[Senate Hearing 112-627]
[From the U.S. Government Publishing Office]
S. Hrg. 112-627
U.S. DEPARTMENT OF JUSTICE OPINION ON INTERNET GAMING: WHAT'S AT STAKE
FOR TRIBES?
=======================================================================
HEARING
before the
COMMITTEE ON INDIAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 9, 2012
__________
Printed for the use of the Committee on Indian Affairs
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COMMITTEE ON INDIAN AFFAIRS
DANIEL K. AKAKA, Hawaii, Chairman
JOHN BARRASSO, Wyoming, Vice Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
KENT CONRAD, North Dakota LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota JOHN HOEVEN, North Dakota
MARIA CANTWELL, Washington MIKE CRAPO, Idaho
JON TESTER, Montana MIKE JOHANNS, Nebraska
TOM UDALL, New Mexico
AL FRANKEN, Minnesota
Loretta A. Tuell, Majority Staff Director and Chief Counsel
David A. Mullon Jr., Minority Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on February 9, 2012................................. 1
Statement of Senator Akaka....................................... 1
Statement of Senator Barrasso.................................... 2
Statement of Senator Udall....................................... 2
Witnesses
Feldman, Glenn M., Mariscal, Weeks, McIntyre & Friedlander, P.A.. 46
Prepared statement........................................... 47
Fleming, Patrick W., Litigation Support Director, Poker Players
Alliance....................................................... 39
Prepared statement........................................... 40
Porter, Hon. Robert Odawi, President, Seneca Nation of Indians... 3
Prepared statement........................................... 5
Rose, I. Nelson, Distinguished Senior Professor, Whittier Law
School......................................................... 21
Prepared statement........................................... 23
Skibine, Alex T., Professor, S.J. Quinney College of Law,
University of Utah............................................. 28
Prepared statement........................................... 29
Washburn, Kevin K., Dean, University of New Mexico School of Law. 12
Prepared statement........................................... 14
U.S. DEPARTMENT OF JUSTICE OPINION ON INTERNET GAMING: WHAT'S AT STAKE
FOR TRIBES?
----------
THURSDAY, FEBRUARY 9, 2012
U.S. Senate,
Committee on Indian Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 2:15 p.m. in room
628, Dirksen Senate Office Building, Hon. Daniel K. Akaka,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. DANIEL K. AKAKA,
U.S. SENATOR FROM HAWAII
The Chairman. The Committee will come to order.
Aloha. Today, the Committee will hold an oversight hearing
on the Department of Justice opinion on Internet gaming and
examine what impact this decision may have on Tribes.
This issue is of great importance to Tribes. Indian gaming
is currently the only form of federally-authorized and
regulated gaming in the United States. In total, Tribal gaming
revenue makes up 40 percent of the total casino gaming market
in the United States.
Gaming has been the single most effective form of economic
development for Indian Country. That is why, when court
administrative or legislative decisions are made, Tribal
concerns and priorities must be considered as part of the
dialogue.
Tribal gaming revenue provides for the education, housing,
infrastructure and health needs of our Tribal members. In
addition, Tribal gaming provides economic opportunities and
jobs in the surrounding communities.
I would like to call your attention to the charts in the
room which illustrate that Tribal gaming occupies a unique
status in the framework of Federal law. As you can see, Tribal
gaming represents an overwhelming percentage of total U.S.
casino revenues.
The Committee held a hearing on Internet gaming in
November. Since that time, the Department of Justice issued an
opinion on the scope of the Wire Act. That decision raises many
questions for Federal, State and Tribal governments. Today we
will hear from our witnesses on the potential impact that
decision could have on the current framework of Tribal gaming.
In this session, Congress may consider proposals that would
expand Federal authorization and regulation of gaming
activities in this Country. The Committee will provide a
legislative forum where everyone, especially Tribal
governments, are able to provide their perspective on an issue
that is so vital to Tribal self-sufficiency. We also want to
continue to hear from other affected stakeholders.
The record for this hearing will remain open for two weeks
from today. So I encourage all interested parties to submit
written testimony.
I would like to now ask our Vice Chairman for his opening
statement.
STATEMENT OF HON. JOHN BARRASSO,
U.S. SENATOR FROM WYOMING
Senator Barrasso. Thank you very much, Mr. Chairman. I do
appreciate your holding this hearing today.
We all recall that last November the Committee held an
oversight hearing on Internet gaming in Indian Country. About a
month later, the Department of Justice issued an opinion
regarding Internet gaming. So today we are going to hear from
the witnesses what that opinion means for the Indian Tribes.
I realize that this is a subject of great importance to
Tribes across the Country, so I just want to thank you, Mr.
Chairman, for your leadership in examining this matter. I
appreciate and thank the witnesses who have traveled great
distances to be here to testify today.
So thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator.
Senator Udall?
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you very much, Chairman Akaka. I
really appreciate being here with you today, and I want to
thank you for holding this important hearing on Internet gaming
and the Department of Justice's recent opinion.
And thank you for remaining engaged in this issue. It is
very appropriate that the Indian Affairs Committee take up the
issue of Internet gaming. This is an issue that may have
significant impact on Indian Country. So the Committee and
Tribal leaders need to be an active part of the debate over any
possible legislation.
Beyond this hearing, it is my hope that my colleagues in
the Congress who are proposing related legislation will engage
Tribes in the development of any gaming proposals. And while I
am at it, Mr. Chairman, I would also like to welcome Mr. Kevin
Washburn, who is the Dean of the University of New Mexico Law
School. Mr. Washburn is a citizen of the Chickasaw Nation of
Oklahoma. He is the first Native American to serve as a dean,
as the Dean of the UNM Law School. He has a strong background
in Indian law, gaming and criminal law. And I am sure we will
learn a lot from him today.
Mr. Washburn is also a former Federal prosecutor in New
Mexico and a trial attorney with the DOJ. He has served as the
General Counsel of the National Indian Gaming Commission. I
look forward to Mr. Porter's testimony and Mr. Washburn's and
the other panelists. I want to thank Mr. Washburn very much for
participating today and making the trip here. I also want to
applaud the National Indian Gaming Association and the gaming
Tribes for getting out on front of this issue. This is the most
important thing you could do.
Thank you, Mr. Chairman, and with that, I look forward to
hearing the witnesses.
The Chairman. Thank you very much, Senator.
Now I would like to invite our first panel. Let me welcome
you, the Honorable Robert Odawi Porter, President of the Seneca
Nation of Indians. President Porter, will you please proceed
with your remarks?
STATEMENT OF HON. ROBERT ODAWI PORTER, PRESIDENT, SENECA NATION
OF INDIANS
Mr. Porter. Nya-weh Ske-no. Mr. Chairman, Mr. Vice
Chairman, Senator Udall, thank you for having me today. I am
thankful that you are well.
I am honored today to testify on this subject before this
well-credentialed panel of law professors and deans and
scholars. They do what I used to do for many years before I
became the president of my nation.
I have read their testimony and they make very good points.
But as a Tribal leader I must say that there are two questions
that must frame our discussion as we move forward. First, will
the decisions of the Congress in Internet gaming support or
destroy the Indian gaming jobs held by our Tribal citizens and
our neighbors? And two, will your decisions support or erode
the gaming revenue that Tribal nations use to fund essential
governmental programs and services?
In my written testimony, I have set out a number of reasons
why it is in the political interest of every member of
Congress, including Senators Schumer and Gillibrand from New
York, and every Governor, including New York Governor Cuomo, to
join with the Seneca Nation and other Indian Tribes to protect
the existing jobs that exist at our bricks and mortar Tribal
government gaming facilities, and to preserve our right, if new
Internet gaming is authorized, to participate as equal
partners.
In recent years, big gaming and State regulatory interests
in Nevada and New Jersey have pushed for Federal Internet
gaming legislation that would give them monopolistic control of
Internet gambling operations throughout the United States. This
brazen power grab is based on a lie, a fiction that big Nevada
and New Jersey interests alone are sophisticated enough and
strong enough to operate Indian gaming businesses. They are
determined to shove Indian gaming away from the table or at
best, to deal Indian gaming a short hand.
But the fact of the matter is that the Seneca Nation and
dozens of other Indian nations are at least as sophisticated,
if not more so, in terms of management, security, oversight and
regulation than the biggest and best operators in Atlantic City
and in Las Vegas. Tribal job creation and economic
diversification in our regions should be respected, protected
and cultivated, not attacked, undermined or assaulted.
The Seneca Nation, like dozens of other Indian Tribes, is
one of the largest employers in our geographic region.
Collectively, Tribal government gaming injects billions of
dollars into the regional economies that surround Indian
Country. Tens of thousands of American workers, both Indians
and non-Indians who are our neighbors, depend on the health and
vitality of Tribal government gaming operations for their jobs.
These jobs exist directly or indirectly, such as through the
contractors and vendors who rely upon our gaming enterprises
for their livelihoods. These family breadwinners have invested
their lives in Indian gaming as chefs, as slot machine
technicians, as construction workers and suppliers and so on.
In an unbelievable and ironic twist of fate, it could literally
be said that many Indian nations and Tribes carry the
responsibility of feeding and clothing our non-Indian neighbors
along with our own citizens.
The interests of the Seneca Nation and our neighbors in New
York are aligned and congruent when it comes to the threat of
Internet gaming and lottery operations. Our common interests
are to protect local jobs and local commerce that will create
more local jobs. Internet gaming, if not tied to local
facilities and local operations that trade in ancillary local
entertainment and local commerce, does not create local jobs
and local economic activity within a State. Internet gaming, if
it is not controlled locally, and connected to local commerce,
will bleed dry the regions surrounding Indian Country and cause
great injury to all of us who depend upon our existing
businesses.
My request today is simple. Send your colleagues a message
that you will not tolerate any new legal authority that will
result in job losses in Indian Country or that shoves aside
large and successful Tribal gaming operations from any new
Internet gaming table. Indian nations not only demand a seat at
the table, we insist that we already own our own table and that
we should not have it stolen from us, as has too often been the
case in the past.
American history is littered with predatory Federal Indian
policies and illegal and immoral confiscations of Native
property and wealth. Whenever non-Indians have discovered that
the Indians have possessed something of value, the non-Indians
have tried to grab it for themselves and too often succeeded.
Recently, Indian gaming slipped through the cracks of this
sordid history and for the last 30 years, a rare economic
revitalization has occurred for some Indian nations located in
population centers in States that did not authorize gambling
otherwise.
But now these cash-starved States are embracing casino
gaming with great enthusiasm. These predatory actions are
eroding Tribal exclusivity interfering with existing compacts
and threatening the jobs that Indian gaming has created.
I will leave it to others on the panel to pick apart the
Wire Act. And if I could, Mr. Chairman, I realize my time has
expired. I would like to take a moment to conclude.
If the New York lottery, for example, offers electronic
gaming, without the participation of the Seneca Nation and
other Tribal casinos, it will violate our existing compact and
undermine our bricks and mortar business. We cannot stand for
the disruption of these compacts either in New York or anywhere
in Indian Country. There is much that we can do together, there
is much that we can do collaboratively that will benefit all.
In conclusion, we have serious concerns that Internet
gaming will undermine our efforts to lift ourselves up as a
people after centuries of economic deprivation. This will
imperil our jobs and revenues that we have created for
ourselves and for our neighbors. Should this Congress authorize
some form of Internet gaming, the Seneca Nation insists that it
be done in a way that protects our inherent and treaty-
recognized sovereign right to engage in Internet gaming
activity on terms that reflect the economic interests of
ourselves and that of our neighbors in western New York.
Nya-weh, and I would be glad to take any questions.
[The prepared statement of Mr. Porter follows:]
Prepared Statement of Hon. Robert Odawi Porter, President, Seneca
Nation of Indians
Introduction
Nya-weh Ske-no. Mr. Chairman and members of the Committee, I am
thankful that you are well and I am pleased to appear today to discuss
the testimony I am submitting for the record on behalf of the Seneca
Nation of Indians.
My purpose in testifying is this--I believe it is in the interest
of each member of this Committee, as well as the other senators
representing Indian Country, like our Senator Schumer and Senator
Gillibrand, to join with the Seneca Nation and with other Indian tribes
in protecting the existing jobs at tribal brick-and-mortar gaming
facilities and in preserving the right of Indian nations to
meaningfully and substantially participate, from the outset, in any new
Internet gaming authorized under federal or state law.
Cultivating job creation within Indian country and ensuring
meaningful, substantial, early and fair participation by Indian nations
in Internet gaming, be it poker, lottery, or other games, is in the
mutual self-interest of Indian nations, of our neighbors and of the
states whose lands adjoins ours. It is also sound federal Indian
policy.
The Seneca Nation, like dozens of other Indian tribes, is one of
the largest employers and economic enterprises in our region. The
ancillary impact of tribal gaming operations on regional economies
surrounding Indian tribes is in the millions if not billions of dollars
each year. Tens of thousands of American workers--our neighbors--depend
on the health and vitality of tribal gaming operations for their jobs,
either directly with Indian nations as their employers or as vendors or
nearby enterprises who rely on our gaming casino activity for their
upstream or downstream business activity.
We ask that you join with Indian tribes to protect against any move
by powerful gaming interests who will try to force Nevada-only or New
Jersey-only control over Internet gaming. This is not idle speculation.
Last year, some senators released draft legislation which would have
shut out Indian tribes from any competitive involvement in Internet
gaming, as if we are inferior and irrelevant gaming operations who are
incapable of meeting or exceeding Nevada or New Jersey regulatory
standards. The approach embodied in the draft bill was certainly short-
sighted, as it would have threatened existing jobs.
The governors of New York, and Arizona, California, Florida,
Connecticut, Michigan, Minnesota, Oklahoma, Oregon, Washington,
Wisconsin, all know full well how robust and capable and sophisticated
Indian gaming is today. This Committee certainly knows it. And I am
confident this Committee will not tolerate anyone in the United States
Senate giving serious consideration to a power grab by Nevada and New
Jersey gaming interests that would result in job losses in Indian
country and would shove aside our large and successful tribal gaming
operations from the Internet gaming table. Far too much is at stake, in
terms of the interests of tribal nations, our employees, our business
partners and our neighbors. And while history does sometimes repeat
itself, we know one of the missions of this Committee and of you, Mr.
Chairman, is to avoid repeating the errors of previously misguided
federal Indian policy. More on that later. But first, I wish to
describe my Nation, where we've been and where we are going.
Background on the Seneca Nation of Indians
Our Nation was one of America's earliest allies, historically
aligned with the other members of the historic Haudenosaunee (Six
Nations Iroquois) Confederacy and living in peace with the American
people since the signing of the Canandaigua Treaty nearly 217 years ago
on November 11, 1794, 7 Stat. 44. In that Treaty, the United States
promised that it would recognize the Seneca Nation as a sovereign
nation and that the title of our lands would remain forever secure and
that we would retain the ``free use and enjoyment'' of our lands. This
promise has served as the basis for a level of freedom possessed by the
Seneca people that we believe is unmatched by other indigenous peoples
in the United States.
Because of this treaty-protected freedom, our Nation has been able
to achieve success in recent years as we continue to strive towards
recovering from nearly 200 years of economic deprivation inflicted upon
us by the United States due to devastating losses of our lands and
resources. Both our Seneca Nation government and individual Seneca
citizens have benefited from the opportunity to expanding into economic
trade with non-Indians during the last 40 years, focusing primarily on
the tobacco and gaming businesses. We have fought hard for our recent
economic success--just as we have fought hard to protect our lands--but
the fact remains that we are under constant assault from hostile forces
such as the State of New York and private sector predators who seek to
deprive us of economic prosperity and return us to the poverty of a
prior era. This Internet gaming and lottery issue is merely the latest
in a long line of battlefronts. Like most threats, it also offers great
opportunities.
The Seneca Nation of Indians Enforces Its Own Comprehensive Laws
Within Its Own Territory
The Seneca Nation has a rich history of actively regulating and
enforcing economic activity within our Territories. For example, our
Council enacted a comprehensive Import-Export Law in 2006 to regulate
sales of tobacco and other products from its Territories. The Nation's
Import-Export Commission regulates all aspects of tobacco sales and
distribution on our Territories. As a result of the enactment and
enforcement of our own tribal law, the Nation has gained regulatory
control of tobacco and other sales activities on its Territories. The
Nation's aggressive implementation of its Import-Export law has greatly
enhanced its capacity to enforce the law on our Territories.
We also have comprehensive ordinances governing class II and class
III gaming activities at our bingo halls and casinos on our
Territories. Under these tribal laws, the Nation's gaming regulatory
body, the Seneca Gaming Authority, oversees and ensures the integrity
of our highly successful gaming enterprises. And the Seneca Gaming
Authority works closely with its federal counterpart, the National
Indian Gaming Commission, in the regulation of our class II gaming and
with both the National Indian Gaming Commission and the New York State
Racing and Wagering Board in the regulation of our class III casino
gaming activity.
I raise these examples to remind everyone that Indian tribes, like
the Seneca Nation, are governments. We govern the people and activity
within our own Territories. This is reflected in the U.S. Constitution
that governs how the United States government is supposed to deal with
us--nation to nation. How America has actually dealt with Indian
nations, however, is twisted into unconstitutional shapes.
Seneca Nation History Is Replete With Irony
If you look at American history from the perspective of a Seneca
Nation citizen--or of any American Indian for that matter--it is filled
with many cruel ironies.
American economic development has chronically and habitually by-
passed Indian Country or has extracted value and then abandoned Indian
Country like a mere colony.
Native American history is one of nearly complete loss of what we
once had. We have lost most of our lands and nearly everything of value
and significance associated with them. We have lost most of our natural
resources, such as the beaver belt and the buffalo herds. We have lost
most of our stockpiles of gold, uranium, oil, gas, salt, and gravel. We
have had the use of most of our remaining lands taken for railroads,
highways, non-Indian homes and reservoirs for hydroelectric dams. In
the late 19th Century, the United States forced upon the Seneca Nation
long-term leases for nominal payment to accommodate the establishment
of the City of Salamanca on the Allegany Territory and to legitimize
the leases obtained by railroad corporations through unsavory means.
