The simple answer: If the check was issued in the United States and you can't find an owner whose last known address is in a foreign country, report and remit the unclaimed property to your company’s (holder's) state of incorporation.
This opinion comes from 1) the Uniform Unclaimed Property Acts (UUPAs) of 1981 and 1995, which contain a general provision for escheating property of owners who reside outside of the U.S., and 2) the Supreme Court case Texas v. New Jersey, which awards dormant property with no known owner address to the state of a holder's incorporation, rather than the state of domiciliary, as stated in the UUPAs. Property owned by people with last-known foreign addresses is included by association with the original UUPA provision.
The strength of this opinion can be called into question if it contradicts a law in the foreign country. Also, what do you do if the original transaction was made in the U.S., but your owner moved and you deposited money into their account in a foreign bank, and it then becomes dormant? Does the foreign bank become the holder, and do U.S. laws still apply? What if your company does business in more than one country? What if a company is owned by a U.S. corporation and payments are issued from a shared services department in the U.S., but the funds are drawn on a foreign account? You see how complicated it can get.
To make matters worse, there is little case law related to the escheatment of property owned by people with last-known foreign addresses. In at least one case that does exist, a holder attempted to use a foreign property exemption in the UUPAs to keep control of money deposited into an owner's foreign account instead of escheating it to the state. The court found the money was still considered to be held by the U.S. organization, even though it was physically being held in a foreign bank, so it WAS subject to escheatment to the state.
Ultimately, we hope holders and governments are making decisions based on the best interests of the owner and his or her potential for someday finding their property.
When other countries have unclaimed property laws
Your company, as a holder, doesn't have control over property owners moving to other countries, but if they do, you must decide how to handle their property if it becomes dormant. It's easy if the original payment was issued from a company located in the 54 U.S. jurisdictions with U.S. funds. Then you simply report to your state of incorporation. If the payment was issued from a company located in a foreign country or from a foreign bank account, then you have some choices.
If the rules in the country in question are vague, you might simply leave the money where it is. However, you could risk running afoul of foreign statutes and international law. If the country has clear unclaimed property rules, it's best to follow them as closely as possible. Consult with a professional advocate and your own attorneys to determine the best course of action.
The most common foreign unclaimed property situations for U.S. companies involve the Canadian provinces of Quebec, Alberta and British Columbia, which have enacted unclaimed property laws. Many of these statutes are comparable to state statutes in the U.S., which makes navigation of the laws easier for U.S. companies if they are issuing payments from those Canadian provinces.
A good rule of thumb when property is unclaimed by owners with foreign addresses
As more countries adopt abandoned and unclaimed property statutes and as more legal precedents are set, this area of unclaimed property law will continue to develop and someday become clearer. Until then, management of unclaimed property with any foreign consideration could be challenging.
We recommend our clients follow this rule of thumb:
- If there is no unclaimed property law in the country in question, report to your own state of incorporation. Most cases fall into this category.
- If the property was originally issued in the U.S., report to your own state of incorporation. Even if the owner now lives in another country, there was no foreign aspect to the original transaction, and it's likely you would prevail if your decision was challenged by the other country.
- If there is applicable law in the other country, follow that law. However, in some cases, a deciding factor might be the cost of potential noncompliance versus the potential cost of escheatment.
- If the issue is not clear, for example when companies are located, do business in, and issue payments from different jurisdictions, including another country, it's a grey area. Work with an experienced unclaimed property advisor or attorney to sort it out.
Finally, if your company participates often in transactions that involve foreign property or owners with foreign addresses, keep your eye on this important part of the law to keep up with new developments.