Regulatory Updates

In the Wake of Scandal, Sen. McCain Presses IGRA Reforms to Strengthen the NIGC

D. Michael McBride III
D. Michael McBride III

by D. Michael McBride III, Attorney at Law

On November 18, 2005, Senator John McCain (R-AZ), Chairman of the Senate Indian Affairs Committee, introduced Senate Bill 2078 to amend the Indian Gaming Regulatory Act (IGRA). The legislation grew out of the Senate Indian Affairs Committee oversight hearings on the regulation of Indian gaming that began on April 27, 2005. At the hearing, the Chairman expressed concern that “IGRA is not working according to its purpose.” Senator Byron Dorgan, Vice Chairman of the Committee, openly questioned, “Do we have holes in the fence?”

McCain said that the powers of the National Indian Gaming Commission (NIGC) needed clarification, particularly regarding the application of Minimum Internal Control Standards to Class III gaming and increased regulatory authority over contracts and contractors. In August 2005, a federal district court in Washington, D.C. ruled that the NIGC had overstepped its bounds in seeking to audit the Colorado River Indian Tribe's Class III compacted games and impose fines.

McCain and other federal officials testifying before the Committee noted that many individuals doing business with tribes are not sufficiently investigated and regulated, and that a number of significant Indian casino related contracts and contractors escaped NIGC review and approval. He was particularly concerned about extremely lucrative consulting, development and financing agreements with outside groups. McCain said the intent of the IGRA was “to limit the amount of money [non-Indian contractors] can receive.” Instead, “they are receiving exorbitant amounts.” Earl Devaney, the Inspector General of the U.S. Department of the Interior, testified that “Bad guys will come if so much money is involved.”

Some testimony focused on contractors taking advantage of tribes. Devaney described some contractors “circumventing background checks by doing consulting.” He concluded that IGRA “had outlived its usefulness” and noted that “in depth background checks are needed.” He noted that
frequently “consultants are being substituted for managers.” Professor Kevin Washburn, a former NIGC General Counsel, testified that the regulation of management contracts and related casino agreements were the “most serious failure of the IGRA.” He challenged Congress to “increase the NIGC's ability to investigate all significant economic relationships,” noting that “strong background investigations and licensing is important.” SB 2078 addresses many of these concerns by granting the NIGC greater powers to regulate casino agreements and contractors, as well as clarifying the agency's authority regarding minimum internal control standards over IGRA Class III compacted games.

Enhanced NIGC Regulatory Powers Over Contracts and Contractors
The most significant components of SB 2078, however, are new terms such as “gaming related contract,” “gaming-related contractor,” and “material control.” If SB 2078 becomes law, it would ensnare a broader array of contractual arrangements, as well as persons and entities that do business with Indian tribes, in the NIGC's regulatory web. The new law would make a “gaming-related contract” unenforceable if it is not a written contract that has first been approved by the NIGC's Chairman. The proposed law also clarifies the NIGC Chairman's delegation of authority and provides for clear delineation of final agency action that would be reviewable by the United States District Court in Washington, D.C.

The legislation also would require the Chairman to approve or deny any gaming-related contracts no later than ninety (90) days after they are submitted to the NIGC. The Chairman would have the broad discretion to evaluate not only the terms, parties and beneficiaries of the “gaming-related contract,” but also any other agreement relating to Indian gaming activities. Therefore, the Chairman could exercise broad control over outside vendors, contractors, financiers, developers and managers. Other significant powers include the Chairman's ability to suspend performance under such a contract, to compel the parties to amend the contract, or even to revoke a determination of suitability.

The proposed legislation also imposes new time tables on the NIGC by providing that “the Chairman shall approve or disapprove a gaming related contract... not later than ninety (90) days after the date on which the Chairman makes a determination regarding the suitability of each gaming related contract...” If the Chairman fails to make a determination within that time frame, the gaming-related contract may be deemed approved. Under the proposed law, the Chairman may also require the contracting parties to amend any terms as he deems necessary to comply with the new federal mandate. The new law also authorizes the Chairman to allow early operation under a gaming-related contract prior to formal approval, provided certain bonds have been put in place.

Suitability Determinations
SB 2078 would impart broad, sole discretion to the Chairman to find gaming-related contractors “unsuitable.” The Chairman could determine unsuitability if the contractor has been convicted of any offense relating to gaming or deliberately or subsequently failed to comply with the terms of a gaming-related contract, the Chairman also could deny suitability if he believes that the Indian tribe with jurisdiction over the gaming “will not receive the primary benefit as sole proprietor of the gaming activity taking into consideration any agreement relating to the gaming activity.” He may deny suitability if he believes that “a trustee would disapprove the gaming-related contract, in accordance with the duties of skill and diligence of the trustee, because the compensation or fees under the gaming-related contract do not bear a reasonable relationship...” The Chairman also would be given the power, upon a showing of good cause, to revoke prior determinations regarding suitability of a contractor.

