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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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Insights from the NAST Symposium, Part 4

Posted By Administration, Thursday, October 31, 2019
Updated: Thursday, October 31, 2019

The National Association of State Treasurers’ (NAST) Annual Treasury Management Training Symposium held during May 2019 in Providence, Rhode Island, was engaging and enlightening. The National Association of Unclaimed Property Administrators (NAUPA) is affiliated with NAST and led the well-attended unclaimed property track of educational workshops and sessions. This blog post is part four in a series about the topics discussed in the symposium sessions. Read part one hereRead part two hereRead part three here.

 

RUUPA

The session related to the 2016 Revised Uniform Unclaimed Property Act – RUUPA in the States – was insightful. Presenters, including state and Uniform Law Commission (ULC) representatives, said they had hoped for more adoptions. The ULC indicated there were three or four more good years of momentum, after which new adoptions of the Act could lose its legs.

 

Presenters also expressed frustration and disappointment about the American Bar Association (ABA) moving forward with its own version in the form of the ABA Model Unclaimed Property Act. The ULC disagrees with assertions that certain provisions in RUUPA are unconstitutional.

 

According to the ULC, states that adopt RUUPA, or a variant of the Act, must adopt certain provisions for them to consider it truly a RUUPA-inspired adoption. Examples of requirements include lookback limitations and holding periods before liquidation for securities.

 

There was debate on whether or not lookback limitations make sense. The argument was made that life insurance, property or other newly found areas of unclaimed property that were previously not being reported and remitted may never be enforceable with shortened lookbacks. Also, based on the dialogue, the life insurance industry and its associated trade organizations were not discussed in favorable terms during this discussion.

 

Presenters discussed different RUUPA versions, including those in Illinois and Tennessee, being proposed and enacted were examined. State representatives explained why they departed on certain provisions. Consideration was given to the states adding the provision related to estimation as a penalty that may be used by first priority states, rather than for estimation of a liability for second priority states (the classic reason given for why estimations are used). Based on the discussion, it seemed that a few people strongly advocated for this provision.

 

Mind the Noncompliance Gap

The Mind the Gap: Focusing a State’s Compliance Regime on Gaps in Reporting session focused on increasing annual compliance through making past due compliance meaningful. Questions this session intended to answer included: 

  • How do you increase compliance with limited resources? 
  • How do you increase compliance levels without creating a substantial burden on the holder community? 
  • How do you confirm that holders are reporting properly?

Panelists promoted the advantages of a multi-pronged approach, including offering meaningful and diverse voluntary compliance options for holders to catch up on past due unclaimed property liability, and maintaining a robust audit program. Further, annual report compliance reviews, traditional VDA program and voluntary self-examinations were included as a means to support this.

 

The benefits of maintaining a healthy audit program were highlighted. In short, the threat of enforcement drives compliance for both current and past due property. Panelists promoted a robust audit program indispensable to identify significant underreporting and to ensure that other voluntary and mandatory compliance initiatives are conducted efficiently and in good faith. They also discussed the value of creating a diverse package of compliance options, with some being voluntary and some being mandatory, both with varying degrees of rigor.

 

Using a compliance study results chart based on a sample analysis of holders with an annual revenue of greater than $100M, panelists noted that:

  • 44% of the companies in the sample had no prior reporting history. 
  • 37% of the sample companies reported less than $1,000 of general ledger property each year. 
  • 23% of public companies only report securities. 
  • 45% did not report securities at all.

In the last few years, there have been periods where patterns in compliance gaps emerged, relative to specific property types, such as accounts receivable credits, royalties and gift cards. A current area of concern where there seems to be common underreporting compliance gaps are in the mergers and acquisitions arena. Challenges with mergers and acquisitions include the availability of pre-M&A records and the timing in relation to closing of the deal. 

 

The session endorsed the prospect of devising efficient methods to capture the material past due unclaimed property before or even contemporaneously with deal closings. States continue to collect and analyze data from annual reporting, audits and compliance initiatives to target areas with known historic gaps while looking for new emerging patterns.

 

The session also covered audit candidate selection. This process begins with identifying candidates that are likely to have unreported unclaimed property. The next step is to identify and obtain broad available information from government, commercial and public sources and developing an understanding of the entities using company information obtained from different sources. Additionally, states are analyzing candidates’ previous reporting history and comparing it to others in the same industry with a similar size and year of incorporation. After this analytical process, final determinations depend on many factors, which differ based on each state or industry specifics.

 

There were reports on Delaware noting $800M has been taken in through Drinker Biddle & Reath’s administration of the secretary of state’s voluntary disclosure agreement process. DBR reported that over 580 total VDAs had been concluded in the prior years, with around 60% of collections being related to securities. This has resulted in increased compliance. Also, it was reported that very few VDA seekers had been transferred to the Delaware escheator for audit.

