Staying Ahead of the New Unclaimed Property Statutes & Regulations: The Practical Impact for Accounts Payable

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1 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas Staying Ahead of the New Unclaimed Property Statutes & Regulations: The Practical Impact for Accounts Payable By: Karen Anderson Senior Manager - KPMG, LLP November 14, 2017

2 Disclaimer The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. KPMG LLP does not provide legal services Content 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

3 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas Agenda Delaware Specific SB 13 and SB 79 Enacted 4/1/2017 DOF draft regulations 8/1/2017 DOF draft regulations / Comment period ended 8/31/2017 7/1/2017 SOS adopted regulations RUUPA Related Legislation Legislative Trends Questions and Answers

4 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas DE SB 13 Enacted 2/2/2017 Senate Bill 13 (SB13), as enacted caused compliance related changes such as: Jurisdiction and Last Known Address ( 1139(a) & 1141(a)(3)) Indication of address Foreign addressed property Due Diligence ( 1148 & 1149) New requirements and threshold ($50) Electronic Contact ( 1130 (19) & 1136) Electronic communication between owner and holder now establishes owner contact Record Retention ( 1145) 10 year record retention requirement starting from the date a report is filed

5 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas Enforcement changes include: DE SB 13 (Cont d) Audit and VDA lookback periods reduced ( 1172(h) and 1173(c)(2)) Statute of limitations ( 1156(b)) Limited to 10 years after the duty to report to pay VDA invitations ( 1172(a) & 1172(d)(1)-(2)) Holder must be notified of their option to participate, subject to one carve-out Estimation ( 1176(a)) Extrapolation and statistical sampling in audits is expressly authorized Expedited audit ( 1172(c)(2)) State Escheator must issue their examination report within two years (except in cases of fraud) of the Holder s election for an expedited review Audit conversions ( 1172(b)) Holders undergoing an audit on or before July 22, 2015 have the option to enter into the Secretary of State VDA Program within specific time limits

6 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas DE SB 79 Enacted 6/29/2017 Due Diligence: A specific effective date for Delaware s new due diligence requirements was added: July 1, This is important considering Delaware has multiple reporting deadlines that pertain to particular industries and the due diligence window set forth in the new Delaware law as enacted in SB 13 of not more than 120 days nor less than 60 days before filing the applicable report, remains unchanged. Indemnification: The new Delaware unclaimed property law in 1153 further defined its indemnification provision for holders that report in good faith to cover claims by owners or another state by defining a state to include a foreign jurisdiction or subdivision of a foreign jurisdiction that is not a state of the United States. In essence this provision extends the indemnification provision to holders when they report to Delaware property with a foreign owner address. Penalty & Interest Waivers: Section 7 of S.B. 79 clarifies that for property remitted before January 1, 2019 the state may, for good cause, waive: All or part of interest for late-filed property reported or remitted on or after July 1, 2017; All or part of interest for property remitted to the State under a Securities examination, and; Up to 50% of all other interest for property remitted to the State not provided for above. For property remitted after January 1, 2019, the State Escheator may, for good cause, waive: All or part of interest on late-filed property reported or remitted on or after July 1, 2017, and; Except for expedited exams, 50% of all other interest not provided for above.

7 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas 21 DE Reg. 123 (08/01/17) Effective 10/11/2017 On April 1, 2017, the Delaware Department of Finance issued proposed audit regulations as required in 12 Del. C. 1132, of DE SB 13. Due to comments to those proposed regulations, the regulations were re-issued on August 1, 2017 with some changes. Some of the provisions include: Indication of Owner Interest in the Property ( 2.5.2): Actions which are NOT indications of interest automatic postings, automatic reinvestments, computer system conversion dates and non-return of mail (other than a non-returned IRS Form 1099 for ACH or DRP account Linkage ( 2.5.3): The pending regulations indicate that ownership interest in one investment or account can be cross-referenced with another investment or account if the records of the holder indicate the same name on the account, signature card or contract. Record Retention ( 2.9): The statutory record-retention requirement is broadened to include date, place, and nature of the circumstances that gave rise to the property right. The new draft lists various documents (to be retained for 15 years), including bank statements, bank reconciliations, detailed general ledgers, aged accounts receivable reports, and more. Sufficient Address to Establish Priority / Last Known Address ( 2.8): Clarifies 12 Del. C. 1139(a) by indicating that a description/code sufficient to determine last known address must include two of the following three, which must not conflict: city, state or foreign code, and zip code. Negative Reports: ( 2.6.2): The requirement to submit negative reports is absent from the new Delaware law. The regulations provide that while negative reports are not required, negative reports submitted will be accepted.

