                               QBffice of tty !Wornep @eneral
                                         &date of @exae
DAN MORALES                                     May 30,1997
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     Ms. Catherine A. Ghiglieri                        Opinion No. DM-442
     Commissioner
     Texas Department of Banking                       Re: Whether the Department of Banking may
     2601 North Lamar Boulevard                        enforce the Currency Exchange Act, article 350,
     Austin, Texas 78705-4294                          V.T.C.S., on a gambling facility owned by the
                                                       Kickapoo Indians on their reservation in Eagle
                                                       Pass, Texas (RQ-926)


     Dear Commissioner Ghiglieri:

              You ask whether the Department of Banking (the “department”) has the authority under the
     Currexcy Exchange Act, article 350, V.T.C.S. (the “act”), to regulate currency exchange transactions
     engaged in by a non-Indian management company which msnages the casino owned by the Texas
     Band of Kickapoo Indians on their reservation in Eagle Pass, Texas. Because the act is a
     civil/regulatory enadment, and because the burden of such regulation fblls upon the tribal enterprise
     rather than on non-Indian customers, the department lacks such authority.

             The Currency Exchange Act, article 350, V.T.C.S., requires any person engaged in the
     exchange of one currency for another as a service or for profit to obtain a license f?om the
     department. V.T.C.S. art. 350,§ 2. Section 3 ofthe act exempts banks, foreign bank agencies, credit
     unions, savings banks, savings and loan associations, persons licensed under the Sale of Checks Act.
     and persons registered as securities dealers under the Securities Act from this licensure requirement,
     and permits persons who engage in currency exchange only as an incidental part of their business or
     as an accommodation to clients or customers to request exemption from the act’s requirements by
     the Banking Commissioner of Texas. Such a license, pursuant to sections 3.4, and 5 of the act,
     requires the payment of application fees, license fees, license renewal fees, and examination fees. A
     license holder is also required to post a surety bond of at least S25.000 for each license held. Id.
     § W).

             The question of whether and to what extent state laws such as the act may be imposed upon
     Indians or within an Indian reservation located within a particular state is frequently asked, and its
     answer, which is itselfsomewhat complex, has a long and complex history. Chief Justice Marshall’s
     original rule, enunciated in the landmark case of Worcesrer v. Georgia 3 1 U.S. (6 Pet.) 5 15, 561
     (1832), was that because the Indian tribes were to some extent still nations with elements of
Ms. Catherine A. Ghiglieri - Page 2           (DM-442)




independent sovereignty,     states had no jurisdiction         within Indian country    absent   explicit
Congressional approval:

                The Cherokee nation, then, is a distinct community, occupying its own
           tenitory. with boundaries accurately described, in which the laws of Georgia
           can have no force, and which the citizens of Georgia have no right to enter,
           but with the assent of the Cherokees themselves, or in conformity with treaties
           and with the acts of congress. The whole intercourse between the United
           States and this nation is, by our constitution and laws, vested in the
           government of the United States.

        While Wmer’s     bright line rule has been considerably eroded in the intervening century and
aha&itremains the case that one of the principal considerations in federal Indian law is the impact
of any proposed state regulation on Indian sovereignty. See. e.g., Cal@rnia v. Cabawn Band of
Mission Imkn~, 480 U.S. 202,207 (1987); New Mexico v. Mescalero Apache Tribe, 462 U.S. 324,
332 (1983).

         State jurisdiction over Indian country, for the purposes of the present inquiry, is genemlly
what is re&rred to as Public Law 280 jurisdiction. 28 U.S.C. 8 1360. In Public Law 280, Congress
granted criminal and some civil jurisdiction to the states in which reservations were situated. See
Bryn v. Itapm Coun@,Minn, 426 U.S. 373 (1976). The Supreme Court and the Court of Appeals
for the Fii Cii       have over a series of cases articulated a two-step inquiry to analyze whether and
to what extent the laws of a state, as distinct from the United States, may be imposed in Indian
country. See Seminole Tribe of Florida v. Butterworth, 658 F.2d 310 (5th Cu. 1981); Cabuwn
-480        U.S. 202 (1987); W&ngtm v. Confederated Tribes of the Cofille Indian Resermtion,
447 U.S. 134 (1980); Moe v. ConjedemtedSakh andKootet& Ttibes of iheFl&headReserwztion,
425 U.S. 463 (1976); Oklahoma Tax Comm ‘n v. Citizen Band Potawatomi Indan Tribe of
Oklahoma,498 U.S. 505 (1991).

        Thefirstconsideratoninthisanalysisiswhether~statuteinquestionisacivilstatutewhich
seeks to regulate, or a criminal statute which seeks to prohibit the behavior involved. The second
consideration is on whom the burden of regulation falls.

