Unclaimed Property and Cryptocurrency: Due Diligence Requirements and Compliance

In my previous blog, Unclaimed Property and Cryptocurrency: Regulation and the Impact on Digital Assets, we explored the impact of unclaimed property regulations in the virtual currency world. We determined that if you have a direct legal obligation to the owner, it is important that you review the requirements for unclaimed property reporting and partner with an expert to help you navigate the waters of compliance.  

It is now time to drill down into the area of due diligence compliance. Breaking this down to the what, why, when, and how might make this simpler.   

What is due diligence as it relates to unclaimed property compliance?  

Unclaimed property due diligence is a type of communication required by legal statute to make owners of property aware of the upcoming transfer of property from the organization to the state. Each state may have unique requirements surrounding the format and timing of the communication as well as the properties that meet minimum due diligence requirements.  Statutory due diligence should not be confused with customer service outreach, whereby a business may try to connect with a potential owner of property after a period of inactivity or lack of response. Customer service outreach generally happens much earlier than statutory due diligence as an effort to engage with the owner early to minimize potential unclaimed property liability altogether.  Customer service outreach is generally not required by statute and is an optional task performed by a business to re-engage with the owner of property.  If you perform customer service outreach, you are not precluded from performing statutory due diligence also.  

Why is due diligence an important aspect of unclaimed property compliance?  

The easy answer to this question is that it is the law, period. All states have statutes outlining the requirements for due diligence and as you might imagine, each state’s requirements are unique. The reason, or the why, is because states want holders of property to proactively attempt to reunite owners to their property.  The National Association of Unclaimed Property Administrators (NAUPA) states that organizations must make a good-faith effort to reach the owner of the property before turning it over to the state.   

When to perform unclaimed property due diligence?

The topic of when to perform due diligence is one that garners a considerable amount of discussion.  Generally, unclaimed property due diligence is expected to be completed between 60 – 120 days prior to the date that the report is due to the state. This allows the owner of the property time to be able to respond to the communication and potentially claim their property. Again, the tricky part here is that states have varying due dates as well as varying time frames for due diligence compliance. 

How to properly perform unclaimed property due diligence?

With respect to the how, let us review the language proposed in the 2016 Revised Uniform Unclaimed Property Act (RUUPA), developed and updated by the Uniform Law Commission (ULC).  Article 5 of RUUPA addresses the concept of Notice to Apparent Owner of Property Presumed Abandoned. We can break this down into two main sections: (1) electronic mail and (2) paper mail in the form of a letter delivered by the United States Postal Service. If an apparent owner has consented to receive electronic mail delivery from the holder and if the holder believes that the owner’s electronic mail address is valid, then the holder should send notice by both first-class mail – to the apparent owner’s last known address – and via electronic mail. If the holder has not received consent from the apparent owner to receive electronic mail delivery from the holder, then the holder should send the notice only via first-class mail.
This seems easy enough, right? You must either send a letter or a letter and an email, depending on whether you have received consent to email to the owner. Well, not so fast…
Remember, the 2016 Revised Uniform Unclaimed Property Act is only proposed language and each state can determine whether or not to turn the proposed language into law.  

It may also help to review a few specific state statute examples, as outlined below: 

Florida

In the state of Florida, for every property valued at $50 or more, a written notice must be sent to the apparent owner’s last known address, unless the last known address is known to be inaccurate, informing the apparent owner that the holder is in possession of the unclaimed property account subject to chapter 717, F.S. and requesting that the apparent owner responds to the notice. The written notice must clearly state the property value and include a proper description of the property that is sufficient for identifying the property type. Per statute, this must be performed not more than 120 days and not less than 60 days prior to the report of unclaimed property due date, which is before May 1 of each year. The holder must provide the name and contact information of the holder representative the owner can contact if they have any questions. The due diligence letter must not contain any contact information for the state of Florida. Failure to perform due diligence as provided by statute could result in potential fines and interest penalties. Sample due diligence letters are provided but not required by the state of Florida. 

Ohio

For the state of Ohio, companies are required to send an OUF-8 Notice of Unclaimed Funds, or a similar notice that meets statutory requirements, to the last known address of the owner or beneficiary of dormant accounts with a balance of $50, and less than $1,000, via first-class mail. Also, companies are required to provide the mandatory notice of unclaimed funds to the owner or beneficiary of accounts with a value of $1,000 or more by certified mail, return receipt requested. The company is authorized to charge up to $20 against each account subject to the mailing to reimburse themselves for the certified mail cost. Include a self-addressed, stamped, return envelope. Allow a minimum of 30 days for the owner or beneficiary to respond to the notice prior to reporting their funds as unclaimed. 

Kentucky

Finally, Kentucky states that the holder of property presumed abandoned shall send to the apparent owner notice by first-class mail that complies with KRS 393A.280 in a format acceptable to the administrator not more than 180 days nor less than 60 days before filing the report if: (a) The holder has in its records an address for the apparent owner which the holder’s records do not disclose to be invalid and is sufficient to direct the delivery of first-class mail to the apparent owner, and (b) the value of the property is $50 or more. If an apparent owner has consented to receive electronic-mail delivery from the holder, the holder shall send the notice both by first-class mail to the apparent owner’s last-known mailing address and by electronic mail, unless the holder believes that the apparent owner’s electronic-mail address is invalid. 

So you can see there are unique attributes of due diligence compliance by jurisdiction. If you are a potential holder of virtual currency, meaning you have a direct legal obligation to the owner, it is important that you review the requirements for unclaimed property due diligence and partner with an expert, like Sovos, to help you navigate the waters of compliance.