming Commission to conduct oversight responsibilities.

What was the judge’s logic to say that somehow even though NIGC

was created in the law, you would have no ability to carry out your

investigative or oversight responsibilities?

Mr. HOGEN. The Indian Gaming Regulatory Act has been a very

positive piece of legislation, but in some respects it is not a model
5

of clarity. For example, it says in terms of findings that the tribes

have the exclusive right to regulate gaming, and then it goes on to

assign other roles, a role to the Federal Government, a role to

States and so forth.

I think the paradigm at the time it was written, and of course

you were one of the authors, Senator, Indian gaming then was

high-stakes bingo. So it was written, okay, this is how we are going

to class II gaming and then, not necessarily an after-thought, but

okay, then if you are going to do class III, some of these other

things apply. Therein, some confusion arose, I believe.

It did give the States the right to negotiate with tribes with respect to regulations and we have attached to our testimony, which

we ask to be included in the record, a chart that tries to characterize what States have done and what they have not done with respect to getting involved. In many cases, there is literally no State

involvement. Our audit teams that have gone out to do these minimum internal control standards audits have never bumped heads

with State folks who are out there doing what we do. We find that

if we are not out there doing this, for the most part nobody is going

to be playing that oversight role.

The CHAIRMAN. I thought it was important for the record to establish that history. I thank you. Please proceed.

Mr. HOGEN. You have established it very well, Senator.

I have a couple of charts here that I think just emphasize what

you mentioned. The one chart shows the growth of Indian gaming.

Our minimum internal control standards were written in 1999 and

went into effect in 2000. What this chart demonstrates, of course,

is how strong the Indian gaming industry is and the fact that this

system that was developed that has not been challenged until just

now, has not significantly inhibited the growth of Indian gaming.

Rather, I think it has fostered it.

The other chart over here, the pie chart, shows that 80 percent of that $19.4 billion in 2004 was class III revenue. That is where

the money is. The other 20 percent is divided between class II gaming and that other gaming that is using the player stations that

may be class II or may be class III that we are trying to sort out.

Where the money is is in class III.

In connection with the development of these minimum internal

control standards, NIGC embarked on a very thorough consultation

process. We formed a tribal advisory committee and even at that

time, this concern about NIGC’s getting beyond its jurisdiction was

voiced, but the commission then said no, this is the right thing to

do. We were directed to promulgate Federal standards and we are

doing that.

The minimum internal control standards were thoroughly reviewed and revisited in 2002. Again, this issue was addressed. You

will find in the Federal Register a reflection of that consultation

and that process in the preamble to that 2002 enactment.

This is a copy of the minimum internal control standards. They

are thorough. They are patterned after established gaming jurisdiction controls. Tribes have been for the most part very accepting of

them. When we set out these standards, one of the things they require is that when the tribe does their annual independent audit

of their gaming operation, their auditor look at their compliance
6

with their internal control standards and do those internal control

standards meet what NIGC has specified as minimums. We get a

copy of that report. After screening all of those reports, we select

some of those where a number of exceptions are noted, and we go

out and conduct a minimum internal control standards audit.

This is not a ‘‘gotcha’’ deal. That is, we put on our website the

checklist that we use to identify all of those areas we are going to

look at. We send the tribe a letter saying in 30 days we are going

to be out there; we select four dates, a date during each quarter

of the preceding year, and our team of from four to eight auditors

will go out and look at everything that occurred in that casino on

that date to see if it complied with the controls.

When we are done, we then prepare a report and issue that report after it is reviewed by our head auditor, Joe Smith, who is

seated back here. And then we set up an arrangement to meet with

the tribal leadership, the tribal management of a facility, the tribal

gaming commission, and we go over that list.

In the Colorado River Tribe situation, the list of exceptions was

23 pages long. There were 40 specific exceptions. Now, I am not

saying they have a terrible operation. They do not, but it was not

a perfect operation. We identified areas where it was deficient.

One of those areas was the lack of compliance of their surveillance system. When we went out there to conduct this exit interview, both the management and the gaming commission said, well,

I will bet you are going to gig us on shortcomings on our surveillance system, aren’t you? And we said yes, yes, we are. And they

said, well, that is good because we have been trying to get the tribe

to spend money to upgrade the system and they have not seen fit

to do that.

As a result of our mics audit, they spent $2 million and now they

have a state of the art surveillance system and they solved that

problem. Notwithstanding State regulation, tribal regulation, they

were not moving in that direction. I believe that that is the kind

of worthwhile service that we perform with respect to those audits.

So that is what we do and generally how we do it. Now we are

at the point where tribes are pushing back and saying because of

this District Court decision in the District of Columbia, you cannot

do this anymore. I think that will be a great disservice to this

strong, but perhaps fragile structure that has been developed since

the MICS were put in place in 1999.

In a number of instances, Arizona I think being one of them,

California being another, tribes have pointed with pride as a badge

of honor, we are the most regulated gaming there is. We have tribal regulations. We have State regulations. We have Federal oversight. And to now say for 80 percent of that gaming we no longer

have that arrangement, I think that is a risk.

Tribes rightfully defend sovereignty. Sovereignty has several

manifestations. I think the main way you are strong and sovereign

is by being self-sufficient, being able to provide for yourself and

your people. I think that if we put at risk this structure of strong

regulation that involves States, tribes and the Federal Government, we put that sovereignty at risk.

With respect to these audits that we go out and do, there are

some horror stories out there. There are places where we found de-
7

ficiencies and they have not been corrected and we have had to in

some cases get the tribes to voluntarily close their facility. We are

considering closing others because they have not come around. But

by and large for the most part, they are success stories. We identify

weaknesses. They solve those problems. At the end of the day, they

have a stronger operation and we are happy that we have been

able to help that.

We have conducted 41 audits. Only in one instance, I think, did

we duplicate what somebody else did. That was at the Avi Casino

in Nevada. Nevada is an unusual jurisdiction to do Indian gaming

in because there is really no advantage to the Indians. Nevada lets

anybody who can get a license do that. Their compact provides for

integral involvement by the State of Nevada. So Nevada does an

audit there. Every three years they do an audit of everybody and

they cover the whole period of time.

There is a little difference in what we require and what Nevada

requires, so there was some overlap with respect to that audit. But

in those other 40 audits, nobody else did what we did, and as I say,

by and large they were success stories. The problems identified

were solved.

Again, the nature of the operations is the commingling, the intertwining of class II and class III revenues makes it almost impossible to say, well, we will go look at one and not the other. If in

fact we are ejected from this area, we may awaken a sleeping

giant. That is, States may say, oh, we were asleep at the switch;

we are going to come back and we want a stronger, larger role in

the regulation on a day to day basis of tribal gaming.

I do not think that would be good for the tribes. I think they

would rather deal with the Federal Government than the States.

And I do not think it would be good for the States either because

they would be creating another mechanism. The tribes would end

up paying that bill, too. I do not think that would have any advantage over the strong system that we have right now.

So we think we have a vehicle to solve this problem. In March

of this year we sent a letter to the President of the Senate and the

Speaker of the House saying this is a legislative package that

would fix some of the problems we perceive with respect to the Indian Gaming Regulatory Act. They dealt with our fees and the

chairman’s power and so forth, but the narrow issue here was to

add in section 7 with respect to the commission’s power a clarification that we have authority over class II and class III gaming.

