Over the last several years the use of block-chain technologies and their associated cryptocurrencies have grown tremendously. As with many new areas of commerce, growth is usually followed by an onslaught of challenges brought on as governments and regulatory agencies try to decide how to adapt to or fit this new square peg into the round hole of already established laws and regulations.
In the world of unclaimed property, cryptocurrency is just now being recognized in various new statutes and proposed legislation. Many states, including IL, KY, NV, TN and UT, have adopted some form of the 2016 Revised Uniform Unclaimed Property Act, which includes “virtual currency” in the legislative definition of “property”. In addition, NY has recently introduced legislation calling for unclaimed cryptocurrency to be escheated to the state upon abandonment.
Whether you are a company that has emerged as a part of the support system to the cryptocurrency world (e.g., coin exchanges) or simply a company that has begun to accept Bitcoin or other similar cryptocurrencies as payment, it will be important that you are prepared for these challenges and are proactively addressing potential issues that can emerge. One often overlooked area for consideration, is the impact of the various states’ unclaimed property laws and regulations.
Our advice: Do not make the mistake of neglecting and not performing the necessary analysis to understand the impacts of unclaimed property statutes on your new and emerging business lines and practices!
Similar to the revolution of gift cards and other stored value instruments, states will eventually come knocking and have already started taking note of the impact of unclaimed property regulations on cryptocurrencies. In fact, Coinbase, a top U.S. digital asset exchange, received a class action lawsuit in 2018 alleging that the company violated unclaimed property laws in California. This case settled in early 2019, but we believe it will be just the first of many potential litigious disagreements pertaining to virtual currency unclaimed property. Addressing the potential regulatory impact proactively will be far less costly than having a state auditor or third-party audit agent rifling through your books and records.
What are some of the potential challenges?
- Does cryptocurrency meet the definition of “virtual currency” within the 2016 RUUPA?
- Who is the true holder of these digital assets (e.g., Online Exchanges or Virtual Wallet Providers)?
- How would a holder remit the property to the state (i.e., would the holder liquidate the cryptocurrency and transfer the cash to the state or would the holder send the cryptocurrency in its native format)?
- Would the state be required to liquidate the cryptocurrency after a particular period of time, similar to escheated securities?
- What would be the appropriate NAUPA property code?
Are you a potential holder of unclaimed cryptocurrency? Having a fundamental understanding of the core principles of unclaimed property and the corresponding state statutes is important when considering the escheatment of a new property type. If you need additional unclaimed property resources, visit the Knowledge Vault for educational and support materials.