And just 45 years ago, the United States again broke the Canandaigua
Treaty and took 10,000 acres of our Allegany Territory for the Kinzua
Dam and Allegheny Reservoir so that a license could be granted to a
private mega-corporation to make millions of dollars from the sacrifice
of our lands and the burning of our homes.
Even when Indian nations were paid for our property, it was often
at confiscatory prices under coercive agreements pushed down our
throats for only pennies on the dollar of the actual value taken by
outsiders.
Whenever I read the founders of American capitalism, and the great
treatises defending the fundamental sanctity of property rights in
American law, I cannot help but recall how Indian property is the
glaring exception to the rule of property law. Any unvarnished view of
American history will reveal that, when it comes to the property of
indigenous people, federal and state law has subverted the natural
order of property ownership. All too often the United States has
appropriated, or has allowed states and others to steal, like common
thieves, valuable property held by Native Americans. This, whether
anyone likes it or not, is the common strain of American history
towards the aboriginal occupants of this land. And, just a few years
ago, the federal courts legitimized theft of Indian property by
adopting the theory that if the stealing happened long enough ago, it's
okay. We ask that you not tolerate any further repetition of this
history.
Discovery Has Led to Confiscation
The storyline of American Indian history has been the same, time
after time. When non-Indians ``discover'' that the Indians possess
something of value to the non-Indians . . . then the non-Indians grab
it for themselves. No money can adequately compensate Indian Country
for these takings, and precious little money has ever been offered.
Recently, Indian gaming slipped through the cracks of this history
and for the last 30 years a thousand flowers bloomed for Indian Nations
with territories near large population centers in states where the law
frowned upon gambling. Because gambling was disfavored by state law but
craved by state citizens, neighboring Indian gaming markets thrived.
The recognition by the U.S. Supreme Court of tribal sovereignty in the
pivotal Cabazon case, although constrained soon thereafter by the
Indian Gaming Regulatory Act, resulted in a temporary but tangible
advantage for some tribal economies.
But now big casino industry and cash-starved states are embracing
casino gaming in nearly every state market. This is eroding tribal
exclusivity and thus, tribal gaming market share, and threatening the
jobs that Indian gaming has created directly for our employees and
indirectly for vendors and our neighbors whose businesses our employees
and customers frequent. Once again, Indians have been discovered to
possess something the non-Indian economic interests want for
themselves. As inevitable as the sun's rising in the East, discovery of
tribal government gaming is leading to its confiscation. Once again,
Indian nations possess something our neighbors covet.
In New York, as in some other states, the governor has decided to
try to grab gaming exclusivity away from the Indian tribes, tearing up
the agreement his predecessors struck with us. Governor Cuomo can
expect a fight this time. And we have lots of allies this time who are
not simply going to let Albany pull the rug out from under us and them.
The Seneca Nation is one of the largest employers within the
borders of western New York State. If the governor kills our gaming
enterprises by breaking the exclusivity agreement we negotiated with
the State of New York, thousands of people will be put out of work and
the economy of our entire region will be disrupted.
With the request it made to the U.S. Department of Justice last
year, it appears that the New York Lottery is seeking to offer an
electronic lottery gambling to customers over the Internet within New
York. If--instead of working with the Seneca Nation and other existing
tribal casinos within the borders of New York--the New York Lottery
seeks to directly compete with our brick-and-mortar casinos by putting
the equivalent of slot machines in every living room in New York--we
will make every effort to see that its effort is a commercial failure.
There is much that we can do together--New York State and the
Indian nations with whom New York shares borders--that will be in our
mutual self-interest and help us together, as neighbors, withstand the
competitive influences of New Jersey and other surrounding states. But
if New York will not join with us, we are all the weaker. The tobacco
trade is a fresh example of how not to respond; of how short-sighted
New York interests combined with (Big Tobacco) interests outside New
York to short-change the interests of New York taxpayers.
Can Indian Diversification Outpace the Tidal Waves of Non-Indian
Confiscation?
Until last year, the Seneca Nation had a robust and diversified
trading economy based in large part on the sale of tobacco and fuel
products to non-Indians. Unlike many other places in Indian Country,
Seneca Nation Territories had a decades-old, private sector economy
comprised of competitively-driven Seneca entrepreneurs. Our Seneca
entrepreneurs traded products for years in bricks and mortar, over the
counter transactions and, when the World Wide Web offered additional
avenues for trade and commerce, they expanded their market reach into
the Internet tobacco trade and they created many, many jobs for Indians
and non-Indians alike.
Like with gaming, our Indian Internet trade in tobacco slipped
through the cracks of history and for a time it blossomed, and the
entire Western New York region was the beneficiary of the successes of
our Seneca entrepreneurs. Because tobacco use was disfavored by state
law but craved by state citizens, the Indian Internet tobacco trade
thrived. But when jealous Big Tobacco industry interests combined with
the avaricious appetites of state taxing authorities, their envy
colluded to persuade the U.S. Congress that they alone, not Indian
Nations, and their terms, not ours, should govern trade in tobacco
products.
Two years ago, the U.S. Senate and the U.S. House of
Representatives chose to over-ride strenuous objections from the Seneca
Nation and enact the Prevent All Cigarette Trafficking Act of 2010, the
so-called PACT Act. The PACT Act single-handedly destroyed our Internet
tobacco trade. It levied prohibitively costly fines and penalties on
anyone connected with the common carriers and the U.S. Postal Service
from moving our trade in tobacco products. It brought Seneca Nation's
booming e-commerce tobacco trade to a grinding halt and threw hundreds
of families out of work.
Is Internet Gaming the New American Frontier?
Some Senators, as well as many other observers of the American
economic future, appear to believe that Internet gaming is the new
American economic ``frontier''. If it is, what warning signals can we
learn for Indian Country and our allies on this Committee and in
Congress and the Administration? What lessons can we draw from the
history of how the United States, and the various states, and American
economic interests, have shaped the American frontier, from timber and
gold and water to gaming 25 years ago and to the Indian tobacco trade
two years ago?
One lesson is unavoidable. Isn't it time the property rights of
Indian Nations are respected and protected? If not now, when? Isn't it
time non-Indians respect the inherent and treaty-recognized rights of
Indian Nations to control what happens on and from our own land? That's
exactly what the Treaty of Canandaigua promised the Seneca Nation and
the Seneca people.
I and many tribal leaders have no patience for the empty lip-
service being paid in these hallways to a pseudo concern for Indian
country jobs and the diversification of Native economies.
If that concern is real, then honor Indian treaties. Respect tribal
sovereignty. Let Indian nations trade as sovereigns. Stop undermining
Indian casino gaming with Internet gaming proposals, or Internet gaming
proposals that preclude Indian nations from participating on fair
terms.
Internet Gaming--A 21st Century Gold Rush
In recent years the Big Gaming interests, not unlike Big Tobacco,
have allied themselves with state regulatory interests in Nevada and
New Jersey and pushed for federal Internet gaming legislation that
would bestow upon them a monopolistic control of Internet gambling
operations. That brazen power grab is premised on the fiction that the
big Nevada and New Jersey interests are alone sophisticated enough to
operate Internet gaming in the first wave.
Like land homesteaders and gold stake claimers before them, these
Nevada and New Jersey moguls see Indian gaming as a competitive threat
and are determined to shove Indian gaming away from the table or, at
best, deal Indian gaming a short hand. Make no mistake about it.
Internet gaming in the sole hands of these Big Gaming moguls absolutely
threatens the jobs that Indian country has created at its brick-and-
mortar gaming facilities through years of innovation and investment in
Indian country. And it further threatens to undermine the regional
economies that Indian gaming has created.
Moreover, the Seneca Nation and dozens of other tribal gaming
operations are as or more sophisticated in terms of management,
security, oversight and regulation than the biggest and best operators
in Atlantic City and Las Vegas. In addition, until this Congress and
this Administration recently shut it down with enactment of the PACT
Act, the Seneca Nation regulated one of the most robust Internet
commerce operations in America--the tobacco trade. It is an affront to
our dignity for the Congress to give any credence to the insulting
notion that the Seneca Nation is somehow ``not ready'' or inexperienced
or otherwise ill-equipped to conduct Internet gaming from Nation
Territory, according to Nation laws and regulations, anywhere the
Internet markets take our game and our trade.
Our treaty rights to conduct commerce--from our land, on our own
terms, and without restraint by any outside power--must be respected
and honored. That must apply to both over-the-counter trade and
Internet commerce like Internet gaming. And our job creation and
economic diversification in our regions should be both respected and
cultivated, not attacked.
This Congress and this Administration bowed to Big Tobacco and Big
State interests last year with the PACT Act and devastated the Seneca
economy. I urge this Committee, to find its true identity--as a strong
ally of tribal sovereignty and as a stalwart defender of Indian
treaties--and fight to the death to ensure that no Internet gaming
legislation is enacted unless it guarantees to Indian Nations the right
to set all terms and reap all benefits of all e-commerce that
originates on Indian Country.
Internet gaming developments are the most recent, modern-day threat
to tribal sovereignty. I must ask this Committee--will Congress roll
over once again and, PACT-like, squash tribal sovereignty and tribal
ingenuity by acquiescing to the powerful Internet gaming interests in
Nevada and New Jersey and the cash-envious state and federal
treasuries?
I don't think you will. Your hearing today heartens me. It is
exposing the mutual interests that best define what Indian tribes and
state governments can do together. Our common interests are to protect
local jobs and local commerce that creates more local jobs. Internet
gaming, if not tied to local facilities and local operations that trade
in ancillary local entertainment and local commerce, does not create
local jobs and local economic activity within a state. Internet gaming,
if it is not controlled locally and connected to local commerce, will
bleed our region dry. Internet gaming, and the new technologies that
make it possible, actually is the occasion for combining the local
interests of states like New York and nations like Seneca and the
interests we hold in common as neighbors. The interests of the Seneca
Nation and our neighbors in New York are aligned and congruent when it
comes to Internet gaming and lottery operations. We are sending this
message here today because we are convinced that our New York senators
will sooner or later recognize, like Speaker Tip O'Neill is said to
have said years ago, that all politics is local.
Conclusion
The Seneca Nation asks that this Committee to avoid taking action
that does anything other than cultivating the job creation and economic
diversification that Indian gaming has created in our respective
regions. We have serious concerns that Internet gaming will undermine
our efforts to-date to lift ourselves up from centuries of economic
depression and will threaten many of the existing jobs that our Indian
gaming enterprises have created.
Should this Committee believe that Internet gaming is nevertheless
the right answer for Indian country and the American people, the Seneca
Nation asks that this Committee ensure that the U.S. Congress, in
conformity with its responsibility under the U.S. Constitution, honor
our treaties and protect our inherent, sovereign right to engage in
Internet gaming activity on terms that reflect the economic interests
of ourselves and that of our neighbors in New York.
We believe it is in the interest of Senators to join with the
Seneca Nation and with other Indian tribes in protecting the right of
Indian nations to meaningfully and substantially participate, from the
outset, in any new Internet gaming authorized under federal or state
law.
Specifically, and urgently, we ask that you join with Indian tribes
to protect against any move by powerful gaming interests who are trying
to force Nevada-only or New Jersey-only control over Internet gaming.
Thank you for this opportunity to provide testimony and we ask that
it be made part of the record of this hearing.
Nya-weh.
The Chairman. Thank you very much, Mr. President.
In your testimony, you state that it is mutually beneficial
for the Tribe and the State to ensure that local jobs and local
commerce are protected. My question to you is, what impacts do
you think the DOJ opinion could have on New York State
generally and the Seneca Nation specifically?
Mr. Porter. Mr. Chairman, our nation is fortunate enough to
employ almost 4,000 Natives and non-Natives in our gaming
business in New York. We are the fifth largest employer. If
Internet gaming is allowed to commence and proliferate, I
strongly believe that we will lose jobs and economic resources
from our businesses in an area of the United States that is
very under-served economically.
So to us, it portends a great threat that we have to be
very cautious about and be very concerned that the Congress
would injure our existing business.
The Chairman. Do you think other commercial gaming entities
have a level of expertise in the area of Internet gaming
different from Indian Tribes that should allow them to have
first access into this market?
Mr. Porter. Mr. Chairman, I do not believe that non-Indian
gaming businesses have any technological or business savvy
beyond what we have. I believe that our businesses are more
regulated than other businesses. I believe our technical
expertise is superior. And I am absolutely confident that we
can provide high quality services, we can provide opportunity
in this area no differently than we have with bricks and mortar
businesses.
The Chairman. Thank you.
Let me now call on our Vice Chairman for his questions.
Senator Barrasso. Thank you, Mr. Chairman.
Thank you, Mr. Porter, I appreciate your being here. As you
said, you have read the testimony of the next group. I was just
noting that in the next panel Mr. Rose is going to talk about
in the wake of the Department of Justice opinion that the
States are going to be moving, or they will move quickly in
light of this opinion, to legalize and establish different
regulatory approaches or schemes for Internet gaming.
So what do you specifically feel will be the biggest
challenges for the Tribes if Internet gaming is then left to
State regulation?
Mr. Porter. Mr. Vice Chairman, I believe the significant
problem is that many of our business agreement are tied to a
geographic exclusivity. They are obviously not tied in many
cases to our territory, per se, but are tied to a region of the
State, for example.
So that is what we have negotiated for. We have paid for
that, we have invested, in our case, nearly a billion dollars
on physical infrastructure tied to that geographic area.
Opening up Internet gaming beyond those geographic borders, and
allowing, whether in the case of the particular Wire Act
opinion, the New York State lottery, to prey upon and seize
business opportunity from patrons in our exclusivity zone I
think is the greatest threat and presents the greatest
challenge for the Congress in marshaling a solution to
protecting our geographic based businesses. I think it is a
very difficult problem, but it is something that needs to be
addressed.
Senator Barrasso. And it is not just in your home State,
but you are looking at it in each individual State?
Mr. Porter. Exactly.
Senator Barrasso. Because of the geographic component, and
then the bricks and mortar location and the impact on the
people who are there working. Thank you. Do you want to add to
that?
Mr. Porter. No, that is fine.
Senator Barrasso. Okay, thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Barrasso.
Senator Udall?
Senator Udall. Thank you, Chairman Akaka.
The Seneca Nation's history and success with Internet
commerce is very impressive. And your experience with how
Internet commerce can aid local development and local economies
I think is an important piece of the discussion.
What do you see as the future of Tribal gaming and should
it involve Internet gaming? Could you explain a little bit more
when you talk about the exclusivity zone and the geographic
components to this?
Mr. Porter. Certainly, Senator. I think that in terms of
just capability, as I mentioned before, our ability to
participate in an Internet economy exists. But it can't do so
in a way that undermines our existing businesses. In our case,
the compact that we have entered into with New York State
defines a 16-county geographic region in western New York that
is our exclusive zone for the offering of slot machines. And we
pay for that right, 25 percent off the top is otherwise due to
the State and local government associated with that right.
Everything associated with our business model that we have
under our 21-year compact is tied to that geographic region.
The Congress, in very many ways, if we are to just simply open
up this opportunity of Internet gambling without regard to that
existing platform, which is common in Indian Country, I believe
would produce serious injury and impairment to our contractual
relationships with not just the State, but with our creditors,
with our business partners and would inflict a tremendous
degree of economic injury to us that could significantly
destabilize, if not destroy, our businesses.
So finding that solution, if the Internet gaming
legislation moves forward, is a critical one to assure that in
many ways, Indian Country is held harmless from the
consequences.
Senator Udall. Do you believe the ongoing Internet poker
that is conducted through international sites has already been
a deterrent or a benefit to gaming Tribes, and how specifically
has it impacted the Seneca Tribe?
Mr. Porter. In our particular instance, I am not sure that
we can say that the Internet poker has induced tremendous harm.
Our businesses remain strong and because of the integrity of
the compact and the geographic exclusivity, we are able to
create and have created resort destinations that bring in
patrons from Canada and other States.
But obviously, it has a certainly slippery slope element to
it, that if it simply opens up in all forms of gaming, that is
where we have to be concerned about how it will affect our
business.
Senator Udall. Thank you, President Porter. Thank you,
Chairman Akaka.
The Chairman. Thank you very much, Senator Udall.
President Porter, currently Tribal gaming is the only
federally-authorized and regulated gaming in the United States.
If Federal legislation is enacted, some of that exclusivity
would be threatened. As we have seen in IGRA, it is important
to ensure that Federal and Tribal interests are balanced in any
legislation. In your opinion, what would Tribes need to see in
the Federal legislation to ensure that this exclusive right is
maintained?
Mr. Porter. Mr. Chairman, I have long held troubled
feelings about this notion that should be balancing the
interests of Indian sovereignty and our treaty rights. We paid
for the freedoms of our land and our sovereignty 200 years ago.
Unfortunately, in our view, in my view, the Indian Gaming
Regulatory Act reflects once again a restriction and a curb on
our rights as sovereign Indian nations.
As the Congress moves forward to deal with this issue of
Indian gaming, I would ask that we no longer have to pay again
for the freedoms that we have already paid for. This gaming
business has done very well for us in many places in Indian
Country, and it has provided resources to help our people and
provide services that never before existed.
So the simple ask would be to hold us harmless, ensure that
we are not paying again for something that we have already paid
for more than once.
The Chairman. Thank you very much, Mr. Porter.
Are there any further questions of Mr. Porter?
Well, I want to thank you very much for your responses.
Without question, it will be helpful to us as we move forward
in possible legislation that we have. I thank you very much for
being part of this hearing, Mr. Porter.
Mr. Porter. Nya-weh. Thank you very much.
The Chairman. I would like to invite the second panel to
the witness table. Serving on our second panel is Mr. Kevin
Washburn, the Dean of the School of Law Administration at the
University of New Mexico; Mr. I. Nelson Rose, Senior Professor
at the Whittier School of Law; and Mr. Alex Skibine, Professor
at the S.J. Quinney College of Law at the University of Utah.
Mr. Washburn, would you please proceed with your testimony?
STATEMENT OF KEVIN K. WASHBURN, DEAN, UNIVERSITY OF NEW MEXICO
SCHOOL OF LAW
Mr. Washburn. Thank you, Mr. Chairman and Mr. Vice Chairman
and Senator Udall. And thank you, Senator Udall, for those kind
words.
Senator Udall is one of the alums that we are most proud of
at the University of New Mexico.