We do not want to expand our powers. We do not want to grow

a bit. I appreciate Senator Conrad’s concern, let’s not do overkill

here if in fact we have to fix this. We just want to keep doing what

we have been doing successfully, not do more. We think with the

enactment of the amendment proposed relating to clarification of

NIGC’s authority in class III gaming, that problem would be

solved.

We address a number of other things in our written testimony,

but I think I will conclude here with respect to what I have to say

and I would be happy to try and respond to any questions.

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

The CHAIRMAN. Thank you very much, Mr. Hogen.
8

If IGRA is amended to clarify that the NIGC has authority to

issue class III MICS, will that impact the role that tribal governments have as regulators?

Mr. HOGEN. It would not change what has happened for the past

5 years.

The CHAIRMAN. Would it impact the roles that States play as

spelled out in their tribal-State compacts?

Mr. HOGEN. No; they would keep doing what they are doing.

The CHAIRMAN. Are the MICS consistent ‘‘industry standards’’?

Mr. HOGEN. We attempt to keep them as current as we possibly

can. Next week, our advisory committee will be meeting in Rapid

City to again review the MICS and make changes to comply with

tehnologic advances and technology advances and so forth.

The CHAIRMAN. NIGA states in its testimony there is no need for

a quick fix to the CRIT decision. Do you agree?

Mr. HOGEN. No; I think it is urgent that we have a remedy to

this problem.

The CHAIRMAN. Because you are already getting pushed back

from some tribes.

Mr. HOGEN. Yes, Senator; we are.

The CHAIRMAN. The Department of Justice announced last week

its proposed change to the Johnson Act that would affect Indian

gaming. Why wasn’t it a joint announcement with NIGC?

Mr. HOGEN. They kind of do things their own way there at the

Department of Justice.

The CHAIRMAN. Did you have any role in developing this language?

Mr. HOGEN. We did. We went to many, many negotiating sessions with the Department of Justice.

The CHAIRMAN. Do you know when we will get the language?

Mr. HOGEN. Pardon me?

The CHAIRMAN. Do you know when we are supposed to get this

language?

Mr. HOGEN. Tom Heffelfinger, U.S. Attorney for Minnesota, indicated last week in Las Vegas that within 10 days or two weeks

they would be sending draft language to tribal leadership, so I expect it will be arriving at other offices here in Washington, DC any

day now.

The CHAIRMAN. Thank you. I thank you for your good work and

I thank you for your very clear and coherent testimony. I thank

you for the continued good job that you do under very difficult circumstances.

Senator Dorgan.

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

Mr. Hogen, thank you for being with us once again.

The court’s decision cited a number of facts. Let me just run

through a couple of them with you. The court says the legislative

history of IGRA states explicitly that Congress did not intend the

NIGC to regulate Class III gaming. Any response to that?

Mr. HOGEN. We do not read it the same way the court did. Our

brief submitted to the court by the Justice Department states that

in greater detail, and points to areas in the legislative history

where we think this was addressed, and clearly indicates as it

states in the purpose of IGRA, that NIGC was being established in
9

part to establish or to promulgate Federal standards. That is what

we have done there.

Senator DORGAN. Over the years, your compliance enforcement

efforts and audits have routinely included class II and class III

gaming issues, right?

Mr. HOGEN. Yes; both areas.

Senator DORGAN. When was this issue first raised? I think you

stated in your testimony that back some long while ago there were

discussions about whether you had the authority or not. The first

court challenge was this particular challenge, is that correct?

Mr. HOGEN. That is correct, but from day one when we started

talking about minimum internal control standards to apply to class

II and class III, some tribes said you are stepping into an area

where you do not have any authority, and we had that discussion.

We decided we did.

Senator DORGAN. Describe to me a future for your commission if

as of tomorrow, for example, you have no authority under any condition to be involved with respect to class III issues enforcement,

compliance, auditing and so on. Describe for me that future. Is

there much left for the commission? Is there much of a reason for

the commission to exist?

Mr. HOGEN. Well, I think we would need to still exist. We would

be a toothless tiger. That is, we could go out and look things over

to the extent tribes would voluntarily show us their class III information, and we could point to what we perceived as shortcomings,

but all we could do is a ‘‘please fix this’’ and there would be no incentive. Tribes would probably cease to have their external auditors analyze the minimum internal control standards because that

costs a little more money, things like that. It would be a very less

effective role.

Senator DORGAN. You had indicated that 80 percent of the gaming revenue is now class III. Is that correct?

Mr. HOGEN. That is our guess. Nobody knows exactly because

tribes do not have to designate it, but that is our best guess, yes,

Senator.

Senator DORGAN. By far the bulk of the gaming would be outside

of the purview of the commission’s activities for enforcement compliance auditing and so on, if that were the case.

Mr. HOGEN. The act says that the tribes have to adopt a tribal

gaming ordinance, and they do. That has to be reviewed and approved by the chairman of the commission. Now, that ordinance

embraces a lot of things such as this is how we are going to do our

gaming. The chairman of the National Indian Gaming Commission

has the authority to take enforcement action for a violation of that

NIGC-approved ordinance.

So there may be a way we could go in the back door and say,

well, maybe we do not have class III MICS authority, but your ordinance says you have minimum internal control standards; you

violated those, and consequently we are going to take enforcement

action. A challenge to such an arrangement would be we then have

225 systems out there, rather than one system. I think the quality

that IGRA sought would be diminished.

Senator DORGAN. The absence of the Commission being involved

in class III issues means that the States would be involved through
10

the compact and also the tribal regulations would be involved. So

tell us from your perspective how that relates to your enforcement

and your audits. Are they up to that or are they up to your standards? Do you do a better job? Do they do a lesser job? Tell me your

assessment of all that.

Mr. HOGEN. There are over 20 States that have compacts with

tribes, and they are very diverse. Minnesota, for example, got in

early; cut some perpetual compacts with the tribes, and give a very

minimal role to the State with respect to regulation. Some of the

more recent compacts, Oklahoma for example, have a more

participatory role for the State. The problem with Oklahoma is it

looks good on paper, but they only have three people in their office

and they have 30 gaming tribes out there. They are, at least not

yet, up to that task.

Senator DORGAN. Sorry for interrupting you, Mr. Hogen. My

point it, we are going to have others testify that say the commission is unnecessary. It is unneeded. With or without the question

of whether you have the authority to deal with class III, it is duplicative and unneeded and the States and the tribes will do just fine,

thank you. Respond to that.

Mr. HOGEN. Okay. I think one of the most important things we

bring to the table is we give validity to what the tribes and what

the States do. As we come along objectively from the outside, look

at it, and say these are the rules. They either are playing by the

rules, which we find in most cases, or they were not playing by

those rules, but they fixed that.

So we validate that good job that they do, and we have that national perspective that gives us the tools to do what needs to be

done in diverse circumstances.

Senator DORGAN. Mr. Hogen, thank you for your testimony. As

always, thanks for your assistance when you appear before the

committee.

Mr. HOGEN. Thank you, Senator.

The CHAIRMAN. Mr. Hogen, I just want to reiterate, when we

contemplated the Indian Gaming Regulatory Act, we clearly contemplated an Indian Gaming Commission. That is why it was created. Perhaps the language is somewhat murky, but I find it very

difficult to accept the proposition that now that Indian gaming has

gone from $500 million a year to $19.5 billion, and no sign of slowing, that somehow now we do not need a regulatory agency. It defies logic. In consultation with Senator Dorgan and other members

of the committee, I think we are going to have to come up with

some fix for this.

