State unclaimed property laws apply to a variety of intangible assets and complex financial products, such as uncashed checks, shares of stock, dividends, and life insurance proceeds. Unclaimed property laws require companies to transfer (or “escheat”) to state treasuries any money or property deemed abandoned after a certain period of inactivity by the property’s last-known owner. Once deemed abandoned, the unclaimed property is held by the state, and as a result, states often incorrectly view unclaimed property as a revenue source. Read More...
When fairly and appropriately enforced, state unclaimed property laws serve several important functions, such as reuniting rightful owners with their property and helping ensure that companies are incentivized to protect consumer property. However, over the past several years, companies have been overwhelmed by a storm of regulatory inquiries, audits, settlements and civil litigation concerning the enforcement of state unclaimed property laws and the escheatment of property to the state.
State unclaimed property administrators have increased their reliance on private audit firms to collect purportedly unclaimed property on behalf of the state in exchange for a percentage of the proceeds. The use of contingency-fee firms injects a private profit motive into enforcement of state laws and carries a significant risk of abuse as audits have become increasingly aggressive and overreaching. While life insurance companies were the initial target, private audit firms are now expanding their aggressive enforcement tactics to other industries and financial products, including the mutual fund industry, property and casualty insurers, broker-dealers, and retailers and restaurants that issue gift cards.
Reforms
State officials should re-evaluate their relationship with private contingency-fee auditors and ensure a rational enforcement structure is in place. It is critical that private audit firms purporting to act on behalf of unclaimed property administrators are subject to appropriate oversight and accountability to ensure that they act with the highest ethical standards and within the boundaries of the law. It is likewise critical that the processes for selecting private auditors and the terms of contracts with private auditors are publicly disclosed to avoid conflicts of interest and ensure accountability of the use of taxpayer dollars.
ILR published Unclaimed Property: Best Practices for State Administrators and the Use of Private Audit Firms, which identifies a series of best practices for unclaimed property administrators to use in the engagement of private audit firms, including a transparent and open bidding process, a prohibition on contingency-fee arrangements, increased state control over privately conducted audits of unclaimed property holders, and the issuance of formal audit findings. The paper also recommends states adopt voluntary disclosure programs that appropriately incentivize companies to come forward with unclaimed property without the fear of triggering an audit or penalties associated with past due property.
A user's guide to state legal reforms, providing policymakers with a compendium of options available to foster a sound legal system and promote state economies. This resource also offers a compilation of recently-enacted legal reforms to show how legislators can move the proposals described in the guide from theory into practice. Read More
This edition of the ILR Research Review offers valuable insights from ILR's latest research on over-criminalization and the challenges of business compliance, over-enforcement, third-party litigation funding in the UK, and asbestos trust claims. Read More
Rogue State Treasurer Rewriting the Law for a Private Auditor's Gain
Unclaimed Property - Best Practices for State Administrators and the Use of Private Audit Firms
Best Practices: Bringing Rationality to the Unclaimed Property Quagmire (Harold Kim)
Uniform Law Commission Committee to Revise the Uniform Unclaimed Property Act
7th Circ. Wary Of Reviving Barnes & Noble Breach Action; 3rd Circuit says Marathon can challenge Delaware law later... Read More
Delaware's new unclaimed property rules fail to meet the standards of the August federal court ruling they were drafted to address, writes the Council on State Taxation in a letter to the state's Department of Finance. The Council argues the proposed rules violate the federal ruling "by failing to use the last known address of the last known property owner to determine which state has a priority claim."... Read More
This edition of the ILR Research Review offers valuable insights from ILR's latest research on over-criminalization and the challenges of business compliance, over-enforcement, third-party litigation funding in the UK, and asbestos trust claims.... Read More
The CFPB "has closed its eyes to the inevitable real-world consequence of its proposed rule: the elimination of arbitration, which would leave consumers without any means of redressing the injuries they most often suffer," wrote David Hirschmann, president of the Chamber's Center for Capital Markets Competitiveness, and Lisa Rickard, president of the Chamber's Institute for Legal Reform. ... Read More
Harold Kim, executive vice president of the Institute for Legal Reform, spoke with the Sangamon Sun regarding the nationwide concern caused by unclaimed-property audits.... Read More
The Sangamon Sun, which covers the Springfield, IL region, reported on a letter sent by ILR Executive Vice President Harold Kim to Illinois Governor Bruce Rauner, asking the governor to veto the Unclaimed Life Insurance Benefits Act (HB 4633). ... Read More
This paper documents compelling examples of over-enforcement abuses, and offers details of the wide-ranging and interrelated ways government enforcement actions impact American businesses.... Read More
WSJ Notes ILR Opposition to Third Party Litigation Funding: In an article spotlighting the growth of larger investors, such as pension funds, in third party litigation funding, the Wall Street Journal notes that, litigation funders have faced a few consistent opponents, including the U.S. Chamber of Commerce's Institute for Legal Reform, which argues that it prompts unnecessary litigation. ... Read More
In a massive overreach of authority, the Illinois state treasurer has superseded state law by imposing new standards on how life insurance policies are paid out, and in the process, may fundamentally change the role the state plays in the life insurance industry.... Read More
The Associated Press this weekend spotlighted the "increasingly aggressive" tactics of state governments to track down unclaimed property. Thanks to these aggressive tactics, a startup by two medical researchers who developed a Hepatitis B treatment was forced to sue the state of Delaware when the state aggressively took control of $1.7 million of the company's stock. The company took a big loss in the process. (Associated Press)... Read More
