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Unclaimed Property Focus
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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Thinking Outside the Unclaimed Property Box: Other Implications Affecting Unclaimed Property

Posted By Contribution from Jennifer Waryjas, 2018/19 UPPO secretary, Thursday, May 31, 2018

As unclaimed property holders become more knowledgeable about their compliance responsibilities, they may risk exposure in tangentially related areas if their focus is too narrow. Holders may be completely compliant with unclaimed property requirements and get blindsided by a legal violation in another area related to their unclaimed property practices. For this reason, a well-rounded approach to unclaimed property compliance that goes beyond just state unclaimed property statutes is important. Following are several risk areas worth considering. 

 

Mergers and Acquisitions

There’s a common misconception with mergers and acquisitions that all unclaimed property obligations flow through to the purchaser if it’s a stock deal, and none of it flows through if it’s an asset deal. However, that is way too broad of a generalization. 

 

When a holder has become aware that a merger or acquisition has occurred, the holder must analyze the specific terms of the agreement to know what’s being purchased and what’s being retained – and whether there’s a provision addressing unclaimed property – is essential. 

 

There’s another misconception that unclaimed property is covered under the tax provisions in an M&A document. Unclaimed property is not a tax and is not included in the definition of tax in the standard definition of tax in most M&A agreements. Unless the deal team knows what unclaimed property is and why it matters, they’re not likely to include provisions responsive to potential unclaimed property obligations in the agreement. Likewise, unless the unclaimed property team understands the deal itself, it may make false generalizations and improperly take into account the effect of that a merger or acquisition has on your unclaimed property reporting obligations. 

 

Health Insurance Portability and Accountability Act

HIPAA is not typically associated with unclaimed property. However, for holders in the medical field or that work with the medical field, it’s important to understand HIPAA implications. HIPAA rules define what information can and cannot be released. Companies in the healthcare market deal with sensitive information. Patients often don’t want information about their health conditions shared without their consent. Unclaimed property holders need to take this into consideration. For example, when escheating uncashed checks to the state, question whether the information is revealing something that the property owner wouldn’t want made public. 

 

When dealing with an audit or a VDA, handling sensitive information can be even more complex. Auditors or VDA administrators may ask for information that, when shared, could violate HIPAA provisions. For example, a medical device provider specializing in an area that would be easy to associate with a specific medical condition could inadvertently release medical information when sharing requested information. Great care needs to be taken to ensure compliance not only with unclaimed property statutes, but also with HIPAA. 

 

Probate Law

When managing the unclaimed property treatment of securities, does the holder or third party administrator understand the implications of probate law?  Relatives of deceased property owners may contact transfer agents to let them know of the death and to inquire about transfer of the shares. Auditors may require that property be escheated, without delving into the legal implications of the contact with a related party under the general presumption that the owner has not made sufficient contact. However, under the relevant probate law, that person may in fact be the heir. Therefore, the holder or third party administrator should identify the relevant probate law to determine if the auditor’s request is proper, or if they should request to provide adequate time for resolution of the probate process before escheating those shares. 

 

False Claims Act

Under the False Claims Act, whistleblowers report a finding to the state and are rewarded for raising an issue about which the state was otherwise unaware. In the unclaimed property arena, False Claims Act cases take what could be a normal audit and transcend it into treble damages and attorney fees. 

 

When hit with a False Claims Act case, information not under privilege becomes public. Every email is traceable, every document becomes potentially discoverable. While a holder is unlikely to anticipate litigation, they can decrease risk of disclosing information if they have taken the proper steps to ensure an internal or third-party unclaimed property analysis is done under privilege. 

 

Nondisclosure Agreements

Information shared with an auditor during an unclaimed property audit could become discoverable in an unrelated lawsuit filed after the audit has been completed. This occurred in the case of City of Sterling Heights General Employees Retirement System vs. Prudential Financial, in which plaintiff shareholders subpoenaed the auditor for audit documentation. 

 

It’s important to make sure when signing nondisclosure agreements with an auditor conducting an examination that they include provisions outlining how long the auditor keeps nonpublic information and work papers, in what form and what they are doing with them when the audit is complete.

 

Taking a comprehensive view of unclaimed property compliance beyond only state unclaimed property statutes reduces risk and helps avoid costly surprises. Awareness of these areas that are especially prone to cause potential headaches is a significant step toward creating a truly well-rounded compliance program. 

Tags:  False Claims Act  HIPAA  mergers  probate law 

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When Unclaimed Property Gets Political

Posted By Administration, Thursday, May 24, 2018

Where large sums of money and government meet, things are bound to turn political. Increasingly, this is the case with unclaimed property. 

