08121425 Level I Training Book

Commissioner Certification Training Level I AGENDA August 12-14, 2025 Santa Ana Casino, Albuquerque, NM MST Time

Tuesday, August 12

Indian Gaming Regulatory Act: An Introduction Liz Homer, Homer Law

9:00 AM 10:30 AM

10:30 AM 10:45 AM Break 10:45 AM 12:15 PM

Tribal Gaming Regulatory Agency: Purpose, Functions and Structures Liz Homer, Homer Law

12:15 PM 1:15 PM Lunch Break 1:15 PM 2:45 PM

What's the Big Deal -MIC's Liz Homer, Homer Law

2:45 PM 3:00 PM Break 3:00 PM 4:30 PM

Rules of the Games - Classification of Games Liz Homer, Homer Law Wednesday, August 13 Gaming Compacts & Compact Compliance Liz Homer, Homer Law

9:00 AM 10:30 AM

10:30 AM 10:45 AM Break 10:45 AM 12:15 PM

Introduction to Enforcement Actions Liz Homer, Homer Law

12:15 PM 1:15 PM Lunch Break 1:15 PM 2:45 PM

Anatomy of Gaming Machine Peter Nikiper, BMM Test Labs

2:45 PM 3:00 PM Break 3:00 PM 4:30 PM

Journey of Submission Peter Nikiper, BMM Test Labs Thursday, August 14

Basic Principles of Casino Accounting Jamshed Kudratov, CPA Blue Bird CPA's

9:00 AM 10:30 AM

10:30 AM 10:45 AM Break 10:45 AM 12:15 PM

Auditing Financial Audits & Agreed Upon Procedures Jamshed Kudratov, CPA Blue Bird CPA's

Please plan to stay for the entire class on each day to get your certificate of completion. Please be on time for sessions

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The Indian Gaming Regulatory Act: An Overview

ELIZABETH L. HOMER HOMER LAW CHARTERED

The Rich History of Gaming

A drawing found on the wall of a burial vault in Beni Hasan, Egypt (circa 2500 B.C.E.) shows a picture of a ball hidden under one of several cups, perhaps an early game of chance.

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The first signs of a lottery trace back to Asia, where ancient Keno slips were discovered. First played in China, the lottery has helped finance major governmental projects like the Great Wall of China. Organized governmental regulation of gambling, as opposed to taxation by force, is recorded as early as 321 B.C. in India where a Superintendent of Public Games supplied dice and collected a fee of 5% of the receipts. The Principality of Monaco, a country with more millionaires per capita than any country in the world, is primarily supported by gaming revenues.

Government Gaming Abroad

Government Gaming in the English Colonies Because the colonies had no power to tax, they were dependent on help from England. In 1612, King James I chartered the Virginia Company of London to raise revenue for the benefit and support of the Jamestown settlement. The company was authorized to conduct lotteries throughout England in order to raise money. The lotteries were relatively sophisticated and included instant winners. One colonist noted that the revenue from these lotteries were“reall and substantiall food, by which Virginia hath been nourished.” Eventually, the crown banned the lotteries because of complaints that they were viewed as robbing England of money.

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Lottery revenues were responsible for the building of much the infrastructure along the Northeast Coast. Many of the most prestigious universities, such as Harvard, Yale, and Brown, were built with lottery revenues. Lottery revenues funded many of the armaments and purchases made during the Revolutionary War.

Government Gaming and Growth

The Johnson Act (1962)

Prohibits the manufacture, possession, use, sale, or transportation of any “gambling device, except in accordance with a state regulatory scheme.” The Johnson Act defines a “gambling device” as any: Slot machine ... and other machine or mechanical device (including but not limited to, roulette wheels and similar devices) designed and manufactured primarily for use in connection with gambling, and (A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or (B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property. Any subassembly or essential part intended to be used in connection with any such machine or mechanical device, but which is not attached to any such machine or mechanical device as a constituent part.

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Pre-IGRA Gaming

A number of tribal governments, including the Seminole, Eastern Band of Cherokee, and the Cabazon Tribe, among others, introduced high stakes bingo, which proved highly popular and lucrative In June 1984, the Interior Department presented testimony to Congress noting that 80 tribes were engaged in some form of gaming, primarily bingo, and the income from those operations was, in total, in the millions of dollars Bingo in Indian Country proved so successful in such a short time that state governments took notice States began taking the position that bingo games were illegal under state law

The Supreme Court’s decision in California v. Cabazon and Morongo Bands of Mission Indians (1987) paved the way for the Indian Gaming Regulatory Act (IGRA), passed the following year. In Cabazon , the State of California argued that under Public Law 280, California had criminal jurisdiction over tribal lands within the state’s borders. The Cabazon and Morongo Bands argued that the state’s regulatory laws did not criminally prohibit gambling; therefore, the authority to regulate such gaming activities was outside the control of Public Law 280. The Supreme Court agreed with the tribes and ruled against California having authority to regulate or prohibit tribal gaming. Cabazon prompted Congress to adopt a federal regulatory framework for Indian gaming.