         The begin&g of the inquiry for our purpose is in the Supreme Court’s analysis of Public Law
28Ojurisdiction in Bpm v. Itusca County, 426 U.S. 373 (1976). In Bryan, the question is whether
Public Law 280 grants states the power to tax Indian reservation lands or income from on-reservation
economic activities The Court, rev&g a judgment of the Minnesota Supreme Court, held that the
statute contained no such jurisdictional grant. Rather, in the Court’s view, “provision for state
uiminal jurisdiction over offenses committed by or against Indians on the reservations was the cen-
tral focus of Pub. L. 280 . . .- Bryan, 426 U.S. at 380. The civil jurisdictional section’s “primary
intent . . . was to grant jurisdiction over private civil litigation involving reservation Indians in state
court.” Id at 385.




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Ms. Catherine A. Ghiglieri - Page 3                (DM-442)




        The United States Court of Appeals for the Fifth Circuit, in Seminole Tribe of Florida v.
Butienuorth, applied the &+wn reasoning to a suit for injunctive relief brought by the Seminole tribe
to prevent the application of Florida bingo laws to a hall located on their reservation. Noting that
Florida did not have a public policy forbidding bingo, the Fii Circuit found that the statute in
question was a “civil/regulatory” one, not a “criminal/prohibitory” one, and accordingly held,
“[w]hem the state mgulates the operation of bingo halls to prevent the game of bingo gem becoming
a moneymaking business, the Seminole Indian tribe is not subject to that regulation and cannot be
prosecuted for violating the limitations imposed.” Seminole Tribe, 658 F.2d at 3 14-15.

        The Seminole Tribe analysis wss adopted by the United States Court of Appeals for the Ninth
Ciit   in Bartma Group of Cap&m Gram& Band of Mission Znahs y. Lh&?, 694 F.2d 1185 (9th
Cii. 1982) and in Cabazon Band of Mission Indians v. County of Riverside,783 F.2d 900 (9th Cii.
1986). Gzbawn Band WBSaflhed by the Supreme Court in Cafl@rnia v. Cabazon Band of Mission
Indians, 480 U.S. 202 (1987), the leading case on state regulation of Indian gambling.

        Ca&xzon &md does not stand for “an inflexible per se rule precIuding state jurisdiction over
t&es and trii members in the absence ofexpress congressional consent.” Cabazon Band, 480 U.S.
at 214-15. But it does require that any extension of such jurisdiction survive a rigorous preemption
analysis:

                  Decision in this case.turns on whether state authority is pre-empted by the
              operation of federal law; and “[sItate jurisdiction is pre-empted . . . if it
              interferes or is incompatible with federal and tribal interests reflected in federal
              law, unless the state interests at stake are sufficient to justify the assertion of
              state authority.” The inquiry is to proceed in light of traditional notions of
              Indian sovereign@ and the congressional goal of Indian selfgovernment,
              including its “overriding goal” of encouraging tribal self-sufficiency and
              economic development.

  Id. at 216 (citations omitted).

          Weighing the matter, the Court found that these factors favored preemption. The Court
  specifically distinguished the Indii smoke shop cases, several of which are cited in the
  department’s briefto us, which permit state taxation of on-reservation cigarette sales to non-Indians
  so as to prevent Indian tribes from marketing a tax exemption:

                  Here, however, the Tribes are not merely importing a product onto the
              reservations for immediate resale to non-Indians. They have built modem
              facilities which provide recreational opportunities and ancillary services to
              their patrons, who do not simply drive onto the reservations, make purchases
              and depart, but spend extended periods of time there enjoying the services the
              Tribes provide.

 Id at 219.




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Ms. Catherine A. Ghiglieri - Page 4             (DM-442)




         The tirst question one must consider, therefore, in analyzing state jurisdiction is whether the
statute sought to be enforced is criminal/prohibitory or civil/regulatory in nature. As your brief
wrrectly concludes, we believe a court would tind that the Currency Exchange Act is, in these terms,
a civil/regulatory statute. In this regard we note that it is essentially a licensing statute, which by its
terms exempts whole classes of enterprises and permits the Commissioner of Banking discretion to
exempt individual enterprises. Little weight, we think, would be afforded to the argument that
inspections under the act may lead to criminal referrals for money laundering. In this regard again,
we note the Supreme Court’s ruling in Cabazon Band

                  [T]hat an otherwise regulatory law is enforceable by criminal as well as
             civil means does not n-y                convert it into a criminal law within the
             meaning of Pub. L. 280. Otherwise, the distinction between 5 2 [crimhml
             jurisdiction] and 5 4 [civil jurisdiction] of that law could easily be avoided and
             total assimilation permitted.

Id at 211.