 

Legal Issues in Unclaimed Property Audits

On the final day, a session titled Committee of Legal Practices Deep Dive into the Recurring Legal Issues in Unclaimed Property Audits was scheduled. According to the description, it was intended to discuss strategies for addressing recurring issues and legal arguments raised by holder advocates. Participants were to include state unclaimed property officials and third-party auditor representatives. 

 

This session was intended to have restricted attendance. Unfortunately, it had not been published or otherwise publicly known in advance that attendance was restricted. Therefore, the session was changed into an open forum, and the slide deck for the session was not presented. 

 

Discourse in the open forum session included:

  • Various “gamesmanship” seen from holders, attorneys and holder advocates.
  • Attorneys allegedly slowing down the process for fees, such as protracting the NDA process.
  • States considering the use of audit fees and subpoena power in reaction to slowed audits.
  • Gamesmanship around GDPR, HIPAA, and other data security concerns; exceptions and ways to skirt such arguments.
  • Increased use of “come on site” tactic.
  • Concept of record availability and completeness.
  • Due process nexus, derivative rights and “ripeness” rebuttals.
  • What constitutes a “reason to believe” for an audit to be initiated.

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on RUUPA and audits. While the topics covered may not directly or indirectly impact all property type holders, it is worthwhile to remain aware of NAUPA developments. It is also important to be informed of opportunities to work together with states, where our expertise and needs are aligned, and we can share our respective unique expertise and insights, and related unclaimed property challenges or issues.  

 

Christa DeOliveira is chief compliance officer with Linking Assets Inc. Michael Unger is a senior manager with Crowe LLP’s unclaimed property practice. 

 

 

Tags:  audits  NAST  RUUPA 

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Litigation Update: Judge Puts Univar Case on Hold

Posted By Administration, Wednesday, October 2, 2019
Updated: Wednesday, October 2, 2019

Univar Inc. v. Geisenberger, et al.

 

In the ongoing dispute between Univar Inc. and the state of Delaware, U.S. District Court Judge Maryellen Noreika ruled on Sept. 17, 2019, that many of the plaintiff’s claims lack “ripeness.” As such, she dismissed the majority of claims, keeping just two alive, pending a decision from the Chancery Court whether to enforce a Delaware subpoena.  

 

Although the plaintiff in Univar argued that, because Delaware subpoenaed Univar to provide records, the complaint’s claims were ripe. The subpoena and formal enforcement action filing set the case apart from the similar Plains All American case, which was brought before the state had formally taken steps to request records or force Plains to comply with an audit.  

 

The judge, however, disagreed. “While the state has subpoenaed documents from Plaintiff under the 2017 amendment to the UPL and has filed suit in state court to compel compliance, Univar cannot meet the adversity prong of the ripeness test until it is actually compelled to participate in the audit,” she wrote in her ruling. 

 

The court declined to dismiss two of Univar’s claims. The complaint argues that the state’s contingent fee arrangement with its third-party auditor violates Univar’s right to due process. It also asserts that audit subjects are selected based on their likelihood to produce large amounts of money for the state, constituting an equal protection violation. 

 

While the court agreed that two of the claims are ripe for consideration, it put the case on hold, pending a Chancery Court decision whether to enforce the state’s subpoena. 

 

“If the Chancery Court does not enforce the Subpoena, this action may no longer be necessary,” the judge wrote. “On the other hand, if the Subpoena is enforced, certain issues may become ripe and an amended complaint may be appropriate.” 

 

UPPO will continue to monitor and report on the progress of the Univar case as noteworthy developments occur.  

 

 

 

Tags:  audits  Delaware  estimation  litigation  Plains All American  Univar 

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Litigation Update: Delaware Supreme Court Rejects State’s Appeal

Posted By Administration, Thursday, June 20, 2019

On June 18, 2019, the state of Delaware took another hit in its battle with Univar. The latest rejection came from the Delaware Supreme Court, which denied acceptance of the state’s appeal of a May 2019 denial for interlocutory review by the state’s Chancery Court. 

 

In short, Delaware has been seeking enforcement of a subpoena for records requested by its unclaimed property auditor, Kelmar. The courts have consistently denied Delaware’s request, pending the outcome of litigation brought by Univar challenging the constitutionality of Delaware’s unclaimed property enforcement practices. 

 

“We agree that interlocutory review is not warranted in this case. The Court of Chancery exercised its discretion to stay litigation seeking enforcement of a subpoena issued under a statute that is the subject of federal constitutional challenges in federal court, and to avoid the potential for conflicting rulings and inefficiency,” the Delaware Supreme Court wrote in its decision to refuse Delaware’s appeal.

