Regulatory Updates

NIGC Report: Interview with Phil Hogen, Chairman of the NIGC

Phil Hogen
Phil Hogen

by AJ Naff

The National Indian Gaming Commission has published a set of proposed regulations for Class II gaming machines that, if passed, will affect the entire Indian gaming industry. At the recent NIGA Legislative Summit in Washington, D.C., Indian Gaming magazine had the opportunity to speak with current and former government officials about these proposed regulations. This month we had the opportunity to interview Phil Hogen, Chairman of the NIGC, to learn more about the NIGC's position on these proposed regulations.

Can you explain the proposed regulations from the NIGC?
When Congress passed the Indian Gaming Regulatory Act, they provided that tribes could conduct Class II gaming, without a state compact, using electronic and technologic aids. IGRA also stated that a compact was required for Class III gaming, which included slot machines of any kind, as well as electronic and technologic facsimiles of games of chance. Therein was the challenge - how to separate those electronic and technologic aids for Class II machines from the electronic facsimiles for Class III machines.

The NIGC decided it was time to bring clarity to this issue by drafting a set of comprehensive regulations, which were published with the Federal Registrar on the 25th of May. We've been receiving written comments and have been in government-to-government consultation with over 70 tribes. On the 19th of September, in Washington, D.C., we'll be holding a public hearing that will hopefully help us conclude this process.

Tribes have to make big investments in gaming equipment, including aids for the play of bingo. They shouldn't have to take risks. They should know they are on firm ground. Without some regulatory guidance, there will be a gray area. Tribes will be better served when the federal government does its job and creates federal standards. Manufacturers will know what they can build, tribes will know what they can play, and states will know where tribes are coming from when they sit at the negotiating table for compacts.

Tribes feel these proposed regulations go too far. What is the NIGC's response to this reaction?
To try to arrive at the right place and draw the right lines that separate these two types of equipment, we looked very carefully at the language of the Indian Gaming Regulatory Act. We also looked at the legislative history and at the court cases that have addressed this concern. Most of those court cases began because the Justice Department has the responsibility to enforce the Johnson Act, which basically makes unlawful the transportation of gambling devices over state lines. It was amended in 1962 to include gambling devices in Indian Country. When IGRA was passed in 1988 it stated that tribes could use gambling devices if they had a Class III compact.

That raised the question, “What kind of equipment can tribes use to play bingo and pull tabs?” One of the first gambling devices that was addressed by these cases was a bingo game with interconnected electronic player stations. When the tribes started using that equipment, the Justice Department declared them to be in violation of the Johnson Act. The court ruled in the tribes' favor because the play of the game was actually outside of the gaming equipment.

There were also pull-tab machines involved in that series of litigations. The machine read the barcode on the back of the pull-tab and displayed the results on a video screen in a format that resembled slot machine reels. The Justice Department declared this to be a gambling device being played without a compact, again in violation of the Johnson Act. The courts decided that the machine wasn't
playing the game; the game was in the paper. Our proposed regulations combine those two concepts. We think we fully understand the flexibility in technology that Congress intended tribes to utilize.

One thing that comes through when reading IGRA and these cases is that players have to participate and can't just push buttons while the machine does everything else. That's too much of an aid. There has to be an interval for the player to participate. We've provided for that and it's well accommodated in these regulations, which will do just what Congress intended.

What effect do you feel these proposed regulations will have on the industry?
The first thing they'll do is bring clarity where clarity is needed. Tribes will be able to make investments in equipment without wondering if the rules will be changed; lenders will better be able to lend money to tribes for projects because there won't be this uncertainty on the horizon; and equipment designers and manufacturers will be able to design games around a set of regulations that will be clear and specific.

The NIGC, under this proposal, won't be a bureaucratic bottleneck. Independent laboratories will test these machines to see whether they comply with the NIGC's regulations. A copy of those results will go to the NIGC for review. If there is a problem, the NIGC will meet with the tribe, the manufacturer and the laboratory to resolve any issues. Also, if tribes are not playing Class II games that comply with the regulations, they will need to make some changes. There will be some time to permit them to come into compliance, but in some cases it will mean some major revisions, and we understand that.