Setting the Stage in Court

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Passage of IGRA

On Oct. 18, 1988, the Indian Gaming Regulatory Act (“IGRA”) was enacted by Congress IGRA divides gaming activities into three Classes – I, II, and III and establishes a regulatory framework for each category It also establishes the National Indian Gaming Commission (“NIGC”) to administer the IGRA statute It requires tribes to adopt and submit gaming ordinances for NIGC approval For Class III Gaming, IGRA requires a Tribal-State Compact approved by the Secretary of the Interior and creates an exemption from the Johnson Act for such gaming.

Early IGRA Indian Gaming

In the period between the enactment of IGRA in 1988 and the issuance of NIGC’s first regulations in 1992, Indian Gaming was already flourishing. In those early years, a number of innovations were introduced, including the use of electronic aids in Class II gaming, particularly for bingo and pull tab games. In the beginning these innovations were relatively modest, such as the introduction of computerized random number generators for bingo games and pull tab dispensers. But very quickly we began to see machines linked together by bingo-based software programs that allowed players to compete against one another for prizes with video screens that displayed spinning reels.

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Explosive Expansion of Indian Gaming From 1988 to 2013, gross revenues from tribal gaming grew more than 280-fold, from about $100 million to around $28 billion. The number of tribal gaming operations exploded from fewer than 30 to about 450 across 31 states. In the span of only thirty years, it has become the single largest revenue-producing activity for Indian tribes. The economic gains attributed to gaming have also had positive impacts on tribal employment and many other areas of development in Indian Country.

Sections of IGRA

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Section 2701 – Findings

Congress finds that:

Numerous Indian tribes have become engaged in or have licensed gaming activities on Indian lands as a means of generating tribal governmental revenue;

Federal courts have held that section 81 of this title requires Secretarial review of management contracts dealing with Indian gaming, but does not provide standards for approval of such contracts;

Existing Federal law does not provide clear standards or regulations for the conduct of gaming on Indian lands;

A principal goal of Federal Indian policy is to promote tribal economic development, tribal self-sufficiency, and strong tribal government; and

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.

Gaming Classifications under IGRA One of the primary features of IGRA is its classification of gaming. IGRA divides gaming into three classes, Class I, Class II, and Class III. With these classifications, IGRA provides a general framework for the regulation of tribal gaming.

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Gaming Classifications under IGRA, cont. Class I ◦ Social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies or celebrations Class II ◦ Games of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used in connection therewith) and, if played in the same location as the bingo, pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo. Class II gaming also includes non-banked card games, that is, games that are played exclusively against other players rather than against the house or a player acting as a bank. Class III ◦ All forms of gaming that are not Class I or Class II gaming.

Regulations by Class

Class I ◦ Regulatory authority over Class I gaming is exclusively vested in tribal governments and is not subject to IGRA’s requirements. Class II ◦ To conduct Class II gaming, the Tribe must be located in a state that permits such gaming for any purpose and must adopt a gaming ordinance approved by the NIGC. Tribal governments are responsible for regulating Class II gaming, subject to NIGC oversight. Class III ◦ To conduct Class III gaming, the Tribe must meet the above-mentioned requirements for Class II gaming, and they must have a tribal-state gaming compact, permitting such gaming, approved by the Secretary (or under the procedures promulgated by the Secretary under circumstance identified in IGRA).

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Section 2702 – Declarations of Policy

The purpose of this chapter is: 1. To provide the statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments. 2. To provide a statutory basis for the regulation of gaming by an Indian tribe adequate to shield it from organized crime and other corrupting influences, to ensure that the Indian tribe is the primary beneficiary of the gaming operation, and to assure that gaming is conducted fairly and honestly by both the operator and players; and 3. To declare that the establishment of independent Federal regulatory authority for gaming on Indian lands, the establishment of Federal standards for gaming on Indian lands, and the establishment of a National Indian Gaming Commission are necessary to meet congressional concerns regarding gaming and to protect such gaming as a means of generating tribal revenue.

This section establishes the National Indian Gaming Commission (NIGC) as a commission within the Department of Interior. Per this section, the NIGC shall be composed of three full- time members. ◦ One Chairman who shall be appointed by the President with the advice and consent of the Senate ◦ Two Associate Members who shall be appointed by the Secretary of the Interior. One of the associate member will, after selection by the Chairman and with majority vote, be named Vice Chairman. The remainder of this section outlines the suitability and eligibility for commission members.