I have said a thousand times, and I will say it again, when we

wrote the act, Senator Inouye and I and others wrote the act, if you

had told us that by this time it would be a $19.5 billion a year

business, we would have been astonished, to say the least.

I continue to point out to my Native American friends who assert

this is simply an issue of tribal sovereignty, issues of tribal sovereignty not only entails activities on Indian lands, that are conducted by Indians; 99 percent of the patrons of these Indian gaming activities are non-Indians. So we have an obligation to non-Indians as well as Indians to make sure that these gaming activities

are honest, straightforward and adequately regulated.
11

I think you and the commission overall over time have done a

good job at that. To wit, there have been a minimum, an absolute

minimum of allegations of corruption in Indian gaming activities.

So it seems to me to want to abandon what has been a successful

regulatory scheme, I would take some convincing before agreeing to

that.

Thank you, Mr. Hogen.

Mr. HOGEN. Thank you, Senator.

The CHAIRMAN. Our next witnesses are Mark Van Norman, executive director of the National Indian Gaming Association and

Kevin Washburn, who is the associate professor of law at the University of Minnesota. Welcome to the witnesses.

We will begin with you, Mr. Van Norman.

STATEMENT OF MARK VAN NORMAN, EXECUTIVE DIRECTOR,

NATIONAL INDIAN GAMING COMMISSION

Mr. VAN NORMAN. Thank you, Mr. Chairman.

Thank you, Senator Dorgan.

NIGA appreciates the opportunity to testify here today. I am

Mark Van Norman, the executive director of NIGA. Previously, I

worked for the Justice Department and as an attorney for my tribe.

As you know, tribes generally oppose amending the Indian Gaming Regulatory Act because we are concerned about undermining

Indian sovereignty. We believe that amendments to the act should

be considered in consultation with tribal governments. If after consultation the committee determines to move forward, we ask that

you move forward in regular order and protect IGRA from negative

amendments.

We also ask that you include timely access to secretarial procedures in lieu of compacts once States raise an 11th Amendment defense to the tribal-State compact process.

Indian gaming has been a tremendous success story for tribes.

Historically, the United States signed treaties guaranteeing Indian

lands as permanent homes, and a few years later went to war to

take those lands. This left Indian tribes in poverty on desolate

lands, while others mined for gold or pumped oil from taken lands.

Throughout this period, tribes always fought to preserve tribal selfgovernment.

Indian gaming has provided us new hope; 20 million people visit

Indian tribes each year. Indian gaming has created 550,000 jobs,

where unemployment was 5 or 10 times higher than the national

average. It funds essential services. Where diabetes is an epidemic,

it funds clinics and wellness centers. Where people had only

eighth-grade educations, it funds college scholarships.

We have a long way to go, but Indian gaming is rebuilding our

communities. No one has more interest in maintaining a strong

regulatory system for Indian gaming than Indian tribes. Tribes are

dedicated to this because tribal sovereign authority, government

operations and resources are at stake. Last year, tribes invested

over $290 million to regulate Indian gaming. More than 3,350 expert tribal, State and Federal regulators watch over Indian gaming.

Class III gaming is regulated by tribal governments and States

through the tribal-State compact process. NIGC has a role. It supports that regulation by approving tribal gaming ordinances, re-
12

viewing tribal background checks and licenses, receiving audits and

approving management contracts. Congress established the unique

tribal-State compact process at least in part because the Federal

Government turned down that regulatory role. Under the tribalState compact process, tribes and States have established strong

working relationships over the past 17 years. Tribes have also invested heavily in reliance on the tribal-State compact process.

In 1999, NIGC issued a mandatory Federal rule on minimum internal control standards. Tribal governments adopted the rule

through tribal law and regulation, while reserving the question of

NIGC’s authority. Last month in the Colorado River Indian Tribe

case, the Federal court held NIGC may not issue mandatory Federal regulations that duplicate tribal-State compacts. NIGC asks

you to over turn that court decision. From our perspective, a cornerstone of Federal Indian policy is government-to-government relations. Under the President’s directives, we believe NIGC should

consult with tribes now and seek the least intrusive alternative to

address this issue. Yet, NIGC’s request is for new Federal authority over and above the tribal-State compact process, without an effort to harmonize it with existing tribal and State regulatory activities.

If NIGC were working directly with States, the proposal would

violate the 10th Amendment. The proposal also undermines tribal

lawmaking authority. If enacted, it would upset the existing balance of tribal, State and Federal sovereign authority. NIGC should

consult with tribes to find a less-intrusive alternative.

For example, NIGC could simply ask tribes to maintain existing

MICS in their tribal ordinances and regulations. In fact, NIGC included the MICS in its model tribal gaming ordinance. Alternatively, NIGC could consult with tribes about including a MICS

provision in IGRA’s tribal gaming ordinance requirements. NIGC

now has authority to approve tribal ordinances and IGRA provisions harmonize tribal law with tribal-State compacts. Seventeen

years of experience under IGRA has shown we have a strong regulatory system for Indian gaming, and that regulation can be done

consistent with tribal self-government.

We do not think there is any need for a rush to judgment. We

think that NIGC has issued guidance to tribes that they should

continue to follow the MICS. We have also advised tribes that they

should continue to follow their own laws and regulations that incorporate the MICS while this matter is pending. We believe that

the NIGC could work within the existing framework of the statute.

Look at the tribal ordinance section. They have authority to come

out and if there is a violation of tribal ordinances, they have authority to take action already. That approach would preserve tribal

lawmaking authority.

So we respectfully ask the committee to defer action on this until

the NIGC goes out to consult with tribes. We have a meeting coming up in October in Tulsa with the National Congress of American

Indians and the National Indian Gaming Association. We have invited them to come out and sit down with tribal leaders. We have

another meeting in November. We would like to sit down and talk

with them about this issue and find a solution that is in keeping

with tribal sovereignty.
13

Thank you very much for the opportunity to testify.

[Prepared statement of Mr. Van Norman appears in appendix.]

The CHAIRMAN. Thank you very much.

Professor Washburn.

STATEMENT OF KEVIN WASHBURN, ASSOCIATE PROFESSOR

OF LAW, UNIVERSITY OF MINNESOTA

Mr. WASHBURN. Thank you, Mr. Chairman and Mr. Vice Chairman, for inviting me to be here today. This is a very important subject and I applaud you for calling an early hearing on it.

My sense is that following Cabazon, the Senate and the Congress

decided to take action, and they thought that gaming ought to be

very well regulated, Indian gaming.

The CHAIRMAN. Actually, Professor Washburn, we felt that there

had to be some kind of structure in light of that decision that

would somehow establish a relationship between States and the

tribes because of the wording of the decision.

Mr. WASHBURN. I believe that is right, yes, sir. I do think that

is right. At the time, bingo was the thing that was mainly going

on around the country. So I think you all focused on bingo, primarily, class II gaming. That is where you really focused on NIGC

authority.

As the charts indicate, that is irrelevant. Bingo to a great degree

is much less important now than class III gaming. But what we

have, to a large degree, is not a National Indian Gaming Commission. We have a National Indian Bingo Commission nowadays, especially after the CRIT decision of a couple of weeks ago. The question is: Is that what you want? Is that what Congress wants out

there? My sense is that the public has great confidence in Indian

gaming largely because they believe that there is a strong Federal

regulatory presence. I think that Federal regulatory presence is

very important.