         Since tbe act is civihgdoy,     we must consider on whom the burden of its imposition falls.
Conceding that the civil/regulatory nature of the Currency Exchange Act means that it is not
applicable to the Kickapoo Band itself, the department’s brief asserts that it may nevertheless be
applied to a non-Indian management company which operates the casino for the Kickapoo. As we
have noted the briefgeneraily relies for this proposition on a series of cases relating to the collection
of state sales tax, and the maintenance of sales tax and exemption records, by tribal smoke shops on
the reservations which sold tax-free cigarettes to non-Indian customers. See Conf&ierated Tribes
of Colville In&m Reservation, 447 U.S. 134 (1980); Moe, 425 U.S. 463 (1976); Citizen Band of
Potmwtomi Tribe of Oklahoma, 498 U.S. 505 (1991); Department of T&ration &Finance of New
Yorkv.MilhebnAttea&Bros.,Inc.,          512U.S. 61,114 S. Ct. 2028(1994).

        In our view the smoke shop cases are immediately distinguishable from the issue at hand, for
the reason given by the Supreme Court in Cahon Band The Kickapoo Band is not marketing an
exemption from Texas gambling law. See CWxtwn Bu&, 480 U.S. at 219. Nor does the department
suggest that it is marketing an exemption from the Currency Exchange Act. Indeed. given that
aurency tmsactions are subject to federal Bank Secrecy Act monitoring, we do not believe such a
contention could be maintained.

         Moreover, one of the reasons that the sales tax statutes could be enforced in Indian country
was precisely that the legal incidence of the tax was on non-Indian purchasers. There is no authority
for states to impose sales tax on cigarette purchases by tribal members in reservation smoke shops.
See Milhelm Atteo & Bros., 512 U.S. 61, 114 S. Ct. at 2031. Accordingly, the department has
asserted that the burden here would fall solely upon the non-Indian management company. In our
view, this assertion is both questionable as a factual matter and gainsaid as a legal matter by the only
authority which has heen recited to us on this point, the United States Court of Appeals for the Tenth
Circuit’s decision in Indian Count, USA., Inc. v. OkIahoma Tm Comm ‘n, 829 F.2d 967 (10th Cir.
 1987).
Ms. Catherine A. Ghiglieri - Page 5          (Dbt-442)




        Fii we note that while the legal incidence of the sales tax falls on the non-Indian purchasers
in the smoke shop cases, it is by no means clear that the cost of compliance with the Currency
Exchange Act, including the significant cost of surety bonding, would fall solely upon the
management company. Bather, if a court were to analyze such costs of compliance as part of the cost
of doing business for the casino, it would likely find that such costs impermissibly burdened the
Kickapoo.

        Were there no authority on this question, we would be constrained by our inability to find
facts in the opinion process to advise you only that we thought it unlikely that the department has
authority to enforce the Curmncy Exchange Act against the management company. However, based
on the authority of1nd&n &an&y, we find that the department has no such authority.

        In Indian Courmy, the state of Oklahoma asserted that it had authority to regulate and to tax
bingo operations in a casino on Creek Indian land, which lie the casino here was managed by a non-
Indiancompany but owned by the trii inter aIia becau~ the management company was non-Indian.
Following the trial wm-t, the Tenth Circuit found that the casino was a tribal enterprise, and that it
and the management company were immune from state regulation. In a footnote to this holding, the
court wrote:

                The State focuses too narrowly on whether a strict ‘master-servant”
            agency relationship exists between the Creek Nation and ICUSA, and
            suggests that only if ICUSA is such an “agent” can it be afforded immunity
            from state regulations. We are not persuaded. The preemption of stute hws
            extends to the Creek Nation tribal bingo enterprise as a whole, which
            includes the im&ement of non-Indians

Indian County, 829 F.2d at 983 n.7 (emphasis added).

        We believe that the h&an Country case is on point here, and that, particularly in the. absence
of contrary authority, it would be followed by the Fifth Circuit. Accordiigly, we believe that a court
would wndude that the immunity of the Kickapoo Band’s gambling enterprise to the application of
the Currency Exchange Act extends to the non-Indian management company, and that the
Department of Banking is barred from enforcing the Currency Exchange Act against the casino
operated by the Texas Band of Kickapoo Indians.




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Ms. Catherine A. Ghiglieri - Page 6        (DM-442)




                                      SUMMARY

              The Department of Banking is barred from enforcing the Currency
          Exchange Act, article 350, V.T.C.S., against the casino operated by the Texas
          Btid of Kickapoo Indians.

                                            Yours very truly,            f



                                             DAN     MORALES
                                             Attorney General of Texas

JORGE VEGA
Fii Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by James E. Tourtelott
Assistant Attorney General




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