 

Many states’ unclaimed property responsibilities fall under the office of the treasurer, which is an elected position in more than 30 states. It is little surprise then that treasurer candidates – particularly incumbents who can boast about returning tens of thousands of dollars to constituents – often make unclaimed property a central part of their campaigns.

 

Treasurers seeking reelection or pursuing a higher office often tout their successes returning large sums of money to citizens or making the process to claim unclaimed funds quicker and easier. 

 

For many people, unclaimed property programs may be the only exposure they have to the state treasurer. States often market their outreach programs as “great paybacks” or “treasure hunts,” and treasurers typically act as the spokespeople encouraging citizens to claim their cash. 

 

In at least one state, unclaimed property promotion by the state treasurer has attracted scrutiny from legislators. On May 5, 2018, an amendment to an Iowa House of Representatives appropriations bill included an amendment that would, in part, prohibit elected officials from closely attaching themselves to the promotion of government programs. 

 

The amendment bans the use of public funds controlled by elected officials or members of the general assembly for any paid advertisement or promotion bearing their name, likeness or voice. Such promotion specifically includes paid direct mass mailings; newspaper, radio, television and internet ads or promotions; and displays at the Iowa state fair. Officials violating the amendment would be required to reimburse the state for the cost of such promotion using campaign funds. 

 

Among the affected programs is the state’s highly visible unclaimed property program. Currently, the state’s unclaimed property outreach is prominently branded as “State Treasurer Michael L. Fitzgerald’s Great Iowa Treasure Hunt.” 

 

Those who support the amendment consider such branding as self-promotion and, thus, not an appropriate use of public funds. Opponents, however, argue that the amendment will lead to unnecessary expense caused by recreating promotional materials that could be otherwise reused or will provide an unexpected burden for officials who couldn’t have anticipated having to use campaign funds when the materials were created. 

 

Both the House and Senate passed the bill with the amendment included. It currently awaits Gov. Kim Reynolds’s signature or revision via the line-item veto. 

 

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Litigation Update: Court Denies Motion for Summary Judgment in Card Compliant Whistleblower Case

Posted By Administration, Wednesday, May 16, 2018

Delaware ex rel. French v. Card Compliant LLC et al. is a qui tam case – a suit brought when a whistleblower exposes alleged fraud against the government with the incentive of receiving a portion of the recovery as a reward. The defendants include Card Compliant LLC, a third-party company that some defendants used to issue gift cards and assume certain gift card responsibilities, and numerous other defendants. 

 

Among the various allegations, the plaintiffs claim that some defendants didn’t account for the transfer of liability in the manner its contracts specified. According to the state’s allegations, the liability wasn’t truly transferred and, thus, defendants had the obligation to remit unclaimed property to Delaware but didn’t do so. 

 

On April 30, 2018, Judge Paul Wallace denied defendants’ Motion for Summary Judgment seeking the dismissal of all claims.

 

The defendants argued that the plaintiffs cannot legally establish a Delaware False Claims and Reporting Act fraud claim because “the undisputed facts demonstrate the retailers had no legal obligation to pay the unredeemed balances on gift cards issued by and assigned to the card companies.” 

 

The court, however, said the defendants’ subjective beliefs regarding the validity of the giftco structure remain unresolved, and several disputed issues preclude resolution of whether the defendants knowingly acted in bad faith to avoid monetary obligations to the government. 

 

“The plaintiffs must be given the opportunity to present to a jury evidence of defendants’ actual knowledge, subjective belief, and purported bad faith,” the judge wrote.

 

The defendants also argued that a ruling by a previous judge in the case should be struck down. The ruling held that the relationship between the creditor/customer and the retailers (rather than the relationship between the card company and the retailers) is the relevant relationship for the purposes of escheat. 

 

The defendants suggested that the judge made this ruling without the benefit of reviewing documents and testimonial evidence from Delaware audits and VDAs in which the state took the position that when a gift card is assigned before dormancy, the card company is the relevant debtor for escheat purposes. 

 

Judge Wallace ruled that the defendants failed to establish that the prior ruling was clearly wrong and that extraordinary circumstances exist, thus preventing him from second-guessing the previous judge’s decision. 

 

Finally, the judge pointed to the U.S. Court of Appeals for the Third Circuit’s decision in the Marathon Petroleumcase. In that case, the court stated that the federal priority rules do not prevent the state from examining books and records to determine the unclaimed property holder.