Section 2704 – National Indian Gaming Commission

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The Chairman, on behalf of the Commission, has the power to: • Issue orders of temporary closure of gaming activities • Levy and collect civil fines • Approve tribal ordinances or resolutions regulating Class II and Class III gaming • Approve management contracts for Class II and Class III gaming • Any other powers as may be delegated by the Commission

Section 2705 – Powers of the Chairman

The Commission itself is empowered to: • Approve the NIGC annual budget • Adopt regulations for the assessment and collection of civil fines

Section 2706 – Powers of the Commission

• Establish fee rates • Issue subpoenas • Affirm a temporary closure order • Issue regulations • Report to Congress

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Class I gaming on Indian lands is within the exclusive jurisdiction of the Indian tribes. Class II gaming on Indian lands shall continue to be within the jurisdiction of the Indian tribes but is subject to the provisions of this section. ◦ An Indian tribe may engage in Class II gaming is such gaming is located within a State that permits such gaming and the governing body of the Indian tribe adopts an ordinance or resolution which is approved by the Chairman of the NIGC.

Section 2710 – Tribal Gaming Ordinances

Section 2710 – Tribal Gaming Ordinances:

• May be encompassed within the existing independent tribal audit systems • Will be provided to the Commission by the tribe • All contracts for supplies, services, or concessions in excess of $25,000.00 shall be subject to such independent audits

Annual Outside Audits

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Section 2710 – Tribal Gaming

The construction and maintenance of the gaming facility, and the operation of that gaming is conducted in a manner which adequately protects the environment and the public health and safety.

Ordinances: Protection of the Environment

Background investigations for primary management officials and key employees must be conducted and ongoing oversight of such persons is required Tribal licenses for primary management officials and key employees must be issued Any person whose prior activities, criminal record, reputation, habits and associations pose a threat to the public interest or effective regulation of gaming or create or enhance the dangers of unsuitable, unfair, or illegal practices and methods and activities in the conduct of gaming shall not be eligible for employment. The Indian tribe must notify the Commission of the results of the background check before issuing licenses.

Section 2710 – Tribal Gaming Ordinances: Licenses and Background Investigations

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Section 2710 – Tribal Gaming

The Commission may consult with appropriate law enforcement officials concerning licenses issued by a tribe. If the Commission receives information that a primary management official or key employee does not meet the standard established, the tribe will suspend and, after notice and hearing, revoke such license.

Ordinances: Issuances of

Gaming License

Section 2710 – Tribal Gaming Ordinances: Per Capita Distribution Plans

Such plans are only permitted if: • The tribe has prepared a plan to allocate revenues • The plan has been approved by the Secretary • The interests of minors and other legally incompetent persons are protected • Tribes notify members that such payments are subject to federal taxation

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Section 2710 – Tribal Gaming

The Secretary may disapprove a compact only if such compact violates- • Any provision of this chapter • Any other provision of Federal law • The trust obligations of the U.S. If the Secretary does not approve or disapprove a compact 45 days after its submittal, it shall be considered approved. The Secretary shall publish in the Federal Register notice of any Tribal-State Compact that is approved.

Ordinances: Approval of Tribal-State Compacts

Section 2711 – Management Contracts

Requirements for Chairman’s approval: • Adequate accounting procedures • Access for appropriate tribal officials to daily operations • Minimum guaranteed payment to the tribe • Agreed ceiling for the repayment of development & construction costs

• Terms not to exceed 5 years (in some cases 7 years) • Grounds and mechanisms for terminating the contract

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Section 2711 – Management

Contracts with a fee based upon a percentage of the net revenue are acceptable if the fee is reasonable in light of surrounding circumstances. Such fee shall not exceed 30 percent. Upon request of a tribe, the Chairman may approve a contract with a fee that exceeds 30 percent but not 40 percent.

Contracts: Approval of Fees

The Chairman shall have the authority to levy and collect appropriate civil fines, not to exceed $25,000 per violation, against the tribal operator of an Indian game or a management contractor for any violation of any provision of this chapter, any regulation prescribed by the Commission, or tribal regulations, ordinances or resolutions approved under section 2710 or 2712 of this title.

Section 2713 – Civil Penalties

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ELIZABETH L. HOMER HOMER LAW CHARTERED 1730 RHODE ISLAND AVE., N.W. SUITE 501

END

WASHINGTON, D.C. 20036 PHONE: (202) 955-5601 FAX: (202) 955-5605 WWW.HOMERLAW.COM

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Elizabeth L. Homer Homer Law Chartered

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Make and form their own government • Talton v. Mayes , 163 U.S. 376 (1896). Establish membership • Santa Clara Pueblo v. Martinez , 436 U.S. 49 (1930) Make and enforce laws, civil and criminal • Ex Parte Crow Dog , 109 U.S. 556 (1883). Tax • Merrion v. Jicarilla Apache Tribe , 455 U.S. 130 (1982). Engage in commercial activity • Brendale v. Confederated Tribes of Yakima Indians , 492 U.S. 408 (1989). License, zone, and regulate • Merrion v. Jicarilla Apache Tribe , 455 U.S. 130 (1982).

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The establishment of Regulatory Agencies comes within the inherent governmental authority of tribal governments

With respect to gaming, the Indian Gaming Regulatory Act (IGRA) mandates that a tribal governments must provide an adequate system for the licensingregulation of tribal gaming activities. 25 U.S.C § 2710 (b)(F).