What is your position on S.2078?
S.2078 is the first serious effort to amend the Indian Gaming Regulatory Act since its passage in 1988. I agree with Senator McCain that when an industry is operated for such a long period of time and has had such a dramatic growth, it is not inappropriate to take a look at the underlying legislation. Some areas of concern have been identified and I think the proposals made in S.2078 will make the industry stronger.

The first part of the bill clarifies that the NIGC has a regulatory role with respect to Class III gaming. The Indian gaming industry is a $23 billion industry and 80% or more of that is generated from Class III gaming. Last year there was a court decision that questioned the NIGC's authority in the Class III area. In the late 1990s, the NIGC developed minimum internal control standards, applied them to Indian gaming - both Class II and Class III. They brought all of Indian gaming up to a professional level, whereas before there were some soft spots. Now audits are conducted on a regular basis to ensure tribes are in compliance.

If the rule of law suggested in the case of the Colorado River Indian Tribes vs. the NIGC became the law of the land, the NIGC would be booted out of the Class III arena. That would be a blow to the integrity that's developed over the years in Indian gaming, given this partnership among tribes, the
federal government and states with respect to the operation of Class III equipment. We don't want to do more than we've been doing in recent years. We just want clarification that we have a role to play in Class III.

The second part of the bill deals with contracts. Right now IGRA provides that before a tribe enters into a management contract with an outside or third party, that party has to be approved by the NIGC. The review would look at the terms of the contract and also include a very thorough background investigation. The difficulty that has arisen since 1988 is that a number of developers, consultants or lenders proposed to tribes that the contract read as a consulting or development agreement to avoid NIGC review.

When we got to see what was really going on with those contracts, the outside parties were involved with management and hadn't been subject to a background investigation. As a result, a number of tribes got burned. Under the law as written, there really wasn't anything the NIGC could do. S.2078 would make clear that the NIGC has a review role with respect to all gaming-related contracts. That would significantly expand the number of contracts that the NIGC would look at.

Concern has been expressed that the NIGC will become a bureaucratic bottleneck and slow down the day-to-day business in Indian gaming. That can and would be avoided, because the bill provides a two-year period in which to draft regulations to specify which contracts get reviewed. It would also permit the NIGC to carve out categorical exclusions. For example, if a tribe goes to Bank of America to borrow $10 million for equipment, the NIGC probably doesn't need to do a background investigation. Bank of America is already a regulated entity.

The third part of the bill deals with off-reservation gaming. That part of the bill is the responsibility and
concern of the Department of the Interior. The NIGC is of course interested in where tribes conduct gaming, but only has jurisdiction when those properties are on Indian land as the term is described in IGRA. Again, S.2078 would significantly refine IGRA and create a better, clearer environment for the industry to continue to grow.

What is your position on the current DOJ bill?
The “Gambling Devices Act Amendments of 2006,” which would amend the Johnson Act, has been sent to Congress. It hasn't yet been introduced as a piece of legislation, but it would do something that needs to be done. That is, it would carve out from the Johnson Act's prohibition of gambling devices in Indian Country, a place for electronic and technologic aids to Class II gaming that tribes could use without a compact.

There will always be a cloud hanging over electronic and technologic aids as long as the Johnson Act prohibits gambling devices in Indian Country. The Justice Department wants to clarify that there is a place for those aids. It would continue the criminal prohibition on gambling devices, but it would recognize that Class II wouldn't fall into that category. It would also direct the NIGC to write regulations, which is what we're doing right now. If both of those pieces of legislation are passed, it will address some long-standing problems and bring clarity to the industry.

Phil Hogen, an Oglala Sioux from South Dakota, is Chairman of the National Indian Gaming Commission (NIGC). He can be reached by calling (202) 632-7003. For more information about the NIGC, visit www.nigc.gov