8 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas DE Pending Regulations (Cont d) Non-Disclosure Agreement ( Sample Form): A sample form NDA approved by the State is included in the regulations. In contrast to the prior draft regulation, the new draft no longer requires adherence to the security standards outlined by the International Organization for Standardization, but rather permits a security standard to be created by the auditor. The new draft regulation continues to allow auditors to retain the holder s documents for as long as the auditor is contracting with the state. Factors Considered in Identifying a Holder for Audit ( ): The regulations provide examples of factors considered including: inconsistencies, omissions or a lack of detail in the holder s past unclaimed property filings, a comparison of a Holder s unclaimed property filings to the filings of similar holders in the same industry and of the same approximate size, the state s records of a holder s reporting and compliance history, and any publicly available information about the holder, including annual company report and press materials.

9 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas DE Secretary of State Adopted VDA Estimation Rules, 12 DE Admin Code 301 The DE Secretary of State (SOS) issued regulations pertaining to estimation practices for the voluntary disclosure process which impact any ongoing voluntary disclosure that commenced prior to the July 1, 2017 and those commenced thereafter. The regulations were effective 7/1/2017 and include: - VDA Scope ( 2.2): The regulations acknowledge that the holder may determine the scope of the entities and property types included in the voluntary disclosure program. However, the regulations make it clear that the entity scoping has been established no additional entities may be added to the VDA without DE SOS consent. - Holder Representation of Records Available ( ): Under the regulations, at the conclusion of the holder scoping its voluntary disclosure, the holder is required to provide a representation to the DE SOS of what records are available for the property types and for which years. - Base Period for Estimation ( 2.3.2): The regulations define the base period for estimation as the time period for which the holder has complete and researchable records. With regard to complete and researchable records the regulations state that the holder may, at a minimum, have complete and researchable records that would cover 7 8 years from the date the holder enrolled in the DE SOS voluntary disclosure program. ( 2.4.1). - Items to be Included and Excluded from the Estimation Calculation ( 2.3, 2.3.4)

10 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas RUUPA Related Enacted Legislation

11 2017 RUUPA Related, Enacted Legislation Other than DE s SB 13, 3 states (IL, TN and UT) in 2017 have enacted RUUPA-related Legislation. Some of the provisions in each bill are the same or similar to those in the RUUPA. For example, the provisions permitting electronic contact to constitute an indication of interest Subject IL SB 9 * TN HB 420 UT SB 175 Effective Date 1/1/2018 7/1/2017 5/9/2017 Electronic Contact Permitted? Electronic contact by the owner to serve as an indication of interest which forestalls escheatment Sections (b)(1) and (26) Electronic contact by the owner to serve as an indication of interest which forestalls escheatment Section (b)(1) Electronic contact by the owner to serve as an indication of interest which forestalls escheatment Section 67-4a-208(2)(a) *IL SB 9 is not yet effective. Note that on July 3, 2017, a bill that would repeal the new Illinois unclaimed property statute in SB 9 was introduced. This bill, HB 4078, could be heard during the Illinois General Assembly s veto session in Fall 2017.

12 Significant Provisions RUUPA-Related Legislation Subject Illinois SB 9 TN HB 420 UT SB 175 New notice header New notice header language required. (15- language required. 502(a)) ( (a)) Due Diligence Due Diligence Notice Window Due Diligence Mailing Mode Foreign Addressed Property Not more than 1 year nor less than 60 days prior to filing the report. (15-501(a)) First class mail except securities valued at or over $1000 must send letter notice via certified mail. ( (a)(c)) Not more than 180 days nor less than 60 days before filing the report. ( (b)) First class mail ( (b)(1)) New notice header language required. (67-4a-502 (1)) Not more than 180 days nor less than 60 days before filing the report. (67-4a-501(1)) First class mail (67-4a-501(1)) May take custody of property presumed abandoned, whether located in this State, another state, or a foreign country, if the holder is domiciled in this State or is this State or a governmental subdivision, agency, or instrumentality of this State, and (1) another state or foreign country is not entitled Substantially similar to Substantially similar to Illinois to the property because there is no last-known address of the apparent owner or other person entitled to the property in the records of the holder; or (2) the state or foreign country of the last-known address of the apparent owner or other person entitled to the property does not provide for custodial taking of the property. (15-304) Illinois ( ) (67-4a-304)

13 RUUPA-Related Legislation (Cont d) Subject Illinois SB 9 TN HB 420 UT SB 175 Reporting Method A holder shall report via the internet in a format approved by the administrator, unless the administrator gives a holder specific permission to file a paper report.(15-401(a)) The report must be filed through an electronic medium in a manner prescribed by the treasurer, ( ) Holders must report via the internet in a format approved by the administrator (67-4a-401(1)(b)) Business to Business Exemption in Tact? Eliminated and property exempted under the business to business exemption in past 5 years reports must be reported on next report. ( (a)) Maintained check, draft, credit balance, customer overpayment, or unidentified remittance. Must have an ongoing business relationship: commercial, business or professional transaction within the dormancy period. ( (c)) No previous or current business to business exemption.

