On Tuesday, the Obama administration made a move that could allow for more casino expansion in the United States. The Interior Department rescinded a rule passed by the Bush Administration in 2008 that limited the ability of Native American tribes to open casinos.

The 2008 rule required tribal casinos to be within commuting distance from the reservations. That limitation led to the rejection of many casino applications because the proposed site was too far away. In New York alone, 22 applications were rejected due to the rule. Chuck Schumer, a New York Senator, lobbied to have the rule overturned and on Tuesday, the Interior Department did just that.

Of course, doing away with the Bush-era rule doesn’t mean there will suddenly be a rash of new tribal casinos throughout the country. There is a lot of bureaucracy and red tape to get through for any tribal casino, let alone an off-reservation one. Since the Indian Gaming Regulatory Act was passed in 1988, only five tribes have received permission to build a casino off the reservation. Only three of those 23 years were due to the Bush rule.

Still, in a time when many jurisdictions are looking to casinos as a way to boost the economy, this could lead to a casino expansion. There are currently 10 applications for off-reservation tribal casinos being reviewed by the Department of the Interior. For the casino to be built, the Interior Department would first have to take the non-reservation land into trust. Then, among other procedures, the tribe would have to obtain a determination from the federal government that a casino at that site would be in the best interests of both the tribe and the surrounding community.

A federal judge in Michigan has issued an injunction against the Bay Mills Indian Community, preventing them from running its Vanderbilt casino. The tribe had until noon today to cease all casino operations at that location.

The preliminary injunction was issued by Judge Paul Maloney while a lawsuit is sorted out. The Little Traverse Band of Odawa Indians, who also operate casinos within the state of Michigan, have sued the Bay Mills tribe, saying that they have no right to operate the casino in Vanderbilt because it is not on tribal land.

The Vanderbilt casino is located south of the Bay Mills reservation. According to the lawsuit, because it is not on the reservation, the tribe cannot operate a casino there. The Bay Mills tribe disagrees, though. They say because they purchased that land in Vanderbilt with land-claims settlement money with the state, that makes the land tribal land, which allows them to run a casino on it.

This case is not expected to be settled anytime soon. It has broad implications for tribal gambling in the state. The Bay Mills tribe wants to open casinos elsewhere in the state, such as on property that used to be a post office that they bought last year.

The case will eventually determine where the Bay Mills tribe can and cannot operate casinos, in accordance with their compact with the state of Michigan. Until then, according to the injunction, they are ordered to “case operating slot machines and other electronic games of chance or any other gaming activities currently offered on its property in Vanderbilt, Michigan.” The injunction was granted this morning, with a compliance deadline of noon today.

In a “revelation” that should surprise no one, it has been reported that local government agencies in California are misallocating funds from the tribal casinos. It seems that instead of using the money the way it is intended, those funds are going to other things.

Under the contracts between the state of California and the tribes, a percentage of the net wins from the casinos is deposited into a Special Distribution Fund for local governments. The government agencies then spend that money for uses related to the operation of the casinos, including casino-related crime, emergency responders to the casinos, traffic and more. Basically, if a local government agency has to spend money due to a problem or so-called problem related to the tribal casinos, they can use the money (in the form of grants) from the Special Distribution Fund for that. Sounds easy, right? Not for the government.

For fiscal year 2008-2009, state auditors looked at 20 grants used by seven counties, worth $5.7 million. That is a small sample size of the 185 grants in 25 counties during that time. The auditors determined that $1.7 million was used properly. If you’re keeping score, that means the government agencies managed to misuse 70% of the funds. That’s pretty impressive, even by government standards.

Margaret Fernandez, a spokeswoman for the Office of the California State Auditor, said that many of the agencies they audited said that “they were unaware of certain requirements.” Sure, I’ll bet they thought there was just a giant pile of money they can use with no strings attached. That sounds believable.

Much of the money went to projects that had little relation to the casinos, while some had no relation at all. In most cases, the agencies were simply unable to justify the spending by proving they were related to the impacts of tribal casinos. In response to the misuse of funds, the auditors are suggesting that California pass a law that requires counties to surrender the grant money if they do not meet the reporting requirements for funds previously spent.

The Seneca Nation of Indians is offering to resume revenue-sharing payments with the state of New York, if certain conditions are met. It is the most recent attempt by the Seneca Nation to resolve the revenue-sharing dispute that came to a boiling point last year, when the tribe stopped making payments.

There are millions of dollars at stake, money that the state desperately wants. The Seneca Nation tried to reach an agreement with former governor David Paterson last year but nothing was resolved. Now they are offering new governor Andrew Cuomo a chance to resume the revenue sharing, if the state meets some of their restrictions.

Robert Odawi Porter, President of the Seneca Nation, sent a letter to Governor Cuomo saying that the tribe is willing to reimburse New York for the payments they have not made if a portion goes to the city of Salamanca, with those funds to be used for the gaming operations of the Seneca Allegany Casino. The Seneca Nation owns three casinos and Salamanca is the smallest community hosting one of those casinos.

President Porter said he is willing to make a commitment to resume payments and reimburse the state if “there is an agreement in place with the particular local government that assures use of funds and the Nation is given credit for such payments.”