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Instrumentalities of Tribal Government

Possess and exercise powers delegated by the legislative body of the tribal government Typically, are delegated broad regulatory powers, including the authority to: • Promulgate rules and regulation • License • Enforce and sanction violations • Adjudicate

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What’s the BIG DEAL? Threats and Vulnerabilities in a Cash Intensive Industry

By: Elizabeth Lohah Homer

Government Regulation of Gaming • Governments have used gaming as a source of revenue for millennia. • Fraud in gaming began at the same time.

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Government Regulation of Gaming • One notable example was a private lottery passed by Congress in 1823 for the beautification of Washington D.C. • Unfortunately, the organizers absconded with the proceeds and the winner was never paid. • The Supreme Court held the Government

liable for the winnings. Clark v. City of Washington , 25 U.S. 40 (1827)

Government Regulation of Gaming

• To much of the public, this incident illustrated that the lotteries of that time were crooked. • This ultimately led to the widespread restriction of gaming in the 1830s and 1840s.

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Modern Day Examples of Fraud: “AZ pair indicted in $25,000 casino scam” • At Casino Arizona, affiliated with the Salt River Pima-Maricopa Indian Community, an employee allegedly prepared and submitted player-rating cards for a girlfriend using false information. • In 50 instances from September 2010 to July 2011 the alleged monetary gains ranged from $200 to $970. The indictment listed the total amount as approximately $27,000. Source: JJ Hensley, The Republic, azcentral.com (Dec 25, 2012)

Modern Day Examples of Fraud: “Casino Cheating Ring Dismantled” • “Tran and her husband were dealers at an Indian tribal casino in San Diego in 2002 when they devised a plan to use a “false shuffle” to track cards and thereby guarantee successful betting.” • “Before the ring was rounded up in 2007, some 29 casinos from Canada to Mississippi were hit for about $7 million.” Source: FBI News (Feb 11, 2011)

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Fraud & Money Laundering

• Occupational Fraud: • The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. • Money Laundering: • A financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money.

Money Laundering

• Because of the cash-intensive nature of casinos, criminals may try to use them to launder money. •Tools:

• Bank Secrecy Act, MICS, & TICS require reporting of all significant transactions.

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Robust Gaming Regulation Protects Tribal Resources: • By working to eliminate theft and fraud. • By ensuring public perception of honesty & integrity. • By protecting the Gaming Enterprise from civil penalties imposed for failing to comply with the Bank Secrecy Act.

Indian Gaming Commissions: Purpose and Functions

• IGRA’s Declaration of Policy: • Shield the Indian tribe from organized crime and other corrupting influences. • Ensure that the Indian tribe is the prime beneficiary of the gaming operation. • Assure that gaming is conducted fairly and honestly by both the operator and players.

[25 U.S.C. 2702(2)]

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Importance of Effective Regulation • Understanding Vulnerabilities: • Cash intensive environment intensifies temptation to steal. • A cash intensive environment without good internal controls significantly increases the likelihood of theft and fraud. • Increasing the probability of discovery decreases the probability that theft or fraud will succeed.

Ensuring that Tribes are the Primary Beneficiaries of Gaming Revenues • Occupational Fraud and Abuse is Projected to Cost Businesses Worldwide More than $3.5 Trillion Annually. • Approximately 5% of the Annual Revenues of an Average business will be lost to Occupational Fraud. • Frauds lasted a median of 18 months before being detected. • Over 35% of the Loss is Attributable the Absence of Internal Control Systems. • Over 19%% of the Loss is Attributable to the Override of Existing Controls.

Source: 2012 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners (2012 Report).

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Primary Internal Control Weaknesses (2012 Report)

Occupational Fraud Classification System

Occupational Fraud and Abuse

Asset Misappropriation

Financial Statement Fraud

Corruption

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Occupational Fraud Classification System Corruption

Conflicts of Interest

Illegal Gratuities

Economic Extortion

Bribery

Financial Statement Fraud

Asset/Revenue Overstatements

Asset/Revenue Understatements

Occupational Fraud Classification System

Asset Misappropriation

Inventory and All Other Assets

Cash

Theft of Cash on Hand

Theft of Cash Receipts

Fraudulent Disbursements

Misuse

Skimming

Larceny

Cash Larceny

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Overall Statistics (2012 Report)

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Common Types of Fraud: Fraudulent Disbursements

• Billing Schemes: • Shell Company • Non-Accomplice Vendor • Personal Purchases

Common Types of Fraud: Fraudulent Disbursements

•Payroll Schemes:

• Ghost Employees • Falsified Wages • Commission Schemes • Commonly found in casinos

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Common Types of Fraud: Fraudulent Disbursements •Expense Reimbursement Schemes: • Mischaracterized Expenses

