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Review of Indian Gaming Crimes
Report Number I-2001-06
July 03, 2001


The Honorable Frank R. Wolf
U.S. House of Representatives
Washington, D.C. 20515

Dear Congressman Wolf:

On March 19, 2001, you sent a letter to me requesting that the Office of the Inspector General (OIG) provide a report on prosecutions of Indian gambling crimes. You expressed several concerns related to illegal gambling. One concern was that certain abuses, such as the funneling of gambling profits away from Native Americans and the infiltration of organized crime into Indian gaming activities, may be going undetected and unprosecuted. You also expressed concern that the National Indian Gaming Commission (Commission) was underfunded and therefore unable to adequately monitor or conduct audits of Native American gambling activities. Accordingly, you requested the OIG to provide recommendations for improving the oversight functions of entities such as the Commission.

Background

The Indian Gaming Regulatory Act (IGRA), enacted in 1988, created a legal mechanism to regulate gaming on Indian reservations. The IGRA defined three classes of gambling: Class I, which includes social games for prizes of minimal value and traditional forms of Indian gaming that are played as part of tribal ceremonies or celebrations; Class II, which includes bingo, bingo-like games, and non-banking card games (for example, games such as poker that are played against other players, rather than against the house); and Class III, which includes casino games, slot machines, and banking card games.

The IGRA also established the Commission to regulate tribal gaming activities. The Commission comprises three Commissioners, one appointed by the President and confirmed by the Senate and two appointed by the Secretary of the Department of the Interior. At least two of the three Commissioners must be enrolled members of a federally recognized Indian tribe. The Commission, which has headquarters in Washington, D.C., has field offices located in Portland, Oregon; Sacramento, California; Phoenix, Arizona; St. Paul, Minnesota; and Tulsa, Oklahoma. The Commission's staff includes field investigators and auditors. As an independent federal regulatory agency, the Commission is authorized to conduct investigations, undertake enforcement actions (such as assessing fines and issuing closure orders), conduct background investigations of key employees and primary management officials of gaming operations, conduct audits, review tribal gaming ordinances and management contracts, and issue gaming regulations.

Tribal gaming operations are regulated by tribal governments, state governments, the Commission, and the Department of the Interior. 1 Class I gaming is regulated solely by tribal governments. Class II gaming is regulated by the Commission and tribal gaming commissions. Class III gaming requires a tribal-state agreement ("compact") and is regulated by the applicable state and the tribal gaming commission in accordance with the terms of the compact. The Commission also has specific regulatory responsibilities in relation to Class III gaming operations, such as conducting background investigations of individuals or entities involved in gaming contracts and reviewing and approving management contracts with outside investors. The federal government is responsible for taking action against tribes operating Class III games without a negotiated tribal-state compact. State governments are not empowered to act against Indian tribes absent tribal-state compacts.

Not all Indian tribes are involved in Class II or Class III gaming activities. According to the National Indian Gaming Association (Association), 196, or 35 percent, of the 561 federally recognized tribes currently engage in these activities. 2 Class II and III games are operated in 29 states. There are 255 tribal-state gaming compacts in existence. 3 The Association estimated Indian gaming revenues for 1999 of $9.6 billion (10 percent of the total gaming industry in the United States) and projected these revenues to increase to $12.2 billion in 2001 (a 29 percent increase). The number of tribes, however, that earn significant revenues from their gaming operations is small - in 1999, 22 tribes accounted for 56 percent of the total revenues.

While California has the largest number of tribal gaming operations, the most profitable operations are located on the East Coast. For example, the estimated revenues of one gaming operation alone, the Connecticut Foxwoods Casino operated by the Mashantucket Pequots tribe, total $1 billion a year. The use of gaming revenues varies among tribes. Some tribes make per capita payments to tribal members; others use revenues to fund tribal governmental operations, to establish and enhance social welfare programs, or to establish other economic ventures.