Revenue sharing was a requirement for the Seneca Nation to operate casinos in New York, but they stopped making payments to the state last year, saying that the state had violated their contract. The Seneca Nation had been given an exclusivity agreement, but since that contract the state of New York has “authorized casino-like operations in Hamburg, Batavia and Finger Lakes,” Porter said. Since the state had violated their agreement, the Seneca Nation didn’t feel obligated to keep up their revenue-sharing requirement.

The Seneca Nation decided to stop making payments to the state around the same time a different dispute occurred: The state began trying to collect sales tax on cigarettes sold by Indian retailers to non-Natives. The Seneca felt that was a violation of their sovereignty and the cigarette tax may have been the last straw.

For the first time in 2 ½ years, Arizona tribal casinos saw an increase in revenue over the last quarter of 2010. Mirroring an increase in spending for holiday shopping during the same time period, Arizona residents spent more money at the casinos at the end of 2010 as well.

There are 22 tribal casinos in Arizona that are regulated by the Arizona Department of Gaming. Those casinos reported a 1.6% increase in October, November and December from the same time period in 2009. While the increase is minimal, it is encouraging, considering how poorly things were going before that. When the economy tanked in 2008, the casino industry in Arizona suffered 10 consecutive quarters in which revenue declined from the previous year. Many of those revenue losses were in the double digits. The tribal casinos do not release detailed financial information, so the exact amount of revenue is unknown.

Though Arizona, like most of the United States, has yet to see an economic recovery (despite Obama spending months touting the “Recovery Summer”), an increase in discretionary spending by the public is a good thing. It means that they are gaining confidence in the economy and in their financial situation.

During the lean times, when the casinos were seeing declines in revenue, they had to cut back. Jobs were cut and the money used for different tribal services also declined. The casinos’ payments to the state of Arizona also dropped. Those payments are used by the state to fund expenses at the Department of Gaming, tourism, wildlife conservation and emergency room services. With the increased spending at the casinos, though, the fourth quarter of 2010 say payments from the casinos to the state increase from $11.1 million to $11.3 million.

Again, it’s a small increase, but it shows that more money is being spent on leisure activities, with is a good sign for the economy of Arizona. Sheila Morago, executive director of the Arizona Indian Gaming Association, said that the recent numbers do not make her want to “do a full happy dance, but we are encouraged.” I wonder what her tribal happy dance looks like.

Online gambling is all the rage in Canada. British Columbia and Quebec have already launched their own government-run online casinos. Ontario plans to have an internet casino up and running by 2012. It seems that every other province has weighed in one way or the other on the subject. Now the government agency that oversees tribal gaming in Saskatchewan wants a study on the subject.

The Saskatchewan Indian Gaming Authority (SIGA), which owns six First Nations casinos in Saskatchewan, has announced an intention to study the prospects of bringing online gambling to the nation. The company, which employs more than 2,000 people (mostly First Nations people), has released a “request for information on the products offered by suppliers that could assist SIGA in conducting research on Internet gambling.”

Though the Saskatchewan government is working with the Saskatchewan Indian Gaming Authority, SIGA is being given the freedom to conduct its own initial research. Current estimates are that online gambling in the province is an industry worth $30-$40 million. The group wants to find out how much of that money can be a revenue source for SIGA.

The Saskatchewan government, of course, wants to know how much money they stand to benefit from online gambling as well. Currently SIGA and the government have not discussed revenue sharing for the potential new market. In their current agreement, AIGA gives 50% of their profits to the First Nations Trust – which is distributed to the people of the Saskatchewan First Nations, 25% of the revenue goes to the provincial government, and 25% goes to the Community Development Corporations.

Since SIGA is only now beginning to study online gambling, it is unlikely that anything will happen soon, but the hope is that within a few years, the First Nations will be able to offer online casino versions of their tribal casinos for Saskatchewan gamblers.

After 32 years of asking, the Shinnecock tribe has finally received formal recognition from the federal government. The Shinnecock tribe knew they existed, as evidenced by their 1,292 members living on an 800-acre reservation in Southampton, New York, but it took 32 years for the government to come to that realization, it seems.

On Tuesday, the Bureau of Indian Affairs formally recognized the Shinnecocks as a Native American tribe. Along with the symbolic nature of that designation and the feeling of finally having their existence verified, the Shinnecocks are now allowed to open a casino in on their reservation.

Seeking the ability to open a casino was one of the reasons that the tribe petitioned the government for recognition in the first place. Though living among the wealthy and famous in the Hamptons, the Shinnecock tribe is an impoverished one. Opening a casino can lead to a drastic improvement in the economic status of the tribe; just ask the Seminole.

There is a slight problem, though, and that is that the Shinnecocks don’t want their casino to actually be located on their reservation. The Hamptons are full of rich people and are flooded with tourists every summer. A casino in the area would face stiff competition from basically everything else that the Hamptons offer. For that reason, the tribe wants their casino located elsewhere, preferably in New York City or in its suburbs. Such a move is possible, though it is complicated by federal law and politics.

