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7/9/21 10:02 AM

Unclaimed Property Bills Related to Virtual Currency Continue To Pass

by Heather Gabell

digital moneyDE S 103, which was signed into law on June 30, 2021, and becomes effective on August 1, 2021, is the latest bill to define virtual currency and include it in the definition of “property” as a property type eligible for escheat. Virtual currency is presumed abandoned 5 years after the owner’s last indication of interest and holders must liquidate it within 90 days of filing an unclaimed property report and remit the proceeds to the administrator. As we have seen in similar bills pending in the unclaimed property space, owners have no recourse against the holder or the state for any gains in value post liquidation.

As the use and popularity of virtual currencies rise and become accepted, the states are similarly stepping up their legislation to bring virtual currency within the scope of escheatable property by introducing bills like DE S 103. States are also looking to the holder to liquidate the virtual currency as they are presently unable to take custody of cryptocurrencies in their native form.Virtual currency was first addressed in the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), a model act promulgated by the Uniform Law Commission as a standard for states to follow when modernizing their laws. RUUPA defines virtual currency as a “digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States.”

Several states that have enacted RUUPA-like laws, including Colorado, Illinois, Tennessee, Utah, Vermont, and most recently, North Dakota (S 2048, effective 8/1/21), adopted similar definitions of virtual currency and include it as a reportable property type. However, these states, like RUUPA, do not provide any additional specifics, including a dormancy period for or otherwise address virtual currency. States that do not specifically provide for virtual currency in their law could take the position that virtual currency is included within their “catchall” provision, which would include miscellaneous intangible property. Prior to the enactment of DE S 103, Kentucky was the only state to require liquidation of virtual currency within 90 days of the filing of a report and like Delaware, an owner has no recourse against the holder or the state for any gains in value post liquidation. Indiana also recently enacted a RUUPA-like law (S 188, effective 7/1/21), and while it does not address liquidation, it directs the attorney general to adopt rules related to virtual currency and digital assets.

Nevada, through S 44 (effective 7/1/19) and S 71 (effective 10/1/21), amended its law to include a RUUPA like definition for virtual currency and includes it as a reportable property type, but again, does not otherwise address it. However, per the state’s guidance in its online Holder Reporting Manual FY 2021 (as of 7/7/21), virtual currency falls under the catchall provision, which has a 3-year dormancy period, and instructs the holder to use the property type code MS 17 (“Miscellaneous Currency).” The manual (not the law) further directs holders to liquidate the virtual currency prior to remittance and include the cash value and the date of liquidation on the report, since Nevada cannot (currently) receive virtual currency in its native form.

Bills pending in Washington D.C. (B 285, a budget bill containing a RUUPA-like law introduced on 5/27/21) and South Carolina (H 3849, a RUUPA-like bill introduced on 2/9/21) also define virtual currency and include it in the definition of property eligible for escheat. Meanwhile, pending bills in Illinois (S 338, sent to the Governor as of 6/28/21) and Ohio (H 348, introduced on 6/10/21) go a step further by adding a specific 5-year dormancy period, requiring the holder to liquidate the virtual currency (within 30 days in IL) and contain no-recourse provisions.

In New York, pending bill A 7742 (introduced on 5/21/21) requires entities that hold virtual currency or that are engaged in virtual currency business activity to report virtual currency after a 3-year dormancy period. The comptroller is authorized to sell the virtual currency on any established exchange as soon as he deems it practicable, and claimants are entitled only to the proceeds of the sale.

Finally, in Wisconsin, A 325 (a RUUPA-like bill introduced on 5/13/21), virtual currency is subject to reporting only if the holder can convert the virtual currency to U.S. currency by sale, exchange, or any other means.

Companies such as banking institutions, exchanges, and online wallet providers continue to grapple with the mechanics of reporting virtual currency to the states. Liquidating virtual currency, even if the holder is indemnified by the state, denies the owner any gains in value after liquidation and could put the holder at risk for reputational harm and/or litigation. Holders of virtual currency should be prepared to address these issues or have an advocate on hand to assist them. The unclaimed property laws are vague and complex as they relate to virtual currency, including how to determine the true holder of the virtual currency, whether to escheat under a state’s catchall provision, whether to liquidate the virtual currency, and under what property type and what property type code it should be reported.

If your company is an exchange, or newly accepts virtual currency as a form of payment, we recommend proactively addressing potential unclaimed property issues. Holders should be mindful of their reporting obligations, which include identifying potential unclaimed property, performing due diligence, and reporting, as the requirements for each of these tasks vary among the states.

Finally, be sure that you capture as much owner information as possible and communicate regularly with your customers to reduce your reportable population. It is hard to believe that virtual currency has been in existence long enough to go unclaimed, but dormancy periods are typically either three or five years and if there has been no owner-generated activity on the account, chances are these accounts may now be dormant, or are close to becoming dormant and eligible for reporting.

For more information about virtual currency, other property types, unclaimed property reporting or for guidance in creating a compliance program for your company, contact MarketSphere for a free consultation. 

*Content contained in this article is considered accurate as of the publish date.

Topics: Delaware, Compliance, Reporting, Best Practices