 

UPPO will continue to monitor and report on the Univar case as noteworthy developments occur.

Tags:  audits  Delaware  estimation  litigation  Univar 

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Litigation Update: Chancery Court Sides with Univar, Takes Issue with Delaware

Posted By Administration, Thursday, May 16, 2019

State of Delaware, Dept. of Finance v. Univar, Inc., C.A.

On Dec. 3, 2018, Univar Inc. filed a lawsuit against Delaware Department of Finance officials in a Delaware District Court, alleging that several aspects of an unclaimed property audit initiated by third-party auditor Kelmar in 2015 on Delaware’s behalf are unconstitutional.

According to Univar’s complaint, for more than two years Delaware rejected or ignored objections it had made to document requests from Kelmar. In December 2018, Delaware issued a subpoena for the records Kelmar had previously requested. Univar filed suit, raising constitutional issues regarding:

  • Delaware’s retroactive application of amendments to the Delaware Abandoned and Unclaimed Property Law.
  • The state’s estimation methodology.
  • The state’s use of a third-party auditor that simultaneously represents other states in a multi-state audit.
  • The state’s contingent-fee arrangement with its third-party auditor.
On Dec. 7, 2018, Delaware responded to Univar’s lawsuit by filing its own lawsuit in Delaware Chancery Court, seeking to force Univar to comply with its subpoena. Univar filed a motion asking the court to put Delaware’s lawsuit on hold until the constitutional issues at play in its original lawsuit were resolved.

Following a hearing on April 8, 2019, the Chancery Court judge granted Univar’s request. Delaware responded by requesting an interlocutory appeal – an accelerated appeal of the ruling, which can be granted in extraordinary circumstances. On May 6, 2019, Vice Chancellor Joseph R. Slights III denied the request and took exception with Delaware’s actions.

“The State continues to press its strategy of having two courts litigate the same constitutional challenges to the same Delaware statutes at the same time. The inefficiencies of this approach are apparently lost on the State. They are not lost on the Court,” Slights wrote in his decision.

UPPO will continue to monitor and report on the Univar case as noteworthy developments occur.

Tags:  audits  Delaware  estimation  litigation  Univar 

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New Tennessee Administrative Rules go into Effect

Posted By Administration, Thursday, March 7, 2019

On March 4, 2019, new administrative rules regarding unclaimed property went into effect. The rules are the latest in a series of updates to the state’s unclaimed property laws and practices, which also include the passage of H.B. 420, the state’s version of the Revised Uniform Unclaimed Property Act, and H.B. 2278, which changed the state’s unclaimed property reporting date from May 1 to Nov. 1. 

 

Noteworthy sections of the rules for holders include:

 

Reporting

  • Electronic reporting is required.
  • Negative reports may be filed. 
  • Reported cashier’s checks must include the name and address of the payee and purchaser, if known.
  • When filing initial safe deposit box reports, property should continue to be held for an additional year before filing a final report and turning over the property to the state.

 

Property Delivery

  • Most property should be remitted electronically via ACH or other method approved by the treasurer. 

 

Securities

  • Remitted securities shall include all dividends, interest, warrants or other rights, or associated cash payable by check or electronically.
  • Holders shall remit securities in such a form that future earnings will be delivered in cash rather than an increase in the number of shares. 
  • Holders shall remit securities in a form that allows the treasurer to sell them. 

 

Examinations

  • Holders will receive a notice of examination at least 30 days before an examination begins.
  • An examination will begin with an entrance conference at which time the examiner will identify other states participating; a tentative timeline and duration; a description of responsibilities; the potential types of records subject to examination; the lookback period; and an explanation of methods and estimation techniques that may be used.
  • An examination may include records of current accounts, dormant accounts and accounts that may have been closed and archived; agreements regarding the deduction of service charges; increases or decreases in account value; and interest payments; and policies and procedures.
  • If records are unavailable, estimation of liability may be used. The examiner will provide written notice of the estimation methodology and for which years. The examination subject may object to the estimation methodology by following the process defined by state law. 

 

Due Diligence

  • Holders are expected to conduct due diligence.
  • The return of first-class or superior mailing sent to the owner’s last-known address is considered evidence that the owner’s location cannot be ascertained. 
  • First-class or superior mailings that are not returned as “undeliverable” are considered owner contact and an indication of interest in the property. Examples include computerized account  or interest earning statements. 

 

Holders with unclaimed property reportable to Tennessee can access the new rules, related Tennessee laws and regulations, and additional compliance information on the state’s Treasury Department website.  

Tags:  audits  due diligence  examinations  reporting  securities  spring reporting  Tennessee 

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