The OLC opinion that was issued just before Christmas
created kind of a chaotic atmosphere. Professor Rose has noted
this in his own testimony. It created kind of a wild west type
situation, and it is has really forced, I think, Congress'
hand. I think Congress does need to act here.
And I think I have two points to make today. One is that
there is a strong Federal interest in Indian gaming. This was
viewed as a very important resource for Tribes by the Federal
Government. When the Indian Gaming Regulatory Act was passed in
1988, it had bipartisan support. Senator Udall's uncle, Mo
Udall, was a big Democrat who was very involved in its passage.
But the Reagan Administration also was very supportive of
the Indian Gaming Regulatory Act. Ronald Reagan signed the
bill. And keep in mind that they might have had slightly
different reasons for being supportive of this bill, but they
were both supportive. Reagan wanted to foster Indian gaming as
a means of self-sufficiency for Tribes. I think on the other
side of the aisle, the idea was just to increase Tribal
resources to improve self-governance and self-determination.
But there was tremendous bipartisan support for the idea of
Indian gaming.
And Indian gaming has provided incredibly well for the
needs that otherwise, and for many Tribes, the Federal
Government might well be providing. So Indian gaming is getting
the Federal Government off the hook in a great measure for
funds that would otherwise need to be expended by the Federal
Government, at least in some measure.
So that is an important background principle, as this
Internet gaming boom begins. We have to protect this Federal
resource, really, for Tribes. Tribes need to have access to
this resource that has been so important for their self-
determination and self-governance.
Now, I think Congress needs to get involved, and I think
OLC at the Justice Department has largely forced your hand. I
think it is very, very important. We have long had a
schizophrenic approach to gambling in the United States. Why is
that? It is not entirely clear. But one of the things is that
we have these 50 State laboratories that get to decide gaming
policy each on their own. And it is very important that States
be able to decide their own views toward gambling. There is a
question about how much their own views ought to apply on the
Indian reservation.
But it is true that States do have differing views on
gambling. We still have a couple of States that largely
prohibit gambling. We do have, though, broad agreement that if
gambling is going to exist, it should be a public resource. One
of the areas, when we look at these charts, we see between
lotteries and VLTs and Indian gaming, those are all
governmental forms of gaming, in essence. That is almost 60
percent of the gaming on this chart.
So there is common belief that gaming should be a public
resource. It should help develop governmental resources, and
that is what we have used it for.
I think that States should be able to opt out of gaming, if
they wish. But if they wish to have gaming, most States agree
on all the things that are harmful about gaming. The regulatory
interests that all States have about gaming are largely the
same. They want to try to minimize compulsive gambling, for
example. They want to prevent money laundering and prevent
organized crime from infiltrating casinos or gambling. They
want consumer protection. They want the gambling to be fair to
the people who do it. And they want to ensure, of course, that
the governmental fees that are large underpinning of all this
gaming, that taxes or fees are paid.
So they all have the same interest in how we regulate
gaming. So I think that tells us to some degree we don't need
each State doing it individually, because they all have the
same interest. It would be far more efficient to have one
entity at the Federal level that does that, that handles that
regulation of gaming. And that entity at the Federal level
should be keenly focused on protecting the importance of Indian
gaming to Indian Tribes. Because we have created a resource
here, $30 billion in 2009, that is being used by Tribal
governments all over the Country, and it is absolutely
fundamentally important. Internet gaming causes some risk to
that very strong revenue source. And if that revenue source
goes away, that is going to be Federal responsibility to meet
those needs.
So I think Congress should act. I think Congress should get
right in the middle of this and Federalize the regulation of
Internet gaming.
Thank you.
[The prepared statement of Mr. Washburn follows:]
Prepared Statement of Kevin K. Washburn, Dean, University of New Mexico
School of Law
The Chairman. Thank you very much, Mr. Washburn.
Mr. Rose, will you please proceed with your testimony?
STATEMENT OF I. NELSON ROSE, DISTINGUISHED SENIOR PROFESSOR,
WHITTIER LAW SCHOOL
Mr. Rose. Thank you and good afternoon, Chairman Akaka,
aloha, and Senator Udall, thank you for inviting me.
My name is I. Nelson Rose. I am a distinguished senior
professor at Whittier Law School and the author of Gambling and
The Law and Internet Gaming Law.
I prepared a written statement, but what I want to do here
is focus on the two big questions: what did that announcement
by the Department of Justice mean for State legal gambling and
what does it mean for the Tribes?
We are in what I call the third wave of legal gambling.
This is the third time in American history that gambling has
spread everywhere. Historically, it has always been up to the
States to decide their own public policy toward gambling. And
the role of the Federal Government has simply been to help the
States. Federal laws can be seen as basically enforcement
statutes.
So if you look over all the Federal statutes, they all
require that the gambling be illegal for the Federal statute to
apply. The only two exceptions are the Federal anti-lottery
statutes, which have express exemptions for State lotteries,
and the Wire Act. The Wire Act was the main weapon that was
used by the Department of Justice in its war of intimidation,
to try to scare players, payment processors and operators out
of the American market.
That weapon is now gone. There basically is now no Federal
statute that would prevent a State from legalizing virtually
any form of Internet gambling with the exception of sports
betting. And even that is under attack in the court. States can
legalize, they can form compacts for interstate and even
international to create pools of players. They can take bets
from each other.
The first to act, and they are already starting, are the
State lotteries. Because they don't need the statutes, they can
pass regulations. There are at least six State lotteries that
are already selling lottery tickets through the Internet by
subscription. They now can sell individual tickets.
The big question is, will they go with instant lottery.
Because if you put a scratcher on a video screen, it becomes
almost indistinguishable from a slot machine.
But we are not going to be just limited to lotteries. Every
State looks at gambling as a painless tax. They are all
desperate for revenue. So they are all looking to get into
Internet poker, Internet casinos if they can. They are doing
this to raise money, which means if the big players are the
local operators, then they are the ones who are going to get
the licenses.
In New Jersey, where there are no Tribes, New Jersey will
be legalizing Internet casinos this year, and all of the
licenses will go to Atlantic City casinos. If Connecticut
legalizes, then the two licenses will go to the two large
Indian gaming Tribes. But in every other State, what the Tribes
are going to be forced to do is basically compete for a very
limited number of licenses.
The problem is, and I have looked at this law very
carefully, under Cabazon and IGRA, the Tribes have two tests.
You look to see what is permitted in the State and then the
Tribes can do it. But it seems to me pretty clear the courts
are going to say they are limited to taking bets from people
who are physically on their land.
Now, they can take bets off-reservation. But that is if and
only if the States agree. In other words, for a Tribe to do
Internet gambling and take patrons who are off reservation,
that is a privilege, not a right.
So the question is, what is this going to mean for the
Tribes, and in some cases, the big Tribes, the ones that are
well-established, can protect themselves. They have the
political power, they have compacts in place.
But it is really up to Congress to protect the rest,
particularly small Tribes that are not near cities that are
basically not going to be getting the licenses and are now
going to have this additional competition with no reason to go
onto their reservation to gamble.
In fact, one point that I want to raise that hasn't been
raised, it is not even clear that Tribes can keep Internet
gambling off their land if a State legalizes. There are some
precedents that say State lotteries can sell on Indian land.
Of course, any attempt to expand Indian gaming rights is
obviously going to meet with strong opposition from most of the
States. The problem is, it is a problem that has to be resolved
now. In 1962, there were no State lotteries in the United
States. Half a century later, we have State lotteries in every
State, with only a half a dozen that don't have State
lotteries. But the Internet, the speed of change on the
Internet is like dog years. It is not going to take four or
five decades. Within much less than one decade we are going to
see Internet gambling legalized by all the States. And unless
Congress figures out a way to protect particularly the small
Tribes, I think that a lot of the Tribes are going to be out of
luck.
I want to thank you, mahalo, and I am looking forward to
your questions.
[The prepared statement of Mr. Rose follows:]
Prepared Statement of I. Nelson Rose, Distinguished Senior Professor,
Whittier Law School
As a completely unexpected gift to the states, announced two days
before Christmas, the United States Department of Justice (DoJ)
declared that states are now free to legalize almost every form of
Internet gambling, and not be worried about federal laws. This might
not have been the intent--the ruling dealt with state lottery
subscription sales--but the result will be an explosion of poker,
instant lotteries and casino games on the Internet, run or licensed by
the states. And, although the DoJ was careful to say the opinion is
limited to intra-state gambling, there is now nothing stopping states
from entering into compacts for online gambling with other states, and
even foreign nations.
Many tribes, especially those with established landbased gaming
operations, are worried that they might not be included in this coming
proliferation of state-operated and -licensed Internet gambling. And
they have every reason to worry.
Although tribes have the right to operate any form of gambling
permitted under the laws of the state where the tribe is located, it
seems likely that courts would limit that right to patrons who are
physically on Indian lands. Tribes are not prohibited from taking bets
from throughout a state. But that would be a privilege granted by a
state, not a right. And, the state could not be sued for bad faith if
it refused to let tribes accept off-reservation wagers. This puts
tribes in the position of having to compete for a limited number of
Internet gambling licenses, to be issued by not always friendly state
governments.
The tests for Indian gaming seem clear, based on the decision of
the U.S. Supreme Court in California v. Cabazon Band of Mission
Indians, 480 U.S. 202, 107 S.Ct. 1083 (1987), and the declarations of
Congress in the subsequent Indian Gaming Regulatory Act (IGRA), 25
U.S.C. 2701-21 and 18 U.S.C. 1166-68. First, what is permitted
in the state? This is a shorthand for requiring tribes to follow the
public policy of the state toward specific forms of gambling. Second,
tribes regulate, sometimes with, sometimes without, state or federal
governments, but only if the gambling is conducted on Indian lands.
Tribes in Nevada can operate casinos and sports books; tribes in Utah
have none.
This limit on tribal gaming to Indian lands is particularly true
with Class II gaming. So, if a state legalized Internet bingo or poker,
tribes could also conduct those games online, and would not need a
tribal-state compact. But players would have to be physically present
on Indian lands. There might be ways around this--proxy play for bingo
has been tried--but that would not work with poker.
The argument for limiting Class III gambling to Indian lands is
weaker. There is an express exemption in IGRA for tribal lotteries from
the federal anti-lottery statutes, 18 U.S.C. 1301-1304 (IGRA
2720). But this only proves Congress intended to allow tribes to send
lottery tickets across state lines and through the U.S. Mail. The
lottery would have to be conducted pursuant to a tribal-state compact,
and the statutes do not necessarily indicate Congress intended to allow
sales off-reservation. Tribes also can clearly operate off-track
betting (OTB), even though the races are taking place on non-Indian
lands. But even though states have to agree to compacts allowing their
tribes to operate OTBs, it is not clear that states would have to allow
tribes to accept wagers from bettors who are not physically on Indian
land. A majority of states allow remote betting conducted by state-
licensed OTBs through Advanced Deposit Wagering (ADW), where players
fund their accounts in advance over the phone or through the Internet.
Even though a state might agree to tribal ADWs, that does not mean it
had to.
I think courts would find tribes could demand compacts if states
legalized Internet lotteries, casinos, sports betting and other Class
III gaming. But, again, the bettors would have to be on Indian lands.
The Unlawful Internet Gambling Enforcement Act (UIGEA), 31 U.S.C.
5361 et seq., does allow tribes to go across state lines for inter-
tribal Internet gambling, Class II or III, but players are, again,
expressly limited to those on Indian lands. 31 U.S.C. 5362(10)(C).
The reason for the coming explosion of state-legal Internet
gambling was the declaration by the Barack Obama administration that
the major federal anti-gambling statute, the Wire Act, 18 U.S.C.
1084, applies only to bets on sports events and races. State
legislators and governors are desperate to find ways to raise revenue
without raising taxes. Gambling is seen as a painless tax, so every
state is looking into expanding legal gaming. They can now do so. The
only exception is sports betting, which cannot be introduced into a
state that does not already have it, due to a different federal
statute, the Professional and Amateur Sports Protection Act (PASPA), 28
U.S.C. 3701-3704. And, New Jersey, which would like to also have
true sports betting, has filed a court challenge to the PASPA.
Federal anti-gambling statutes can be seen as being merely
enforcement laws, not legalizing or prohibiting any form of gambling.
So, with only two exceptions, all federal anti-gambling statutes apply
only to gambling that violates some other federal or state law. Only
the federal anti-lottery statutes and the Wire Act can apply to
gambling that is legal under state law. But, long before Powerball,
states found ways of getting around the federal prohibitions on
interstate lotteries, by having no money, only information, cross state
lines. And state lotteries are now expressly allowed to have multi-
state lotteries, 18 U.S.C. 1301.
So, the only remaining barrier that blocks states from legalizing
games like Internet poker--which is not a lottery--has been the DoJ's
expansive view of the Wire Act. For example, when the American Virgin
Islands and Nevada passed legislation licensing online casinos, the DoJ
stopped state regulators from issuing licenses by saying they would
arrest operators under the Wire Act. Now that the Department charged
with enforcing the law has limited that statute to cross-border sports
bets, there is literally no federal law standing in the way of a state
authorizing intra-state online games, and even entering into compacts
with other states and nations to pool players.
The political fights will be over who gets the licenses. There is
so much legal gambling in the U.S. that it is easy for politicians to
say, ``We've already got casinos, racetracks and a state lottery.
What's the big deal about Internet poker?'' Of course, there is so much
legal gambling in the U.S. that those casino and racetrack owners, and
even the state lottery, respond, ``Internet poker is fine, as long as
we get to run it.''
But state lawmakers are not proposing legalization to protect local
operators; it is solely to raise money. Even in states as big as
California, the existing cardclubs, tribal casinos and racetrack do not
have anywhere near enough financial strength to outbid outsiders, such
as the largest Nevada casino companies and Internet gambling operators.
Giving the exclusive right to Internet games to the State Lottery
might bring in more money in the long run, but the states are desperate
for cash, now. Only outside companies, like Caesars Entertainment, can
come up with the $100 million or so the state will want up front. But
California's long-established and politically powerful cardclubs and
tribal casinos will not quietly accept an outsider setting up a
competing operation that brings legal gambling into every home in the
state.
Still, there is so much money at stake that political deals will be
made. In states like Nevada and New Jersey, where the local operators
are the big money, the landbased casino companies will get the Internet
gambling licenses. In states like California, local operators will get
a license or two, but others will also be sold to the highest bidders.
The great irony is that this coming explosion of legal Internet
gambling in the U.S. was created in part by a conservative Republican
attempting to outlaw online gaming. When the GOP controlled Congress
and George W. Bush was President, Bill Frist (R-TN), then majority
leader of the U.S. Senate, attached the UIGEA to a must-pass anti-
terrorist bill, the SAFE Port Act. But, the UIGEA has many loopholes,
accidentally opening the door to many forms of online gaming, including
fantasy sports, skill games, and intra-state gambling. The UIGEA has an
express exemption for gambling where the bettor and operator are in the
same state. It explicitly declares that legal gambling does not violate
the UIGEA, even if the wires carrying the gambling information pass
into another state.
It was the last that led to the announcement by the DoJ. The DoJ
had always taken the position that the Wire Act outlawed all forms of
gambling, and that that federal law applied so long as the gambling
information crossed, even briefly, into another state.
The DoJ decided the only way out of this conflict with the UIGEA
was to reinterpret the Wire Act. If this statute applied only to sports
bets, then it wouldn't matter if phone lines happened to carry lottery
or poker bets across other states.
The timing was also interesting. Although written months earlier,
the DoJ made its announcement on Christmas weekend, when news staffs
are at their absolute minimum. This prevented it from getting any
immediate great attention. Even anti-gambling activists did not notice
it for days. Plus, the tie-in to Christmas may not have been
accidental. This was a gift of hundreds of millions of dollars and
thousands of jobs to the states from Pres. Obama, at a time when they
desperately need help to continue recovering from the Great Recession.
The Memorandum Opinion was written by Virginia A. Seitz, Assistant
Attorney General, in the DoJ's Office of Legal Counsel, and represents
the official position of the Obama administration. It was written in
response to inquiries, some more than two years old, from Illinois and
New York. Technically, it answered the question: ``Whether proposals by
Illinois and New York to use the Internet and out-of-state transaction
processors to sell lottery tickets to in-state adults violate the Wire
Act.'' But, it also ended up responding to the letter sent by the
Majority Leader of the U.S. Senate, Harry Reid (D-NV), and Jon Kyl (R-
AZ), the number two Republican in the Senate. They had written to the
DoJ, after the District of Columbia Lottery announced it was going to
open Internet gaming in Washington, demanding that the Department
clarify its position on Internet gambling.
They now have their answer, though it may not have been what they
had wanted. Instead of declaring the D.C. Lottery's Internet plans
illegal, federal prosecutors will now only use the Wire Act when the
gambling involves sports events or races across state lines. Because
interstate horse racing already has its own statute, the only federal
prohibition remaining on state-legal gambling is on sports betting, and
even that might be changing.
The PASPA grandfathers-in Nevada, Delaware and a half-dozen other
states, while prohibiting any other state from legalizing sports
betting. This is now being challenged in the courts, because New Jersey
voters approved sports betting in November 2011. My guess is that the
PASPA will be declared unconstitutional. It is as legally irrational as
saying that only some states can have movie theaters with sound. And it
is possibly the only federal statute in history that tells the states
they cannot change their public policies on gambling.
The immediate beneficiaries will be the eight state lotteries that
are already using the Internet. Now, they can use out of state payment
processors and will quickly expand into selling individual tickets, not
just subscriptions. The big question is whether they will sell instant
tickets online. Because, if you put a scratcher on a video screen, it
becomes almost indistinguishable from a slot machine. Every state
lottery is also looking into whether it can offer other games,
including online poker, as the DC Lottery already has authority to do.
After all, most of the provincial lotteries in Canada are already
operating Internet poker and other online gambling games, or are about
to.
State legislatures are looking at how much revenue they can raise
by changing their laws to license Internet gambling. Nevada is furthest
along, having issued regulations for Internet poker. The Silver State
already has online and telephone sports betting. It allows remote
wagering on casino games from dedicated computer pads, limited to
casino grounds and excluding hotel rooms. But Nevada will probably not
license true Internet casino games, as long as the state's brick and
mortar casinos fear the competition.
