1. Background
  2. Native Americans

Native American Trust Fund: Massive Mismanagement

December 10, 2010


Elouise Cobell has posthumously received the Presidential Medal of Freedom for her advocacy for Native American self-determination and financial independence. FCNL lobbied Congress to approve the settlement in Cobell's lawsuit against the U.S. government to ensure Native Americans were paid for the income on land held in trust for them.

When the U.S. government took control of Native Americans’ property rights in 1887, Indians were assured they would receive all the income from their land. They never did. The Cobell v. Salazar class action lawsuit resulted in a settlement for Native American plaintiffs.

According to accounts from whistle-blowers, money belonging to individual Indians was pilfered, skimmed, redirected, or thrown in with general government funds by the U.S. Department of the Interior or its appointed representatives.

In 1996 banker Elouise Cobell filed a class action lawsuit charging the government mismanaged more than $100 billion in oil, timber, grazing and other royalties on land owned by some 500,000 individual Indian beneficiaries.

After a trial in June 2008, Judge James Robertson ordered that the government is responsible for about $455 million of missing Native American money. The Native American plaintiffs expressed disappointment at the verdict, which holds the government accountable for only a fraction of the amount descendants claim to be owed, and have not yet said whether they will appeal.

In early December 2009, the government offered and the plaintiffs accepted a settlement in this 13-year-old case. The settlement provides $1.4 billion to be shared among the plaintiffs (yielding just $1000 per plaintiff). The federal government commits another $2 billion to buy up small shares of scattered properties from their current owners. The settlement includes the creation of a "$60 million federal Indian Education Scholarship fund to improve access to higher education for Indian youth, and ... a commitment by the federal government to appoint a commission that will oversee and monitor specific improvements in the Department’s accounting for and management of individual Indian trust accounts and trust assets, going forward.

In late 2010, the House and Senate both approved the Cobell lawsuit settlement. In addition to the payments to individual class members, the Cobell settlement agreement provides for a $1.9 billion Trust Land Consolidation Fund, through which interested individual owners receive payments for voluntarily selling their fractional interests in Indian country land. That land would then be held in trust for the tribe with jurisdiction.

Background The Origins of our Trust Responsibility Towards the Tribes 

The federal government has a general trust responsibility towards the tribes, meaning that it should look out for the welfare of tribal members. The general trust concept has become solidified in law and policy, and has become a keystone of decisions regarding American Indians reflected in congressional policies, executive branch directives and decisions, and judicial opinions.

Background Native Americans and Trusts 

If ever there were people with a right to claim “trust issues” throughout their history, it might be the indigenous people of this continent. The history of federal government promises and failures with respect to native peoples is long, shameful and involved. But resilient indigenous people are still here, seeking ways to take back inherent rights to manage their own affairs.

Full Chronology

1887

Passage of the General Allotment Act (the Dawes Act) which divided a great deal of tribal lands, especially in the Midwest, into parcels of 40, 80, or 160 acres which were conveyed in trust to individual Indians. The federal government retained management of all natural resources on those lands, and encouraged the Indians to take up farming. The rest of the lands were made available in 1889 for homesteading by settlers coming from the East. Prior to the Allotment Act, tribal land holdings totaled 138 million acres. By 1934, the American Indians had lost almost 90 million of those lands to non-Indian owners. Today, even with more money, tribes have been able to buy back only 8 percent of land they lost in 1887.

1915

The Report of the Joint Commission of the Congress of the United States described the "great wealth in the form of Indian funds" [derived from lands held in trust] as "an inducement to fraud, corruption, and institutional incompetence almost beyond the possibility of comprehension."

1934

The Indian Reorganization Act was passed. It stopped all further allotments of portions of tribal reservations to individual owners. It also made perpetual the special trust arrangements which had been created for the lands deeded or allotted to individual Indian owners.

1955

A U.S. General Accounting Office report stated, "The deficiencies [in trust management] include disbursements of individual Indian moneys without adequate support, deficiencies in accounting for cash and bonds and in computation and distribution of interests income and other weaknesses in internal procedures."

1986

David Henry, an accountant with BIA, became a prime whistle-blower on the fraud and mismanagement which he witnessed was taking place within the Bureau of Indian Affairs regarding funds held by BIA for tribes and individual Indian owners/allottees.