14 RUUPA-Related Legislation (Cont d) Subject Illinois SB 9 TN HB 420 UT SB 175 Dormancy Periods Many reduced from 5 to 3 years (15-201) Many reduced from 5 to 3 years ( ) Most remain the same except special provisions for particular property types Record Retention 10 years after the later of the date the report was filed or the last date a report was due to be filed (15-404) 10 years after the later of the date the report was filed or the last date a timely report was due to be filed, ( ) 5 years after the later of the date the report was filed or the last date a timely report was due to be filed (67-4a-404 (1))

15 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas IL SB 9 - Anomalies Retroactive Transition Provision ( (A)) Conversion to 2 year dormancy period upon death ( last paragraph) Elimination of the business to business exemption Ambiguity with the gift card exemption ( (11)(A), (24)(C)(iii), and (30)(A)(ii))

16 November 12-14, 2017 Bellagio Resort & Casino, Las Vegas Significant Legislative Trends

17 Enhanced Due Diligence Requirements Communication: - IL SB 9 ( ), TN HB 420 ( ), and UT SB 175 ( 67-4a-206) Require special outreach when a securities owner communicates with the holder electronically and not via US mail. - IL SB 9 ( (b)), TN HB 420 ( (c)), and UT SB 175 ( 67-4a-501(2)) Mandate that both letter and notice be sent if the owner has consented to receiving communicate via . Certified Mail: - IL SB 9 ( (c)) if value of securities is $1000 or more must send notice by certified mail Threshold and Language: - NC HB 294 Signed into law on 7/20 Among other things, it reduces the due diligence threshold for securities to $25 and requires specific language be placed into due diligence notice letters.

18 Enhanced Due Diligence: Life Insurance Illinois SB 302 would amend ULIBA enacted in 2016 to extend retroactivity of the DMF matching requirements to policies, annuity contracts and retained asset accounts in force at any time on or after January 1, Amendatorily vetoed by the Illinois Governor on Nebraska L 137 enacted a DMF matching requirement under its Unclaimed Life Insurance Benefits Act. New Jersey AB 2511 enacted a semi-annual DMF matching requirement requiring certain life insurers. Excludes life insurers that that have less than $1,000,000 of direct premiums in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year Texas SB 561 enacted a DMF matching requirement via amended Chapter 1109 of the Insurance Code.

19 Earlier Liquidation of Securities Enacted legislation: Arkansas HB 1142: Original version would have required securities sale prior to remittance. Due to the efforts of the STA and others, the bill was amended so that it increased the securities dormancy period from five (5) to seven (7) years and eliminated the sale requirement. South Dakota SB 34: Requires the state treasurer to sell all stocks, bonds, and other negotiable instruments within 90 days of confirmed receipt unless the property is the subject of an open claim.

20 Audits / Enforcement 2017 Enacted Legislation: Verified Report: - DE SB 13 ( 1170), IL SB 9 ( ), TN HB 420 ( ), and UT SB 175 ( 67-4a-1001) Permit the administrator to request a verified report when a holder does not file a report or the administrator believes the report filed is inaccurate, incomplete or false Administrative Subpoena - DE SB 13 ( 1171), IL SB 9 ( (2)), TN HB 420 ( (1)), and UT SB 175 ( 67-4a-1002 (1)) permits the administrator to issue an administrative subpoena requiring the holder to make records available for examination. Express Authorization to Estimate When Records Unavailable: - DE SB 13 ( 1176 (a)), IL SB 9 ( ), TN HB 420 ( ), and UT SB 175 ( 67-4a-1006 )

21 Future Rules and Legislation Additional state adoptions of RUUPA-related statutes (e.g., MN, NE, VT?): Provisions that deviate from the RUUPA Death master file match provisions? Statute of limitations Increased owner outreach ABA Model Unclaimed Property Act: The American Bar Association s Unclaimed Property Subcommittee is currently preparing a draft model unclaimed property statute as an alternative to the RUUPA.

22 Questions and Answers

23 Your Presenter Today Karen Anderson Senior Manager KPMG, LLP