DAN MORALES 

\rrIxwEY ,:ENE”:\I. 

QBffice of tty !Wornep @eneral 

&date of @exae 

May 30,1997 

Ms. Catherine A. Ghiglieri 

Commissioner 

Texas Department of Banking 

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 ask whether the Department of Banking (the “department”) has the authority under the 

Currexcy Exchange Act, article 350, 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 fblls upon 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 3 ofthe act exempts banks, foreign bank agencies, credit 

unions, savings banks, savings and loan associations, persons licensed under the Sale of Checks Act. 

and persons registered as securities dealers under the Securities Act from this licensure requirement, 

and permits persons who engage in currency exchange only as an incidental part of their 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 of whether 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, which is itselfsomewhat complex, has a long and complex history. Chief Justice Marshall’s 

original rule, enunciated in the landmark case of Worcesrer v. Georgia 3 1 U.S. (6 Pet.) 5 15, 561 

(1832), was that because the Indian tribes were to some extent still nations with elements of 
Ms. 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. with boundaries accurately described, in which the laws of Georgia 

can have no force, and which the citizens of Georgia have no right to enter, 

but with the assent of the Cherokees themselves, or in conformity 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 of the United States. 

While Wmer’s bright line rule has been 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 

Mission Imkn~, 480 U.S. 202,207 (1987); New Mexico 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 is re&rred to as Public Law 280 jurisdiction. 28 U.S.C. 8 1360. In Public Law 280, Congress 

granted criminal and some civil jurisdiction 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 

for the Fii Cii have over a series of cases articulated a two-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 of Florida v. Butterworth, 658 F.2d 310 (5th Cu. 1981); Cabuwn 

-480 U.S. 202 (1987); W&ngtm v. Confederated Tribes of the Cofille Indian Resermtion, 

447 U.S. 134 (1980); Moe v. ConjedemtedSakh andKootet& Ttibes of ihe 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 of regulation falls. 

The begin&g of the inquiry for our purpose is in the Supreme Court’s analysis of Public Law 

28Ojurisdiction in Bpm v. Itusca County, 426 U.S. 373 (1976). In Bryan, the question is whether 

Public Law 280 grants states the power to tax Indian reservation lands or income from on-reservation 

economic activities The Court, rev&g a judgment of the 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 of Pub. L. 280 . . .- Bryan, 426 U.S. at 380. The civil jurisdictional section’s “primary 

intent . . . was to grant jurisdiction over private civil litigation involving reservation Indians in state 

court.” Id at 385. 

P. 2472 
Ms. Catherine A. Ghiglieri - Page 3 (DM-442) 

The United States Court of Appeals for the Fifth Circuit, in Seminole Tribe of Florida v. 

Butienuorth, applied the &+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 of bingo halls to prevent the game of bingo 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 3 14-15. 

The Seminole Tribe analysis wss adopted by the United States Court of Appeals for the Ninth 

Ciit in Bartma Group of Cap&m Gram& Band of Mission Znahs y. Lh&?, 694 F.2d 1185 (9th 

Cii. 1982) and in Cabazon Band of Mission Indians v. County of Riverside, 783 F.2d 900 (9th Cii. 

1986). Gzbawn Band WBS aflhed by the Supreme Court in Cafl@rnia v. Cabazon Band of Mission 

Indians, 480 U.S. 202 (1987), the leading case on state regulation of Indian gambling. 

Ca&xzon &md does not stand for “an inflexible per se rule precIuding state jurisdiction over 

t&es and trii members in the absence ofexpress congressional consent.” Cabazon Band, 480 U.S. 

at 214-15. But it does require that any extension of such jurisdiction survive a rigorous preemption 

analysis: 

Decision in this case. turns on whether state authority is pre-empted by the 

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

interferes or is incompatible with federal and tribal interests reflected in federal 

law, unless the state interests at stake are sufficient to justify 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 state taxation 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 of time there enjoying the services the 

Tribes provide. 

Id at 219. 

I) . 2473 
Ms. Catherine A. Ghiglieri - Page 4 (DM-442) 

The tirst question one must consider, therefore, in analyzing state jurisdiction is whether the 

statute sought to be enforced is criminal/prohibitory or civil/regulatory in nature. As your brief 

wrrectly concludes, we believe a court would tind that the Currency Exchange Act is, in these terms, 

a civil/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 5 4 [civil jurisdiction] of that law could easily be avoided and 

total assimilation permitted. 

Id at 211. 

Since tbe act is civihgdoy, 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 relies for this proposition on a series of cases relating to the collection 

of state sales tax, and the 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 

of Colville In&m Reservation, 447 U.S. 134 (1980); Moe, 425 U.S. 463 (1976); Citizen Band of 

Potmwtomi Tribe of Oklahoma, 498 U.S. 505 (1991); Department of T&ration &Finance of New 

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 gambling law. See CWxtwn Bu&, 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 of the reasons that the sales tax statutes could be enforced in Indian country 

was precisely that the legal incidence of the 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 is both 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’s decision in Indian Count, USA., Inc. v. OkIahoma Tm 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 of the 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, if a court were to analyze such costs of compliance as part of the 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. 

In Indian Courmy, the state of Oklahoma asserted that it had authority to regulate and to tax 

bingo operations in a casino on Creek Indian land, which lie the casino here was managed by a nonIndian company but owned by the trii inter aIia becau~ 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 

and the management company were immune from state regulation. In a footnote 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 if ICUSA is such an “agent” can it be afforded immunity 

from state regulations. We are not persuaded. The preemption of stute hws 

extends to the Creek Nation tribal bingo enterprise as a whole, which 

includes the im&ement of non-Indians 

Indian County, 829 F.2d at 983 n.7 (emphasis added). 

We believe that the h&an Country case is on point here, and that, particularly in the. absence 

of contrary authority, it would be followed 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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Ms. Catherine A. Ghiglieri - Page 6 (DM-442) 

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 

I) . 2476