NEW YORK – It’s not just horses. The tribal casinos caught, innocently they
say, in the aftershocks of a major illegal-gambling indictment are taking
the impact on one side of federal national security concerns and on the
other of a competitive struggle over the future structure of the race
betting industry.

The New York race track Mob-related indictment alleging mob-related illegal
gambling and doping of thoroughbreds has brought intense scrutiny to
“rebate shops” worldwide, including those of two tribal casinos. For
federal law enforcement, the underlying concern is money laundering, a key
focus of the War on Drugs and now the War on Terror. To them, the rebate
shops could become a means of disguising the flow of large sums, which
could serve any number of illicit activities.

But for some racing industry lobbyists and state regulators, the practice
of rebating itself threatens the flow of revenue to racetracks, horsemen
and state tax collectors.

The fast-growing business of giving rebates on large bets has attracted
extraordinary cash flows from secretive groups. In a current court case,
one Las Vegas gambler testified he had channeled up to half a billion
dollars through an off-track betting site in Fargo, N.D., licensed to a
fund that provided athletic scholarships for North Dakota State University.
Published reports indicate that in 2002 nearly 80 percent of the off-track
betting handle at the Coeur d’Alene tribal casino came from one syndicate.

This kind of money flow has aroused intense interest from federal
investigators, including the National Indian Gaming Commission, and led
directly to the formation of the interagency Indian Gaming Working Group.
Most of the 88 counts in the Jan. 13 indictment that started the current
scandal charge the defendants with money laundering through betting rebate
shops.

In a parallel move, several major racetracks and now the New York state
racing regulators have cancelled the contracts of the leading rebaters to
receive broadcasts and betting signals. This order affects both the Tonkawa
tribal casino and the Coeur d’Alene Casino, even though neither has been
accused of wrongdoing, and the Coeur d’Alene state they have no current
connection to any of the figures in the indictment.

In a Jan. 27 letter to all New York state racetracks, the New York State
Racing and Wagering Board said it was withdrawing approval for any
contracts between New York simulcast licensees and 10 sites, including the
Tonkawa and Coeur d’Alene. The board, which regulates both racing and the
state’s four tribal casinos, was tracking earlier action by the New York
Racing Association, which operates the state’s three most famous tracks.
Although the action affected smaller tracks, it significantly expanded the
attack on rebating.

For more than a year, the Racing Board has been campaigning against
rebating. In approving new simulcasting contracts to receivers including
the Ho-Chunk Casino in Wisconsin and the tribally-owned simulcaster Choctaw
Racings Services, Inc., which serves a number of Oklahoma Indian casinos
and the Oneida of Wisconsin, it has required them to not provide cash
rebates to customers. In September 2004, said spokesperson Stacy Clifford,
it circulated a letter to industry leaders asking their thoughts about a
total ban on simulcasting to sites offering rebating.

This position goes beyond the conditional shutoff imposed by some
corporations. Churchill Downs, for instance, asked for more “transparency,”
with more information about people making the bets and better tracking of
the transactions, and the Indian casinos are trying to meet its conditions.
The Racing Board is siding with industry groups that see rebating itself as
a threat to revenues deducted as a “take-out” from pari-mutuel pools. The
“take-out” of course is a tax, and the industry position is very like that
of convenience store owners who see tribal gas stations and smoke shops as
unfair competition.

The federal pressure on the other hand is part of a broader focus on money
laundering. Federal law enforcement has targeted cash flow for decades,
requiring financial institutions and casinos to report currency
transactions over $10,000 to the U.S. Treasury Department. But the 9/11
attacks and the Patriot Act gave it new urgency. In explaining the work of
the Indian Gaming Working Group, founded in large part because of this
case, the FBI said that the high volume of “cash-intensive operations” at
casinos created a “potential for crime” that “could only be addressed
through strategic cooperation among the agencies.” In a recent newsletter
from the IRS Office of Indian Tribal Governments, Director Christie Jacobs
said it would be placing added emphasis this year on enforcing the
anti-money laundering statutes in tribal gaming.

This focus has even gone international. In the United Kingdom, the Treasury
announced in late January that it had asked the National Criminal
Intelligence Service to conduct a “risk assessment” of the potential for
money laundering in the country’s 8,200 betting establishments. British
money laundering laws currently don’t covering bookmaking.

It’s strictly hypothetical at this point that terrorists could channel
funding for their operations through betting on the horses. But the
government is taking untracked cash seriously, and it is asking Indian
casinos for help. The National Indian Gaming Commission appealed to tribal
members for diligence in reporting wrongdoing as “critical to eliminating
criminal activity at your casinos.”

“When this is achieved, your tribe will be the primary beneficiary of your
casino’s revenue,” it said.