• Overstated Expenses • Fictitious Expenses • Multiple Reimbursements

Common Types of Fraud: Fraudulent Disbursements

• Check Tampering: • Forged Maker

• Forged Endorsement • Altered Payee • Authorized Maker

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Common Types of Fraud: Fraudulent Disbursements • Register Disbursement Scheme: • False Voids • False Refunds

Common Types of Fraud: Corruption • Wrongful Use of Authority or Influence in a Business Transaction for the Purpose of Securing Personal Enrichment: • Conflicts of Interest • Bribery • Illegal Gratuities • Economic Extortion

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Common Types of Fraud: Corruption

• Corruption: • Overall:

• Average loss of over $250,000 per case • Accounted for approximately 33% of all occupational fraud cases in 2012 Report. • Banking & Financial Services Businesses: • Accounted for approximately 36% of all occupational fraud cases in 2012 Report.

Common Types of Fraud: Corruption

• Conflicts of Interest:

• Purchasing Schemes • Sales Schemes

• Bribery:

• Invoice Kickbacks • Bid Rigging

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Common Types of Fraud: Financial Statement Fraud

• Falsification of an organization’s financial statements to conceal the misappropriation of funds. • Involve a falsification of financial statements. • This is the most costly form of occupational fraud with a median loss of $1,000,000 in 2012 Report.

Most Common Fraud Schemes (2012 Report)

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Casino Fraud

• Cash is targeted the majority of the time. • Collusion between employees and patrons is common. • Top Behavioral Flags of Perpetrators of Fraud include:

• Living Beyond Means • Financial Difficulties • Unusually Close Association with Vendor/Customer

Common Types of Fraud: Theft of Cash

• Skimming • Cash stolen before it’s recorded on the books and records. • Cash Larceny • Cash stolen after it’s been recorded on the books and records. • Theft of Cash on Hand • Cash stolen from cash kept on hand on premises.

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External Vulnerabilities

• Player frauds,

cheats, and scams. • Other unscrupulous third parties.

Protecting Tribal Gaming Revenues • Understand Vulnerabilities. • Institute Quality Internal Control Systems. • Train and Educate Employees. • Regularly Monitor and Evaluate Effectiveness of ICS.

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Understanding Vulnerabilities • A Cash Intensive Environment Intensifies Temptation to Steal. • A Cash Intensive Environment WITHOUT Good Internal Controls Significantly Increases the Likelihood of Theft and Fraud. • Increasing the Probability of Discovery Decreases the Probability that Theft or Fraud will Succeed.

Effective Internal Control Systems Require: • Standards (NIGC MICS; Tribal Internal Controls). • Methods and Procedures for Implementation. • Cooperation and Commitment at All Levels. •Compliance Monitoring. • Enforcement.

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Tools for Gaming Regulation:

• Management Contract Review • Licensing • Background Checks • Monitoring • Financial Audits • Operational Audits

• Enforcement • Surveillance • Security • SOUND INTERNAL CONTROL STANDARDS

Implementing Policies and Procedures Should:

•Be written • Specifically spell out the procedures to be followed • Address standards of conduct • Contain standards of performance • Clearly state consequences for non- compliance • Check against external threats

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All Managers and Personnel Should Understand: •The internal control standards • The procedures that pertain to their specific role and function • How the overall system works • Their individual responsibilities •What constitutes unacceptable behavior • The consequences for non-compliance

Internal Control Essentials:

• Cage • Internal Audit • Complimentary Items • Drop and Count • IT • Cash Transaction Reporting • Bingo • Slots & Electronic Gaming Machines

• Card & Table Games • Pull Tabs • Credit • Promotions • Surveillance • Accounting Standards • Kiosks

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Regulations:

•Class III:

• 25 C.F.R. Part 542

• Class II (New):

• 25 C.F.R. Part 543 •Financial Crimes Enforcement Network: • 31 C.F.R. Chapter X

Tiers

• Part 542 • TIER A

• Part 543 • TIER A

• $1-5 Million GGR

• $3-8 Million GGR

• TIER B

• $5-15 Million GGR

• $8-15 Million GGR

• TIER C

• $15+ Million GGR

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New Class II MICS Requirements: Bingo Shipment and Install

• Communication Procedure: • Between supplier, gaming operation, and TGRA to properly control shipping and receiving of bingo components • Shipment Notification From Supplier: • Name and address of supplier • Description of shipment • Serial number for player interfaces • Software version and description of software • Method of shipment • Expected date of delivery • TGRA Verification: • TGRA must receive all bingo components and software packages and verify contents against shipping notification

New Class II MICS Requirements: Bingo Shipment and Install • Installation Testing Requirements for Class II Gaming Systems: • Communication with Class II gaming system • Communication with accounting system • Communication with player tracking system • Currency and vouchers to bill acceptor • Voucher printing • Meter incrementation • Pay table, for verification • Player interface denomination, for verification • All buttons • System components • Locks

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New Class II MICS Requirements: Gaming Promotions

