Ruling closes out NIGC

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WASHINGTON – A federal court of appeals panel ruled Oct. 20 that the National Indian Gaming Commission has no regulatory authority in Class III gaming.

Class III gaming – slot machines, roulette, blackjack and other “house-banked” games of chance – is by far the most profitable category of an industry that has surpassed the $20 billion mark in annual revenues. The NIGC based its argument for authority over Class III activities on an “oversight authority” that is never mentioned in the Indian Gaming Regulatory Act, the court found. Instead, the phrase occurs in a Senate committee report.

“In addition to the point that a committee report is not law,” the court stated in a concise written opinion, “it is perfectly clear that whatever the Senate committee thought ‘oversight’ might entail, the committee did not foresee the Commission regulating Class III gaming.” The three-judge panel reaffirmed the plain language of IGRA: regulation of Class III gaming is within the bailiwick of tribes and states, under terms of the negotiated compacts stipulated in IGRA.

After dismissing the commission’s arguments for Class III authority, the judicial opinion concluded by revisiting the question before the court: “What is the statutory basis enabling the Commission to regulate Class III gaming? Finding none, we affirm” a lower court decision to the same effect. (The Colorado River Indian Tribes originated the lawsuit after the NIGC sought to audit Class III activities at the tribes’ Blue Water casino.)

Indeed, the court noted that the NIGC itself has asserted that tribes and states are the exclusive regulators of Class III gaming, according to an interagency memorandum from 1993 and testimony before Congress from 1994. “Despite many legislative efforts since then … Congress has never amended the Act to confer any such express power on the Commission.”

But another legislative effort is under way. Sen. John McCain, R-Ariz. and chairman of the Senate Committee on Indian Affairs, has brought a bill before Congress that would expand NIGC’s regulatory authority in the Class III realm to vendor contracts and minimum internal control standards. (In brief, internal controls separate the duties within a business, so that no one person performs too many duties without someone else’s immediate knowledge. They are critical to cash-intensive industries like gaming.)

McCain has said publicly, on multiple occasions, that the intent of IGRA was to regulate Class III gaming, an interpretation no one doubts. But many lawmakers have decided that Class III gaming at tribal casinos is already properly regulated, by tribes, states, and NIGC in a reduced capacity.

In testimony before Congress in May, Ernie Stevens Jr., chairman of the NIGA, said tribal casinos have invested heavily in regulatory systems, spending more than $320 million in support of tribal, state and federal regulatory regimes in 2005 alone. He added that the FBI, the Department of Justice, the Financial Crimes Enforcement Unit of the Treasury Department and the Internal Revenue Service all play a role in keeping Indian gaming clean.

‘‘Tribal governments have stringent regulatory systems in place that compare favorably with any federal or state regulatory systems,” Stevens said.

The bill McCain is backing, Senate Bill 2078, has labored for months under holds that are unlikely to be shaken (any senator can place a hold on any bill for any reason, heightening the importance of deal-making and negotiation). At most, Capitol Hill monitors thought, he might be able to break the bill up into passages that could be attached as late amendments to other, “must-pass,” legislation. But that was before the Oct. 20 court ruling came down.

The NIGC did not return a request for comment on the ruling. The commission is currently attempting to expand its authority over Class II gaming – bingo, pull tabs, poker and other “nonbanked” activities. At a Sept. 19 information-gathering meeting, commission Chairman Phil Hogen acknowledged that a lawsuit probably awaits any promulgation of new rules governing Class II gaming.