1990

During oversight hearings, then-Rep. Albert Bustamante (TX) reportedly stated, "I have a tribe that I represent in my district, but throughout the years, most of these people have been abused by many, and you in the BIA ought to be the ones that really look after them. If this happened in Social Security, I tell you there would be a war. If we can manage Social Security, we ought to be able to manage this."

1991

Secretary of the Interior's Annual Statement and Report to Congress stated, "The Bureau’s management of Individual Indian Monies (IIM) [accounts] and Tribal trust funds is inadequate to properly maintain and administer the $2 billion dollar fund for which it has responsibility. The BIA’s management of tribal and Individual Indian Trust Funds lacks effective management/internal controls, reliable systems and management information. Tribal and individual accounts lack credibility and have never been reconciled in the entire history of the trust fund."

1992

The House Committee on Government Operations published its report entitled "Misplaced Trust: The Bureau of Indian Affairs' Mismanagement of the Indian Trust Fund." It contained serious accusations of malfeasance, and called for significant changes in the Department of Interior’s handling of IIM and tribal trust funds.

1994

The Indian Trust Fund Management Reform Act of 1994 was enacted which made significant changes in the Department of Interior organization and its administration of the trust funds. Its passage came despite the vigorous opposition of the Department of Interior. Under the act, a Special Trustee was appointed to serve directly under the Secretary of Interior, and separate from the Bureau of Indian Affairs, in an effort to remedy the problems in both tribal accounts and IIM accounts.

June, 1996

The Native American Rights Fund and attorney Dennis Gingold filed Cobell v. Babbitt in U.S. District Court on behalf of five named individual Indian account holders as a class action to compel an accounting and adjustment of accounts. It also sought to establish better policies for appropriate future management of the Indian trust funds.

June, 1996

The BIA created a new officer, The Special Trustee, who testified to Senate Committee on Indian Affairs that the IIM account system was "as bad or worse" than the system used for tribal accounts. During the hearing, Sen. McCain (AZ) stated, "Trustees receive and disburse funds all the time for other Americans, and if they blow it they pay. In this case it's the Native Americans who are rightfully owed the money and the federal government who will be forced to compensate for their loss."

November, 1996

The first of several judicial orders was entered in Cobell v. Babbitt requiring that the government produce and give to the plaintiffs’ attorneys all records of accounts relating to the five individual plaintiffs.

February, 1997

The case was certified as a class action lawsuit by Judge Royce Lamberth, meaning all orders entered for the benefit of the five named plaintiffs (such as the order to produce records of account) would also relate to all members of the class. It was estimated at that time that 300,000 individual Indians and their descendants were members of that class, but that estimate has since been increased to about 500,000.

November 1998

Judge Lamberth issued an important ruling, over strenuous objections of lawyers for Department of Interior, that in managing IIM accounts the federal government would be held to the same account management standards as any other trustee such as a bank, rather than to the less strict statutory governmental standards. One major consequence of this ruling is that the burden of proof (that there had been appropriate management of funds and proper payments from the accounts to the beneficiaries) became the responsibility of the Department of Interior, rather than that of the plaintiffs.

February, 1999

Interior Secretary Bruce Babbitt, Assistant Secretary Kevin Gover, and Treasury Secretary Robert Rubin were all found to be in contempt for failure to produce records as required by court orders.

May, 1999

The government acknowledged in writing that while the case was pending, the Department of Treasury had destroyed 162 boxes of relevant documents.

June, 1999

A seven-week trial was held. During his testimony, Secretary Babbitt admitted that the fiduciary responsibilities of the U.S. were "not being fulfilled."

Spring and summer, 1999

Settlement discussions between the parties with the help of mediators were undertaken but were unsuccessful.

December, 1999

Judge Lamberth held that the United States had breached its fiduciary duties and had "unreasonably delayed" trust reform efforts; and he ordered continued judicial oversight for at least five years. The government appealed this order.

November, 2000

The Department of Treasury admitted destruction of substantial numbers of additional records which were under its control.

Early 2001

The case became renamed Cobell v. Norton, to reflect the change of identity of the new Secretary of Interior.