Department of Justice Roles and Responsibilities

Although the Department of Justice (Department) works closely with the Commission, it has no oversight role with respect to Commission activities. The Commission, by law, has broad authority to investigate, audit, and enforce federal Indian gaming regulations. To avoid duplication of effort with the Commission in relation to the investigative function, the Federal Bureau of Investigation (FBI) generally limits its investigations to criminal violations of Indian gaming activities. However, the FBI also assists the Commission in its oversight activities. For example, the FBI has, at the Commission's request, conducted field investigations of Indian casinos to determine whether specific gambling machines should be classified as Class II or Class III operations. The FBI also assists the Commission in its required background checks of the primary management officials and key employees of Indian gaming operations.

Other Department entities, such as the United States Attorneys' offices (USAOs), the Criminal Division, the Environment and Natural Resources Division, and the Office of Tribal Justice, also have contact with the Commission. The USAOs are responsible for prosecuting Indian gaming cases referred to them by the Commission; law enforcement agencies, such as the FBI and the Department of the Treasury; and other sources, such as the states, tribes, and the Department of the Interior. 4 The Criminal Division coordinates the Department's program to combat organized crime and works with the FBI and USAOs on federal organized crime cases.

The Environment and Natural Resources Division handles civil actions, both affirmative and defensive, involving Indian gaming. On these civil actions, the Environment and Natural Resources Division works closely with the USAOs. The affirmative civil cases often involve forfeiture actions against illegal gambling equipment and devices. These types of cases are currently pending in California, Florida, Washington, Oklahoma, Michigan, and Nebraska. Defensive civil cases involve challenges by Indian tribes, states, or municipalities to gaming decisions made by federal agencies, such as the Commission or the Department of the Interior, under IGRA.

The Office of Tribal Justice is responsible for advising the Attorney General on matters affecting Indian tribes, coordinating departmental policies on tribal issues, consulting with federally recognized Indian tribes, and coordinating with appropriate federal, state, and local governmental institutions. As a result, the Office of Tribal Justice has frequent contact with the Commission.

Scope and Methodology

To respond to your request, personnel from our Evaluation and Inspections Division interviewed Department officials from the Criminal Division, the Environment and Natural Resources Division, the Executive Office for United States Attorneys (EOUSA), the FBI, and the Office of Tribal Justice regarding the Department's role in the Indian gaming industry. We also obtained statistical data from the FBI and EOUSA related to the investigation and prosecution of Indian country gaming crimes.

The data provided by EOUSA was obtained from its automated case management system, LIONS (Legal Information Office Network System). The LIONS database comprises caseload data entered by each of the 94 USAOs. In 1992, the EOUSA changed its database system, which affected the method by which the data could be entered and retrieved. Under the prior database system, the USAOs would only enter the lead charge. 5 Since 1992, however, the USAOs have been entering all charges into LIONS. Because the data prior to 1992 would be understated and therefore not representative of the Department's caseload, EOUSA only provided caseload data from the period 1992 to 2000.

We requested EOUSA to provide us with data on the number of referrals, prosecutions, and declinations for cases involving Indian gaming crimes for each fiscal year (FY) from 1992 to 2000. We also requested data on the source of the referrals, the results of the prosecutions, and the reasons for the declinations. For each year, EOUSA provided us with reports detailing the case information by statute and summarizing the case information. The summary report counted a case only once regardless of how many charges were included in the case. We used the data from the summary, not the detailed reports, because the detailed reports can double count cases based on multiple charges against the defendant. According to EOUSA, the summary method of counting cases would not result in duplication.

Indian Country Gaming Crime Prosecutions

Indian gaming crimes may be prosecuted under numerous statutes. Only three statutes of Title 18 of the United States Code pertain specifically to Indian gaming crimes: Section 1166 (gambling in Indian country), Section 1167 (theft from gaming establishments on Indian lands), and Section 1168 (theft by officers or employees of gaming establishments on Indian lands). Indian gaming crimes also may be prosecuted under other, more general criminal statutes, such as Section 1153 (Indian Country Major Crimes Act) and Section 1955 (prohibition of illegal gambling businesses). Indian gaming violations can also be pursued through civil actions.