• New Definition of Gaming Promotion: • “Any promotional activity or award that requires game play as a condition of eligibility” • TGRA Must Review and Approve: • Rules of play, including any restrictions or limitations on eligibility • Nature and value of prize or cash award • Date, time, and location • Any other restrictions or limitations • Announcement date, time, and location for winning entries • Rules governing promotions involving other gaming operations or third parties

New Class II MICS Requirements: Comps

• Definition of Complimentary Services or Items: • “Services and items provided to a patron at the discretion of an agent on behalf of the gaming operation or by a third party on behalf of the gaming operation. Services and items may include, but are not limited to, travel, lodging, food, beverages, or entertainment expenses.” • Required Controls: • Documentation and recordation of the (1)authorization, (2)issuance, and (3) redemption of comps • Detailed Comps Reports: • Must be prepared at least monthly and forwarded to management for review

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New Class II MICS Requirements: Kiosks • New Standards for Kiosks: • Must be maintained on cage accountability • Independent count by at least two agents • Communication procedures between kiosk and system • Reconciliation Reports • October 25, 2013 Final Rule Amending Kiosk Section In the Class II MICS Rule: • New drop and count standards • New surveillance standards • New controlled key requirements for currency cassettes

New Class II MICS Requirements: Drop And Count

• Player Interface Games vs. Card Games: • Separate drop and count sections depending on whether drop or count is for card games or player interface games • Different Terminology: • “Drop Box” - specific to card table games • “Financial Instrument Storage Component” – specific to player interface games • Similar Standards: • Drop and count standards are largely similar to those in the Class III MICS

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New Class II MICS Requirements: Auditing Revenue

• Independence: • Audit performed by agents independent of being audited • Audits documented and maintained • Areas Audited: • Bingo, Pull Tabs, Card Games, Promotions, Player Tracking, Comps, Patron Deposits, LOC, D&C, Cage, Inventory

END

Homer Law, Chtd. 1730 Rhode Island Ave., N.W. Suite 501 Washington, D.C. 20036 (202) 955-5601 (202) 955-5605 (fax)

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THE CLASSIFICATION OF GAMES

Under the Indian Gaming Regulatory Act

PRESENTED BY:

Elizabeth Lohah Homer Spring 2003

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CLASSES OF GAMES CLASS I GAMING

• Social or traditional and cultural forms of Indian gaming, conducted for minimal prizes or in connection with ceremonies or celebrations

CLASS II GAMING

Bingo and related games played as well as non-banking card games, if those games are otherwise lawful within the states where tribes conduct those activities.

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CLASS III GAMING

• All other forms of gaming, including casino gaming.

WHY IS GAME CLASSIFICATION IMPORTANT?

• Central Feature of IGRA • Determines Regulatory Framework • Civil and Criminal Law Implicated • Subject to Civil and Criminal Sanctions • Economic Considerations

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CLASS I GAMING

• Traditional, Cultural, Social • Minimal Prizes • Exclusive Tribal Regulatory Jurisdiction

CLASS II GAMING

• Bingo and Related Games; Lotto; some cards games (depending on state law).

• Regulated by Tribes with NIGC Oversight • Outside Authority of State Governments • High Stakes Permissible

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CLASS III GAMING

• Casino Style Games • Regulated by Tribes and States with Oversight by NIGC • Requires Tribal-State Compact • High Stakes Permissible

REGULATORY DEFINITIONS

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CLASS II GAMING

(a) Bingo or lotto (whether or not electronic, computer, or other technologic aids are used) when players: • (1) Play for prizes with cards bearing numbers or other designations; • (2) Cover numbers or designations when object, similarly numbered or designated, are drawn or electronically determined; and • (3) Win the game by being the first person to cover a designated pattern on such cards;

( b) If played in the same location as bingo or lotto, pull- tabs, punch boards, tip jars, instant bingo, and other games similar to bingo;

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(c) Nonbanking card games that: (1) State law explicitly authorizes, or does not explicitly prohibit, and are played legally anywhere in the state; and (2) Players play in conformity with state laws and regulations concerning hours, periods of operation, and limitations on wagers and pot sizes…

KEY TERMS

• Technological Aids • Games Similar to Bingo • Non Banking Card Games

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TECHNOLOGICAL AID

• Any machine or device that:

(1) Assists a player or the playing of

a game;

(2) Is not an electronic or

electromechanical

facsimile; and

(3) Is operated in accordance with

applicable

Federal communications

law.

(b) Electronic, computer or other technologic aids include, but are not limited to, machines or devices that: (1) Broaden the participation levels in a common game; (2) Facilitate communication between and among gaming sites; or (3) Allow a player to play a game with or against other players rather than with or against a machine.

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(c) Examples of electronic, computer or other technologic aids include pull tab dispensers and/or readers, telephones, cables, televisions, screens, satellites, bingo blowers, electronic player stations, or electronic cards for participants in bingo games.