February 2001

The U.S. Court of Appeals for the D.C. Circuit affirmed the major findings of Judge Lamberth. "Not only does the 1994 Act plainly reaffirm the government’s preexisting duty to provide an accounting to IIM trust beneficiaries, but it is plain that such an obligation inheres in the trust relationship itself." At another point in the decision the court stated, "...the magnitude of the government’s malfeasance and potential prejudice to the plaintiff's class" justified great latitude in the judge’s continuing oversight.

June 2001

The Senate Government Affairs Committee issued a report in which it described the handling of these funds as one of the 10 worst examples of federal government mismanagement, second only to the Big Dig in Boston.

October 2001

Government lawyers revealed to the district court that Assistant Secretary of the Interior for Indian Affairs Neal McCaleb had erased his electronic communications relating to Indian trust funds for a period of 10 months, despite court orders and internal policy to the contrary. Those communications reportedly included figures on the amounts of money going in and out of Indian trust fund accounts.

November 2001

Judge Lamberth ordered Interior Secretary Gale Norton and Assistant Secretary Neal McCaleb to stand trial for being in contempt of court. McCaleb resigned shortly thereafter, and as a consequence he did not have to stand trial. The hearing took place several months later, and Norton was found by the judge to be in contempt.

March 2005

Attorney General Alberto Gonzales testified that the FY 2006 budget request for the Department of Justice includes $7.4 million and 18 positions to defend the United States in law suits filed by various tribes for mismanagement of tribal assets by the Department of Interior. He stated, "The United States’ potential exposure in these cases is more than $200 billion."

2008

The case is renamed Cobell v. Salazar to reflect the new Secretary of the interior. Following a trial, Judge James Robertson ordered that the government is responsible for about $455 million of missing Native American money. The Native American plaintiffs expressed disappointment at the verdict, which holds the government accountable for only a fraction of the amount descendants claim to be owed.

December 2009

The government offered and the plaintiffs accepted a settlement in this 13-year-old case. The settlement provides $1.4 billion to be shared among the plaintiffs (yielding just $1000 per plaintiff). The federal government commits another $2 billion to buy up small shares of scattered properties from their current owners. The settlement includes the creation of a "$60 million federal Indian Education Scholarship fund to improve access to higher education for Indian youth, and ... a commitment by the federal government to appoint a commission that will oversee and monitor specific improvements in the Department’s accounting for and management of individual Indian trust accounts and trust assets, going forward.

2010

The House and Senate both approved the Cobell lawsuit settlement.

November 2012

At last, the case is closed; settlement checks can go out to the trust beneficiaries, a $60 million scholarship fund provided in the settlement for Indian youth can be made available, and the Department of the Interior can begin to use $1.9 billion to purchase “fractionated land” (pieces of land divided up among a number of individual owners) to give to the Tribes.

The settlement will pay out about $1.5 billion to compensate about 500,000 Native Americans. Some will receive a flat payment of $1,000, and others will receive a little more where the records of their trust accounts were located and indicated that more income is due. The checks for individuals will be modest compared to the losses over generations to families that owned wells or mines, and who never saw the income that the federal government collected from those resources. But in addition to the disbursal of modest checks, the federal government has been put on notice – and in fact required – to be accountable for its fiduciary duty toward trust beneficiaries when it holds lands or resources in trust.

December 2012

The first checks to Cobell class members were distributed in December, with payments to minors being placed in Individual Indian Monies accounts. The remaining payments are to be distributed in six months.

Also in December, the Department of the Interior announced the initial framework of the Land Buy-Back Program for Tribal Nations established under the Cobell settlement agreement. In addition to the payments to individual class members, the Cobell settlement agreement provides for a $1.9 billion Trust Land Consolidation Fund. This fund will be spent by the Department of the Interior within 10 years to acquire “fractional land interests.” Fractionated land is a parcel of land, the ownership of which has been divided among heirs from generation to generation, resulting in many – sometimes hundreds or thousands – of owners of land in Indian Country. When 200 people share ownership of a plot of land, and majority consent is required to make any decisions, it's hard to use the land for agricultural, commercial, or even residential purposes.