The EOUSA's records relating to prosecutions under these general statutes were not sufficiently detailed to enable us to specifically identify Indian gaming crimes. For example, prosecutions under some statutes, such as Section 1153, include a variety of Indian country crimes but do not specifically identify crimes related to gaming. Prosecutions under other statutes, such as Section 1955, pertain only to illegal gambling but do not specifically identify those gambling crimes occurring in Indian country. As a result, our tables show referrals, prosecutions, and declinations only for the three statutes that pertain specifically to Indian gaming (Sections 1166, 1167, and 1168). See the Appendix for a detailed description of these three statutes.

Table 1 below shows prosecutions of Indian gaming crimes for the period 1992 through 2000. The majority of cases pertain to crimes involving theft (Sections 1167 and 1168).

Table 1: Indian Gaming Crime Prosecution Statistics

Fiscal Year Cases Referred Cases ProsecutedCases Declined
1992
1993
1994
1995
1996
1997
1998
1999
2000
6
20
16
26
25
31
33
42
26
2
4
3
4
12
13
12
11
9
5
13
10
19
18
21
17
32
25
Total 225 70 160

Source: EOUSA

Note: There is not necessarily a relationship between cases referred, prosecuted, or declined in any particular year. Cases referred may have been prosecuted or declined in a subsequent year; cases declined may include those cases referred from a prior year.

During the period 1992 through 2000, few cases were prosecuted under Section 1166, which pertains to the operation of Class III games without a compact. As shown in Table 2 on the following page, only about 6 percent of the referrals, 7 percent of the prosecutions, and 10 percent of the declinations pertain to violations of Section 1166. According to EOUSA officials, these types of violations are usually addressed and resolved through administrative channels.

Table 2: Indian Gaming Crime Prosecutions
18 U.S.C. 1166 - 1168
FY 1992 - FY 2000

SectionCases Referred CasesProsecuted Cases Declined
1166
1167
1168
13
113
99
5
34
31
16
67
77
Total 225 70 160

Source: EOUSA

Note: There is not necessarily a relationship between cases referred, prosecuted, or declined in any particular year. Cases referred may have been prosecuted or declined in a subsequent year; cases declined may include those cases referred from a prior year.

Additionally, the data provided by EOUSA for this 9-year period showed the following:

Indian Country Gaming Crime Investigations

The FBI's Indian Country Crimes Unit is responsible for investigating crimes, such as homicides, crimes against children, illegal drugs, and gaming crimes, occurring on Indian reservations. According to this unit's officials, the majority of gaming crimes investigated by the FBI relate to instances of theft or embezzlement. FBI records indicate that it investigated 88 theft or embezzlement cases on Indian reservations from October 1995 through mid-April 2001. Data prior to this time frame were unavailable because the FBI did not list crimes committed in Indian country separately.

The FBI also investigates few crimes related to illegal gaming operations, such as the operation of Class III games that are not operating under a tribal-state compact. Ordinarily, these offenses are first addressed civilly through regulatory channels and referred only to the FBI for investigation when a criminal violation is involved. For instance, some violations are handled civilly at the state level as contractual violations of applicable state-tribal compacts. In other cases, the Commission, which is authorized to investigate gaming irregularities and to undertake enforcement actions, will assess fines or order the illegal operation to close. According to officials at both the FBI and the Office of Tribal Justice, most tribes usually comply with the Commission's orders, thereby resolving the issue. Tribes that do not comply with the Commission's orders may be subject to criminal prosecution.

Organized Crime Investigations

We contacted representatives from the Criminal Division and the FBI to discuss possible organized crime infiltration into the Indian gaming industry. We also discussed the issue with representatives of the Office of Tribal Justice, which interacts regularly with the Commission and tribes.

The Department monitors activities related to organized crime. For example, annually the USAOs submit organized crime assessments to the Criminal Division's Organized Crime and Racketeering Section. In addition, because organized crime may infiltrate the Indian gaming industry via the service industries (such as construction or food and beverage), the Criminal Division coordinates with the Department of Labor to gather intelligence on whether such infiltration has occurred. According to a Criminal Division official, neither the surveys of the USAOs nor the surveys of the service industries has disclosed evidence of organized crime in Indian gaming. Also, the FBI routinely assists the Commission in conducting required background checks of primary management officials and other key employees of Indian casinos by comparing the names against a database of known organized crime figures.