57 FR 12392, Apr. 9, 1992, as amended at 67

FR 41166, June 17, 2002.

GAME SIMILAR TO BINGO

Other games similar to bingo means any game played in the same location as bingo (as defined in 25 USC 2703(7)(A)(i)) constituting a variant on the game of bingo, provided that such game is not house banked and permits players to compete against each other for a common prize or prizes. 57 FR 12392, Apr. 9, 1992, as amended at 67 FR 41166, June 17, 2002.

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HOUSE BANKING GAME

• Any game of chance that is played with the house as a participant in the game,

• where the house takes on all players, • collects from all losers, and • pays all winners, and the house can win.

CLASS III GAMING

All forms of gaming that are not class I gaming or class II gaming, including but not limited to: • (a) Any house banking game, including but not limited to -- • (1) Card games such as baccarat, chemin de fer, blackjack (21), and pai gow (if played as house banking games); • (2) Casino games such as roulette, craps, and keno;

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• Any slot machines as defined in 15 U.S.C. 1171(a)(1) and electronic or electromechanical facsimiles of any game of chance; • Any sports betting and parimutuel wagering including but not limited to wagering on horse racing, dog racing or jai alai; or • Lotteries.

KEY TERMS

• Electromechanical Facsimile • Any Game of Chance • 15 U.S.C. 1171(a)(1)

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ELECTROMECHANICAL FACSIMILE

A game played in an electronic or electromechanical format that replicates a game of chance by incorporating all of the characteristics of the game, except when, for bingo, lotto, and other games similar to bingo, the electronic or electromechanical format broadens participation by allowing multiple players to play with or against each other rather than with or against a machine.

57 FR 12392, Apr. 9, 1992, as amended at 67 FR 41166, June 17, 2002.

KEY ISSUE TECHNOLOGICAL AID V. FACSIMILE

• Class II • Permissible if assists with Class II game • No Compact Needed

• Class III • Compact Mandatory • Criminal Penalties if used without Compact • Civil Penalties • Potential Closure

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EXAMPLES

• Technological Aid

• Facsimile

• Bingo Blower • Video Monitor • Pull Tab Dispenser

• Electronic Poker • Electronic Horseracing • Electronic Blackjack

THE JOHNSON ACT GAMBLING DEVICE Any so-called "slot machine" or any other machine or mechanical device an essential part of which is a drum or reel with insignia thereon, and (A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or (B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

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(2) any other machine or mechanical device (including, but not limited to, roulette wheels and similar devices) designed and manufactured primarily for use in connection with gambling, and (A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or (B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

(3) any subassembly or essential part intended to be used in connection with any such machine or mechanical device, but which is not attached to any such machine or mechanical device as a constituent part.

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WHAT IS GAMBLING?

• Chance • Reward • Consideration

THE JOHNSON ACT

• Is Construed Very Broadly • Devices and Constituent Parts of Devices • Is a Criminal Statute • Covers the Entire U.S. and U.S. Territories, including Indian Country • Applies in context of Gambling

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AMUSEMENT OR SKILL GAMES

• Not Covered by Johnson Act • Skill is “Substantial” Factor in the Outcome • Lack One or More Elements of Gambling

• Chance • Reward • Consideration

INDICIA OF GAMBLING

• Random number generators • Reels that morph

• Reels with exceedingly rapid spin or change speed • Reels that continue to spin after the stop button is depressed • Predetermined retention or award ratios • All stop button • Inconsistent spin rates • Distorting icons • Non-repeating icon patterns

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IMPORTANT CONSIDERATIONS

• BE CAUTIOUS

• True Skill Games often Unprofitable • “Skill Games” that “Look and operate” like Slots, may well be Slots • The Higher the Element of Chance, the More Likely the Game will be Determined to Constitute Gambling • High Risk of Enforcement

CLASSIFYING GAMES

• Understand the Classification Scheme • Understand General Definitions • Understand the Definitions of Key Terms • Go beyond Appearance to Function, Operation and Purpose • Look to Presence and Degree of Chance • Understand that Electronic Devices Require Careful Analysis

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THE ANALYSIS

• Start with the Game • Appearance is not Determinative • Is there Chance, Reward, & Consideration? • Electronics? • Aid v. Facsimile • Assists Players v. Replica of Game of Chance • Players compete with Players v. Players Compete with House • Bingo v. Pull Tabs v. Casino-Style

FINAL ANALYSIS

• Tough Issues • Lots of Games at or near the Line • Stakes are Significant • Penalties Stiff • Council or TGRA should Classify all Games • When in Doubt, Seek Counsel, or Seek NIGC Opinion

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END Elizabeth L. Homer Homer Law Chartered 1730 Rhode Island Ave., N.W. Suite 501 Washington, D.C. 20036 (202) 955-5601

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TRIBAL-STATE GAMING COMPACTS

What is a Tribal-State Compact?

