SACRAMENTO — Tribal leaders and advocates are calling on Gov. Gavin Newsom to clear a path for California’s non-federally recognized Indigenous nations to access the banking system as sovereign governments, without forcing them to incorporate under state law — a step many view as an unacceptable surrender of the very sovereignty federal courts have already affirmed.
The issue highlights a stark Catch-22 for dozens of California tribes that meet longstanding common-law tests for tribal status but remain absent from the federal government’s official list. Banks, bound by federal anti-money-laundering and customer identification rules, typically require verifiable federal recognition or a state-chartered entity before opening accounts. For unrecognized tribes, that often means forming a nonprofit corporation or LLC under California law — a pragmatic workaround that subjects them to state jurisdiction and can undermine claims to inherent sovereign immunity in future litigation.
These are sovereign nations that have lived in California for thousands of years. Federal courts have recognized the status and immunity of certain groups, yet they cannot open basic checking accounts to manage their own affairs without being told they must become a creature of the state.
California is home to more than 100 federally recognized tribes — and roughly 45 to 65 additional non-federally recognized Tribes but lack federal acknowledgment, the highest concentration in the nation. Many trace their circumstances to the state’s painful history: Spanish mission policies, the Gold Rush-era genocide acknowledged by Newsom in his 2019 apology, unratified treaties and the 20th-century termination of numerous rancherias. Tribes such as the Amah Mutsun Tribal Band on the Central Coast, various Gabrieliño/Tongva nations in Southern California, the San Luis Rey Band of Mission Indians and certain Ohlone and Salinan communities have documented continuity but remain locked out of the federal recognition process’s lengthy and expensive bureaucracy.
Without reliable banking, these groups struggle to receive grants, pay staff, manage cultural resource programs or engage in basic economic activity. Many have resorted to incorporating as California nonprofits, but leaders describe that as a partial erosion of self-determination.
Advocates are pressing two main state-level solutions that would avoid forcing incorporation.
One path is legislation. A potential bill could direct the Department of Financial Protection and Innovation (DFPI) to create a limited verification process for tribes that have secured federal court rulings affirming their status under common-law criteria. State-chartered banks and credit unions would then be required — or strongly encouraged through regulatory guidance — to accept tribal governing documents and resolutions as sufficient for account opening, treating the entities as sovereign governmental bodies for compliance purposes. Such a law could include safeguards mirroring federal “know your customer” rules while carving out an exception based on judicial precedent.
The faster route is an executive order. Newsom could instruct the DFPI and other state agencies to develop protocols recognizing tribes with affirmative federal court decisions on sovereign immunity, similar to how the state already consults with tribes on environmental and cultural issues. The order might establish a short-form certification process or direct state-regulated financial institutions to accept tribal-law entities without state incorporation, drawing on the governor’s existing authority over financial regulation and his prior use of executive action on tribal matters.
Newsom has a track record of engaging with Native issues. In 2019 he issued an executive order formally apologizing for California’s history of violence against Indigenous peoples and created the Truth and Healing Council. He has signed legislation expanding tribal consultation rights and supporting land-back efforts for recognized tribes. Extending similar recognition to unrecognized Tribes that have federal court ruling affirming they meet the Supreme Court’s test for tribal status would fit that pattern.
Politically, the move carries both upside and risk as Newsom eyes a larger national stage. California’s Indigenous communities, though small in raw numbers, carry symbolic weight in progressive circles, especially on issues of environmental justice, repatriation and historical reckoning. Action here could burnish Newsom’s credentials with Native advocates and the broader left-leaning base that values sovereignty and self-determination.
Yet it could also draw quiet pushback from the banking industry, wary of any relaxation of compliance standards, and from some federally recognized tribes concerned about precedent or resource competition. Critics might frame it as symbolic overreach that bypasses the federal acknowledgment process. Supporters counter that the state has both the authority and the moral imperative to address a gap the federal government has left unhealed for decades.
For these Tribes, whose ancestors have lived on lands now occupied by modern California cities and developments, the stakes are immediate and practical. A state-level solution would not grant federal benefits or resolve the broader recognition fight. But it would let them function as the sovereign nations that courts have already affirmed that they are — able to bank, build and govern on their own terms. Whether Newsom chooses legislation, an executive order or neither may signal how far the state’s reconciliation efforts are willing to go.
A Structural Catch-22
Unrecognized, or non-federally recognized, Indian tribes in California face a structural Catch-22 when trying to access the U.S. banking system. These groups possess inherent sovereignty as domestic dependent nations based on Supreme Court precedents that define tribal status and affirm sovereign immunity. Yet they lack the federal acknowledgment that makes their governmental status readily verifiable to regulated financial institutions.
For many, incorporating under state law to gain banking access is the only practical path forward. But it is widely viewed within tribal governance circles as a surrender of core aspects of that sovereignty.
Sovereignty Grounded in Supreme Court Precedents
Supreme Court precedents long predating the modern federal acknowledgment process — codified in 1978 at 25 C.F.R. Part 83 — recognize that Indian tribes possess inherent sovereignty that does not depend on federal recognition. Classic cases such as Worcester v. Georgia (1832) and Cherokee Nation v. Georgia (1831) established tribes as “distinct political communities” with pre-existing sovereign powers.
The common-law test for tribal existence, articulated in Montoya v. United States (1901), defines a tribe as “a body of Indians, of the same or a similar race, united under one leadership or government, and inhabiting a particular though sometimes ill-defined territory.” Later decisions have applied similar reasoning to afford certain protections — even to groups not on the Bureau of Indian Affairs’ annual list of federally recognized tribes.
Sovereign immunity flows directly from this status: Tribes and arms of the Tribe are generally immune from suit absent a clear waiver by the tribe or abrogation by Congress. Courts have recognized this immunity for some unrecognized groups when they satisfy the common-law criteria.