So it is really a question for Congress. Do you want that Federal

presence or not? I think that tribal regulators do a lot better with

the Federal presence. I think tribal regulators do a fantastic job,

by and large, but I think they do a far better job when they have

Federal oversight. I think Federal regulators standing behind their

back gives them a great deal of cover when they are negotiating

with tribal leaders and casino managers about how to regulate

well.

Regulating well is expensive. It is hard to do it. It costs a lot of

money, but Indian gaming is extremely important and it must be

done. You all have the power to ensure the integrity of the resource

for Indian tribes by ensuring that it is well regulated. My sense is

that is what you should be doing.

I have heard several insightful questions already. I think that

this really is the answer to them. I think that the NIGC is needed.

It ought to be the NIGC and not the NIBC. That is, it ought to be

regulating the bulk of Indian gaming, the important parts of Indian gaming, and that they should have that role.

I think having national Federal standards creates a common set

of information for the entire industry so that regulators can leave

one casino and go to another, and still know what the rules are.

That gives them greater independence. It also creates this national
14

community of tribal regulators that can talk to one another. I think

that that is important. I think, again, it makes the tribal regulator’s job a lot easier and it puts them in touch with the national

community.

So I think it is crucial that at a minimum that the IGRA be

amended to ensure that the NIGC has authority to promulgate the

minimum internal control standards.

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

The CHAIRMAN. Thank you, Professor Washburn. Thank you. I

know you spent a long time on this issue, and we appreciate your

expertise.

This court decision in some respects brought to a head what Senator Dorgan and I were already concerned about, and that is that

we needed to review the IGRA in light of the chart that was just

taken down of the dramatic increase in Indian gaming to a $19.5-

billion a year business, and what it was when we passed the law.

As you said, it was bingo.

Although we all anticipated growth of Indian gaming, we certainly did not to the level that it has. So with retrospect of now

17 years, that we thought we ought to look at it anyway, and that

is why we had hearings before this latest court decision because it

needed review.

So maybe this court decision may bring our deliberations to some

kind of conclusion sooner rather than later. Part of our process will

be determined as to whether this case is appealed or not. I do not

know if they have made that decision.

Mr. Van Norman, I think that consultation ought to be held. I

am glad you have invited the Indian Gaming Regulatory Commission out to your meetings. But isn’t it true that before these regulations were ever issued, there was extensive consultation with the

tribes. Is that true?

Mr. VAN NORMAN. There was consultation with tribes as the regulations were developed, but the tribes consistently said, we have

a tribal-State compact process and a tribal ordinance process.

Those are the processes you should work with. Tribes cooperated

with NIGC, but they reserved that question because they felt it

was important to tribal lawmaking authority.

I will just give you an example. This is the Viejas Band of

Kumeyaay Indians tribal ordinance. This is the Seneca Nation’s

tribal compact. Substantial work goes into these things and we

think there is a way to address this without creating new Federal

rulemaking authority, but working within the existing structure.

We would like NIGC to consult with us about that because it is a

less-intrusive alternative to what they are seeking to accomplish.

The CHAIRMAN. As you know, Congress has a special responsibility for Native Americans under the Constitution of the United

States. I have a responsibility as a Federal official, but also as a

representative of the people of my State. The Colorado River Indian

Tribes reject investigators from the Indian Gaming Regulatory

Commission to look at their books and their operations. Then I am

supposed to meet with my constituents who patronize that gaming

establishment, and say to them, I am sure everything is okay; go

on out there and gamble and I can assure you that everything is

on the up-and-up, even though this tribe has said that the gaming
15

commission that was put into being by the legislation is not allowed to have a look at their books. How do I do that, Mr. Van Norman?

Mr. VAN NORMAN. Well, I think one thing to bear in mind is that

the State, the Governor’s office and others, work with the tribes to

develop a compact that was put forward for a vote of the people.

Under that compact, the Arizona Department of Gaming has an

important regulatory role. The tribes in Arizona fund Arizona Department of Gaming at over $8 million a year. They have over 100

State regulators and law enforcement officers assigned to Indian

gaming.

In addition, I think it is a little bit of a straw man to say that

there is no role for the NIGC.

The CHAIRMAN. Is there a role for them to play if the tribe says

you cannot come on the reservation? And by the way, I think my

State regulatory folks would say that they welcome the involvement of the National Indian Gaming Commission as a valuable tool

in helping them oversight.

Mr. VAN NORMAN. Frankly, I think that what happened at Colorado River was some of the NIGC folks sat down with the tribes.

They started to work on the issues, and things got to a situation

where they said, we are here to enforce the MICS. And the Colorado River Tribe said, do you have authority to do that? And so a

question was raised.

The CHAIRMAN. No; they did not say, do you have authority to

do that. They said, sorry, you cannot look at our books.

Mr. VAN NORMAN. Okay.

The CHAIRMAN. That is a little different.

Mr. VAN NORMAN. I have been involved in discussions with them.

I have attended some of the hearings. We feel like it was a tribal

sovereignty question. Now, there is authority, we feel, under section 2713 of title 25 for the NIGC to go in and work with tribes

and ensure that tribal ordinances are enforced. It provides for civil

fines for violations of the tribal ordinances, among other things. So

we think that there is a workable system there in place.

The problem was that the NIGC was taking on a rulemaking authority that was outside the tribal ordinance process. Tribes felt

that that intruded on tribal lawmaking authority.

The CHAIRMAN. Well, I think the NIGC believed that they were

carrying out their responsibilities as mandated by the law. Again,

I respect tribal sovereignty and have a clear record of support for

tribal sovereignty, sometimes to the dismay perhaps of some of my

constituents.

But when an operation is in being where all the patrons are nonIndians, whether it is on a reservation or off a reservation, and we

now have movements to have Indian casinos that are off-reservation, then the issue of tribal sovereignty is overridden to some degree by my obligation to protect all citizens. That obligation is to

protect them from being involved in a gaming operation that is operated in the most honest and corruption-free activities.

We know from experience with non-Indian gaming that if there

is not sufficient regulation, then corruption creeps in. That is the

history of gaming. So to assert tribal sovereignty over an operation

that does not involve Indians, but non-Indians, to me is not a valid
16

enough argument because I have an obligation under the Constitution, Congress does, to a special obligation as far as Native Americans are concerned, but we also have an obligation to all of our citizens, and that is to engage in a corruption-free operation.

You and I have had this conversation several times before, Mr.

Van Norman. I would be glad to listen to your response again.

Mr. VAN NORMAN. Thank you, Mr. Chairman. I appreciate the

opportunity to respond.

From our point of view, you are right. There already has been

some inroad on Indian sovereignty by requiring tribes to work with

States through the tribal-State compact process by having a Federal regulatory authority. There is no Federal regulatory authority

for State gaming or for commercial gaming in the States. As you

know, they fight that vociferously.

We feel that there is an existing balance of sovereignty that protects Indian gaming. There is a provision in the act already, a

criminal provision that says anyone that steals from an Indian

gaming facility is guilty of a Federal felony. The FBI and U.S. attorneys have authority to prosecute that.

Tribes work with Treasury’s Financial Crimes Enforcement Network on money laundering prevention. We work with the IRS on

tax compliance. We work with the Secret Service to prevent counterfeiting. And we work with the NIGC. But the NIGC has a particular role that is consistent with the tribal-State compact. They

have a specialized role and it is not ubiquitous and duplicative of

the rest of the system. They have a role that they can come in and

be supportive, but they do not duplicate all that the tribes do.