States will then enter into compacts with other states, and even
foreign nations. In fact, there is no reason to wait. Nevada and the
District of Columbia can immediately agree that players in Las Vegas,
Reno and Washington can play online poker on sites operated by the D.C.
Lottery or a Nevada-based casino company. The main barriers will be
licensing and tax-revenue sharing. But multi-state and multi-national
lotteries show these difficulties can be overcome.
They should also be talking with the governments of England,
Alderney and the dozens of other foreign jurisdictions that license
Internet gaming. So long as they stay away from sports betting and
lotteries, there is no federal barrier to having truly international
games.
This surprise Christmas present from the DoJ will spur other states
to legalize. Iowa will probably be first. The Iowa Legislature mandated
a report, which has already been submitted, concluding that intra-state
poker can be operated safely and will raise money. This is the third
year the Legislature has considered the issue. Since it meets for only
100 days, it will act quickly, one way or another.
California is desperate for any source of revenue, and it has so
much legal gambling that the only question is which operators are going
to be the big winners.
In New Jersey, the Democratic-controlled Legislature approved
intra-state online gaming, but the bill was vetoed by Gov. Chris
Christie (R-NJ). Christie understands his state needs the money, so he
will help put the issue on the ballot in November. It should probably
be done through a constitutional amendment, to eliminate the present
language limiting gaming to Atlantic City. The main author, state
senator Ray Lesniak (D-Union), will probably not limit online patrons
to New Jersey, as his original bill stated, but instead will accept
players from any other state and nation where Internet gambling is
legal.
Questions remain. The Wire Act still applies to bets on horse
races. In December 2000, Congress amended the Interstate Horseracing
Act, 15 U.S.C. 3001-3007, to expressly allow the states to decide
for themselves whether their residents can make bets on horse races by
phone and computer. More than half the states have opted in under the
Interstate Horseracing Act to allow residents to bet by phone or
computer, including across state lines. But the DoJ's official position
is still that the ADW operator and the bettor have to be in the same
state. No one else, including the World Trade Organization, agrees with
the DoJ. And payment processors have to figure out who is right.
The control of gambling has always been left up to the states. A
federal licensing law would not really change things that much: States
have to be able to opt in or out. Congress will not impose the same
gambling policy on Nevada and Utah.
The problem for federally recognized tribes is that gambling
remains a public policy decision left to the states. We are in what I
call the Third Wave of Legal Gambling. This is the third time in
American history that legal gambling has spread nearly everywhere.
Historically, it has always been up to the states to decide their own
public policy toward gambling. That is why Utah and Nevada can share a
common border, yet have completely different gaming laws. The role of
the Federal Government has, until recently, always been limited to
helping the states enforce their public policies. Congress only acts
when it has to, as with interstate horseracing and Indian gaming, or
when the states have asked for federal assistance, as with the Wire Act
and other statutes designed to fight organized crime. Even IGRA
codifies the Supreme Court's decision in Cabazon that federally
recognized tribes can only operate those forms of gaming permitted by
the state where the tribe is located.
There are so many statements in the IGRA referring to ``gaming on
Indian lands,'' that there can be little doubt that Congress intended
to set up a system for allowing tribes to have legal gambling on their
land, if the games were low-stakes social or traditional, Class I, or
permitted by the laws of the state where the tribe is located, Class II
and III. A typical statement comes at the beginning of IGRA in the
Findings, 25 U.S.C. 2701(5): ``Indian tribes have the exclusive right
to regulate gaming activity on Indian lands if the gaming activity is
not specifically prohibited by Federal law and is conducted within a
State which does not, as a matter of criminal law and public policy,
prohibit such gaming activity.'' IGRA contains no similar statement
referring in any way to allowing tribes to conduct any part of their
gaming off Indian lands.
Even the statement in IGRA, quoted above, that tribes have the
exclusive right to regulate gambling on their lands might not be true.
At least one judge has found that state lotteries may sell their
tickets on Indians lands, and that the state regulation of gambling, in
this case, was not preempted by IGRA or by any other federal law.
Confederated Tribes and Bands of the Yakama Indian Nation v. Lowry, 968
F.Supp. 531 (E.D.WA. 1996), judgment vacated by Confederated Tribes &
Bands of Yakama Indian Nation v. Locke, 176 F.3d 467 (9th Cir. 1999).
Although the decision is non-binding, it indicates that tribes might
find it difficult to convince courts to keep Internet gaming off their
land once a state has made it legal.
The attempts to make Indian gaming available to the general
population of a state, without patrons having to come onto Indian
lands, have not met with much success. The Coeur d'Alene Tribe's
attempt to sell its National Indian Lottery tickets by telephone to
patrons in most of the states met with such severe legal challenges
that the Lottery folded. Many of the cases were resolved on legal
technicalities. But it is clear that a number of judges rejected the
Tribe's argument that the Lottery was being conducted on the Tribe's
land in Idaho, merely because the drawings took place there. Some
judges even objected to tribes ever offering any gambling off-
reservation, even if the tribe has express permission from the state.
See, e.g., the dissent in AT&T Corporation v. Coeur d'Alene Tribe, 295
F.3d 899, 910 (9th Cir. 2002) (Gould, Dissenting); see also State of
Missouri v. Coeur d'Alene Tribe, 164 F.3d 1102 (8th Cir. 1999); AT&T
Corporation v. Coeur d'Alene Tribe, 45 F.Supp.2d 995 (D.Idaho 1998),
reversed, 295 F.3d 899 (9th Cir. 2002).
It is theoretically possible that the DoJ could someday reverse its
conclusion that the Wire Act's ``prohibitions relate solely to sport-
related gambling activities in interstate and foreign commerce.'' But
that is highly unlikely. Not only are such reversals rare, but they
tend to be limited to issues a new presidential administration
considers important, such as Pres. Obama's reversal of the DoJ's
approval of torture under Pres. George W. Bush. Perhaps more
importantly, the DoJ's position is the one that is legally correct, and
is supported by almost all federal court decisions, including
consolidated class actions from throughout the U.S. decided by the
Fifth Circuit Court of Appeals. In Re MasterCard International Inc.,
313 F.3d 257 (5th Cir. 2002), affirming 132 F.Supp.2d 468 (E.D.LA.
2001). See also, Jubelirer v. MasterCard International, Inc., 68
F.Supp.2d 1049 (W.D.Wis. 1999). The only published opinion declaring
that the Wire Act does cover non-sports wagering was United States v.
Lombardo, 639 F. Supp. 2d 1271 (D. Utah. 2007).
The Wire Act was part of Attorney General Robert F. Kennedy's war
on organized crime and was designed to cut the telegraph wires illegal
bookies used to get the results of horse races before their bettors.
Using a 1961 law designed for telegraph wires against Internet poker
has always been like using stone tools to perform brain surgery: It
might work, but it would be extremely messy.
It is worth noting that the UIGEA and other federal anti-gambling
laws have not been rendered irrelevant by the DoJ's new position on the
Wire Act. The Black Friday indictments, where the U.S. Attorney for the
Southern District of New York closed down the largest online poker
sites then taking money bets from America, never mentioned the Wire
Act. In that case, the Federal Government bootstrapped New York state
anti-gambling misdemeanors into federal organized crime felony charges.
This shows that the DoJ has known for quite a while that the Wire Act
does not cover poker. It also illustrates the continuing importance of
state anti-gambling laws in a federal context.
I want to make it clear that I am not passing judgment on whether
it is a good or bad thing that tribes have no inherent rights under
Cabazon or IGRA to accept off-reservation patrons for Internet gaming.
There are some constitutional issues, dealing with federalism and state
and tribal sovereignty. But it is mainly statutory: Congress wrote IGRA
to make it clear that tribes could run legal gambling, open to the
public, but only on Indian lands.
IGRA was also intended to strengthen tribal governments. So there
is nothing preventing a tribe from accepting bets off-reservation, if
the tribe can reach an agreement with the state.
Some tribes can protect their gaming operations from the coming
explosion of online competition, for example, through compacts that are
already in place. But it is up to Congress to protect the rest. Of
course, any attempt to expand Indian gaming rights will undoubtedly be
met with strong opposition from most of the states.
Congress should not put off looking at these issues. States are
acting. Now. In 1962, there were no legal state lotteries in the U.S.
It took more than 45 years before almost all the states made lotteries
legal. Internet years are like ``dog years.'' Developments now happen
so fast, that it won't take four decades before Internet gambling is
legal in almost every state. And many tribes may be out of luck.
The Chairman. Thank you very much, Mr. Rose, for your
testimony.
Mr. Skibine, please proceed with your testimony.
STATEMENT OF ALEX T. SKIBINE, PROFESSOR, S.J. QUINNEY COLLEGE
OF LAW, UNIVERSITY OF UTAH
Mr. Skibine. Thank you, Chairman Akaka, Senator Udall. It
is a pleasure to testify today on this important issue on
Internet gaming. I thank you for inviting me to this hearing.
Before I became a professor of law, I worked for Morris
Udall, your uncle, for about 10 years, at a time that the IGRA
was first enacted into law. And it is a good thing to see that
the two main movers at that time were Senator Inouye and
Senator Udall, at least from the Indians' point of view. It is
great to see that we still have a chairman from Hawaii and a
Udall involved in Indian affairs.
I am here to testify about why, if Internet gaming is
otherwise legalized, the special problems of Indians should be
taken into consideration. I think there are two reasons for
this. One, for sure for many Indian Tribes that have Tribal-
State compacts, Internet gaming would be legal under their
compacts. There is no reason to treat Internet gaming as a new
form of gaming. If there is poker that is allowed as a form of
gaming, Internet poker should follow.
However, for other Tribes, it may not be the case. If so,
as a result of the Seminole Tribe, which is a Florida Supreme
Court decision, those Tribes would have a very hard time
amending their compacts, since under that decision, Tribes can
no longer sue the State in Federal court if the State raised
their sovereign immunity rights.
Number two, and Professor Rose alluded to that, even for
those Tribes for whom it is legal under their existing compact,
they may be restricted to wagering originating on Indian land.
This limitation in effect makes no sense when it comes to
Internet gaming, since Internet gaming is borderless. And the
reason for that limitation is that IGRA was enacted with a
concept of land-based sovereignty that is just not applicable
or translatable when it comes to Internet gaming.
Having said that, then if Internet gaming is going to be
addressed by new legislation, I think it is very important that
the bargain struck in the original IGRA by Chairman Udall and
Chairman Inouye should be respected. As you know, and I'm sure
Mr. Porter would tell you, the Tribes objected to IGRA when it
was first enacted. Because they viewed this as an invasion of
their sovereignty. Eventually, IGRA was able to work for Indian
Tribes.
But in the process, Inouye and Udall made some bargain with
those people that were opposed to Indian gaming. So I think in
my mind, IGRA has three major components, or ideas. First, it
respected the victory that the Tribes gained in the Cabazon
case, which I am sure the next witness will mention. That means
that Tribes have a right to conduct gaming, as long as it is
not prohibited in the State where they are located. I think
that bargain should still be upheld.
Number two, we made a decision when we drafted the very
first Udall bill. And I think Morris Udall was the first one to
introduce a bill regulating Indian gaming. Gaming was going to
be limited on the reservation to Tribally-owned establishments.
So in effect, we viewed Tribes as both the owners and the
regulators of gaming. And there is a lot of reason why we did
that. I think one of the reasons why we thought that Tribes do
not enjoy tax-based revenues that other governments have. So we
thought that they needed something. And as a result, by the
way, by the time IGRA was introduced, there were privately-
owned casinos on Indian land. But we basically made the option
that Tribes are going to be both the owners and the regulators.
That bargain should also be followed.
And finally, the third one, when Morris Udall introduced
his first bill, some people were opposed to it because they
thought that it was going to give an unfair benefit to the
Tribe. As a result, they demanded a level playing field
between, with the Tribes, that was their war cry, so to speak.
Eventually, we decided, yes, we are going to maintain this by
having a Tribal-State compact. And that was the essence of the
bargain, that the Tribe and the State would get together, would
negotiate a compact.
And then we also had this provision that Tribes could sue
States that did not negotiate in good faith. The Supreme Court
got rid of that section and as a result IGRA today does not
represent a fair balance between Tribal interests and State
interests.
I see my time has expired. Thank you very much.
[The prepared statement of Mr. Skibine follows:]
Prepared Statement of Alex T. Skibine, Professor, S.J. Quinney College
of Law, University of Utah
Chairman Akaka, members of the Committee, it is a pleasure to
testify today on the important issue of Internet gaming and I thank you
for inviting me to this hearing. It is an important issue because
Internet gaming is already by some estimates, a $30 billion industry
worldwide and it has been estimated that $6 to $7 billion of that come
from gamblers residing within the United States. If it is legalized in
this Country, it could very well be the next big thing in gaming and
there is no reason why Indian tribes should be left out of this
economic development opportunity.
My testimony will focus on ``what is at stake for tribes'' and not
on the Justice Department's opinion concerning the scope of the Wire
Act. I tend to agree with that opinion and leave to others the task of
casting a critical eye on its reasoning. Instead, I want to focus my
testimony on ``what is at stake for tribes.''
First, I want to emphasize why, if general legislation legalizing
and regulating Internet gaming is enacted, the special issues and
concerns facing Indian tribes should be addressed.
Secondly, while I do believe that it might not be politically wise
to amend IGRA in order to address the special problems facing tribal
Internet gaming, I also believe that any legislation addressing such
Internet gaming should respect the essential bargain that was struck in
IGRA between the interests of the Tribes, the States, and the Federal
Government.
Finally, I will make some suggestions about how Internet Gaming
should be regulated when it comes to Indian tribes.
1. The Need to Specifically Address the Special Issues Facing Indian
Tribes and Internet Gaming
The major reason to specifically address the issues facing Indian
Internet gaming is that without some specific legislation, Internet
gaming would be controlled by the Indian Gaming Regulatory Act. IGRA
divides gaming into three classes. Since Internet gaming is not
included in either Class I or II gaming activities, it would
automatically be included in Class III. Class III is regulated pursuant
to Tribal State Compacts. Of course, a very good argument can be made
that under current law, Internet gaming is authorized under some
existing compacts. Under that argument, ``Internet'' gaming would not
be considered to be a ``new form'' of gaming under existing compacts.
Under that view, if the compact allowed electronic blackjack for
instance to be played in a tribal casino, that game would be
automatically authorized as an Internet game. In the event that states
or others may not agree with this position, perhaps any legislation
legalizing Internet gaming generally should have a provision stating
that any Internet game that is otherwise authorized as a non-Internet
game in a tribal state compact would be deemed authorized under federal
law.
The major problem here is that while Internet gaming, if otherwise
legal under federal law and within the state where the reservation is
located, may be legal for some tribes under their tribal state
compacts, it may not be an authorized form of gaming for many others.
This would mean that for many tribes, Internet gaming would not be
authorized unless they could persuade the states to amend their
compacts. This would be an uphill battle and an unlikely scenario for
many tribes because the Supreme Court in Seminole Tribe v. Florida
struck down a key component of IGRA which allowed tribes to sue states
in federal court if the states failed to negotiate a compact in good
faith. As a result of this Supreme Court's decision, IGRA no longer
strikes the appropriate balance between tribal and state interests that
Congress had worked so hard to achieve when the legislation was first
enacted. Therefore, unless IGRA is amended to restore such appropriate
balance between tribal and state interests, I do not believe that
Internet gaming, if found not to be authorized under a compact, should
be regulated as a Class III game or subject to a tribal state compact.
Such a Seminole fix would be very simple to achieve but probably
very complicated politically. The Congress would just have to declare
that tribes could sue state officials who failed to negotiate in good
faith under the doctrine of Ex Parte Young. It would be a simple and
elegant solution that would not disturb the constitutional part of the
Supreme Court decision.
Even for those tribes where Internet gaming would be already legal,
the problem is that IGRA is very land specific. It is based on a
physical and geographical concept of sovereignty. This is why IGRA
limits itself to gaming on ``Indian lands'' and contains a very
specific definition of what are ``Indian lands'' for the purposes of
IGRA. Thus some may make the argument that even if arguably authorized
under a compact, Indian tribes should only be able to offer Internet
gaming to people located on Indian land. Such a limitation would be
ludicrous and incompatible with the very nature of the Internet. The
Internet is not land based. It does not have geographical boundaries.
It is to a great extent, borderless. Indian tribes should be able to
handle wagering from any customer located in a state that allows
Internet gaming.
Many people think that archaic conceptions of land based
sovereignty are ill adapted to regulation of the Internet. In any case,
for the following reasons, Tribes should be able to extend their
economic opportunities as sovereigns beyond the reservation borders.
First, one has to look at the historical context behind the
creation and location of Indian reservations. Indian tribes used to own
the whole country, and at least initially were able to reserve
substantial amount of lands for themselves in the early treaties. Later
on, however, after first being removed to out of the way and distant
places, many tribes saw their treaty land base reduced as a result of
warfare, and unilateral abrogation by the United States. Finally, the
tribes lost around 90 million acres through the allotment process,
which also resulted in a large influx of non-Indians within the
reservations. Indian reservations during the removal and later periods
were never created with Indian economic development in mind. Quite the
contrary, their location was selected, and their size reduced so that
non-Indians could proceed with economic development on land previously
owned by the tribes.
Second, it has to be understood that, when it comes to economic
development, Indian tribes are not just acting as businesses to make
money for their shareholders when venturing beyond their reservations.
They are in the process of raising governmental revenues because they
do not have a tax base on the reservation. They lack such tax base
because the Supreme Court has severely curtailed their power to tax
non-members, while at the same time allowing state taxation of non-
Indians, and Indian land held in fee, located within reservations. In
addition, the tribes cannot tax land held in trust by the United States
for individual tribal members.