Federal recognition formalizes the government-to-government relationship and grants access to a suite of federal services, but it is not the source of sovereignty. Pre-1978 precedents affirm that tribes exist as sovereign entities independently.
Joey Williams, the President fo the Coalition for California State Tribes (CCST) has been organizing for financial justice for Native American communities and is currently mobilizing non-federally recognized Tribes that are recognized at the State level by the California Native American Heritage Commission.
Why Banking Access Is Difficult Without State Incorporation
The U.S. banking system is governed by federal anti-money-laundering (BSA/AML) and customer identification (CIP) rules under the USA PATRIOT Act (31 C.F.R. § 1020.220) and related FDIC/OCC guidance. Banks must verify the legal existence and structure of any entity opening an account, obtain an Employer Identification Number (EIN) and governing documents, and — for governmental or tribal entities — rely on official federal sources such as the BIA’s annual Federal Register list of more than 570 recognized tribes to confirm status for compliance purposes.
Unrecognized tribes do not appear on that list and cannot charter entities under federal law (for example, Indian Reorganization Act § 17 corporations) or have their tribal-law entities automatically accepted as sovereign governmental bodies. A pure “Tribal charter” or resolution under unrecognized Tribal law lacks the external legal recognition banks require; financial institutions treat it as unverifiable and decline the relationship to avoid regulatory risk.
This blocks basic functions: receiving grants or donations, paying vendors or employees via direct deposit, holding operating funds, or engaging in any commerce that requires a verifiable U.S. bank account.
The Sovereignty Cost of State Incorporation
The workaround most unrecognized tribes use is to form a separate legal entity — typically a nonprofit mutual-benefit corporation, LLC or similar — under the laws of a state such as California or Delaware. This creates a state-recognized entity with articles of incorporation, bylaws and an EIN that banks will onboard.
However, this step is widely understood within tribal governance circles as a surrender of sovereignty for several reasons. The entity becomes a creature of state law, subject to state corporate statutes, courts, taxation in some contexts, and regulatory oversight. State courts can exercise jurisdiction over the corporation in ways they could not over a sovereign tribal government.
When tribal entities incorporate under state law, courts apply multi-factor “arm-of-the-tribe” tests. State incorporation is a factor that weighs against extending full tribal sovereign immunity, because it signals the tribe’s choice to operate through a non-tribal legal form.
It also creates a separation of sovereign and corporate identities: the tribe’s governmental functions remain separate; the bankable entity is not the sovereign itself. This dilutes the tribe’s ability to act as a sovereign government in the commercial sphere — the very activity sovereign immunity is meant to protect without external interference.
Federally recognized tribes avoid this dilemma by chartering economic-development corporations under tribal law or federal IRA § 17, which banks and regulators routinely accept while preserving immunity. Unrecognized tribes have no equivalent federally backed pathway.
The Resulting Catch-22 and Broader Implications
Unrecognized tribes are thus forced into a binary choice: remain true to their asserted sovereign status and forgo banking — and the economic development, payroll, grant management and financial stability it enables — or incorporate under state law, gain banking access, but effectively concede that, at least for financial and commercial purposes, they are operating as a state-created entity rather than an independent sovereign.
This tension undermines self-determination, limits access to capital and services, and perpetuates economic marginalization. It is a direct consequence of the gap between judicial recognition of inherent tribal sovereignty (under precedents that do not require federal acknowledgment) and the administrative and regulatory realities of the modern U.S. financial system, which is built around the federal recognition framework.
Some tribes have successfully navigated limited workarounds, such as using state nonprofits while maintaining parallel tribal governance, but the fundamental sovereignty cost remains. Federal recognition would resolve the issue by placing the tribe on official lists and enabling sovereign-compliant structures, but the acknowledgment process is lengthy, costly, and not guaranteed.
Sovereignty Grounded in Supreme Court Precedents
The legal foundation for the sovereignty claimed by California’s unrecognized tribes rests not in modern administrative checklists but in bedrock Supreme Court rulings that predate the federal acknowledgment process by more than a century. These decisions — part of what scholars call the Marshall Trilogy — established that Indian tribes are sovereign political entities whose powers are inherent, not bestowed by Congress or the executive branch.
In Cherokee Nation v. Georgia (1831), the Court described tribes as “domestic dependent nations.” The following year, in Worcester v. Georgia (1832), the Court delivered a powerful affirmation of tribal sovereignty, holding that tribes are “distinct, independent political communities, retaining their original natural rights as the undisputed possessors of the soil from time immemorial.” States could not intrude; only the federal government could manage relations with Indian nations.
Montoya v. United States (1901) supplied the common-law test still used today: a tribe is “a body of Indians of the same or a similar race, united in a community under one leadership or government, and inhabiting a particular though sometimes ill-defined territory.”
This definition does not require treaties, statutes or Bureau of Indian Affairs approval. It is a judicial standard rooted in the tribes’ pre-existing status as sovereign entities. Federal courts have applied it, or close variations, to unrecognized groups seeking protections such as sovereign immunity.
Taken together, these precedents stand for a simple but profound proposition: tribal sovereignty is not a privilege granted by federal recognition. It is an inherent attribute of Indian nations that predates the United States itself. Federal acknowledgment may unlock specific programs and services, but the Supreme Court has long held that tribes exist as “distinct political communities” regardless.
That distinction is what makes the banking impasse so acute for California’s unrecognized tribes. The financial system’s compliance rules look for an official federal list. The Constitution and the nation’s highest court look for the historical and political reality the Court described nearly two centuries ago.
For groups whose status has been judicially affirmed under common-law criteria, the gap between judicial precedent and regulatory practice forces an impossible choice between practical survival and the sovereignty those very precedents protect.
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