By Dennis J. Whittlesey
May 29, 2009

Initially published in Gaming Legal News produced by Dickinson Wright PLLC.

Indian tribes could be major beneficiaries of the Internet gaming bill just introduced by Congressman Barney Frank of Massachusetts.

Much already has been written and said about the Internet gaming legislation introduced on May 6 by Congressman Frank in his capacity as Chairman of the House Financial Services Committee. But little focus has been given to the potential implications for Indian tribes should this legislation become law, as is likely given that Frank has long been known as an effective member of Congress and now has enormous power as the head of an important committee. Simply stated, he has the political clout to make any legislation reality and has declared his intention to enact the Internet gaming bill.

Chairman Frank’s immediate objective is to overturn the almost-accidental ban on Internet gaming enacted in 2006 through a “hidden” rider on a port security act having nothing to do with gaming. That rider is known as the Unlawful Internet Gambling Enforcement Act of 2006, and it was the product of a one-man effort by former Senator Bill Frist, Republican of Tennessee who was promoting a ban on Internet gaming when few in Congress even cared. The end result was that the Internet gaming ban was tacked onto a must-pass bill dealing with national security in the post 9/11 climate. Frist knew that no politician could oppose legislation dealing with national security in an election year and tacked his rider onto such a bill, and the Internet ban became federal law.

This issue continues to fly beneath the radar on Capitol Hill, but the political climate is beginning to change. Senator Frist is gone, along with the Republican Congressional majority, and Chairman Frank intends to use his position as Committee Chairman to legalize and regulate Internet gaming in this country.

The legislation ostensibly places the licensing and regulatory roles squarely on the desk of the Secretary of the Treasury. However, the reality is that the licensing and regulatory roles will be performed by state and tribal entities which can credibly establish that they can certify applicants’ suitability for Internet gaming licensing and, correspondingly, provide such appropriate regulatory and enforcement activities as the Secretary shall approve. They, in turn, would be issuing licenses for Internet gambling operators and serving as the regulatory bodies for their licensees.

Central to this entire regulatory scheme is that the role of tribes would be parallel and equal to that of states in the comprehensive licensing and regulatory processes, a critical component for tribes since they can both provide jurisdictional foundations for companies wishing to offer Internet gaming and generate new tribal revenues in the process. The legislation allows Governors to opt out of the Internet gaming regime by notifying the Secretary of the Treasury, but leaves open the question of whether a state opt-out would affect the eligibility to participate by tribes within the state’s borders. To this question, it must be reiterated that states and tribes would have equal status, which strongly indicates that a state opt-out would not affect its resident Indian tribes.

The betting process allows licensed online operators freedom to accept wagers from players in all states other than those whose Governors have formally opted out. Thus, while those operators could be licensed by tribes in states which have opted out, they would be able to accept bets from residents of other states.

Given the well-known interest in Internet gaming within the American Indian gaming community, it can be anticipated that a number of tribes would pursue the licensing and regulatory opportunity which would result from the Frank legislation. And, it also can be anticipated that various states with existing budget shortfalls would not, since doing so would require creating infrastructure to license and regulate this new form of gaming at a time when most states are facing devastating budget deficits and are unable to fund existing activities.

The Frank legislation proposes to impose a federal fee on funds deposited by the players with the regulatory entities, but federal taxation of revenues is neither proposed nor preempted. Thus, there are no current provisions to restrict taxes which can be imposed by the regulating authority on the operators, opening the door for significant revenues for the regulator. Clearly, this is the very kind of issue to be debated during Congressional consideration. Still, tribes are taking notice of this development, and a number of them already are consulting their outside legal and economic consultants as to the feasibility and reality of pursuing the Internet opportunity. It is a virtual certainly that a number of tribes will pursue this matter with seriousness.

State politics will enter into decisions to opt out, and the anti-gaming forces will be aggressive in promoting opt outs in various states. However, tribal politics may prove more amenable to tribal participation. And that could give Indian Country a leg up. This is a brand new issue and one which will be closely followed. And Gaming Legal News will be reporting on it over the coming months.

Dennis J. Whittlesey is a member of the law firm of Dickinson Wright PLLC in the firm's Washington, D.C., office, specializing in Indian law and Indian gaming law. He is a member of the District of Columbia and Oklahoma bars, and is admitted to practice before a number of federal trial and appellate courts. He has represented Indian tribes in seeking federal recognition and – since enactment of the federal Indian Gaming Regulatory Act in 1988 – gaming approvals and casino project development. He has degrees from the University of Oklahoma (B.A. in Journalism) and Georgetown University Law Center (J.D. and LL.M. in Taxation).