Third, the concept of territorial sovereignty, both in the United
States and abroad, has been significantly eroded or modified, and there
are no valid reasons why especially when it comes to economic
development opportunities, tribal sovereign interests should be
strictly limited to the reservation setting. The general concept of
sovereignty has evolved from a concept focusing uniquely on territorial
sovereignty to a more malleable concept recognizing the
interrelationship between various sovereign actors. With the advent of
the European Union, and the development of cyberspace, and the
Internet, the very concept of sovereignty has evolved and is being
challenged. Under traditional understanding of sovereignty, in order to
be sovereign, a state had to have complete and exclusive control of
everything within its borders. Under such concept, tribes and states
such as Utah, could not be considered sovereign. Today, however, that
concept of territorial sovereignty is on the decline, and scholars have
recognized that there is more than one conceptual framework for
defining sovereignty. In a world where everything is interconnected,
largely because of the Internet, scholars have moved away from the
traditional concepts of territorial sovereignty, to a more malleable
concept, that some scholars have called relational sovereignty. In
Appendix B which is attached at the end of this statement, I further
describe how the United States courts and the Congress have already
recognized the validity of tribal sovereign interests beyond the
reservation border.
While I believe that because the Supreme Court invalidated parts of
IGRA, IGRA no longer incorporates the balance between tribal-state and
federal interest sought by Congress when it initially enacted that law,
I do believe that any future legislation should uphold the initial
compromise reached in IGRA. I now turn to what were the key provisions
of this agreement.
2. The Essence of the Bargain Reached in IGRA
The dual purpose of IGRA was to recognize gaming as a legitimate
activity for economic development on Indian reservations while at the
same time ensuring that Indian gaming remained clean and legitimate by
not coming under the influence of organized crime. However, the crucial
aspect of the legislation was the recognition that the tribes, the
states, and the Federal Government all had legitimate interests
relating to gaming on Indian reservations. While the legislation
recognized perhaps for the first time that states did have a role to
play in the tribal-federal relation, it also recognized that tribes
should be incorporated as sovereign governments into our ``dual''
system federalism. In other words tribes should be integrated as
governments into what was before only a federal-state relationship.
With this in mind, what are the essential aspects of IGRA that
achieved those goals:
First, one cannot talk about IGRA without mentioning the
Cabazon Supreme Court decision, the 25th anniversary of which
we are celebrating this year. In Cabazon, the Court held that
states did not have jurisdiction to regulate gaming on Indian
reservations although they could prohibit it altogether if the
prohibition was applied throughout the state. IGRA incorporated
this part of the decision by mandating that states had to
negotiate in good faith on any game that was otherwise
authorized under state law.
Second, IGRA recognized that Tribes could be both operators and
regulators of Indian gaming. The very first bill introduced to
regulate gaming on Indian reservations was introduced by my
former boss, Morris Udall. Under that initial bill, gaming on
Indian reservations would have been legal if authorized by a
tribal law and approved by the Secretary of the Interior. The
tribal law had to meet certain key criteria. One such criteria
was that Indian casinos had to be tribally owned. The reason
for this was two-fold. First we were aware that many tribes
lacked the essential tax base normally enjoyed by any other
governments. Tribes, therefore, were badly in need of an
additional source of governmental revenues. Secondly, we were
also aware that many states had been successful in raising
revenues through the operation of state owned lotteries. This
indicated that governments, such as tribal governments, could
be both gaming operators and regulators. That essential feature
of the original Udall Bill was maintained in the final version
of IGRA.
Third, maintaining a level playing field. The initial Udall
Bill was forcefully criticized by many on Capitol Hill on the
ground that Indians would gain an unfair advantage under such
legislation. The operative words were that Indians had to be
operating on a ``level playing field'' with the non-Indian
gaming operators. Although initially those who opposed the
original Udall bill were thinking of a level playing field
between the tribal casinos and the privately owned non-Indian
casinos, we on the Udall staff agreed to another type of level
playing field and that was between the states as owners and
regulators of gaming and Indian tribes as owners and
regulators. In the end, it is this kind of level playing field
that IGRA incorporated.
3. How Do You Best Maintain the Historic Compromise Reached in Igra as
First Enacted
1. Tribes should continue to be recognized as sovereign governments
with the authority to regulate gaming occurring on the reservations.
2. Tribes should be able to conduct Internet gaming with customers
located in any jurisdiction that allows Internet gaming even if these
customers are not located in the state where the tribe is located.
3. Another part of the agreement reached in IGRA called for no
state taxation of tribal gaming revenues. This too should be respected
and extended to Internet gaming.
4. To the extent that Internet gaming is not already authorized
under existing compacts, Internet gaming should not be treated as Class
III but as a new type of gaming activity.
5. There is no reason why Internet gaming, if it is considered a
new type of gaming, cannot be regulated jointly by the NIGC and the
Indian tribes operating such Internet gaming.
A federal court once referred to IGRA as a prime example of
``cooperative federalism.'' The evolution of congressional legislation
in Indian affairs (described in Appendix A) shows a move toward what
has been referred to as cooperative federalism--instead of imposing
federal laws, regulations, and programs on tribes directly, more recent
legislation call on the Federal Government to negotiate compacts with
the tribes or make federal funds contingent on tribal compliance with
federal directives. The goal here should be both to define the role of
the state in the federal-tribal trust relationship and integrate the
tribes into what was previously a dual federalism comprised of only the
states and the Federal Government. The legislative model selected for
tribal Internet gaming regulation should represent the best approach
for establishing a system some may call cooperative tri-federalism.
One option worth exploring would be for the NIGC and the tribes to
follow the informal rule-making model set out in the Administrative
Procedure Act, or more likely, in the Negotiated Rulemaking Act of
1990. Under the informal rule-making model, Congress would enact
comprehensive legislation outlining general federal requirements and
guidelines which would include protections of legitimate state
interests. These federal requirements could be similar to the ones
currently contained in IGRA. The Tribes would negotiate with the NIGC
to create a gaming compact with the Federal Government. The legislation
would provide for state interests to be represented during these
negotiations. The negotiated compact would then be published as a
proposed rule in the Federal Register. Interested parties, including
the state and local interests, would then have another chance to
comment on the proposed compact before it is issued as a final rule in
the Code of Federal Regulations. This option would side-stepped the
hurdles created by the Supreme Court decision in Seminole Tribe v.
Florida and re-establish the balance between competing tribal, federal,
and state interests that the original IGRA had sought to achieve. I
also believe that, as shown in Appendix A, it would be consistent with
the evolutionary trend in federal Indian legislation.
Attachments
Appendix A: The Evolutionary Trend in Federal Indian Legislation
The purpose of this section is not to do a comprehensive in-depth
analysis of all major congressional legislation affecting Indian
affairs, but to analyze the evolution of such legislation, to discern
the normative assumptions behind the different models, and to determine
which model is best suited for the regulation of tribal Internet gaming
and achieving what could be called cooperative tri-federalism: a
version of federalism involving the Tribes, the Federal Government, and
the States.
Congressional legislation after the treaty period which ended in
1871 can be divided into four eras: The Allotment Era, the Indian
Reorganization Era, the Self-Determination Era, and the current period,
which could be called the Self-Governance Era.
The first model, the treaty model, was in effect for almost 100
years, much longer if one includes the pre-constitutional colonial
period. This period of tribal-federal relationship was mostly defined
by the various treaties and the federal role as a trustee was mostly
limited to providing whatever was mandated under the various treaties.
Even though the Indian nations acknowledged their ``dependence'' on the
United States in many of those treaties, the assumption behind the
treaties was that Indian nations were to remain separate and distinct
sovereign political entities. Indians were not citizens of the United
States and no federal laws, at least initially, extended to Indians
within Indian country. The first law extending federal criminal
jurisdiction over Indians committing crimes against non-Indians in
Indian Country was enacted in 1817.
Things changed drastically after 1871, the year Congress enacted
legislation prohibiting the making of any further treaties with Indian
tribes. During that period, known as the Allotment Era, the Court
recognized state criminal jurisdiction over crimes committed by non-
Indians against other non-Indians within Indian country, and the Court
upheld the power of Congress to enact laws, such as the Major Crimes
Act, specifically aimed at assuming political control over Indian
tribes.
During the Allotment Era, Congress was most interested in assuming
control of tribal land and natural resources. The model legislation
then was the leasing statutes. These statutes reserved total control to
the Federal Government. Some of the leasing acts did not even require
tribal consent, and the Supreme Court upheld the power of Congress to
delegate plenary authority to the Secretary of the Interior in the
management of tribal natural resources.
The next era came about with the Indian Reorganization Act of 1934
(IRA). The IRA's major goal was to put an end to the allotment policy.
The proto-typical statute of this era is the Indian Mineral Leasing Act
(IMLA). Although tribes obtained more control over their resources,
Professor Judith Royster has asserted that ``tribes had more authority
over resource development on paper than in practice . . . . [T]he
Federal Government retained most of the practical decisionmaking about
Indian natural resources development and use.''
Except for a brief time when Congress embraced a termination
policy, the next era, the Self-Determination Era, began in the 1970s.
Besides the Indian Self-Determination and Education Assistance Act,
perhaps the most important legislation enacted during this era was the
Indian Child Welfare Act of 1978 (ICWA). Congress also enacted statutes
to govern the development of natural resources during the Self-
Determination Era, like the Indian Mineral Development Act of 1982
(IMDA). The IMDA allowed tribes to negotiate the terms of their mineral
development and enter into new types of arrangements.
The final generation of statutes is part of a new era which could
be called the Tribal Self-Governance Era. An indicative progression
from self-determination to self-governance has been the evolution of
the Indian Self-Determination and Education Assistance Act, from an act
only allowing tribes to assume the management of federal programs
pursuant to a procurement contract type model, to a model based on
tribal federal agreements, allowing each tribe to design its own
program with its own funding priorities. In the natural resources area,
a good example of the evolution from the previous model to the new one
is the difference between the Indian Mineral Development Act of 1982
and the Indian Tribal Energy Development and Self-Determination Act of
2005 (ITEDSA). Under the ITEDSA, tribes can enter into Tribal Energy
Resource Agreements (TERA's) with the Secretary of the Interior. Once
the agreement is approved by the Secretary, tribes can enter into
leases or other agreements concerning development of natural resources
with third parties without any additional federal approval
requirements.
The process provided for in the ITEDSA shares some similarities
with the one adopted in the Tribal Self-Governance Act of 1994. Both
acts provide for an initial foundational agreement between a tribe and
a federal agency, after which federal controls are diminished and the
tribe assumes primacy over the program. Peculiar to the ITEDSA,
however, is that at the same time as the Federal Government releases
its daily management and ultimate control over tribal natural
resources, the Congress is also giving more of a voice to affected
third parties. Thus, under the ITEDSA, the Secretary of the Interior
has to request public comments on the final TERA proposal, and has to
take such public comments into consideration when deciding whether to
approve a TERA. Professor Royster has stated that ``[m]any of the
public input provisions of the ITEDSA . . . conflict sharply with
tribal self-governance.'' Other provisions in the Act require tribes to
establish environmental review processes providing for public notice
and comment, as well as providing consultation with state governments
concerning any potential off-reservation impacts. There is also a
provision allowing any interested party to petition for Secretarial
review of the Tribe's compliance with the TERA.
While the Act does maintain the overall trust relationship between
the Federal Government and the tribes, Professor Royster concluded that
``[t]ribes can take advantage of new options and increased practical
sovereignty, but in exchange the [federal] government has a deeply
discounted trust responsibility.'' For instance, while the Secretary
has to ``act in accordance with the trust responsibility . . . and in
the best interests of the Indian tribes,'' the Act also provides that
``the United States shall not be liable to any party (including any
Indian tribe) for any negotiated term of, or any loss resulting from
the negotiated terms'' of any agreement reached pursuant to an approved
TERA.
In some important aspects, both the Self Governance Act and ITEDSA
follow the model adopted for the implementation of some of the federal
environmental laws, a model which has been described as cooperative
federalism. Starting in the mid 1980s Congress did include Indian
tribes in legislation such as the Clean Air Act, the Clean Water Act,
and the Safe Drinking Water Act, and Congress provided that, for some
of the sections and under certain conditions, tribes could be treated
as states for the purposes of assuming primacy for the regulation of
the environment within their reservations.
Appendix B: Domestic Law Recognition of Tribal Sovereign Interests
Beyond the Reservation
1. Treaties and Agreements With and Among Indian Tribes
Treaties entered between the United States and various Indian
tribes have been recognized as confirming hunting and fishing rights to
tribes beyond their reservations borders. Such treaties have been held
to immunize tribal members from some state regulations. In addition,
tribes can enforce tribal regulations of treaty rights on their own
members beyond the reservation. Such tribal regulations may even, in
certain cases, preempt state regulations. Usually, however, because
tribal treaty rights outside the reservation are said to be held ``in
common'' with the citizens of the state, states have been given
concurrent jurisdiction to regulate treaty hunting and fishing rights
for the purpose of conservation. Such state regulations have to be
reasonable and necessary, and cannot discriminate against Indians
exercising their treaty rights.
Although there may be some limitations derived from the Supreme
Court's statement that tribes have been divested of the power to
``independently . . . determine their external relations,'' tribes can
and have entered into binding agreements and treaties with other
tribes. In addition, tribes can and have entered into compacts with
states which have recognized some form of tribal authority over tribal
members or exemptions from state power beyond the reservation border.
For instance, tribes in Michigan have entered into tax compacts with
the state which recognize some tribal exemptions from state taxing
authority in ``agreement areas.'' As stated by professor Matthew
Fletcher, ``[t]he `agreement area' concept developed over the course of
the negotiations in order to smooth over many of the difficulties
created by the lack of a clearly designated Indian Country for most
Michigan Indian Tribes.'' Therefore, according to Professor Fletcher
``[f]ew of the lines and boundaries affecting the [tax] exemptions
contained in the agreement have any relationship whatsoever to
reservation boundaries or Indian Country.''
2. Legislation Recognizing Tribal (Sovereign?) Interests Beyond the
Reservation
I put a question mark after the word sovereign because one of the
issues here is whether this section should be written in terms of
tribal sovereignty interests or something else: cultural, religious, or
socio-political interests. Talking in terms of sovereignty often
invites conflicts because sovereignty is connected with an assertion of
power, often exclusive power. Framing the discussion about cultural or
economic rights, on the other hand, seems less confrontational and more
aimed at seeking accommodations. Whether described in term of
sovereignty, cultural rights, or just economic rights, the United
States Congress has enacted a substantial amount of legislation aimed
at protecting such off-reservation tribal interests.
Perhaps the most far reaching legislation recognizing tribal
sovereign interests beyond the reservation borders is the Indian Child
Welfare Act (ICWA) of 1978. In addition to mandating exclusive tribal
court jurisdiction over certain child custody proceedings when the
Indian child is domiciled on the reservation, the ICWA allows for
concurrent tribal and state jurisdiction in such proceedings for Indian
children residing off the reservation. Furthermore, the Act allows for
transfer of cases from state to tribal courts in the absence of good
cause or objections by either parent. As pointed out by Patrice Kunesh,
one section of the ICWA recognized exclusive tribal court jurisdiction
over non-reservation Indian children when these children are ``wards''
of the tribal court. Furthermore, professor Kunesh also demonstrated
that even before the passage of ICWA, some courts had recognized
exclusive tribal court jurisdiction in such off reservation child
custody proceedings. Having stated that the unique tribal interest in
its Indian children ``coalesces with the essentiality of tribal
governance in child welfare matters, to compose an uber-tribal interest
that transcends territorially-defined jurisdictional limits,''
professor Kunesh concluded that ``[t]he welfare of Indian children lies
at the heart of tribal sovereignty. Thus, there are no real boundaries
to protecting these essential tribal relations . . . . ''
Just as was done in the ICWA, Congress has also enacted federal
legislation mandating that full faith and credit be given by federal
and state courts to certain orders of tribal courts. Examples of such
legislation are the Child Support Orders Act, the Violence Against
Women Act, the Indian Land Consolidation Act, the National Indian
Forest Management Act, the American Indian Agricultural Management Act,
and arguably the Parental Kidnapping Act. These statutes are important
to the issue being discussed here because their ultimate effect is to
extend the sovereign actions of Indian tribes beyond the reservation
borders. In addition, as professor Robert Clinton has argued,
legislation providing for full faith and credit, rather than comity,
more clearly ``integrate'' Indian tribal courts into Our Federalism on
the same par with state and federal courts.
Congress has also enacted amendments to federal environmental
statutes such as the Clean Air Act, Clean Water Act, and the Safe
Drinking Water Act, providing for treatment of tribes as states (TAS).
Such treatment as states allows Indian tribes to extend the reach of
their sovereignty beyond the reservation borders. As the Seventh
Circuit stated in Wisconsin v. EPA, ``once a tribe is given TAS status,
it has the power to require upstream off-reservation dischargers,
conducting activities that may be economically valuable to the state .
. . to make sure that their activities do not result in contamination
of the downstream on-reservation waters.'' The Seventh Circuit also
acknowledged that even though ``this was a classic extraterritorial
effect,'' it was not prohibited by the Oliphant-Montana line of cases
which implicitly divested tribes of the power to independently control
their external relations.
Perhaps the most important statute focusing on tribal cultural
interests is the Native American Graves Protection Act of 1990
(NAGPRA). Once described as human rights legislation, NAGPRA not only
provides for the repatriation of Native American human remains and
cultural items in the possession of Federal agencies and museums to the
tribes, but also gives certain protections to Native American graves
and burial grounds located on tribal and federal lands. Under NAGPRA,
if an Indian burial ground is discovered during excavation activities,
the appropriate tribes have to be notified. Once a tribe is notified,
however, it only has thirty days to decide how to remove, or otherwise
make provisions for the disposal of, human remains and cultural items
associated with the burial site. After the thirty day period,
activities around the site may resume.
Tribal interests in off-reservation sites were also recognized in
the 1979 Archeological Resource Protection Act (ARPA) and the 1966
National Historic Preservation Act (NHPA). ARPA prohibits the removal
and excavation of ``archeological resources'' from federal and Indian
land without a permit. Under the Act, the appropriate Indian tribe has
to be notified if the issuance of a permit could result in harm or
destruction to any site, considered as having some cultural or
religious importance to that tribe. Under the 1992 amendments to NHPA,
federal agencies have to consult with the appropriate tribes if a
federal undertaking is likely to affect a historic property of
religious or cultural significance to that tribe. However, while
consultation allows tribes to be involved in the process, it does not
give them a right to veto any federal undertakings.