One of the things that is preserved to the tribes, we feel, is tribal

lawmaking under the tribal ordinance. It is not a meaningless

thing to have a tribal ordinance. We feel NIGC could come back

and work with us and get that done. In fact in the area of environment, public health and safety standards, that is exactly the approach they are taking. They said, under your ordinance you have

to have these provisions and we will come out periodically and

check and make sure that you are enforcing your own law.

So we think that same system could work in relationship to the

MICS.

The CHAIRMAN. Mr. Hogen testifies that after review of the compacts, in some States it is evident that many compacts have internal control provisions not up to the standards required by the

NIGC MICS or States such as New Jersey or Nevada.

Professor Washburn.

Mr. WASHBURN. I think that the processes for developing the

minimum internal control standards have been very good ones. The

NIGC has worked very carefully with tribal leaders in developing

those MICS. I think that is a good model.

To be quite honest with you, the problems sometimes arise because NIGC regulators when they are out there in the casino can

be a little heavy-handed. That is the problem with power. Power

sometimes gets abused, and that happens now and then.

The CHAIRMAN. It never happens around here. (Laughter.]

Mr. WASHBURN. Not all the NIGC regulators, Mr. Chairman, are

quite as diplomatic and sensitive as U.S. Senators. But that is one

of the problems. I think that the NIGC regulators need to be very
17

cognizant of the fact that it is tribes that they are regulating. It

is not individual persons. It is not businesses. It is tribes. I think

that they can certainly be very sensitive to that. Frankly, in the

development of the minimum internal control standards they have

been very sensitive to that, and that should be very well applauded.

I think Indian gaming really is an exercise of sovereignty. Every

tribe is out there exercising its sovereignty, and what the NIGC is

interested in, certainly it intrudes on tribal sovereignty to say we

are going to regulate that activity. But the problem is, tribes cannot really protect themselves well here, because if one tribe makes

a mistake, all tribes will pay. That is just a function of the political

nature of the gaming industry. Not all of the public is totally on

board with the notion of gaming, so if one tribe makes a serious

mistake, other tribes will pay for that mistake.

So one tribe’s exercise of sovereignty can take away the sovereignty of another tribe. I think we have to recognize that. The

entity that can address that problem best is the Federal entity, the

National Indian Gaming Commission.

The CHAIRMAN. Thank you, Professor Washburn.

Mr. Van Norman, I want to repeat again that I am one who supports Indian gaming. I believe that the Cabazon decision made it

very clear that the Supreme Court correctly reached the conclusion

that Indian gaming could take place under certain circumstances.

I have done everything that I can to make sure that that right is

enshrined in IGRA. But I also have recurring fear that there is

going to be some scandal out there, as there is from time to time

in non–Indian gaming. It is not that I am worried about Indian

gaming. I worry about a scandal out there in Indian gaming, and

non-Indian gaming in Nevada is not under this committee’s jurisdiction, but Indian gaming is.

I do not want to go to my constituents and say there is a scandal

and Senator Dorgan and I did not exercise proper oversight. In

light of this recent court decision, it seems to me for us to do nothing because that was not envisioned in the original legislation. In

the original legislation, the National Indian Gaming Commission

had certain responsibilities and we wanted them to carry them out,

then I think we would not be carrying out our responsibilities appropriately.

Senator Dorgan.

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

I suppose it is important to say as well that I believe Indian sovereignty is very, very important. I have always spoken strongly in

opposition to those that would erode that sovereignty. The President in fact at one point said the Indians were given sovereignty.

The Indians were not given sovereignty. Sovereignty is theirs. It is

theirs. It is a very important concept.

I, too, believe that Indian gaming has been extraordinarily beneficial to some folks in this Country who have lived in the shadow

of poverty and who now have an economic activity that provides

jobs and opportunity and a revenue stream to address the crisis of

health care, education and housing. So I think it is very important

to say that.
18

I think it is also, with respect to gaming, gaming is different

than most other activities in this country. We have plenty of history in this Country where almost every opportunity for unsavory

characters to find a way through the crack or through the crevice

to get their hands on money. We have been down this road in lots

of ways in this country.

My guess is that there is no disagreement in this room about this

proposition, that all of us want good government with respect to Indian gaming, good governing. The question is, what government,

which government. Tribal government? State government? Federal

Government? We all should want the same thing, that is good government.

I think the quickest way to ruin or dramatically injure Indian

gaming is for us to in some way be lax, relaxed, back away a little,

and then have some huge scandal erupt because we did not have

good government, good regulatory enforcement capabilities. I refer

to the Time magazine big splashy feature story about Indian gaming. There are people who will take great pleasure in pointing out

the mistakes and the problems, and especially take great pleasure

in piling on a scandal.

So Senator McCain made a correct point here. We have to make

certain we know what works and then employ what works to this

issue.

Now, let me ask a couple of questions. Mr. Van Norman, 2 years

ago, 4 years ago, 7 years ago, 8 years ago, I assume that the National Indian Gaming Commission was going out around the country doing audits and enforcement visits and so on and looking at

class II and class III gaming. Is that correct?

Mr. VAN NORMAN. Originally, the National Indian Gaming Commission said very clearly, we are primarily focused on class II and

we have a background role on class III. We do not get involved in

the tribal-State compact process. I think the Senate committee proposed minimum internal control standards in various bills. The National Indian Gaming Association actually went through a process

with a number of experts to develop industry minimum internal

control standards. At a certain point, the NIGC came forward, took

those standards, ran them past Arthur Andersen, and put them

into a mandatory Federal regulation.

Senator DORGAN. At what point was that?

Mr. VAN NORMAN. That was about 1999.

Throughout this time since them, tribes have said, we have tribal

lawmaking authority through the tribal ordinance process under

the act, and that that should be respected. Tribes are willing to

work with the NIGC and frequently collaborate with the NIGC. In

S. 1295, we had asked for the NIGC to provide technical assistance

to tribes. We are going out next month to South Dakota and doing

programs jointly with them on internal auditing. So we have an ongoing working relationship with them.

What we want to do is have a relationship that is structured that

protects tribal self-governance so that tribes have a distinct role,

the State governments have their role, and the Federal Government has a role that is consistent with tribal lawmaking.

Senator DORGAN. What does that mean, consistent with tribal

lawmaking?
19

Mr. VAN NORMAN. That this could be a section in tribal ordinances, rather than a new Federal regulatory standard. What

tribes say is, we know the industry and we are able to develop our

MICS, and we are able to do so in a way that reflects our tribalState compact, reflects our actual operation. We are often more

technologically advanced than the National Indian Gaming Commission, so they have to go in and seek a variance to add a new

technical standard.

Senator DORGAN. Mr. Van Norman, I frankly have not decided

what we should do here at this point. That is why I was very interested in this hearing. But you heard the testimony previous to

yours. I served in State government for some while. I knew no only

what our State government did with respect to enforcement issues

in a range of areas, whether it was railroad rates or other things.

And I knew what other States did. I knew there were great differences, some aggressive, some not, some highly efficient, some

not, some worthwhile, some worthless.

So I understand that there are some States that will do a remarkable job and other States that will do a miserable job. You

heard some testimony this morning to that effect. What is your response to that?

Mr. VAN NORMAN. I think that the act envisioned that the tribes

and the States would work together as sovereigns. The legislative

history expressly says there is going to be an allocation of responsibility through a sovereign compacting process. So there was a recognition that there would be some variability.

