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Ms. Catherine A. Ghiglieri Commissioner Texas Department ofBanking 2601 North Lamar Boulevard Austin, Texas 78705-4294 Opinion No. DM-442 Re: Whether the Department of Banking may enforce the Currency Exchange Act, article 350, V.T.C.S., on a gambling facility owned by the Kickapoo Indians on their reservation in Eagle Pass, Texas (RQ-926)

Dear Commissioner Ghiglieri: You askwhether the Department of Banking (the “department”) has the authority under the CurrexcyExchange

Act, article350, V.T.C.S. (the “act”), to regulate currency exchange transactions engaged in by a non-Indian management company which msnages the casino owned by the Texas Band of Kickapoo Indians on their reservation in Eagle Pass, Texas. Because the act is a civil/regulatory enadment, and because the burden of such regulation fbllsupon the tribal enterprise rather than on non-Indian customers, the department lacks such authority. The Currency Exchange Act, article 350, V.T.C.S., requires any person engaged in the exchange of one currency for another as a service or for profit to obtain a license f?om the department. V.T.C.S. art. 350,§ 2. Section 3ofthe act exempts banks, foreign bank agencies, credit unions, savingsbanks, savings andloan associations, persons licensed under the Sale of Checks Act. and persons registered as securities dealers under the Securities Act from this licensure requirement, andpermits persons who engage in currency exchange only as an incidental part oftheir business or as an accommodation to clients or customers to request exemption from the act’s requirements by the Banking Commissioner of Texas. Such a license, pursuant to sections 3.4, and 5 of the act, requires the payment of application fees, license fees, license renewal fees, and examination fees. A license holder is also required to post a surety bond of at least S25.000 for each license held. Id. § W). The question ofwhether and to what extent state laws such as the act may be imposed upon Indians or within an Indian reservation located within a particular state is frequently asked, and its answer, whichisitselfsomewhat complex, has a long and complex history. Chief Justice Marshall’s original rule, enunciated in the landmark case of Worcesrer v. Georgia 3 1U.S. (6 Pet.) 515, 561 (1832), was that because the Indian tribes were to some extent still nations with elements ofMs. Catherine A. Ghiglieri - Page 2 (DM-442)

independent sovereignty, states had no jurisdiction within Indian country absent explicit Congressional approval:

The Cherokee nation, then, is a distinct community, occupying its own tenitory. withboundaries accurately described, in which the laws of Georgia can have no force, and which the citizens of Georgia have no right to enter, butwith the assent ofthe Cherokees themselves, or inconformity with treaties and with the acts of congress. The whole intercourse between the United States and this nation is, by our constitution and laws, vested in the government ofthe United States. While Wmer’s bright linerule hasbeen considerably eroded in the intervening century and aha&itremains the case that one of the principal considerations in federal Indian law is the impact of any proposed state regulation on Indian sovereignty. See. e.g., Cal@rnia v. Cabawn Band of MissionImkn~, 480 U.S. 202,207 (1987); NewMexico v.Mescalero Apache Tribe, 462 U.S. 324, 332 (1983). State jurisdiction over Indian country, for the purposes of the present inquiry, is genemlly what isre&rred to as Public Law 280jurisdiction. 28 U.S.C. 8 1360. In Public Law 280, Congress granted criminal and some civiljurisdiction to the states in which reservations were situated. See Bryn v.Itapm Coun@,

Minn, 426 U.S. 373 (1976). The Supreme Court and the Court of Appeals forthe Fii Cii have over a seriesof cases articulated atwo-step inquiry to analyze whether and to what extent the laws of a state, as distinct from the United States, may be imposed in Indian country. See Seminole Tribe ofFlorida v. Butterworth, 658 F.2d 310 (5th Cu. 1981); Cabuwn -480 U.S. 202 (1987); W&ngtm v. Confederated Tribes ofthe Cofille IndianResermtion, 447 U.S. 134(1980);Moe v. ConjedemtedSakh andKootet& Ttibes ofihe Fl&headReserwztion, 425 U.S. 463 (1976); Oklahoma Tax Comm ‘ n v. Citizen Band Potawatomi Indan Tribe of Oklahoma,