 

The defendants had sought refuge through application of the DFCRA’s Administrative Proceedings Bar and took the position that if Delaware had previously engaged in the type of statutory audits (and VDA procedures) the Third Circuit spoke on to examine their giftco activities and escheat obligations, then the defendants had been subject to administrative proceedings that would preclude the court from exercising jurisdiction over the state’s case. 

 

The judge wrote, “To act as a bar, those prior administrative proceedings must have been ‘substantially based upon allegations or transactions which are subject of a civil suit or an administrative proceeding in which the Government is already a party.’ It would be indeed incongruous if the administrative proceeding meant to discover and enforce a Defendant’s true escheat obligation could cover more ground than a qui tam suit claiming fraud in the same allegations or transactions.”

 

Noteworthy issues that remain to be determined in the case include:

  • When are cards escheatable to Delaware?
  • Who is the true holder of the cards – the retailers or the third party?
  • Can cards that have already been issued be assigned to another affiliate or third party?
  • Was the giftco structure a reasonable effort to comply with the law or did the companies act with fraudulent intent?

This case is scheduled to go to trial in September. UPPO will continue to monitor and report on developments in this case.

Tags:  Card Compliant  Delaware  gift cards  litigation  qui tam  unclaimed property  whistleblower 

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Meet 2018/19 UPPO President Marilyn Henry

Posted By Administration, Thursday, May 10, 2018

When Marilyn Henry volunteered to assist as a room monitor at an unclaimed property conference, she never considered that it was the first of many roles that would lead to her position as 2018/19 UPPO president. At the time, UPPO – under its original name, the Unclaimed Property Holders Liaison Council – was still relatively young. The organization’s educational programs were tacked on to state unclaimed property events and membership was small.

 

“When we started having our own conferences, it was like a family,” she said. “We’d get together once a year, and you knew everybody. We’ve seen a lot of growth since then.” 

 

It wasn’t long before Marilyn’s involvement grew as well. Whether participating as a committee member or leading an annual conference session, UPPO has been an important part of her unclaimed property career, which began more than 20 years ago. 

 

Returning to work at a bank in 1986 after serving the important role of stay at home mom, Marilyn soon moved to a position in accounting, where she was first exposed to unclaimed property. 

 

“It was something that just had to get done,” she said. “I gathered information from different areas, typed people’s names onto the forms using a typewriter and then sent the forms to the states of Connecticut, Massachusetts and New York. That was the beginning, but it eventually led me to the job I have today.”

 

When the bank was acquired by a larger bank in 1995, she moved on to positions without unclaimed property roles at MetraHealth (which later became UnitedHealth Group) and Travelers. In 1999, she returned to UnitedHealth Group and has been handling unclaimed property ever since. 

 

She joined UPHLC in 2000 to learn how other companies were handling their unclaimed property. Her first contact with the organization was with Mike Ryan, who currently serves with Marilyn on the UPPO board. 

 

Marilyn was first elected to the board in 2012 as Eastern vice president with a reelection in 2014. In 2016, she was elected second vice president, moving into the first vice president role last year and subsequently her position as 2018/19 president. 

 

Unclaimed property continues to be a rewarding career, especially when reuniting people with money they really need.

 

“Sometimes people don’t realize they have any money coming to them,” she said. “And they really need it. Because we administer health claims, a lot of those checks often go uncashed when the member is really ill. When an heir comes forward who had to spend a lot of money on medical care, knowing they will be reimbursed for some of that money is really rewarding.”

 

Today, as she serves as UPPO president, unclaimed property professionals face some big issues, including third-party audits, ever-changing state laws and inconsistencies in reporting requirements from state to state. Despite efforts through the Revised Uniform Unclaimed Property Act to bring about more consistency, states have been adopting the act piecemeal, so UPPO’s work to promote fair and balanced statutes continues to be essential. 

 

One of UPPO’s projects occurring during Marilyn’s term is refinement of UPPO’s advocacy work and expansion of a grass-roots member network, getting more people involved to make a greater impact. She is also excited about the upcoming expansion of the organization’s certificate program this summer.

 

When Marilyn isn’t focusing on unclaimed property, you’re likely to find her outdoors. She enjoys spending time riding her John Deere tractor and four-wheel ATV. 

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The Ins and Outs of Electronic Due Diligence with Customers

Posted By Contribution from Heather Steffans, 2018/19 UPPO second vice president, Thursday, May 3, 2018

Due diligence plays such an essential role in the unclaimed property process that all U.S. jurisdictions require some form of pre-report communication effort by property holders. The objective is to find rightful owners and return property that has remained dormant rather than escheating it to the state. By making an effort to return property, due diligence can also improve relations between holders and those with whom they do business. 