The new law would place certain responsibilities on gaming-related contractors as well, such as paying the cost of any investigation activity by the Chairman, providing notice of any changes in information earlier provided, and furnishing bonds as the Chairman deems appropriate to shield an Indian tribe from liability that may result from the criminal action of the gaming-related contractor.

The proposed law provides for appeals of determinations by the Chairman before the full Commission. However, even if the full Commission dissents from the Chairman's determination, the Chairman may still “maintain the determination” upon “a finding of immediate and irreparable harm to the Indian tribe that is the subject of the determination.” Such a determination would be considered final agency action appealable to the United States District Court for the District of Columbia.

Fuel for the IGRA Amendments
The ongoing Senate hearings were precipitated in large part by the Jack Abramoff scandal. Abramoff is the focus of a far-reaching criminal corruption investigation involving allegations of unsavory influence peddling and of deceiving and betraying his tribal clients. Abramoff grew a powerful and lucrative lobbying business in the late 1990s, in large measure by representing wealthy gaming tribes. The current investigation involves members of Congress and others that allegedly engaged in egregious and unlawful lobbying activities involving Indian tribes and casinos. Abramoff's alleged criminal conduct sparked Senate hearings and fueled scrutiny of Indian gaming.

Recently a columnist resigned his scholar post from the Cato Institute after admitting he received money from Abramoff in exchange for articles favoring Abramoff's clients' positions. Several prominent members of Congress, including Sen. Conrad Burns (R-MT) and Sen. Dorgan, have returned political contributions received from Abramoff, his partners or Indian tribal clients. Unfortunately, the Abramoff
scandal has fueled broad legislative efforts for Indian gaming reform, despite the scandal's lack of relation to the amendments set forth in SB 2078.

Responses From Indian Country
The response from Indian Country has been mixed. While some abuse has occurred and there are obviously shortfalls in IGRA regarding final agency action and the powers of the Chairman, a number of larger gaming tribes are upset by the proposed legislation. Many tribal leaders believe the proposed law would dilute their already strong and effective tribal gaming commissions, and instead transfer regulatory responsibility to the United States.

Professors Andrew Light and Kathryn R.L. Rand, authors of the recent book “Indian Gaming and Tribal Sovereignty: The Casino Compromise” (2005) testified that an “elaborate web of regulation already is in place” and that the IGRA does not adequately “take into account the uniqueness of tribal governments.” Viejas Band of Kumeyaay Indians regulator, Norman Des Rosiers, has observed that Indian gaming is the most regulated industry in the world.

Often times, critics ignore the tremendous resources Indian governments bring to the regulation of gaming. Des Rosiers recounted the intensive and sophisticated regulation in place within most tribal governments engaged in gaming. “Commercial gaming is different than tribal government regulated gaming,” Mark Van Norman, Executive Director of the National Indian Gaming Association has noted. Therefore, increased federal regulation affronts tribal sovereignty and the power of tribes to regulate their own gaming. The IGRA clearly contemplates self-regulation by tribes and acknowledges that tribes are the primary, front-line regulators. Some smaller tribes, however, that may lack a strong
regulatory infrastructure, welcome the amendments and attendant safeguards against unscrupulous contractors.

Larger more sophisticated tribes oppose the bill as being paternalistic and unnecessarily hindering their carefully structured and well-advised gaming transactions. In their view, the provisions of this law would slow down commerce, increase costs and impose regulations where none are needed.

Importantly, Congress may alter the IGRA in other ways, including the addition of classification standards for Class II games and potentially adopting the Justice Department's proposed amendments to the Johnson Act. Such a move would subject to federal regulation a large segment of electronic aids to bingo and pull tabs that are otherwise Class II and would change classifications for Class II and Class III gaming devices. Senator Tom Coburn (R-OK) recognized at the initial hearings, “tribal gaming is here to stay” but “we need a tighter regulatory framework.” Is IGRA broken? Stay tuned for developments as SB 2078 is added to the table of the IGRA debate.

D. Michael McBride III directs the Indian Law & Gaming Practice Group at Sneed Lang P.C. in Tulsa, Oklahoma. He is a member of the International Masters of Gaming Law and can be reached by calling (918) 583-3145 or email mmcbride@sneedlang.com