Although representatives from the FBI, the Criminal Division, and the Office of Tribal Justice commented on the increasing potential for organized crime involvement due to the growth in Indian gaming revenues, they cited to us a lack of evidence to conclude that such involvement has occurred. The FBI told us that none of their Indian country investigations of isolated allegations of organized crime has been substantiated. The Director of the Office of Tribal Justice concurred in these assessments, citing the insular nature of the Indian society which he said historically has prevented influence or control of Indian affairs by outside individuals and organizations.

Commission Oversight

Although the Department has no review authority over the Commission, various Department entities interact with the Commission on a regular basis and therefore are familiar with the problems the Commission faces. We discussed the oversight function of the Commission with representatives of these entities, specifically the FBI, the Criminal Division, the Environment and Natural Resources Division, and the Office of Tribal Justice. All expressed concern that the limited staffing level of the Commission may adversely affect the Commission's oversight capability. These officials unfavorably compared the small number of Commission field staff to the large number of geographically dispersed gaming operations that must be visited and assessed. 6 In contrast to the Commission's limited staffing, the officials cited the large number of inspectors responsible for regulating Atlantic City's few casino operations.

In addition to increased staffing for the Commission, one FBI official provided another suggestion for improving the Commission's oversight function. This official's unit has, at the request of the Commission, examined gambling machines from Indian casinos to determine whether, according to the specifications of the machines, the gaming operations should be classified as a Class II or Class III operation. This is important because Class III operations require a tribal-state compact. To help the Commission conduct this classification function themselves, the FBI has recently provided technical training to a Commission employee. Although the Commission now has expertise to perform its own technical analyses, the Commission does not have a designated facility where the physical examination of the machines can take place. The FBI official suggested that if the Commission established a national laboratory staffed with engineers and programmers to perform these technical analyses, the Commission could routinely inspect and classify gambling machines prior to their use in Indian gaming operations. We believe that this would be a more proactive way of regulating the industry.

Summary

Most Indian gaming crimes are resolved through civil actions taken by various regulatory bodies, such as tribal gaming commissions, states, or the Commission. Generally, the Department only becomes involved if these measures fail. The Department also monitors activities related to organized crime and has investigated allegations of the infiltration of organized crime into the Indian gaming industry. Although the success of the Indian gaming industry may make it a desirable target for organized crime groups, Department officials stated that they have not found sufficient evidence to conclude that organized crime has infiltrated the industry.

The Commission, as the principal government regulatory body overseeing the Indian gaming industry, has been mandated to perform a wide range of activities, including issuing regulations, investigating illegal gaming operations, taking enforcement actions, conducting background investigations of gaming operations managerial employees, reviewing ordinances and contracts, and conducting audits. Department officials who regularly interact with the Commission expressed concern about the ability of the Commission to meet its regulatory responsibilities given its limited staff.

Thank you for seeking our assistance in providing information to you about the Department's efforts to detect and prosecute illegal activities associated with Indian gaming. If you have any questions about this report, or would like any additional information, please contact me or Mary Demory, the head of our Evaluation and Inspections Division.


Sincerely,

[Signed]

    Glenn A. Fine
          Inspector General

Enclosure


Footnotes
  1. The Department of the Interior reviews and approves tribal-state compacts governing the conduct of gaming activities.

  2. The Association, established in 1985, is a non-profit organization of 168 Indian Nations and other non-voting associate members representing organizations, tribes, and businesses engaged in tribal gaming enterprises.

  3. A tribe may have more than one compact. Some tribes have compacts with more than one state; other tribes have multiple compacts with the same state, with each compact pertaining to a different type of game.

  4. The Department of the Treasury supports law enforcement investigations to prevent and detect money laundering and other financial crimes (such as fraud and embezzlement).

  5. The lead charge is the most serious offense that is encompassed by the defendant's conduct and that is readily provable. This is ordinarily the offense for which the most severe penalty is provided by law. Defendants may also be charged with other criminal acts if the proof and the government's law enforcement objectives warrant additional charges.

  6. According to the Commission's current website, the Commission has 23 field investigator positions in five field offices.