498 U.S. 505 (1991). Thefirstconsideratoninthisanalysisiswhether~statuteinquestionisacivilstatutewhich seeks to regulate, or a criminal statute which seeks to prohibit the behavior involved. The second consideration is on whom the burden ofregulation falls. The begin&g ofthe inquiry for our purpose isinthe Supreme Court’s analysis ofPublic Law 28Ojurisdiction inBpm v.Itusca County, 426 U.S. 373 (1976). In Bryan, the question iswhether PublicLaw 280 grants states the power to tax Indian reservation lands or income from on-reservation economic activities The Court, rev&g ajudgment ofthe Minnesota Supreme Court, held that the statute contained no such jurisdictional grant. Rather, in the Court’s view, “provision for state uiminal jurisdiction over offenses committed by or against Indians on the reservations was the central focus ofPub. L. 280

. . .- Bryan, 426 U.S. at 380. The civiljurisdictional section’s “primary intent

. . .was to grantjurisdiction over private civil litigation involving reservation Indians in state court.” Id at 385.

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The United States Court of Appeals for the Fifth Circuit, in Seminole Tribe ofFlorida v. Butienuorth, appliedthe&+wn reasoning to a suit for injunctive relief brought by the Seminole tribe to prevent the application of Florida bingo laws to a hall located on their reservation. Noting that Florida did not have a public policy forbidding bingo, the Fii Circuit found that the statute in question was a “civil/regulatory” one, not a “criminal/prohibitory” one, and accordingly held,

“[w]hem the state mgulates the operation ofbingo halls to prevent the game ofbingo gem becoming a moneymaking business, the Seminole Indian tribe is not subject to that regulation and cannot be prosecuted for violating the limitations imposed.” Seminole Tribe, 658 F.2d at 314-15. TheSeminoleTribeanalysiswss adopted bythe United States Court ofAppeals for the Ninth Ciit inBartmaGroupofCap&m Gram&Band ofMission Znahs y.Lh&?, 694 F.2d 1185 (9th Cii. 1982)andinCabazon Band ofMission Indians v. County ofRiverside, 783 F.2d 900 (9th Cii. 1986). Gzbawn BandWBS aflhed bythe Supreme CourtinCafl@rniav.CabazonBand ofMission Indians, 480 U.S. 202 (1987), the leading case on state regulation of Indian gambling. Ca&xzon&md does not stand for “an inflexibleper se rule precIuding statejurisdiction over t&es andtrii membersinthe absence ofexpress congressional consent.” CabazonBand, 480 U.S. at 214-15. But itdoes require that any extension of suchjurisdiction survive a rigorous preemption analysis: Decision inthis case.turns onwhether state authority is pre-empted by the

operation of federal law; and “[sItate jurisdiction is pre-empted

. . . if it interferes or isincompatible with federal and tribal interests reflected in federal law,unlessthe state interests at stake are sufficient tojustify the assertion of state authority.” The inquiry is to proceed in light of traditional notions of Indian sovereign@ and the congressional goal of Indian selfgovernment, including its “overriding goal” of encouraging tribal self-sufficiency and economic development. Id. at 216 (citations omitted). Weighing the matter, the Court found that these factors favored preemption. The Court specifically distinguished the Indii smoke shop cases, several of which are cited in the department’s briefto us,which permit statetaxation of on-reservation cigarette sales to non-Indians so as to prevent Indian tribes from marketing a tax exemption:

Here, however, the Tribes are not merely importing a product onto the reservations for immediate resale to non-Indians. They have built modem facilities which provide recreational opportunities and ancillary services to their patrons, who do not simply drive onto the reservations, make purchases and depart, but spend extended periods oftime there enjoying the services the Tribes provide. Id at 219.

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The tirst question one must consider, therefore, in analyzing statejurisdiction is whether the statute sought to be enforced is criminal/prohibitory or civil/regulatory in nature. As your brief wrrectly concludes, webelieve a court would tindthat the Currency Exchange Act is, in these terms, acivil/regulatory statute. In this regard we note that it is essentially a licensing statute, which by its terms exempts whole classes of enterprises and permits the Commissioner of Banking discretion to exempt individual enterprises. Little weight, we think, would be afforded to the argument that inspections under the act may lead to criminal referrals for money laundering. In this regard again, we note the Supreme Court’s ruling in Cabazon Band