By the Indian Gaming Regulatory Act, federal recognition automatically entitles a tribe to a Class II casino that can carry slot machines but no table games. To have a Class III casino, which can have table games, the tribe would need to make a deal with the state in which it’s located, with the state getting a share of the revenue. The Shinnecock tribe is interested in a Class III casino off of their reservation, which would require a deal with the state legislature that would be signed by the governor and permission from the federal government.

New York Governor David Patterson supported recognition of the tribe and said that he wants to “explore with them ways in which they might be able to partner with us and bring revenues into the state.”

Even with a deal with the state in place, there is no guarantee that the federal government will allow the tribe to open a casino outside of their reservation. In addition, any proposed casino will likely be opposed by unions and lobbies for casinos in nearby markets. For example, approximately 20% of the customers in Atlantic City casinos come from New York City. More than 30% of the customers of Foxwoods Casino in Connecticut are New Yorkers. Those establishments are not going to love the idea of a tribal casino in New York City.

What will happen next is anybody’s guess. The Shinnecocks want a casino, but not on their reservation in the Hamptons. The people of the Hamptons don’t want a casino there. There are mixed feelings about an off-reservation casino in New York City. The Shinnecocks have already lobbied Congress for such a casino, with no decision being made.

Don’t expect anything to happen soon. It takes 30 days after this formal recognition for the tribe to be official. Also, though the fight for recognition began in 1978, the tribe didn’t make any progress until they sued the Interior Department in 2006. Suddenly, it became more difficult to ignore them.

Loyal Gambling Review readers, if such a thing exists, have probably noticed that Ricky Bauer and I have a decidedly anti-UIGEA stance and while we’re not exactly fans of Barney Frank, we appreciate his efforts to repeal the law. Well, today I read an opposing viewpoint from an industry lawyer that I find interesting and provocative, so I thought I would share.

In a recent article, Martin Owens contends that Barney Frank’s gambling legislation is unnecessary, possibly even detrimental to the industry, and doesn’t stand a chance of passing anyway. Recently I have written that I am not optimistic of Frank’s chances, but what about the other two? Martin Owens is a California attorney who specializes in internet law and is the author of a book called Internet Gaming Law, so he’s infinitely more qualified to comment on the subject than me.

While the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006, regulations for the law weren’t passed until 2008. According to Owens, while the law was written by Capitol Hill politicians, the regulations were written by professionals in the financial industry to protect themselves from UIGEA. Yes, that’s right. The regulations for UIGEA protect the financial industry from UIGEA. UIGEA basically gives the government the power to prosecute any financial institutions who transfer funds from “unlawful internet gambling.” The problem is that there is no definition in that or any federal law about what constitutes “unlawful internet gambling.” If you don’t know whether the gambling was legal or illegal, how are you supposed to know if the funds are from a restricted transaction? Currently, there are only 6 states in the Union that have laws prohibiting online gambling. According to Owens, the regulations in UIGEA provide safety for the financial service providers (FSPs) because “as long as they install proper procedures to identify and block these ‘restricted transactions,’ American FSPs will not be penalized, even if a wicked internet bet or two does slip through the cracks.” According to Owens, thanks to the new regulations, UIGEA has become “unintelligible, unenforceable and mostly unimportant. It is doubtful that any person or company could be prosecuted for anything under the UIGEA in its present state.”

A major problem with Frank’s bill is that it takes rights away from the states and gives them to the federal government. As you may be aware, Gambling Review is a big proponent of states’ rights. In Frank’s bill, the power to license online casinos lies solely in the hands of the Treasury Department. States and tribes don’t voluntarily join the federal internet licensing program. They are automatically enrolled, though they do have the option to opt out within 90 days of the passage of the bill. And if Frank’s bill is passed, guess who profits from taxing the online casinos and players? It’s the federal government, not the states.

A major issue with Frank’s bill, though, is tribal casinos. There are already legal conflicts between tribal casinos and the states in which they operate, due to loopholes and general confusion from tribal gambling laws. In Frank’s bill, a tribe’s internet gambling decisions are completely independent from the state in which the tribe is located. Owens put forth a hypothetical question, if a tribe said yes to internet gambling but the state opts out, “what about the internet connection in and out of the reservation?” He also asks “since the Indian Gaming Regulatory Act only allows Indian gambling to take place on Indian land, will the gaming tribes be able to meaningfully participate online in the first place?” It is an interesting question. Currently, it is legal for American citizens to gamble in Indian casinos because they are on sovereign tribal land, not United States soil. However, there is question about whether it would be legal to log onto a tribal online casino from US land in a state that opts out. Equally important, though, is this question: Why would anyone bother using a tribal online casino if there are plenty of non-tribal alternatives? It’s not more convenient, since all of the casinos are available on your home computer.  It seems that Frank’s bill would provide more competition for the tribal casinos without letting them get in on the new action.

All of this begs the question, if Barney Frank’s bill would not protect financial service providers more than they already are, will cut into the profits of tribal casinos, and will potentially take tax money away from individual states that are hurting in this recession, is it a good thing after all? This is just another example of whenever the federal government does something, it’s never simple and things are never as they seem.