3. Judicial Recognition
One clear example where tribal immunity from state power has
survived even outside the reservation is in the doctrine of tribal
sovereign immunity from suit. Thus in Kiowa Tribe v. Manufacturing
Technologies, the Supreme Court upheld the sovereign immunity of the
tribe even though the tribe was being sued over commercial activities
which had occurred off the reservation. The majority specifically
refused the dissent's invitation to limit the tribe's sovereign
immunity to non-commercial tribal affairs occurring on the reservation.
The peculiar situation of Alaskan tribes provides a fertile ground
to debate the extent of tribal sovereignty beyond the reservation
borders. As a result of the Supreme Court decision in Alaska v. Native
Village of Venetie, the Native Tribes in Alaska have been described as
``sovereigns without territorial reach.'' Yet in spite of Venetie, the
Alaska Supreme Court, in John v. Baker, allowed a tribal court
jurisdiction over a child custody dispute between tribal members, even
in the absence of any Indian country falling under the jurisdiction of
that tribe. After stating that ``[t]he federal decisions discussing the
relationship between Indian country and tribal sovereignty indicate
that the nature of tribal sovereignty stems from two intertwined
sources: tribal membership and tribal land,'' the Alaska Supreme Court
held that Alaska Native villages have inherent, non-territorial
sovereignty allowing them to resolve domestic disputes between their
own members. Although the decision has been criticized, it is now
almost ten years old and has not been modified.
The Alaska Supreme Court relied on precedents such as Wheeler,
Montana, Merrion, Fisher, and Iowa Mutual, to find that under United
States Supreme Court jurisprudence, ``The key inquiry . . . is not
whether the tribe is located in Indian country, but rather whether the
tribe needs jurisdiction over a given context to secure tribal self-
governance.'' Finally, relying on Kiowa Tribe of Oklahoma v.
Manufacturing Technologies, the Alaskan Court concluded that
``Decisions of the United States Supreme Court support the conclusion
that Native American nations may possess the authority to govern
themselves even when they do not occupy Indian country.''
The Chairman. Thank you very much, Mr. Skibine.
Mr. Washburn, you state in your testimony, ``It is time for
the United States to formulate a coherent approach toward
Internet gaming.'' Do you think that coherent approach should
include a provision to allow Tribes the same access to enter
the market as any other commercial entity?
Mr. Washburn. Mr. Chairman, I do believe that. I do believe
that Tribes should at least have an equal opportunity to engage
in Internet gaming. Keep in mind that currently, Federal
gaming, Indian gaming is the only Federal gaming, and all of
those revenues go towards Indian Tribes. Every nickel of the
only federally-authorized gaming goes towards Indian Tribes.
So Tribes have become dependent on that revenue. So if we
risk that revenue to Tribes by creating a different regime, we
need to ensure that they are able to keep their revenues. And
there are several different ways to get there, I think. They
certainly should be allowed to participate, those Tribes that
wish to participate in Internet gaming, on an equal and fair
basis.
Thank you for the question, Mr. Chairman.
The Chairman. Mr. Rose, you described the DOJ opinion as an
unexpected gift to the States.
Mr. Rose. Yes.
The Chairman. That is a quote. Can you elaborate on which
States you think would benefit most, and whether this gift
would extend to Indian Tribes?
Mr. Rose. Thank you, Chairman Akaka. The gift was really
unexpected, because the Department of Justice had been saying
that the Wire Act covered all gambling and it covered even
legal intra-State gambling if a wire happened to go into
another State and come back, which given the Internet and
modern technology is the world. It is a gift because the States
can use that to legalize Internet gambling, bring in hundreds
of millions of dollars and create thousands of jobs.
Your question which States, I actually have created a Power
Point presentation, and I have found very few States that won't
be doing it. Utah won't, Alabama might not. Literally there is
only a handful of States. I practiced law in Hawaii for three
and a half years, Hawaii might not but probably will join.
Because every State is projecting a budget deficit, and they
can't have budget deficits.
So they are going to start with the State lotteries, mostly
traditional games, then go on to faster forms. They are going
to be looking at Internet poker, which is viewed as being
safer. But in some cases like New Jersey, it will be Internet
casinos. And I think every State is very seriously looking at
this, with only a couple exceptions.
Will the Tribes benefit? I think the politics of this are,
this is a State issue. There is so much legal gambling in this
Country that the politicians who are desperate for money say,
there is no big harm with legalizing one more form, like
legalizing Internet poker. But there is so much legal gambling
in this Country that we have established local operators.
Where the money is the same, they will get the licenses.
But in places like California, which have on the order of 110
federally-recognized Tribes, I think there are now currently 80
card clubs. They don't have the big Nevada operators. The State
wants to either give it to the State lottery to maximize its
money or to sell licenses to people like Caesars-Entertainment.
I expect a license will cost $100 million cash up front, which
the Tribes and the card clubs don't have.
But politically, the Tribes at least have enough power to
say okay, if you are going to give three licenses, then at
least one has to go to a Tribe or consortium of Tribes. But the
rest of the Tribes are going to get cut out. And certainly the
small Tribes that aren't near population centers don't have the
political power, they usually don't have a compact that will
protect them. And they are going to get cut out.
The Chairman. Thank you, Mr. Rose.
Mr. Skibine, as I mentioned earlier, Indian gaming is
currently the only federally-authorized and regulated gaming in
the United States. Indian gaming currently makes up 40 percent
of total gaming revenue in the U.S. market. Internet gaming
could be seen as a threat to that exclusivity.
Given your experience in writing IGRA, what do you think
Federal legislation would need to contain to ensure that Tribal
exclusivity is maintained in any expansion of gaming?
Mr. Skibine. Thank you. As a matter of fact, I am looking
at your chart, I can see that if Internet gaming was there
worldwide, it probably would represent the biggest percentage
of games. So it would be a threat, definitely. I think right
now it is an estimated $7 billion comes from the United States,
and it is another $30 billion worldwide.
I think there are four essential points that any decision
would have to address. Number one, Tribes should continue to be
recognized as sovereign governments with the authority to
regulate gaming occurring on their reservation. Number two,
Tribes should be able to conduct Internet gaming with customers
located in any jurisdiction that allows Internet gaming, even
if those customers are not located in the State where the Tribe
is located.
Number three, another part of the agreement reached in IGRA
called for no State taxation of Tribal gaming revenues. And
that principle should be continued. And number four, to the
extent that Internet gaming is not already authorized in
existing compacts, I do not think that Tribes should have to
negotiate or amend their compacts. Because they will not be
able to do so, they are going to have a very hard time as a
result of the Seminole Tribe decision.
So there is no reason why new Internet gaming cannot be
regulated jointly by the Tribe and the NIGC. I have suggested
in my testimony a kind of an involved mechanism by which the
NIGC could sit down with the Tribe and interested parties like
the States and negotiate a type of informal rulemaking that
would be in effect a compact. Thank you.
The Chairman. Let me say that all of your entire statements
will be placed in the record.
Mr. Washburn, some see the DOJ opinion as opening the door
for intra-State online gaming. In your opinion, would this
create opportunities or be detrimental for Tribes?
Mr. Washburn. Thank you, Mr. Chairman. I would say both. It
is detrimental to Tribes in one respect. Many States have
promised Tribes this exclusivity to engage in gaming. And if
the State begins Internet gaming, intra-State Internet gaming,
it will destroy that exclusivity, and Tribes won't be
responsible to pay most of these States the gaming revenue
shares that they have promised. So I don't know if that is a
detriment or a benefit in some respects. But Tribes would
presumably stop needing to pay those revenue shares.
I think that Tribes have this situation now where they have
exclusivity in some Tribal-State compacts and they have
exclusivity from the Federal Government. Because they operate
the only federally-authorized gaming. If they lose that
exclusivity, they must be compensated for that. That is a very
important principle. Because they have learned to rely on these
gaming revenues.
So I am not sure, I think the world is changing rapidly,
and it is hard to see exactly whether the detriments will be
greater or the benefits will be greater. But Congress must act
to help ensure that Tribes get to remain in the same place with
governmental resources. Thank you, Mr. Chairman.
The Chairman. Thank you.
Mr. Rose, you mentioned that since the DOJ opinion, there
is no Federal law prohibiting a State from authorizing
interstate online games and even entering into compacts with
other States and nations. Where do you see Tribes fitting into
this equation?
Mr. Rose. I think the problem for Tribes is they are not
fitting in. They are left out unless the State voluntarily
brings the Tribe in. In other words, if a State says, we are
going to have three licenses and a Tribe gets one of those,
just competing against Caesars and big other online operators.
The UIGEA, the Unlawful Internet Gambling Enforcement Act,
does say the Tribes can go interstate. But it is also clear the
players have to be physically on Indian lands. So the main
problem is that the Tribes simply haven't been included in
this, that the IGRA is very much land-based. It was designed,
in fact, primarily for bingo more than anything else. And the
Tribes can do a lot, but only on their land and on other Indian
lands, unless the States agree or Congress acts.
The Chairman. Thank you.
Mr. Skibine, in your testimony, you mentioned the outcomes
of the Cabazon decision, including the Indian Gaming Regulatory
Act. Do you see the DOJ opinion as a precursor to Federal
legislation?
Mr. Skibine. I think it will be, because if you are going
to have, if there is going to be Internet gaming, it is going
to have to be regulated. And right now, I think the United
States first adopted a position that Internet gaming was
illegal. Now they seem to have changed their mind. I think if
it is going to be legal, it will have to be regulated and it
will have to be regulated by the Federal Government, because of
the nature of the Internet. So yes.
The Chairman. Well, I want to thank you very much for your
responses. It is good to have your responses from these
different areas, as well as your opinions on how it will impact
the Tribes. And of course, all of this on the record will help
us in looking forward to further legislation.
So I want to thank you very much for being part of this
hearing.
I would like to invite the third panel to the witness
table. Serving on our panel is Mr. Patrick Fleming, litigation
support director of the Poker Players Alliance and Mr. Glenn
Feldman, Attorney at Mariscal, Weeks, McIntyre & Friedlander. I
want to welcome you to the table here in this hearing.
Mr. Fleming, will you please proceed with your testimony?
STATEMENT OF PATRICK W. FLEMING, LITIGATION SUPPORT DIRECTOR,
POKER PLAYERS ALLIANCE
Mr. Fleming. Thank you very much and good afternoon,
Chairman Akaka, members of the staff of this Committee.
I consider it an honor to be asked to testify before you
today. And I do hope that you will find my testimony useful.
I come here today as an attorney. I am simply an attorney
from Portsmouth, New Hampshire. But more importantly, I come
before you today as the litigation support director for the
Poker Players Alliance.
For anybody not familiar with us, the Poker Players
Alliance is a grassroots organization of American citizens. We
have 1.2 million members dedicated to the great American game
of poker, to advancing the game, to supporting the game and to
protecting our ability to play the game.
Our members come from all walks of life. They play the game
for fun, they play the game for the spirit of competition and
even a good number of our members play the game professionally.
They play the game at home, they play the game on their
computers, they play it in bars, they play it in charity-
sponsored tournaments and they play it in casinos, including,
important for this Committee, Tribal casinos.
As I begin, Your Honor, I would like to reiterate what was
said by the Chairman of the Poker Players Alliance, former
Senator Alfonse D'Amato, when he testified before this
Committee last November. The PPA, with respect to online poker,
is committed to seeing a broad, cross-border market for online
poker. We expect to see that with strong regulation, with
maximum consumer protection and most importantly, for this
Committee, a market that fosters as much competition as
possible between game operators. And that absolutely includes
the very important Tribal gaming operators to be very vital
participants.
The Committee asks essentially a legal question, but I
think the legal question has already been answered and
relatively explained. The short answer with respect to the DOJ
opinion letter is that States are now free to do whatever they
wish with respect to Internet gambling, except of course for
sports betting. This opens up an entire Pandora's box of
possibilities, and most of those possibilities have been
discussed already.
But what I would like to do with my few remaining minutes
is concentrate on the area that I think I bring some unique
expertise to, and that area is poker. Poker, Mr. Chairman, is
different. That is the single most important message I would
like to get across to this Committee and to members of
Congress. We talk about Internet gambling, but it is important
to realize that there is Internet gambling and then there is
Internet poker. The two are not exactly the same. The nature of
the games are different. Poker is different
Poker is different in three important aspects. Those
differences lead to an important different conclusion. Poker is
a social game, poker is a game played between people, and poker
is a game of skill that requires active participation and
competition among the players. This leads me to conclude that
Internet poker is not a threat to Tribal gaming interests.
One important factor we have noted and is noted in my
written testimony is that poker itself only represents 1
percent of Tribal gaming revenue. It brings people to Tribal
gaming casinos because of its popularity. But it is not the
game that supports their existence or helps benefit their
operations. It benefits them by virtue of bringing people
there, and providing, in that social connectivity that keeps
customers coming back.
So it is clear that at the very least, Internet poker is
not a threat to Tribal operations.
But I also believe that Internet poker can actually be a
benefit to Tribal operations. Whereas things like State-run
lotteries that may choose to, as Professor Rose said, have
instant scratch-off tickets online, which would effectively
been an online slot machine, one can easily see how that would
directly compete with Indian gaming operations. But with
respect to Internet poker, there is actually a symbiotic
relationship between those who play poker online and those who
play poker live.
Years ago, there were hardly any organized poker rooms in
Las Vegas or Atlantic City. But then the online poker boom
happened, and a new generation of Americans discovered this
great traditional American game and learned to play it and
learned to enjoy it.
But what they did, unlike what players of the other
traditional casino games do, is they then took that online
experience and brought it to the casino, to the card rooms, to
the Tribal reservations, because they wanted to be in a social
environment where they could play that game.
I see I am running out of time, Mr. Chairman, and I am
happy to take any questions the Committee has. But that is my
bottom line. When we look at this and we look at protecting
Tribal interests in the future world of Internet gaming, what I
think is very important and certainly most important to the
members of my organization is that we realize that Internet
poker functions differently from Internet slot machines,
Internet roulette and other traditional casino games, and
presents not, in my opinion, a threat to the Tribes, but
actually an opportunity. They too can use poker to bring people
into their land-based casinos and support their operations.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Fleming follows:]
Prepared Statement of Patrick W. Fleming, Litigation Support Director,
Poker Players Alliance
Chairman Akaka and Members of the Committee, I am pleased to have
this opportunity to testify before you today. I come here as an
attorney and, more specifically, in my role as Litigation Support
Director for the Poker Players Alliance (PPA), an organization of 1.2
million Americans who like to play a great American game of poker in
both commercial and Tribal casinos, in their homes, in bars, in
charitable games and on the Internet. They do so for recreation, for
camaraderie, for intellectual challenge and stimulation, and some of
them do it for a living.
To introduce myself briefly, I am an attorney from Portsmouth, New
Hampshire and have been a member of the bar in New Hampshire since
1985. The primary focus of my legal practice has been criminal defense
and that has always included a good familiarity with gambling law. I
have also been a lover of competitive games since childhood, and I
consider poker to be the quintessential competitive game of skill. I
joined the PPA in 2007 and, through a process of recommendation and
effort, helped create the PPA's Litigation Support Network in order to
assist poker players with the many legal questions that surround their
ability to play their favorite game. In 2008, I was named Director of
the Network and since then have devoted significant time and effort,
with the help of many other poker-playing lawyers, to fully
understanding the nature and details of the Federal gambling laws and
the gambling laws of the 50 States. It is my hope today that I can use
some of that knowledge and experience to assist this Committee.
Let me begin by reiterating something that PPA's Chairman, former
Senator Alfonse D'Amato said in this Committee's previous hearing on
Internet gaming: the PPA supports a robust, competitive, regulated
interstate market in which Tribal gaming interests are vital players.
Today, as I understand it, the Committee seeks to determine the
ways in which the recent change in policy by the U.S. Department of
Justice (DOJ) regarding the scope of the Wire Act may affect the future
of Tribal gaming. The short answer is that this change in policy is
likely to have far-reaching effects, few of which are certain at this
time, but the many of which may place Tribal Gaming operators at
significant disadvantages with respect to other gaming operators. The
bottom line is that if Tribal gaming is going to continue to be a
competitive operator in the gaming industry, it will most likely need
the assistance of this Congress through the passage of new legislation
in order to meet the future challenges.
In order to understand the basis for this conclusion, a brief
outline of existing Federal and State law is in order.
There are eight Federal laws which concern gambling and gaming (I
use both words because which games when played for money constitute
gambling games is not consistent across the law): The Wire Act (18
U.S.C. 1084), the Interstate Horseracing Act (IHA, 15 U.S.C. 3002),
the Professional and Amateur Sports Protection Act (PASPA, 28 U.S.C.
3701), the Indian Gaming Regulatory Act (IGRA, 27 U.S.C. 2701), The
Travel Act (18 U.S.C. 1952), the Illegal Gambling Business Act (18
U.S.C. 1955), the Unlawful Internet Gambling Enforcement Act (UIGEA,
31 U.S.C. 5361-5367), and the Lottery Acts (18 U.S.C. 1301-1304
).
Without going into too much detail regarding each, PASPA is not
germane to the discussion as it is essentially a prohibition against
additional States allowing sports betting. The IHA also need not be
discussed at length as it merely codifies a mechanism for remote
wagering on horse racing and to the best of my knowledge there are no
Tribal racing operations. And the Lottery Acts are clearly limited to
physical transactions involving lottery tickets.
The Travel Act, the IGBA, and the UIGEA all create Federal criminal
offenses for certain gambling activity, live or online. But none of
these three laws independently identifies an act as an offense.
Instead, each of these statutes require that any prosecution commenced
pursuant to the statute also include, as an element of the offense,
that the defendant has violated some other substantive gambling law.
Under the UIGEA, it may be a Federal or State substantive gambling law;
under the Travel Act and the IGBA, it must be a State substantive
gambling law.
Thus the only Federal statute which independently creates a
substantive Federal gambling offense, and therefore can act as an
independent Federal prohibition on conduct, is the Wire Act.
Prior to December 23, 2011, there was a live dispute regarding the
reach of the Wire Act's prohibition. Most legal scholars and two
Federal courts (In re MasterCard Int'l Inc., 313 F.3d 257 (5th Cir.