Now, tribal governments have detailed ordinances in place, have

minimum internal control standards in place. They will keep those

in place. So what we can have is a situation where there may be

some variability that accommodates particular tribal government

interests, but that they can meet an industry standard for effective

regulation.

Senator DORGAN. Mr. Van Norman, you heard the anecdote

about the commission coming into a gaming facility and saying, you

need a new surveillance system. And they said, oh man, thanks for

making that a part of the recommendation because that will force

the tribe then to pony up the money for a new surveillance system.

What if there is not a commission around to make that recommendation and the gaming facility knows they need it, but they

cannot get the money out of the tribe.

How do you respond to that kind of anecdote? I assume it happens. This is not a perfect system, but that kind of anecdote is the

kind of anecdote that I think is also important in this discussion.

Mr. VAN NORMAN. We are not saying that the NIGC should not

have a role. They have a background supportive role. It is already

clear in the statute.

Senator DORGAN. With respect to class III as well?

Mr. VAN NORMAN. They have a supportive role with respect to

class III. They do not establish the regulatory framework because

that is the tribal-State compact process and that is the tribal ordinance process. But they can come out and review its enforcement

under section 2713 of title 25.

So we do not say that there is no role for the NIGC to play, but

they should play a role that is consistent with what the tribal gov-
20

ernments are already doing. You have 2,800 tribal regulators out

there. They are former FBI. They are former Nevada, New Jersey

State regulators. There are tribal law enforcement officers with 17

years of experience.

Senator DORGAN. Is it your testimony that there is a standardization and a pretty consistent level out there that does not have

weaknesses, tribe-by-tribe, State-by-State?

Mr. VAN NORMAN. In general, we believe that there is a very

strong system.

Senator DORGAN. That was not my question, though. I was asking a different question.

Mr. VAN NORMAN. I think in fairness, I have worked for the Federal Government. I have worked for State government. I have

worked for tribal government. Governments have similar foibles. I

would say that the tribal governments have worked very hard to

put in place a good system. We have very accomplished people.

Where there is a problem, the tribal governments have often

reached out and been the ones to reach out to the Federal Government and say, we have a problem here and help identify those

problems.

Senator DORGAN. I must say, it would be hard for me to make

the case, especially with the last several weeks, that the Federal

Government does not have its weaknesses. All governments have

weaknesses. I expect that that is the case.

First of all, Mr. Van Norman, your testimony is helpful to us.

You come to this committee and testify and work with us. We appreciate your input and your thoughts about this. You have obviously spent a lot of time thinking about it. You work in the field

and know a lot about what is happening in the country. So I appreciate your being here and the thoughts you have expressed today.

Mr. Washburn, in your testimony on page 2, I think you make

the case, I guess, with respect to the question I was trying to ask

Mr. Van Norman about the different kinds of regulatory or the different kinds of enforcement strategies that exist with a State system in which the National Commission would not have much of a

role. Can you expand on that just for 1 moment?

Mr. WASHBURN. I think that there needs to be a clear Federal

role. I think it cannot be just an advisory role. There needs to be

an opportunity to enforce in the worst-case scenario. I think Mr.

Van Norman is right that by and large we get good regulation from

tribal gaming commissions.

The problem is the stakes are so high that when we get irresponsible action by one commission at some small tribe in some location, it hurts all the rest of the tribes in the country, or it could

potentially. It is that big scandal that is the thing that we are all

worried about. The best way to keep the big scandal from rising up

is to keep a strong Federal oversight role overall.

To be quite honest, most of the NIGC resources do not go toward

the well-regulated tribes. They end up getting expended on the

least well-regulated tribes. So the NIGC is serving an advisory role

in helping them get their regulatory structures in better operation.

Senator DORGAN. Mr. Washburn, excuse me for interrupting you,

but can you just expand on, you say ‘‘least well regulated tribes.’’
21

Are there least well regulated tribes? If so, describe the prevalence

of that.

Mr. WASHBURN. Again, it is not something that happens every

day, but now and then you get a problem. I do not want to stand

up here and give you a parade of horribles, but now and then. It

is expensive to do internal controls. It is expensive to do regulation.

Tribal leaders and casino managers often chafe at that. Every regulated industry chafes at being regulated. What they would like is

usually to reduce the regulations.

Well, sometimes it happens. Sometimes those people win that argument and the regulators have to back off. If we have strong Federal structure in place, they will not be able to back off. They will

have to enforce this strong regulation nationwide. I think that that

is the problem.

In my last testimony in April, I used the word ‘‘regulatory capture.’’ That is the problem. Some regulators are captured by the entities they regulate. If you buy all the academic literature on regulatory capture, Indian tribes are particularly at risk for it because

typically you have one casino and one regulator. There are repeat

players working every day together. So you have a significant risk

for that.

So again, it does not happen every day. It does not happen often,

but the stakes are so high and Indian gaming is so important that

it makes sense to get the best insurance we can that we get to keep

it around for a long time and it is well regulated.

Senator DORGAN. Thank you as well. I think the goal for all of

us in this room, to the extent there has been some disagreement

perhaps here and there, the goal for all of us is to preserve the opportunity for Indian gaming to exist and to do that through good

government. The question is, what is good government and which

levels of government can work best to accomplish that.

Mr. Van Norman made a very important point about consultation. I think that issue of consultation is a very important part of

what this committee is about as well. This is a special committee

in the U.S. Senate that understands and believes strongly in the

responsibility to work with and consult with the first Americans

and the tribes that we work with.

So I think this testimony has been really interesting. This court

case causes some concerns. The question is now what do we do

about those concerns. Mr Chairman, I think holding a hearing

rather rapidly on this is the right thing to do as well in order for

us to begin to understand all of the consequences of this, and what

we do in the end to try to protect and preserve the opportunities

that Indian gaming offers to Native Americans. That is the end

goal for all of us, I believe.

Mr. Chairman, thank you.

Mr. VAN NORMAN. Mr. Chairman.

The CHAIRMAN. Go ahead please.

Mr. VAN NORMAN. Thank you.

I would just say it is probably in many circumstances easier to

have a Federal rule. There is one rule. But we live in a country

that is divided into 50 States, and there is some genius to the Constitution that says the folks that are closer to the people have an

ability to make rules that fit them better.
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The CHAIRMAN. You sound like a good Republican, Mr. Van Norman. [Laughter.]

Mr. VAN NORMAN. Thank you. I feel I am in good company.

We think that preserving the tribal lawmaking authority gives

the tribes the flexibility to meet their needs, while still meeting

some level of Federal approval because the NIGC has the authority

to approve those ordinances.

So we hope that you will give that consideration, and we certainly appreciate the opportunity to come here and testify.

The CHAIRMAN. We will, Mr. Van Norman. I think you represent

your organization quite well. We appreciate the continued dialog

with you and with other members.

Professor, thank you very much for traveling all this way.

Mr. WASHBURN. Thank you.

The CHAIRMAN. We appreciate your continued in-depth examination of these issues.

This hearing is adjourned.

[Whereupon, at 10:47 a.m., the committee was adjourned, to reconvene at the call of the chair.]
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APPENDIX

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF PHILIP N. HOGEN, CHAIRMAN, NATIONAL INDIAN GAMING

COMMISSION

Good morning Chairman McCain, Vice Chairman Dorgan, members of the committee and staff. My name is Philip Hogen. I am the chairman of the National Indian Gaming Commission [NIGC or Commission] and a member of the Oglala Sioux

Tribe of the Pine Ridge Indian Reservation in South Dakota.

