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DOJ proposes major change in Indian gaming law

The Bush administration announced a major change in gaming law on Thursday aimed at clarifying the types of casino games that tribes can operate without a tribal-state compact.

U.S. Attorney Tom Heffelfinger said the legislation would bring clarity to the $19 billion tribal casino industry. He said advances in technology have "blurred the lines" between Class II games such as bingo and Class III games like slot machines that can only be operated under a tribal-state compact.

"The purpose of this legislation is to resolve the uncertainty" that has arisen in recent years, Heffelfinger told attendees of the Global Gaming Expo in Las Vegas.

But the proposal immediately ran into opposition from tribal representatives. Norm DesRosiers, a well-known tribal gaming regulator who has testified before Congress, said the changes that Heffelfinger outlined might end up causing more problems.

"They're going to offer a whole lot more opportunities for litigation," said DesRosiers, the head of the gaming commission for the Viejas Band of Kumeyaay Indians in California. "I see troubled waters there."

Liz Homer, an attorney and former federal gaming official, also blasted the proposal. She said the Department of Justice, which is spearheading the legislation, is running roughshod over the National Indian Gaming Commission, an agency that was designed to be an independent regulatory body.

"The NIGC is going to be under the control" of another federal agency, Homer asserted. "It sounds like it's a vote of no-confidence from the DOJ." Homer served on the NIGC as a commissioner during the last three years of the Clinton administration.

Heffelfinger denied that the DOJ was overstepping its bounds in seeking the legislation, which imposes criminal penalties for violating the NIGC's civil regulations. He said DOJ and NIGC officials have been "consulting and meeting together" on the issue.

"The DOJ has a lot of confidence in the NIGC," he responded, but he later disclosed that the bill would overturn some of NIGC's game classification determinations.

Phil Hogen, the current chairman of the NIGC, acknowledged his agency has taken a different stance in the debate. Rather than seek legislation, the NIGC has proposed regulations and classification standards to help tribes and gaming manufacturers sort out the difference between Class II and Class III machines.

"We didn't always have the same vision or same outcome in mind," he said of the NIGC's clash with DOJ. He noted that the NIGC "stood down" in publishing the regulations this past spring when the DOJ -- at the "eleventh hour" -- objected.

While Hogen didn't offer his views on the proposed bill yesterday, the disagreements between NIGC and DOJ are well known. The split dates back to the Clinton administration, when DOJ took tribes to court for operating games that the NIGC had said were legal to operate without a tribal-state compact.

DOJ lost every single case and failed to convince the U.S. Supreme Court to review the matter in 2004. Despite the poor track record, however, Heffelfinger attempted to characterize the legal issues as still unresolved. He said some of the federal circuit courts have made conflicting rulings.

And while he cast the proposed legislation as a means of helping the Indian gaming industry, state officials, who are increasingly demanding more revenues from tribal casinos and more control over them, have been pressuring the federal government to act. States have a big stake in the dispute -- games that are classified as Class II can be operated free of state interference while Class III games are subject to a compact that can require for revenue-sharing with the state.

Copies of the legislation weren't available for public consumption yesterday but Heffelfinger offered an outline of the proposed changes. He said a draft will be distributed within he next two or three weeks and at least two tribal consultation sessions are being scheduled.

The proposed bill doesn't amend the Indian Gaming Regulatory Act of 1988. Tribal leaders are wary of reopening the law out of fear that their rights and opportunities will be limited.

But the legislation does change an equally important law -- the Johnson Act. As amended in 1962, the Johnson Act makes it illegal to operate, possess, sell or transport "gambling devices" in Indian Country.

IGRA provides an exception to the Johnson Act for "gaming conducted under a tribal-state compact." This has typically meant slot machines, card games and related offerings that are only legal in certain states.

In recent years, tribes in states where Class III gaming is not legal, or where the states refuse to negotiate compact, have turned to technologically-enhanced versions of Class II games. The machines are big business in Oklahoma and Florida and are used, to some extent, in Alabama and other states.

In litigation, DOJ has argued that some of these games are "gambling devices" under the Johnson Act. Heffelfinger reiterated that view yesterday and said it was the "fundamental" principle behind the proposed legislation.

To determine which games are "gambling devices" and which are not, Heffelfinger said the bill would make some important changes to the Johnson Act. He outlined four basic tests that would determine whether a machine can be operated without a tribal-state compact.

According to Heffelfinger, the four tests are:
• The game must require players to compete against other individuals. The players can't compete against the machine.
• Players must take an active role in the play of the gaming. No automation is allowed.
• Players can't win prizes for games that are based in whole, or in part, on Class II machines. "Side games" are not allowed.
• The machine must be "readily distinguishable" from a slot machine or Class III device. It cannot resemble a slot machine in play of game, appearance, speed of play or graphics, for example.

"These four types of tests apply to any type of Class II game that is offered," Heffelfinger said. There are separate standards in the legislation for bingo and for pull-tables, he added.

Any machine that doesn't meet these four tests will not qualify for an exemption under the Johnson Act and will be illegal to operate without a tribal-state compact. Tribes will face criminal punishments for violating the proposed law in addition to civil fines and enforcement by the NIGC

The bill also makes it a criminal offense to violate NIGC's civil regulations or to alter a gaming device after the device has received a classification determination from the NIGC.

The proposed legislation includes a "grandfather" clause, Heffelfinger said. For one year, tribes will be able to operate machines that the NIGC previously classified as Class II but now would be fall in the Class III category. This will end up reversing some of the favorable Class II determinations won by tribes and gaming manufacturers.

Hogen estimated that Class II games make up only about 10 percent of the Indian gaming industry. The more lucrative Class III machines make up 80 percent. Another 10 percent are machines that are marketed as Class II devices but are closer to slot machines, he added.

Despite the seemingly small segment Class II occupies, it is major source of revenues. In Oklahoma, where most forms of Class III gaming are illegal, Class II games helped tribes earn nearly $1 billion 2004, according to the recent Indian Gaming Report.

And Class II games can be used as leverage in negotiating tribal-state Class III compacts, tribal and industry leaders have said. Ron Harris, the chief executive officer of Rocket Gaming Systems, a gaming manufacturer, said yesterday that the state of Wisconsin was refusing to negotiate until the Forest County Potawatomi Tribe threatened to bring in Class II machines.

Heffelfinger didn't state when the legislation would be introduced in Congress. He indicated it would occur after the tribal consultation sessions.

The leaders of the Senate Indian Affairs Committee have voiced support for efforts to clarify the difference between Class II and Class III games. At a hearing in April when the dispute between the NIGC and the DOJ was aired, Sen. John McCain (R-Arizona) urged the two to get together and resolve their differences.

"Being one of the authors of the [Indian Gaming Regulatory Act], we envisioned Class II to be the standard bingo game, the standard pull tab -- not an electronic device that closely resembles a slot machine," McCain said on April 27. "I believe [the distinction] has been blurred by technology and I am going to try to act, and this committee [will] act, so that there is a distinction," he added.

Relevant Documents:
Testimony: Oversight Hearing Before the Senate Committee on Indian Affairs on the Regulation of Indian Gaming (April 27, 2005)

Relevant Links:
National Indian Gaming Commission -
National Indian Gaming Association -