Unclaimed Property Compliance: Managing Foreign Transactions

You may be well versed in managing domestic transactions within the framework of the United States unclaimed property laws, but what happens when a foreign country is involved?  While somewhat limited compared to U.S. unclaimed property laws, foreign escheat laws can, and do, impact the reporting obligations of U.S. organizations.  There are several factors to consider when determining how to handle a foreign transaction.

These include, but are not limited to:

• Where the company is domiciled within the United States
• Where the company operates internationally
• The nature of the company’s business

Listed below are the three types of foreign transactions:

1. Domestic to Foreign: The holder is located in the United States and the payee is located in a foreign country. These types of transactions are governed at least in part, by U.S. statutes, and should be evaluated carefully to determine where the reporting obligation lies.  This is typically influenced by the state of domicile and the foreign country in question.  States generally expect that foreign property will be reported to them, whether or not their statute has specific language on this matter.  In addition, the recently completed Revised Uniform Unclaimed Property Act (RUUPA) specifically provides “that the state of domicile may claim abandoned property where the last known address of the owner is in a foreign country.”  However, most states and the Act exclude property that can be claimed by a foreign country.  Consequently, holders need to understand the reporting requirements for those countries for which the last known address is in a foreign country, as well as the law governing their particular state of domicile in order to understand where a foreign property should be reported.
2. Foreign to Domestic: The holder is located in a foreign country and the payee is located in the United States. Transactions originating in a foreign country are not likely to be impacted by U.S. statutes since foreign to domestic and wholly foreign transactions are generally governed by the law in the originating country.  However, depending on the detailed circumstances of the transaction it is possible that foreign to domestic transactions may be impacted by US statutes so it is still important to review them carefully.
3. Foreign to Foreign: Both the holder and payee are located outside of the US.  As noted above in Foreign to Domestic Transactions, wholly foreign transactions are governed by the law of the originating country.

Foreign Unclaimed Property Laws:

Generally speaking, foreign escheat laws are far less numerous and stringent than U.S. requirements, and are often limited to “financial” industries such as banking, securities, and insurance.  That being said, foreign governments are increasingly eyeing the “revenue” generated by U.S. unclaimed property programs and evaluating ways to reproduce those programs in their own countries.

Canada is perhaps the country where most holders experience overlap and have questions regarding unclaimed property obligations.  Canada’s federal escheat law applies exclusively to federally chartered banks in Canada and does not impact US organizations.  However, Canada’s provincial laws, while less robust than U.S. state laws, can have an impact on U.S. organizations.  Currently three Canadian provinces have some form of unclaimed property law.  Alberta’s Unclaimed Property and Vested Property Act (2008) is very similar to typical U.S. state laws governing unclaimed property, while  British Columbia and Quebec require reporting of more limited property types, or by specific holder types.  U.S. holders with payees located in Canada should consult with unclaimed property advisors and attorneys to determine the applicable reporting obligations in the Canadian provinces.

Other countries with unclaimed property laws in effect, which are commonly encountered by holders in the United States include:

• New Zealand
• Australia
• United Kingdom
• Kenya
• Caribbean Nations
  • Antigua
  • Bahamas
  • Barbados
  • British Virgin Islands
  • Cayman Islands
  • Lucia
  • Trinidad & Tobago.

If your organization generates any foreign transactions, it is important to incorporate a mechanism into your unclaimed property process to monitor for them.  When foreign transactions are identified, understand the escheat laws in the relevant countries, as well as the law regarding foreign transactions for your particular state of domicile.  Any reporting requirements are highly dependent on the transaction details, the holder state of domicile, and the foreign country involved.

Working with an unclaimed property advisor can help you create an approach and process to maintain compliance with any statutory requirements for your foreign transactions.