2002)) interpreted the Wire Act to only be applicable to gambling that
involved wagering on the outcomes of sporting events and sporting
contests. The DOJ, however, consistently maintained that the Wire Act
applied to all wagering activity otherwise conducted in the manner
proscribed by the statute. Throughout the first 10 years of this
century, the DOJ had asserted its position not only in the courts (U.S.
v. Lombardo, 639 F. Supp. 2d 1271 (D. Utah 2007); but also, according
to numerous press reports, when providing information to various State
legislatures. In numerous reported instances, beginning with North
Dakota in 2005 \1\ the DOJ was said to have informed State legislatures
that State laws, which would have allowed non-sports wagering over the
Internet, would violate the Wire Act and would therefore be pre-empted
by Federal law.
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\1\ http://www.Internetnews.com/busnews/article.php/3632206/
North+Dakota+a+Gambling+Haven.htm
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Thus prior to 2011, no State acted to specifically allow and
implement gambling or gaming activity over the Internet (other than, of
course, wagering on horse racing pursuant to the IHA). Indeed, Nevada
and the Virgin Islands had actually passed laws intending to allow
Internet wagering, but neither fully implemented those laws in light of
the Federal opposition.
In June of 2011, Nevada once again passed a law, Assembly Bill 258,
allowing and implementing Internet wagering, though limited only to the
game of poker. Yet even then, that Nevada law was subject to an
explicit limitation that no actual operation would commence until it
was deemed clearly legal under Federal law.
Also in 2011, the Lottery Commissions of two States, New York and
Illinois, sought guidance from the DOJ on the issue of using the
Internet as a means of selling lottery tickets within State borders.
Another inquest was made by Senators Kyl and Reid, seeking a broad
clarification of the Wire Act's parameters.
And on December 23, 2011, the DOJ responded to these inquiries. The
letters publicly issued on that date not only answered questions, they
announced a complete change in position. After reviewing its prior
stance and acknowledging its previous insistence to the contrary, the
new DOJ position is that the Wire Act, after all, really does only
apply to gambling that is in the nature of wagering on sporting events.
And although the DOJ opinion is not a court ruling with precedent-
setting impact, if a prosecuting authority announces it believes
certain conduct is not proscribed by a statute, one ought to at least
expect that the same authority will not bring prosecutions based on
that conduct.
Thus with that communication, the DOJ removed the sole Federal
barrier that it had for years argued was a complete bar to Internet
wagering activity in the United States.
As a direct result, for any gambling, gaming or wagering activity
conducted on the Internet to be currently illegal, it must be illegal
under a valid State law.
Currently only nine States (Illinois, Indiana, Louisiana, Montana,
Nevada, Oregon, South Dakota, Washington and Wisconsin) have statutes
which expressly address wagering activity on the Internet (other than
horse racing). In each of those States except Nevada, conducting as a
business any wagering activity over the Internet is either expressly
illegal or illegal except for horse race wagering. Nevada's recently
passed law expressly allows for the game of poker to be conducted over
the Internet by operators licensed in the State of Nevada. That Nevada
law also allows its licensed operators to offer Internet poker to
people located in other jurisdictions provided the law of the other
jurisdiction does not make such activity illegal.
It should also be noted that New Jersey is seriously considering a
law similar to Nevada's and that the New Jersey legislation is not
limited to poker, but would also allow all the other casino games such
as slot machines and blackjack to be offered in an online version.
It is impossible to state for certain what the law is for the 41
States that have no express provision regarding Internet wagering. All
the statutes in these other States predate the Internet, often by
decades, and sometimes by centuries. A lawyer or court seeking an
answer regarding Internet wagering's legality must take the existing
statute and try and apply it to this new situation. In some cases this
may be easier than in others. For example, it would not be surprising
to see a court rule that Maryland's statute ( 12-102), which simply
states that ``A person may not: (1) bet, wager, or gamble'', applies to
all methods of wagering including those conducted over the Internet. On
the other hand, it is extremely difficult to infer legislative intent
regarding Internet wagering when faced with a statute such as South
Carolina's 16-19-40: ``Unlawful games and betting. If any person
shall play at any tavern, inn, store for the retailing of spirituous
liquors or in any house used as a place of gaming, barn, kitchen,
stable or other outhouse, street, highway, open wood, race field or
open place at (a) any game with cards or dice . . . .''
Another aspect of State law is that States define gambling and
wagering in a number of different ways. For example, the game of poker
is a ``lottery'' according to the Kansas Supreme Court (State ex rel.
Stephan v. Finney, 867 P.2d 1034 (1994)), but its neighbor, the
Missouri Supreme Court, has specifically declared the opposite (Harris
v. Missouri Gaming Comm'n, 869 S.W.2d 58, 62 (Mo. 1994)). Similarly,
different State courts may make different determinations even when
using the same legal definitions. In most States, a game played for
money is ``gambling'' if the outcome of the game is predominantly
determined by chance rather than the skill of the players. The PPA, not
surprisingly, considers poker to be a game where skill predominates,
but not all agree. Indeed, many games, such as backgammon, scrabble and
poker, are games where the elements of chance and skill are
significantly intertwined. It is very easy to see a future where
scrabble and poker (played for money) are legal in State A, only
scrabble in State B, and neither in State C.
The bottom line is that, with a few exceptions, current State law
does not lend itself to easy answers when one poses a question
regarding the legality of a specific Internet gaming activity. Usually
the best that can be said is that the activity is clearly illegal in
some States and maybe or maybe not illegal in others. It will be very
interesting to see who, if anyone, will attempt to take advantage of
these issues in current State law now that the Wire Act is limited to
wagering on sporting events.
But far more important to the question at hand is the obvious fact
that States can change their laws. And with the lack of any national
Federal guideline other than the Wire Act's now limited prohibition on
sports wagering, what that future State legislation may look like is
limited only by imagination, and, possibly, the US Constitution's
Commerce Clause, specifically the ``dormant commerce clause''
principle.
Regarding what can be imagined, there are already some real
examples: Nevada's passage of online poker legislation and New Jersey's
contemplation of passing legislation allowing all casino games to be
conducted online. Other proposals have been made and are being
considered in State legislatures throughout the country. Among the many
proposals, all vary as to what specific games will be allowed, the
circumstances under which they will be allowed, and as to what entity
or entities will get to operate the online games.
Trying to list all the various possible legal online gaming schemes
States may choose from is a herculean task, but thankfully not
necessary to address this committee's concerns. There are really only
two questions that matter with respect to future State online gambling
laws and Tribal gaming interests. Those are, what games will be allowed
and will Tribal gaming operations be able to compete in the offering of
those games.
With respect to which games will States choose to authorize, the
basic distinction is already provided in law and practice. The IGRA
already distinguishes between Class 2 games (bingo and card games where
the players compete against each other such as poker) and Class 3 games
(all other gambling games including traditional casino games like slot
machines, blackjack, and roulette). Similarly, the distinction most
often discussed among State legislatures is between allowing online
poker alone (as in Nevada) or allowing all casino games online (as
contemplated by New Jersey).
With respect to allowing operators there is again a dichotomy, this
time between open markets and closed markets. Nevada's new law is an
open market, allowing anyone to operate an online poker site so long as
they are able to obtain a license. But many State lottery operators are
suggesting that a closed market be created along the same design as
that of the State lotteries: one State operator. And at least one
State, California, has considered adopting a monopoly model that would
allow only a set number of licensed operators.
With these distinctions in mind, it is then possible to chart the
ramifications on Tribal gaming of the various possible new State online
gambling laws.
First, it is clear that there will be far less impact on Tribal
gaming operators if new State gambling laws are limited to games such
as poker (and any other card game meeting IGRA's ``Class 2''
definition). According to the 2010 Spectrum Study prepared for the
National Indian Gaming Association, Tribal poker operations account for
only 1 percent of Tribal gaming revenue and thus any change in this
market is not likely to have profound effects on Tribal gaming
operations.
Additionally, all the preliminary evidence strongly suggests that
there is a healthy relationship between online poker and live poker.
Poker is, at its core, a social game of person against person. Hence
poker players as a general rule enjoy both settings and use one to
compliment the other. While there are some poker players who prefer
live games and some who prefer online games, the majority play both
with equal enthusiasm. Since online poker can be offered at stakes far
below the minimum needed to make a profit from live games, most poker
players use the online game as means of quick entertainment and/or
practice. Then, when looking for a long evening's entertainment or
after having accumulated enough winnings and experience to try higher
stakes, they go to a live game.
With respect to other casino games, the opposite of the first point
is clear and the opposite of the second point is highly likely. Slot
machines and table games account for the majority of Tribal gaming
revenue, so anything that will affect these games may have significant
effect.
And it seems, again from preliminary study, that those who play
games ``against the house'' do not really care that much about the
nature of their ``house'' opponents. While some may still see the
casino as a special place to go, most simply want to play the games and
may well see the ease of play at home as a good reason not to go
elsewhere to play the same game.
One final point should also be made with respect to the distinction
between Class 2 social games and Class 3 casino games. It is well known
that Class 2 gaming on the Internet requires a larger body of available
players to satisfy customer demands and thus be a profitable operation;
the need for active opponents to run the game dictates the need for a
large player pool from which an active player pool can be guaranteed to
always be present. States with small populations, and so Tribal gaming
interests in those same States, will therefore need to arrange for
cross-border Class 2 games. There is nothing in current Federal law to
currently prevent this from happening, but there is also no framework
in which to make it happen. It remains to be seen whether smaller
States interested in allowing Class 2 games will be able to come to
terms with each other on issues such as regulation, consumer protection
and taxation and so allow cross-border games. It is equally speculative
as to whether these States will decide to include Tribal interests in
such interstate compacts.
Regarding the question of being allowed to participate in the
market, at first glance it would appear Tribal gaming must be allowed
into the market under the provisions of the IGRA. Those provisions,
however, may well be outdated in the Internet age. Section 2710 of the
IGRA guarantees the Tribes the right to offer games as they are allowed
by the State in which the Tribal lands are located. Unfortunately, the
specific wording of that section only allows the Tribes to offer those
games ``on Tribal land.'' And ``Tribal land'' is specifically defined
in 27 U.S.C. 2703.4 as the confines of the reservation or similarly
owned and governed land.
Although the current status of Federal law is still emerging in
this area, the cases that have tackled the issue so far would suggest
that a Tribal online gaming operation that allowed players to access
the site from outside the reservation would be found to be operating,
at least partially, other than ``on Tribal land.'' Although a very
different context, when offshore sports betting operator Jay Cohen was
arrested for violating the Wire Act by accepting sports bets from New
York made through the Internet to his business in Aruba, he made the
argument in court that the betting took place in Aruba and so there was
no jurisdiction for the U.S. to prosecute him. Both the trial court and
the 2nd Circuit Court of Appeals disagreed (U.S. v. Cohen, 260 F.3d 68,
76 (2nd Cir. 2001)). This would strongly suggest that a Tribal online
gaming operation which accepts play from people not on Indian land is
not operating ``on Indian land'' just because that is where the games
are run.
There thus seems the real possibility that despite its stated
purposes and intentions, the IGRA does not, as currently written,
guarantee the Tribes the same online gaming rights as the States now
have. In short, the likely result of the DOJ's new position on the Wire
Act will be this: each jurisdiction will determine who, if anyone, can
take play from individuals located in that jurisdiction. If Tribal
gaming enterprises in that jurisdiction wanted to take Internet bets
from people on Indian land, they would be entitled to do so per the
IGRA. But if those same Tribal gaming enterprises wanted to take
Internet bets from people outside their reservations, they would have
to seek licenses and/or other direct permission from the States in
which those players are located.
Additionally, many States are discussing allowing their State
lottery operations to also conduct games on the Internet. A law
allowing this was passed right here in Washington, D.C., but was also
recently repealed. The majority of these proposals envision the lottery
having a monopoly on other Internet games similar to the current
monopoly they have with respect to lotteries. This sort of law seems
especially dangerous for Tribal gaming operations, especially when one
considers the possibility of instant lotteries or the online equivalent
of lottery scratch tickets. An Internet version of either of these
games, while technically not a ``slot machine'' game, would
nonetheless, be virtually indistinguishable from an online slot and so,
as noted before, would compete directly with the main revenue generator
for Tribal gaming.
Lastly on this point, some States are considering a closed in-State
gaming market with participation being limited to a few specific
operators. In some cases, the limited operators may include Tribal
gaming operators. At first blush this may seem protective of Tribal
interests, but it also may be a false protection. The Commerce Clause
of the U.S. Constitution (Article I, Section 8, Clause 3) has been
interpreted to require that unless Congress specifies otherwise (and it
has not in this situation), State law may not unfairly discriminate
against out-of-State commerce. See, e.g., United States v. Lopez, 514
U.S. 549 (1995) (''. . . the Court's Commerce Clause decisions dealt .
. . almost entirely with the Commerce Clause as a limit on State
legislation that discriminated against interstate commerce.''). It is
therefore a reasonable proposition that once a State allows a form of
Internet gambling to be conducted within its borders by private
entities, it cannot then prevent out of State interests from seeking to
participate in that same form of commercial activity. Some have
suggested that a State's traditional police power over gambling may
give States extra rights in this context, but there is as yet no case
law to support this argument. At best, it would appear that while
States maintain the right to either allow or prohibit gambling within
its borders, once it chooses to allow such activity, it cannot
significantly discriminate against out-of-State interests in favor of
in-State interests. Illustrative of this point is the case of Rousso v.
Washington (239 P.3d 1084 (2010)) in which the Washington Supreme Court
rejected a Dormant Commerce Clause argument that sought to overturn
Washington's ban on Internet gambling. That Court accepted that the
Dormant Commerce Clause applied to the situation, but rejected the
argument based on the finding that Internet gambling and live gambling
(which Washington allows) were different areas of commerce and both in-
State and out-of-State interests where equally barred from the Internet
market.
Accordingly, while it may seem tempting to establish an intrastate
monopoly as a way to protect in-State interests (perhaps including
Tribal interests), given the undeniable interstate nature of the
Internet, that protection may be just as fleeting as the attempt by New
York to grant a steamboat monopoly to Robert Fulton on New York
waterways (Gibbons v. Ogden, 22 U.S. 1 (1824)).
Finally, there is the question of the practical ability of Tribal
gaming interests to compete with the larger and more broadly
established corporate gaming interests. I am far from an expert in this
field, but it appears to be common sense that at least the smaller,
less capitalized Tribal gaming operators would have significant
disadvantages when trying to compete nationally, or even in-State, with
well-financed commercial casino operations. There are, however, ways to
participate in certain online gaming markets that do not require direct
competition, but instead foster cooperation that benefits all.
I have remarked above on the fact that players of Class 2 social
games are more likely to use Internet play as a means to supplement and
support live play than players of Class 3 house-banked games. This
aspect of social games supports the prospect of direct interaction
between live game operators and Internet game operators. It is a well-
known fact that social games are not a major source of casino or Tribal
gaming revenue and that higher profits are made from the house-banked
games. But social games have the additional effect of bringing people
into a casino who otherwise would not visit. And, of course, it is
well-known in the gaming industry that getting customers through the
door is the key to a successful operation. In this context, it is easy
to see a correlation between online social gaming operations and local
live operations. A website for online poker linked to a local venue is
likely to generate additional live business for the local venue, both
through increased interest in the game and through the offering of
promotions redeemable at the local venue. With respect to social games
such as poker, the efficacy of ``affiliates'' as marketing portals is
well established. Affiliates are simple websites through which a player
is connected to the larger website that actually provides the games.
Typically affiliates earn a percentage of the money earned from the
player who participates through them and, probably more importantly,
the affiliate establishes the personal relationship with the player. So
at least with respect to social games, the ability of small regional
operations to participate and benefit as affiliates to larger
operations is clearly established. Indeed, Tribal interests may well
have an advantage in setting up these kinds of affiliate relationships
as they are typically located in areas otherwise without alternative
live venues. A poker player in Arizona may well prefer that his status
as a customer is rewarded by promotions available at his local tribal
casino rather than the casino in Las Vegas that he may only visit once
or twice a year.
In conclusion, the basic answer to the Committee's question is
clear: the DOJ's new position that the Wire Act does not apply to
gaming other than wagering on sporting events will have large and
significant ramifications for Tribal gaming interests. Depending on
future developments in State laws, those ramifications will present
Tribal gaming operators with significant competition issues that
current law leaves them woefully unprepared to meet. The actual effects
will depend upon the decisions made by the various States with respect
to future laws regarding Internet gambling and on whether the Federal
government acts to establish a new national policy with respect to
Internet gambling.
For Tribal gaming interests specifically, I believe there are three
essential issues that must be addressed: (1) whether the IGRA must be
updated to clearly allow Tribal interests the same gaming rights on the
Internet as States allow themselves or private companies, (2) whether
it would better protect Tribal interests by adoption of new Federal
legislation that allows only Class 2 social games like poker to be
conducted over the Internet, and (3) whether Tribal interests should
also be protected by Federal legislation that ensures unfettered
interstate competition, but in a manner that directly allows and
supports participation by local interests.
I thank you, and am available for any questions.
The Chairman. Thank you very much, Mr. Fleming.
Mr. Feldman, will you please proceed with your testimony?
STATEMENT OF GLENN M. FELDMAN, ATTORNEY, MARISCAL, WEEKS,
McINTYRE & FRIEDLANDER, P.A., PHOENIX, ARIZONA
Mr. Feldman. Chairman Akaka, I appreciate the opportunity
to testify here today on this important issue.
By way of background, I am a lawyer in private practice in
Phoenix, Arizona, with the law firm of Mariscal Weeks. For more
than 30 years, my practice has been devoted exclusively to
Federal Indian law, representing Tribes and Tribal entities
around the Country.
Among other things, I have served as outside general
counsel to the Cabazon Band of Mission Indians since 1979. And
it was my great good fortune to argue and win the case of
California v. Cabazon Band, the so-called Cabazon Case, before
the U.S. Supreme Court.
Since that time, I have been actively involved in
negotiating Tribal-State compacts for Tribes in a number of
States, as well as litigating a variety of other Indian gaming
issues.
Now, I am not here as an advocate for or against Federal
legislation in the area of Internet gaming. Rather, what I hope
to do is to provide you with some thoughts, based on my own
personal experience in dealing with Indian gaming for more than
30 years, on how this Committee might want to proceed as it
considers this important issue.