The goal of the Buy-Back Program is to reduce the number of those fractional interests to make consolidated land bases for the use of tribal communities. According to the Department of the Interior, there are approximately 150 reservations with 2.9 million purchasable fractional interests, the ownership of which is shared by more than 218,000 individuals. Many of these lands are located in the Great Plains and Rocky Mountain regions.

The Department plans to conduct three tribal consultation sessions on the Implementation Plan and Buy-Back Program this winter.

January 2014

New Special Trustee Nominated

The Office of the Special Trustee (OST) for American Indians was created by the statute in the 1994 American Indian Trust Fund Management Reform Act. Located within the Department of the Interior, the purpose of the OST is to improve the accountability and management of Indian funds held in trust by the federal government. The OST manages both tribal trust funds and Individual Indian Money (IIM) accounts from commercial, industrial, recreational and agricultural leases, as well as from rights-of-way uses, grazing and range permits and other sources. The Office of Special Trustee coordinates efforts to improve trust asset management and beneficiary services throughout the Department of the Interior and will continue to do so until the Special Trustee is satisfied with the implementation of all needed trust reforms.

The President nominated Vincent G. Logan, a member of the Osage Nation, to serve as the fourth Special Trustee. Logan is a corporate finance attorney and is an Individual Indian Monies account holder himself. On December 11, the Senate Indian Affairs Committee held a hearing on Logan’s nomination and approved it the following week.

Untangling Land Ownership Issues

In addition to payments to individual Indians under the Cobell settlement, the agreement directed the Department of the Interior to address the issue of fractionation of land ownership, in which small tracts of land have hundreds or even thousands of owners. Bequests provide one example of how fractionation can occur: when two partners own a parcel of land together, each may bequeath a share of their half to their children, who then bequeath shares to their children, and so on until the land is heavily parceled. Within just three generations, a small piece of land could easily have more than 100 owners.

The Claims Resolution Act provided $1.9 billion to establish a Trust Land Consolidation Fund, to allow the Secretary of the Interior to purchase fractional interests in trust or restricted land over the next ten years. The Department established the “Land Buy-Back Program for Tribal Nations,” through which interested individual owners receive payments for voluntarily selling their fractional interests in Indian country land. That land would then be held in trust for the tribe with jurisdiction. About 150 reservations contain fractional ownership interests available for purchase under the Buy-Back Program.

On December 11, 2013 the Senate Indian Affairs Committee held an oversight hearing on the implementation of the Buy-Back Program. The spokesperson for the Bureau of Indian Affairs (BIA) described the Interior’s collaboration with and outreach to tribes, as well as consultation on the program’s implementation plan. Senator Cantwell (WA), the committee chair, urged the Department to move quickly in spending the $1.9 billion over the 10-year time period. The BIA representative indicated that the Department hopes to spend half of the amount by 2016. While BIA is particularly interested in working with the “top 40” tribes that have the majority of fractionated interests, they are also reaching out to other tribes. Sen. Cantwell indicated that the committee will hold another hearing in the spring to assess the Department’s progress.

The Chairman of the Makah Tribe of Washington testified that the tribe had identified and prioritized specific parcels of land on their reservation for purchase, including areas which provide timber harvest and contain cultural sites.

Cleaning Up Trust Management

The National Commission on Indian Trust Administration and Reform released its final report on December 10. The report approved the Commission’s recommendations to Secretary Jewell for improving trust administration.

The former Secretary of the Interior, Ken Salazar, created the Commission in 2011 to conduct a comprehensive evaluation of the department’s management of nearly $4 billion in individual Indian and tribal trust funds. Throughout its review, the Commission held meetings that featured witnesses and testimonies from individuals from across the country.

The report contains legislative and regulatory recommendations, suggested improvements for federal agencies’ consultation with tribes and audit of trust beneficiary accounts and offered specific recommendations for Alaska.

December 2014

Last month, the Department of Interior announced 21 new tribal locations where the Land Buy Back Program will be facilitated. This addition doubles the number of tribal government participants in the program. There are 250,000 individual owners of private land in 150 reservations and the 42 tribes selected represent 83% of those fractional lands.

The Department of Interior predicts sold land interests will raise $60 million for tribal scholarships within the Cobell Education Scholarship Fund. The first scholarships are slotted to be awarded in 2015.