Thank you for the opportunity to discuss a matter of grave concern to the NIGC.

As you are aware, a decision recently issued by the Washington, DC. District Court

found unlawful the NIGC’s Minimum Internal Control Standards [MICS] regulations as applied to class III gaming. Although the decision applies solely to the Colorado River Indian Tribes, the language of the decision is broadly worded and could

be used in other forums to argue for the elimination of the NIGC’s entire regulatory

role in class III gaming. While the challenge was with respect to the MICS regulations specifically, the District Court opinion contains language that appears to apply

to all regulation of class III gaming. One particularly troubling quotation from the

opinion bears mention. The court stated, ‘‘[t]he [Indian Gaming Regulatory Act] not

only lacks language giving the NIGC a role in the regulation of class III gaming,

but it contains several provisions that are inconsistent with such a role.’’ Colorado

River Indian Tribes v. Nat’l Indian Gaming Comm’n, No. 1:04–cv–00010–JDB, 2005

U.S. Dist. LEXIS 17722, at *34 (D.D.C. August 24, 2005). This statement by the

court is troubling because it rejects the very clear ‘‘Declaration of Policy’’ that this

committee and Congress provided in IGRA. In particular, IGRA’s policy provision

found that existing Federal law in 1988 did not provide clear standards or regulations for Indian gaming, 25 U.S.C. §2701. To address this and other congressional

concerns regarding tribal gaming and to protect such gaming as a means of generating revenue to promote tribal economic development, self-sufficiency, and strong

tribal government, this committee and Congress went on to expressly declare in

IGRA that it was necessary to establish both Federal standards and the NIGC as

an independent Federal regulatory authority for Indian gaming, 25 U.S.C. §2702.

Needless to say, the Colorado River Indian Tribes decision has the potential to seriously compromise our ability to effectively regulate Indian gaming in the manner

Congress expected and expressed in its ‘‘Declaration of Policy’’ in IGRA.

The NIGC considers the MICS to be one of the most effective regulatory tools

available to protect Indian gaming. We appear before the committee today to seek

congressional action clarifying the NIGC’s authority to regulate class III gaming

generally, and to promulgate and enforce our MICS regulations for class III gaming

specifically. The NIGC has submitted to Congress on March 23, 2005, a draft bill

that, among other things, would amend IGRA to clarify the NIGC’s authority to regulate class III gaming generally, and to promulgate and enforce its MICS regulations for class III gaming specifically. Although the NIGC and the Department of

Justice are considering an appeal in this case, we believe the best way to resolve

this question and prevent a potentially serious lapse in regulatory authority created
24

by this court decision is by way of a legislative fix—language that makes absolutely

clear the NIGC’s authority with respect to class III gaming.

In this connection, let me be crystal-clear. We are not asking Congress to expand

the role NIGC has played in the past regarding class III gaming. We merely ask

that the law be clarified so that we may continue what has proved to be a very successful coordination of tribal, State, and Federal participation in the oversight of

class III gaming. This gaming produces four-fifths of overall tribal gaming revenue.

i. A HISTORY AND EXPLANATION OF MINIMUM INTERNAL CONTROL

STANDARDS

In the years since the Indian Gaming Regulatory Act [IGRA], 25 U.S.C. §2701 et seq., was passed, Indian gaming has grown exponentially from $100 million in revenue to over $19.4 billion in 2004. Approximately 80 percent of this revenue comes

from the higher stakes class III gaming. Revenues from Indian gaming have built

roads, schools, and health centers on reservations across the country, and greatly

reduced reservation unemployment in many areas.

As knowledge and expertise of gaming regulation grew, tribes recognized the need

for internal controls. The National Indian Gaming Association [NIGA] and the National Congress of American Indians formed a task force which evaluated the minimum internal control standards of established gaming jurisdictions such as Nevada

and New Jersey. The task force then created a set of internal control standards

which tribes could choose to adopt. These standards became known as the ‘‘NIGA

MICS.’’

Throughout the country, tribal gaming operations and tribal gaining commissions

benefited from this effort, but it was a voluntary arrangement. Many tribes either

did not adopt or enact the NIGA MICS or equivalent internal controls, or if they

did, did not require strict adherence to them.

Of course, even before the NIGA MICS, there were a number of tribal gaming operations that had utilized and enforced very sophisticated minimum internal control

standards which likely were more stringent than and exceeded those promulgated

by the associations. However, as the NIGC monitored tribal gaming operations and

observed the imposition of standards by States and tribes, it became apparent that,

for many tribes, actual operation did not always comport with the internal control

standards adopted by the tribe. The NIGC noted there were a number of places in

Indian country where not only were these standards not being met, but such good

practices were plainly ignored. In addition, even for the tribes gaming pursuant to

tribal-State compacts, the NIGC observed that details of the operations of tribal

gaming and its regulation was often absent from the negotiated compacts; that in

many instances the States’ assigned role was minimal; and that in even more instances the actual participation of the States in regulatory oversight of tribal gaming operations was even less significant. This is not to say that an arrangement

whereby a tribe has the sole responsibility for the regulation of its own gaming is

unworkable. However, when no other entity has any significant oversight role, there

develops the perception that the fox is watching the hen house. This perception can

lead to a public distrust of the integrity of Indian gaming. In every other gaining

jurisdiction, there is an oversight role for an entity that is separate from management of the gaining, and we believe that is what was intended and required under

IGRA, and what has worked remarkably well since the implementation of the NIGC

MICS. It is human nature to tend to do a better job when one knows that independent eyes occasionally fall on one’s work. This is true in Indian gaming as well.

In response to its observations, the NIGC embarked on an effort to promulgate

a comprehensive set of internal control standards for tribal gaming operations in accordance with accepted gaming industry good practices and pursuant to the authority vested in the Commission by the IGRA. In close consultation with tribes and

with the assistance of a Tribal Advisory Committee, in 1999 the NIGC promulgated

the MICS.

The MICS provide a comprehensive system of checks and balances to ensure control of all gaming revenues and gaming resources. The MICS are detailed internal

procedures that tribes must meet both for the games offered for play and for support

activities of the gaming. The internal controls thus cover cash handling and counting; internal audits; camera surveillance; the offering of credit; and information

technology as well as the games themselves. They offer uniformity and consistency

on an industry-wide basis while allowing variances to meet the specific needs of

each tribe. In this way, the MICS protect the integrity of the gaming operation and

ensure that gaining revenue is not lost through theft or embezzlement.

Many tribes have adopted NIGC’s MICS verbatim and others have adopted even

more stringent standards. However, while development and adoption of these standards is vital to protecting the assets of a gaming operation, MICS are only truly ef-
25

fective if the employees and management of a gaining operation properly implement

and consistently follow them. Therefore, it is necessary for each tribal gaming operation to have proper auditing procedures as this ensures that the internal controls

are properly implemented and allows the tribe to discover methods of improving

them. In addition to the internal audit requirements, the NIGC also conducts periodic ‘‘MICS compliance audits’’ of Indian gaming operations. The MICS audit ensures that the tribe has developed internal controls at least as stringent as the

NIGC’s MICS, and that the gaming operation complies with them. Exceptions are

noted and communicated to both management and the tribe. A subsequent visit to

the audited gaming facility is then scheduled, and the NIGC returns to verify that

the requested corrections were made. In most cases, both the NIGC and tribe are

pleased with the progress made because of the improved protection for tribal gaming

revenues and assets.