■ A compact is an intergovernmental agreement between an Indian tribe and a state government that governs the conduct of Class III gaming. ■ Once approved, the Compact becomes part of the law of the Tribe and becomes enforceable with respect to the Tribe’s Class III gaming activities. ■ Compacts primarily address two issues:

– Scope of gaming allowed in the state – Terms of regulation of gaming activities

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Compacts Under IGRA

■ If a tribes wants to engage in Class III gaming, it must request a compact with any state in which is seeks a gaming presence. ■ Congress intended to balance state and tribal interests through negotiated and shared state and tribal regulation and jurisdiction over Class III gaming. ■ Section 3A of IGRA outlines the specific instructions for the process of developing a compact. – IGRA gives states a role in Class III gaming by requiring tribes and states to negotiate compacts before a tribe may offer Class III gaming – IGRA details the procedures that states and tribes must follow in negotiating compacts and includes possible negotiation subjects

Brief History of Indian Gaming and State Regulation ■ The first major case to deal with Indian gaming and state regulation is California v. Cabazon Band of Mission Indians (1987). – The U.S. Supreme Court held that California did not have the right to regulate gaming unless there were criminal prohibitions against gaming in the state. – States are rarely permitted to regulate tribal gaming and may only do so with federal preemption. – With this ruling, the Court required Congress to implement explicit legislation for any state regulation of Indian gaming.

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Passage of the Indian Gaming Regulatory Act (1988)

■ Although Indian gaming bills had been pending in Congress for several years, the Cabazon decision fueled the effort to get the legislation passed. – States argued such regulation would stop the infiltration of organized crime – States also sought the tax revenues that they could receive through Indian gaming ■ Tribes sought to maintain tribal sovereignty and protect Indian gaming revenues that were to go to support economic development.

Passage of the Indian Gaming Regulatory Act (1988)

■ IGRA was a bipartisan product of these responses. It was spearheaded by Sen. Inouye, Rep./Sen.. John McCain, and Rep. Udall. ■ IGRA established the National Indian Gaming Commission and gave it a regulatory mandate. It also created three distinct classes of gaming and the regulatory requirements for each. ■ On October 17, 1988, President Reagan signed IGRA into law.

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Evolution of Compact Regulation post- IGRA ■ Game classification has been and continues to be an active area of litigation. – Since the classification of a game determines how it is regulated, it is crucial for gaming tribes to understand how each of their offered games are classified to avoid legal challenges or the shutdown of gaming operations. – Several circuit courts have decided cases to address what games constitute a Class II or Class III gaming for the purposes of IGRA. ■ In 1996, in the case of Seminole Tribe of Florida v. Florida , the Supreme Court found Congress lacked the authority to make states subject to suit by tribes because states are granted sovereign immunity under the Eleventh Amendment.

Evolution of Compact Regulation post- IGRA ■ Three years after the Court decided Seminole Tribe , the Department of the Interior promulgated regulations at 25 C.F.R. 291 (“Part 291”). ■ Under Part 291, tribes that are unable to compel good faith negotiations as required under IGRA have the option of requesting the Secretary to issue reasonable gaming procedures that will function as the equivalent of a compact and allow gaming operations to commence. – In New Mexico v. Dept. of the Interior , the Tenth Circuit held that severability analysis cannot extend to construing IGRA to support administrative remedy – a direct challenge to Part 291.

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Compact Negotiations

■ IGRA requires states to negotiate in “good faith” – While IGRA authorizes tribe to bring action against state in federal court to compel good faith negotiations, the Supreme Court’s 1996 decision in Seminole Tribe v. Florida makes it impossible to litigate the “good faith” issue in the absence of a state waiver of its 11 th Amendment immunity. ■ Possible negotiation subjects include: – Application of tribal and state criminal and civil laws and regulations in relation to the licensing and regulation of Class III gaming – Allocation of criminal and civil jurisdiction between the Indian tribe and the state – Assessments by the state to defray the costs of regulation – Remedies for breach – Standards for the operation of Class III gaming – Any other subjects directly related to the operation of Class III gaming activities

What is Not Permitted in Compact Negotiations? ■ Discussions of expanding, restricting, or altering land, water, hunting, or fishing rights ■ Boundary disputes ■ Negotiations of revenue sharing that constitute a tax, fee, charge or other assessment ■ Offers that exceed the jurisdiction or power of the state government ■ Any term negotiation that is not germane to Class III gaming

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Compact Review

■ Following the enactment of IGRA, the Secretary of the Interior was left with three options when reviewing a compact – Approval – Disapproval – No-Action ■ To date, the Department has reviewed over 1,000 compacts. ■ Approximately 250 tribes have entered into compacts with their respective states.

Approval

■ No compact is valid until approved by the Secretary of the Interior. ■ Approval will be signaled by a letter from the Department to the Tribe and State/Governor. The approval must also be printed in the Federal Register, which marks the official date of approval. ■ Once approved by the Secretary, the compact becomes the law of the Tribe and the State governing class III gaming activities.

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