 

Typically, due diligence is conducted by U.S. mail. However, in this digital age, that may not be the preferred method of communication between businesses and their customers. Customers often prefer to be contacted electronically and, as businesses continually seek to automate and operate more efficiently, more of them push customers from the onset of the relationship to choose paperless options. Some even incentivize such choices by offering customers a gift card or discount for choosing to go paperless.

 

Challenges

Conducting due diligence electronically can be more efficient and cost-effective. However, doing so also carries numerous challenges. Among the hurdles for implementing electronic due diligence practices are internal corporate policies. Most organizations have policies regarding what information can and cannot be communicated electronically due to privacy and security concerns. For example, including Social Security numbers, credit card numbers, gift card numbers or any personally identifiable information increases risk. If that information is inadvertently delivered to the wrong address, it could cause undue harm to the property owner. 

 

With the limited amount of information provided via email, such efforts often produce higher call volumes from customers requesting additional information and verifying that the emails aren’t fraudulent. In addition to having the ability to field the additional calls, holders need to ensure reconciliation efforts are in place to avoid double payment if a recipient responds to both an electronic and a hard copy due diligence notice. 

 

Other challenges come from the process of gathering and managing email addresses. If a holder has access to email addresses, processes are necessary to properly deal with those that are invalid, producing “bounces.” In addition, owners need to have an easy way to opt in and out of email communication, which is generally a legal requirement for conducting business electronically. 

 

Sending bulk email increases companies’ risk of having their email servers blacklisted, resulting in decreased deliverability of future emails. If you regularly send bulk email to 20, 50, 100 or more people at a time, use a bulk email service to avoid having internet service providers viewing your servers as sources of spam and filtering your emails. 

 

Sending email internationally leads to even more challenges, including language/translation issues, cultural norms and foreign legal requirements. For example, European Union anti-spam legislation strictly prohibits email considered direct marketing to anyone who hasn’t given prior consent. 

 

Best Practices

Companies use a variety of methods to allow for effective electronic communication with property owners. Some require an affirmative response to communicate electronically. Others use a negative consent letter, which specifies that a prospective participant's failure to either agree to or decline an invitation to participate is considered an opt-in.  

 

Automated Voice Response or Interactive Voice Response technology helps businesses automate common customer interactions while capturing customer responses that can be stored and documented, after ensuring that responses have gone through the proper authentication process.

 

Disparate data warehousing can often be a source of unclaimed property, so reviewing each area or department is important. Establish policies and procedures with authorized representatives to contact customers every 180 days, and with human resources departments, to seek acknowledgement annually at tax time. 

 

Capture owner contact information and consent to be contacted electronically in conjunction with tax forms, statements, buck slips, website popups and other points of contact. Document such contact to ensure backup is available if audited.

 

The best defense is a good offense. When setting up an electronic owner outreach program, it’s important to understand what information is necessary to capture and to review it for accuracy at the onset. Did you capture the correct email address? Do you have a secondary email address? Have you received permission to send correspondence electronically? What kind of frequency do you have set up for sending electronic correspondence if customers have not logged into their account after a specified period of time? What happens if they opt out? What happens if the email is rejected or bounced? How are you storing the responses? Are you directing them to a central repository or individual systems? Who is tracking responses? Is a toll-free phone number available for questions? How is that being staffed? 

 

After collecting owner information, such as emails and cell phone numbers, document electronic communication opt-in and opt-out dates, email bounces and other pertinent details reflecting contact. The key is to substantiate the contact as much as possible, whether it’s through IVR, phone records, logins with credentials, etc. 

 

Research from Experian shows that 79 percent to 83 percent of consumers check their email on their smartphone or tablets. If you don’t have your emails, including electronic due diligence, in a mobile-friendly format, recipients may not take the time to scroll to see the entire email. The average smartphone shows only 25-30 characters, so keep your sentences short and to the point with headlines and subheadings so the information can be easily scanned. 

 

Enhancing traditional due diligence measures with electronic due diligence practices can provide a lot of advantages for holders. However, to fully enjoy these benefits, holders need to ensure they implement electronic efforts with care. As with any aspect of unclaimed property compliance, state statutes dictate many holder activities, so consult with applicable statutes when determining where electronic communications best fits within your company’s outreach efforts.

Tags:  due diligence 

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