Recent NIGC MICS audits have revealed significant internal control weaknesses

at a number of tribal casinos. At a facility in the Great Plains, we discovered that

the tribe was not performing statistical analysis of actual to expected results; that

access keys and information technology were not adequately protected; and that the

people handling the money were accountable only to themselves. Another facility in

the Southern Plains had failed to segregate duties such that the same individuals

were both counting funds removed from the gaming machines and maintaining the

accountability and physical possession of these funds. This serious lapse in security

of the tribal gaming revenues was compounded by the lack of an internal audit system. At some operations we have discovered so many internal control deficiencies

that we have convinced the tribes to voluntarily close the facilities until the problems can be corrected. In other instances we are prepared to close facilities without

the tribe’s cooperation due to the seriousness of the situation.

The closing of a tribal gaming facility is, fortunately, a final option we have had

to invoke only rarely. We always begin by working with the tribe to correct the

weaknesses found, usually with great success. NIGC auditors found problems at a

facility in the Southwest that included an ineffective internal audit department, surveillance problems, lack of statistical game analysis, and missing documentation for

cashier cage accountability. This tribe submitted a plan outlining how it intended

to fix the deficiencies within a 6-month period and the NIGC confirmed through follow-up testing that the tribe had successfully remedied the deficiencies in its internal controls. Similarly, the NIGC and a tribe in the West used the same method

to remedy NIGC audit findings that included surveillance problems; computer network security lapses; cashier cage documentation lacking employee signatures and

independent verification of transactions; and soft count sheets filled out and signed

prior to the count of funds. Comparable success stories exist throughout the Nation

which illustrate the extent to which the NIGC MICS regulatory program has benefited tribal gaming.

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

The reason I am here today is that a tribe engaged in class III gaming pursuant

to a compact challenged the NIGC’s regulatory authority to impose the MICS on

class III gaming operations and received a district court decision in its favor.

The CRIT decision resulted from an appeal of an NIGC Final Commission Decision and Order, issued in July 2003, which concluded that the Colorado River Indian Tribes [tribe or CRIT] violated NIGC regulations when it denied Commission

representatives access to the tribe’s gaming facility to conduct a MICS audit of the

tribe’s class III gaming activities. The tribe filed suit in Washington, DC District

Court in January 2004, alleging that the NIGC exceeded its statutory authority

under the IGRA. Recently, on August 24, 2005, the District Court issued an order

finding that the NIGC exceeded its statutory powers in promulgating and enforcing

the MICS for class III gaming. In issuing its decision, the court reviewed the text,

structure, purpose, and legislative history of the IGRA.

Despite our belief that the MICS are fundamental to the integrity of Indian gaming, tribes have long questioned our authority to regulate the class III gaming that

accounts for most of the revenue in the industry. As the NIGC continues to attempt

to enforce class III MICS on all but the CRIT, it will face the threat of multiple

lawsuits. The NIGC has many ongoing MICS compliance efforts that are already

hindered by the threat of litigation. For instance, there are at present 14 ongoing

NIGC MICS compliance audits that are at various stages of completion. The gaming

operations in question range from an operation conducting less than $5 million in

gross gaming revenue to one producing over $1 billion in gross gaming revenue. Several of the tribes in question have already expressed their position that, because of

the District Court’s opinion, completed audits are now moot and those tribes do not
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need to remedy any non-compliance with class III MICS. Also, several other tribes

are questioning the NIGC’s authority to conduct MICS audits at their operations.

Yet other tribes have already indicated their intent to forego some MICS requirements, such as the independent annual audit of internal controls.

The District Court opinion addressed only our authority with respect to class III

gaming, not class II gaming. However, the MICS are not class specific, and from

a practical standpoint it is impossible to separate class II from class III revenues

for the entire movement of money through the gaming operation. The MICS dictate

procedures, not only for each game, but for cash handling, surveillance, and accounting. Most tribal gaming operations offer both class II and class III games in their

facilities. Once the revenues have been collected from each game, they are necessarily commingled. It is not possible or practical to segregate and maintain class

II gaming revenues separately. Thus, because the MICS relating to cash handling

and accounting would necessarily infringe on the class III activities of the gaming

operation, strict adherence to the District Court decision could force a total removal

of the MICS from most gaming operations.

Although the IGRA is replete with examples of NIGC’s clear statutory authority

over class III gaming, the District Court interpreted other sections of IGRA to mean

that class II gaming is to be regulated by tribes and the NIGC and that class III

gaming is to be regulated solely by tribes and States. Even if this were a proper

interpretation, however, the reality is that, by and large, States have not taken an

active role in the regulation of Indian gaming.

As illustrated by the chart attached to my written testimony, there are 22 States

that have entered into compacts with tribes for class III gaming. Of these compacts,

four do not address internal control requirements at all. Six of them require very

limited controls, such as the display of rules of play, maintenance of lists of barred

persons, or minimal surveillance. A compact in one State provides for tribal internal

controls reviewed by that State, and in one other State, compacts specify different

levels of internal controls. Compacts in two States require the adoption of State

standards or their equivalent, and compacts in four States set forth thorough, comprehensive internal controls. Additionally, in several States, the compact terms detailing casino controls would be eviscerated without the NIGC’s MICS: compacts in

four States expressly adopt the NIGC MICS or standards at least as stringent. From

this review it is evident that many compacts have internal control provisions not

up to the standards required by the NIGC MICS or States such as New Jersey or

Nevada. As is clear from the chart, strict application of the District Court decision

would remove internal control requirements, where a party independent from the

ownership and management of the tribal gaming plays a role, in several States.

Further, even when compacts contain adequate internal control provisions, not all

States make enforcement of violations a priority. In fact, there are several States

with compacts that take no appreciable role in the regulation of class III tribal gaming within their borders. Thus, without NIGC MICS and their supporting audits,

there will effectively be no oversight regulation in those States.

Some tribes have asserted that the NIGC’s authority to promulgate and monitor

compliance with standards for class III gaming intrudes upon tribal sovereignty.

The act recognizes and balances tribal, Federal, and State interests. The IGRA as

written requires tribes to debate whether they wish to cede a small portion of their

sovereignty in order to game and thereby increase tribal funding to carryout other

sovereign tasks. If a tribe opts to invest in gaming it must protect itself and its assets. The Federal Government also seeks to protect this investment in tribal sovereignty by ensuring tribal gaming succeeds, for a scandal at one gaming facility

has the ability to negatively affect all operations. The vast majority of visitors to

the gaming facilities are non-Indian and these visitors will only continue to patronize tribal gaming operations if the hard-won reputation for integrity and well-regulated gaming is maintained. The most effective measure of any nation’s sovereignty

is its ability to provide for its needs and the needs of its people. Self-sufficiency for

tribal nations is a stated goal of the IGRA. Weakening the strong regulation of class

III gaming thus works against tribal sovereignty and self-sufficiency.

III. CONCLUSION

As I have previously noted, there is a long history of tribal challenges to our class

III authority. These challenges have prompted us to appear before this committee

in the past to ask for legislation clarifying our authority. Now that a court has spoken to the issue we must again, and with renewed vigor, ask this committee to support legislation that eliminates any question regarding our legal authority to monitor and regulate class III gaming and that clarifies that NIGC authority over class

III gaming is as broad as it is over class II gaming.
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