Let me say at the outset: I believe that lawful Internet
gaming in the United States is inevitable. And so the advice
that I give all of my Tribal clients is the same, just saying
no is not an effective strategy for dealing with inevitable
change. In my view, Tribes need to be at the table, need to be
active participants in the developments of legislation and need
to be flexible and smart in their thinking in order to be sure
that they share in the benefits and avoid the problems that
Internet gaming may bring.
Part of my message here today, however, is that there is no
need to rush to enact Federal Internet gaming legislation. I do
not necessarily share the views of those who suggest that the
recent Justice Department opinion is immediately going to open
the floodgates to unlicensed and unregulated Internet gaming in
the United States. While such gaming may not be prohibited by
the Federal Wire Act under the Justice Department's opinion,
there are certainly existing proscriptions under the Unlawful
Internet Gaming Enforcement Act, the Unlawful Gaming Business
Act, RICO and other Federal civil and criminal forfeiture
statutes.
As a result, I think Congress would make a serious mistake
if it were to rush into enacting Federal legislation without
the careful, deliberate process the subject deserves. In this
connection, I think there are some useful parallels to be drawn
between where Congress finds itself today with Internet gaming
and where Congress was in the late 1980s when it was
considering Indian gaming legislation after the Cabazon
decision. Both situations presented a complex and controversial
mix of Federal, Tribal, State and commercial interests. And
both Tribal gaming then and Internet gaming now are likely to
have important economic and societal consequences.
But despite these facts, Congress did not rush to enact
Indian gaming legislation in the 1980s. Twenty months elapsed
between the time of the Cabazon decision and the date that the
Congress passed the Indian Gaming Regulatory Act of 1988. And
what must also be kept in mind, though, is that Congress had
actually been considering Indian gaming legislation three years
before the Cabazon decision came down.
So at the time IGRA was enacted and signed into law by
President Reagan in 1988, Congress had devoted more than four
full years to that legislation process.
Now, I am not suggesting that Congress needs to study this
issue to death. But at the same time, I don't want to minimize
the difficulty or the complexity of the negotiations that
resulted in the final version of the Indian Gaming Regulatory
Act. As Professor Skibine recalls, all of us who were involved
in that process left a lot of blood, sweat and tears on the
floors of many meeting rooms over a long period of time. But in
the end, that long, deliberative process worked and produced a
legislative framework that despite its flaws has proven to be a
pretty good compromise that is now pumping more than $25
billion annually into Indian Country.
And I think the situation today involving Internet gaming
represents the same kind of situation and the same kind of
challenge. We don't need to rush. Certainly, Congress has a
role to play in this. But I think rushing to enact fast
legislation is not the best solution. Taking the time to enact
good legislation ought to really be the goal.
So let me make my final point here. That is, Indian Tribal
governments need to be full and active participants in all
processes by which Federal Internet gaming legislation is
developed. And Tribes are entitled to have the full right to
develop, use and benefit from Internet gaming to the extent
they wish to do so. Legislation that limits or restricts the
ability of Tribal governments to reap the benefits of Indian
gaming is simply unacceptable.
Internet gaming today, like Indian gaming 25 years ago, is
complicated and controversial. But it is coming. So Tribal
governments need to be smart and flexible in their thinking on
the issue and Congress needs to recognize that Tribes must have
a seat at the table where those decisions are going to be made.
That concludes my testimony. I would be happy to answer any
questions.
[The prepared statement of Mr. Feldman follows:]
Prepared Statement of Glenn M. Feldman, Mariscal, Weeks, McIntyre &
Friedlander, P.A.
Mr. Chairman and members of the Committee:
I appreciate the opportunity to testify here today on this
important issue. By way of background, I am a lawyer in private
practice in Phoenix, Arizona. For more than 30 years, my practice has
been devoted exclusively to federal Indian law, representing tribes and
tribal entities around the country. Among other things, I have served
as outside General Counsel to the Cabazon Band of Mission Indians since
1979, and it was my great good fortune to argue--and win--California v.
Cabazon Band (the so-called ``Cabazon case'') before the U.S. Supreme
Court in 1987. Since that time, I have been actively involved in
negotiating tribal-state gaming compacts for tribes in a number of
states as well as litigating a variety of other Indian gaming Issues. A
more complete biography is attached to this testimony.
Let me begin by saying that I am not here as any sort of self-
appointed spokesman for Indian Country. Given the complexity of the
Internet gaming issue and the wide divergence of opinion among tribes
on the subject (including among my own tribal clients), I'm not sure
that anyone can--or should--try to perform that role.
Nor am I here as an advocate for or against federal legislation in
the area of Internet gaming. Rather, what I hope to do is provide the
Committee with some thoughts on how it, and Congress as a whole, might
want to proceed as it considers this difficult issue.
Let me say at the outset that I believe that lawful Internet gaming
in the United States is inevitable. I don't see how anyone can look at
the technological advances of recent years and not understand that the
Internet is going to become an important component of the gaming
industry in the future. The only real questions are how and when. And
so, the advice that I give all my tribal clients is the same: just
saying ``no'' is not an effective strategy for dealing with inevitable
change. In my view, tribes need to be at the table; need to be active
participants in the development of the legislation and the systems; and
need to be flexible and smart in their thinking in order to be sure
that they share in the benefits and avoid the problems that Internet
gaming will bring.
Part of my message today, however, is that there is no need to rush
to enact federal Internet gaming legislation. I do not share the views
of those who suggest that the recent Justice Department opinion is
immediately going to open the floodgates of unlicensed and unregulated
Internet gaming in the United States. While such gaming may not be
prohibited by the federal Wire Act under the Justice Department's
recent opinion, interstate Internet gaming is still subject to the
proscriptions of UIGEA and may well run afoul of the Unlawful Gambling
Business Act, RICO and other civil and criminal forfeiture statutes. As
a result, I think Congress would be making a serious mistake if it
rushed into enacting federal legislation without the careful,
deliberative process the subject deserves.
In this connection, I think there are some useful parallels to be
drawn between where Congress finds itself today with respect to
Internet gaming and where Congress was in the late 1980's, when it was
considering Indian gaming legislation after the Cabazon decision.
Both situations presented a complex and controversial mix of
federal, tribal, state and commercial interests and both tribal gaming
then, and Internet gaming now, are likely to have important economic,
political and societal consequences. But despite these facts, Congress
did not rush to enact Indian gaming legislation in the 1980s. Twenty
months elapsed between the time of the Cabazon decision, in February,
1987 and the enactment of the Indian Gaming Regulatory Act in October,
1988. But what must be kept in mind is that Congress had been actively
considering Indian gaming legislation as early as 1984, a full three
years before Cabazon. So by the time IGRA was signed into law by
President Reagan in 1988, Congress had devoted more than four full
years to that legislative process.
Now, I'm not suggesting that Congress necessarily needs to devote
that much time to the Internet gaming issue and I'm not proposing that
Congress ``study the issue to death.'' Nor do I want to minimize the
difficulty or complexity of the negotiations that resulted in the final
version of the Indian Gaming Regulatory Act. As Professor Skibine
recalls, all of us left blood, sweat and tears on the floors of those
meeting rooms. But in the end, that long, deliberative process worked
and produced a legislative framework that, despite its flaws, has
proven to be a pretty good compromise that is now pumping more than $25
billion annually into Indian Country.
The situation involving Internet gaming today presents a very
similar challenge. It involves many moving parts and potentially
competing interests. But precisely for those reasons, the issue
deserves thoughtful attention and not a rush to judgment. Authorizing
the use of this technology in gaming to maximize its benefits and
minimize its potential problems requires no less.
While I'm talking about parallels, let me mention one more. In
IGRA, and particularly in the definition of ``class II gaming,''
Congress in 1988 declared that tribes were entitled to incorporate
future technologic advancements (or what the statute calls
``electronic, computer or other technologic aids'') into their gaming
activities. As this Committee's Report on S. 555 plainly stated,
[t]he Committee specifically rejects any inference that tribes
should restrict class II games to . . . current technology. The
Committee intends that tribes be given the opportunity to take
advantage of modern methods of conducting class II games and
the language regarding technology is designed to proved maximum
flexibility.
Senate Committee Report, page 9.
I think the parallel here is obvious. If Congress is going to
continue to keep that promise it made to tribes about allowing them to
incorporate technologic advances into their gaming activities, then
that same commitment needs to apply to Internet gaming now.
This leads me to the final premise of my testimony. Indian tribal
governments need to be full and active participants in all processes by
which federal Internet gaming legislation is developed, and tribes are
entitled to have the full right to develop, use and benefit from
Internet gaming to the extent they wish to do so. Legislation that
limits or restricts the ability of tribal governments to reap the
benefits of Internet gaming is simply unacceptable.
Admittedly, not all tribes will choose to make this leap across the
digital divide. And for those that do, there will be any number of
potential models as to how that involvement might be structured. The
IGRA format--involving tribal ownership, operation and regulation of
the gaming operation--has proven its worth over the last 25 years and
could be one option for some tribes.
But that is certainly not the only model. In California, for
example, a group of 29 gaming and non-gaming tribes has joined forces
with an equal number of commercial cardrooms to form the California
Online Poker Association. That group is promoting state legislation
under which California would create, license, regulate and derive state
revenues from an intrastate Internet poker system. Again, this may not
be the right answer for every tribe, but for those that choose that
path, they ought to have that right.
Internet gaming today, like Indian gaming 25 years ago, is
complicated and controversial. But it's coming, and so tribal
governments need to be smart and flexible in their thinking on the
issue, and Congress needs to recognize that tribes must have a seat--in
fact, given the wide diversity of opinions on the subject in Indian
Country, they are probably entitled to several seats--at the tables
where these decisions are going to be made.
That concludes my testimony and I would be happy to respond to any
questions the Committee members may have.
The Chairman. Thank you very much, Mr. Feldman.
Mr. Fleming, you testified in favor of Federal legislation
regulating Internet poker. You view poker legislation as more
beneficial to Tribes than open-ended Internet gaming. Can you
elaborate on why Tribes would far better under poker-only
legislation, rather than other contemplated legislation?
Mr. Fleming. Thank you very much for that question, Mr.
Chairman. I would be happy to elaborate on that point.
My personal conclusion is that that is clear. We have heard
today and we have seen in the various written testimony that
has been submitted to the Committee of the dangers of States
and certain private interests being able to unfairly,
essentially, compete with Tribal interests. We heard from
President Porter about how the Tribal interests specifically
bargained for their right to a certain amount of geographic
exclusivity. But we all also realize that there is no such
thing as geographic exclusivity with respect to the Internet.
So if there is a State lottery commission that decides it
is going to start offering games that are the functional
equivalent of the games that are offered on Tribal lands, then
clearly there is going to be a competition there. There is
really no way to create a geographic barrier there. And that
could seriously undermine Tribal gaming revenue as it exists
today.
With respect to poker, as I said earlier, currently the
revenue Tribal gaming gets from poker is 1 percent of their
total revenue. But more importantly, as I tried to say in my
limited time, poker has a symbiotic relationship with local
gaming and the Internet. And there is absolutely a direct
available way for Tribal gaming interests to take advantage of
online poker in a manner that wouldn't really exist with other
forms of gaming. And that is to draw the poker player to the
Tribal casino.
A Tribal casino that either operates its own site or is
part of a network, or in the industry they often call
affiliates, is a Tribal casino that could market itself to that
same geographic area where it currently has exclusivity. It
could market itself to the people in that area, those people
would become part of the Internet poker network through the
Tribal casino affiliate. And the Tribal casino would then have
that personal relationship with the customer and could also,
because affiliates are given a percentage of the revenue, could
also afford to adopt promotions that would entice the online
poker player to come to the online casino.
And I can tell you, as a poker player, we like to play
poker a lot, we don't like to have to drive hours to play poker
or fly hours to play poker. There is nothing better than having
a game nearby. And we can be drawn into that much more
efficiently than you could ever do with any of the other games
that are being talked about today.
The Chairman. Thank you.
Mr. Feldman, in your testimony you state that lawful
Internet gaming is likely inevitable. What comparison can you
make to this new potential market for Tribes and the climate
under which the Cabazon decision was made and IGRA was enacted?
Mr. Feldman. Chairman Akaka, in the late 1980s, I think
Indian gaming presented an uncertain market with unknown
potential. At that time, shortly after the Cabazon decision, as
IGRA was adopted, nobody really knew where Indian gaming was
going to go. As someone mentioned, at that point there were a
handful of small casinos and bingo parlors scattered around the
Country. And where it was going to go couldn't be determined.
If my memory serves me correctly, I think around 1990, the
total revenue for Indian gaming nationally was somewhere in the
neighborhood of $200 million.
We look today at the chart up here and we are looking at
$26.48 billion. So I am not sure anybody could have predicted
that level of growth 20, 25 years ago.
With the Internet gaming market, though, sitting here
today, I think we have a better sense of what is going on out
there. As has been discussed, the number that people tend to
use for lawful Internet gaming in jurisdictions where it is
permitted is somewhere around $30 billion with $7 billion or $8
billion of that coming from the United States. So my guess is,
if Internet gaming were legalized in the United States, all the
legal obstacles removed, we would see a dramatic expansion, and
I think the market is probably unlimited in terms of where
Internet gaming could go.
That is why I am so adamant that Tribes need to be given
full participation. Their entitlement needs to be recognized in
any legislation that Congress considers. They need to have full
participation.
And the other part of it is they need to be given as much
flexibility as they can. One model is not going to fit all
Tribes. There are a lot of different ways that Tribes may
choose to get involved in Internet gaming.
So in addition to full participation, I think the other
component there is flexibility, so the Tribes can decide for
themselves what is the best approach for them to get into that
industry. Thank you.
The Chairman. Thank you.
Mr. Fleming, do you read the DOJ opinion to now allow
States, through their State lotteries, to engage in any type of
Internet gaming except sports betting? If so, what is the
potential impact to Tribal gaming as it currently exists?
Mr. Fleming. Thank you for that question, too, Mr.
Chairman. I think I answered a little bit of that question in
my previous answer.
Yes, I definitely see, the interesting part as I explained
in detail in my written testimony is that while there are other
Federal laws that control gambling to a certain extent, all of
the other Federal laws besides the Wire Act, and Professor Rose
mentioned this, too, all of the other laws besides the Wire Act
require as part of the offense, part of the conduct that is
prohibited, that that conduct also violate a State law. Thus,
if you have an activity that a State does not make illegal or
specifically allows, it is now, per this new DOJ opinion,
outside of the purview of the Wire Act.
So yes, the States now are essentially totally open to
adopting any kind of online gaming they wish to, except for
that specifically federally prohibited area of sports betting.
And as I said last time, the impact here on Tribal gaming
is because that will go directly to where most of the Tribal
gaming revenue comes from, from the traditional casino games
like blackjack and roulette. And more importantly, because in
many States the Tribes have exclusive markets to slot machines,
there would be direct competition.
And unlike poker, there is not the same symbiotic
relationship. People who like to play slot machines like to
play slot machines. It is not a social game that draws them to
a particular place. They go where the games are available. If
the games are available on their home computer, then certainly
they have much less incentive to visit a Tribal casino to play
the same game. They are not interacting with other people, they
don't need other people to play the game, they don't need a
large number of people to make the game viable.
So I see the potential for significant negative effect.
Again, there are numerous ways to answer it. One could hope in
some States they would take the effort to be protective for the
Tribes like they should be. But there is nothing in the Federal
legislation as it currently exists that mandates that they do
that.
The Chairman. Thank you very much.
You did mention, I think you did mention that there were
three things with poker. One was it was a social game. What are
the other two?
Mr. Fleming. I am sorry if I wasn't clear. It is my first
time testifying.
Mr. Chairman, aside from being a social game, it is not a
game that is played against the house. Every other game that
takes place in the casino pits the customer against the casino.
Whereas with poker, the customer is playing against the other
customers. That is a fundamental factual difference. It also
makes for an entirely different structure of a poker market,
and an online poker market. It is one of the reasons we at the
Poker Players Alliance are so insistent on a broad poker
market. Because when you need other customers to play against,
you have to have a wide pool of players.
The third major difference is that poker is a game that
requires active involvement. A poker player doesn't sit down
and just push a button and make his bet and wait for a result.
A poker player has to make decisions throughout the game,
strategic decisions, many times complex and very difficult
decisions that actually engage the player in the game. And this
again leads to the cohesive nature of poker, the reason why
poker brings people together and why playing it online is not
going to stop people from playing it in live venues.
The Chairman. Thank you very much.
Mr. Feldman, if there is an expansion of federally-
authorized gaming into Internet gaming, should Tribal
governments be compensated for their loss of exclusivity?
Mr. Feldman. Mr. Chairman, I think that there needs to be
some accommodation for that loss of exclusivity. Tribes have a
lot to lose. Tribes probably have more to lose with the
expansion of Internet gaming than any other segment of the
gaming industry. And I think we need to be cognizant of that,
and I think any legislation that Congress considers, I don't
have the solution, I can't give you the formula. But I think it
is entirely appropriate for Congress to give some consideration
to that potential loss of exclusivity and to protect it in some
way so that this $26 billion in revenue, which today is
funding, as you said in your opening statement, health
programs, education programs, senior citizen programs, Tribes
can't afford to lose that revenue stream.
So the legislation, any Federal legislation, needs to
incorporate some form of protection to ensure that that revenue
stream is not threatened by whatever form of Internet gaming is
authorized.
The Chairman. Thank you very much for your responses to our
questions. Thank you for basing it on your experiences and the
work you have done already with Tribes. I want to say mahalo,
thank you, to all of our witnesses who participated in today's
hearing.
The discussion has been very informative and has given us
all a lot to think about as this issue continues to really
develop. The Committee will continue to work closely with
Tribes, our Senate colleagues and other interested parties in
any Internet gaming legislation that may be moving forward.
Without question, this, may I call it industry, is really
developing and growing. It is well that we look closely at what
is happening and the direction it is moving in, and help to
guide it with our expertise and of course, guidance whether it
is executive or legislative, to help out the cause.
So thank you all, our witnesses, for your responses. And we
look forward to continuing to hear from you in this area.
Thank you very much. This hearing is adjourned.
[Whereupon, at 4:02 p.m., the Committee was adjourned.]