[T]hat an otherwise regulatory law is enforceable by criminal as well as civil means does not n-y convert it into a criminal law within the meaning of Pub. L. 280. Otherwise, the distinction between 5 2 [crimhml jurisdiction] and 54 [civiljurisdiction] ofthat law could easily be avoided and total assimilation permitted. Id at 211. Sincetbe act iscivihgdoy, we must consider on whom the burden of its imposition falls. Conceding that the civil/regulatory nature of the Currency Exchange Act means that it is not applicable to the Kickapoo Band itself, the department’s brief asserts that it may nevertheless be applied to a non-Indian management company which operates the casino for the Kickapoo. As we have noted the briefgeneraily reliesfor this proposition on a series of cases relating to the collection of state salestax, andthe maintenance of sales tax and exemption records, by tribal smoke shops on the reservations which sold tax-free cigarettes to non-Indian customers. See Conf&ierated Tribes ofColville In&m Reservation, 447 U.S. 134 (1980); Moe, 425 U.S. 463 (1976); Citizen Band of Potmwtomi Tribe ofOklahoma, 498 U.S. 505 (1991); Department of T&ration&Finance ofNew Yorkv.MilhebnAttea&Bros.,Inc., 512U.S. 61,114 S. Ct. 2028(1994).
In our view the smoke shop cases are immediately distinguishable from the issue at hand, for the reason given by the Supreme Court in Cahon Band The Kickapoo Band is not marketing an exemption from Texas gamblinglaw. SeeCWxtwnBu&, 480 U.S. at 219. Nor does the department suggest that it is marketing an exemption from the Currency Exchange Act. Indeed. given that aurency tmsactions are subject to federal Bank Secrecy Act monitoring, we do not believe such a contention could be maintained. Moreover, one ofthe reasons that the sales tax statutes could be enforced in Indian country wasprecisely that the legalincidence ofthe tax was on non-Indian purchasers. There is no authority for states to impose sales tax on cigarette purchases by tribal members in reservation smoke shops. See Milhelm Atteo &Bros., 512 U.S. 61, 114 S. Ct. at 2031. Accordingly, the department has asserted that the burden here would fall solely upon the non-Indian management company. In our view, this assertion isboth questionable as a factual matter and gainsaid as a legal matter by the only authority which has heen recited to us on this point, the United States Court of Appeals for the Tenth Circuit’sdecision inIndianCount, USA., Inc.v.OkIahomaTm Comm ‘ n,829 F.2d 967 (10th Cir. 1987).Ms. Catherine A. Ghiglieri - Page 5 (Dbt-442)

Fii we note that while the legal incidence ofthe sales tax falls on the non-Indian purchasers in the smoke shop cases, it is by no means clear that the cost of compliance with the Currency Exchange Act, including the significant cost of surety bonding, would fall solely upon the management company. Bather, ifacourt were to analyze such costs ofcompliance as part ofthe cost of doing business for the casino, it would likely find that such costs impermissibly burdened the Kickapoo. Were there no authority on this question, we would be constrained by our inability to find facts in the opinion process to advise you only that we thought it unlikely that the department has authority to enforce the Curmncy Exchange Act against the management company. However, based on the authority of1nd&n &an&y, we find that the department has no such authority. InIndianCourmy, the state ofOklahoma asserted that it had authority to regulate and to tax bingo operations inacasino on Creek Indian land, which lie the casino here was managed by a nonIndiancompany butownedbythetrii interaIiabecau~ the management company was non-Indian. Following the trial wm-t, the Tenth Circuit found that the casino was a tribal enterprise, and that it andthe management company were immune from state regulation. In afootnote to this holding, the court wrote: The State focuses too narrowly on whether a strict ‘master-servant”

agency relationship exists between the Creek Nation and ICUSA, and suggests that only ifICUSA is such an “agent” can it be afforded immunity from state regulations. We are not persuaded. The preemption ofstute hws extends to the Creek Nation tribal bingo enterprise as a whole, which includes theim&ement ofnon-Indians Indian County, 829 F.2d at 983 n.7 (emphasis added). Webelievethat theh&an Countrycaseison point here, and that, particularly in the.absence ofcontrary authority, itwould befollowed by the Fifth Circuit. Accordiigly, we believe that a court would wndude that the immunity of the Kickapoo Band’s gambling enterprise to the application of the Currency Exchange Act extends to the non-Indian management company, and that the Department of Banking is barred from enforcing the Currency Exchange Act against the casino operated by the Texas Band of Kickapoo Indians.

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SUMMARY The Department of Banking is barred from enforcing the Currency Exchange Act, article 350, V.T.C.S., against the casino operated by the Texas Btid of Kickapoo Indians. Yours very truly, f

DAN MORALES Attorney General of Texas JORGE VEGA Fii Assistant Attorney General SARAH J. SHIRLEY Chair, Opinion Committee Prepared by James E. Tourtelott Assistant Attorney General

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