Unclaimed Property Compliance What You Need to Know

UNCLAIMED PROPERTY COMPLIANCE WHAT YOU NEED TO KNOW

July 20, 2021

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. With You Today

ANGIE GEBERT KHRYSTYNA BURKUN JAMES MANN ANDRES MACELLARO National Unclaimed Property Unclaimed Property State & Local Tax Services, Unclaimed Property Compliance Leader & State & Local Tax Services Unclaimed Property State & Local Tax Services Managing Director Experienced Associate Manager Escheat Manager

312-233-1848 312-233-1817 312-730-1274 212-885-8000 [email protected] [email protected] [email protected] [email protected]

2 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Compliance Essentials

Compliance Best Practices

Unclaimed Property Trends

 State Outreach

Agenda  State Compliance Updates

 New Delaware Senate Bill

 Litigation Update

Conclusion/Q&A

3 UNCLAIMED PROPERTY COMPLIANCE WEBINAR COMPLIANCE ESSENTIALS

4 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Unclaimed Property Essentials

COMMON TYPES OF UNCLAIMED PROPERTY:

 Uncashed payroll or commission checks  Uncashed payable / vendor checks  Gift certificates / gift cards  Customer merchandise credits, layaways, deposits, refunds or SOURCING RULES: rebates  First, to the state of the  Overpayments / unidentified remittances rightful owner’s last known  Suspense accounts address, if known, or  Unused/outstanding benefits (non-ERISA)  Second, to the state of the  Miscellaneous income/bad debt expense accounts holder’s incorporation (commercial domicile for unincorporated entities).

5 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Unclaimed Property Essentials

REPORTING DEADLINE  Varies by Industry  Most fall into two filing seasons – Spring/Summer and Fall

DORMANCY PERIOD  Varies by property type and state  Need to understand when the dormancy period starts (i.e. – date of creation vs. last activity date)

DUE DILIGENCE  Each state has a specific dollar threshold  Must meet certain state guidelines with timing of mailing and language

EXEMPTIONS  Deferral vs. Exemption  Deminimus or Administrative Deduction

6 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Sample Escheat Compliance Timeline

Company Due diligence response to letters sent and Prepare UP reports Reports to data request responses tracked Reissue checks & check request states See the Sept 1 – following May 15 June 30 Sept 15 Oct 15 FALL sample COMPLIANCE June 1 July 1 – August Sept 16 – Oct 20 timeline for August 15 30 Oct 7 Fall and Data Validate Prepare Reports and Spring filings. Request data and ID reconciliation checks This timeline exemptions processed can be Compile modified Review Spring DDL Prepare UP reports & Reports and Reports to Data Set Responses check request checks processed states accordingly to Dec 1 – Feb 1 – meet a Dec 31 Feb 15 Feb 28 SPRING Company’s COMPLIANCE Nov 1- Jan 1 – Feb 20 March 1 needs. Nov 30 Jan 31 – July 1 Due Prepare Reissue Diligence reconciliation checks

7 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other Compliance Trends – Online Filing NOTES:  ALASKA: New Online Filing Portal coming July 2021

 NEVADA: Payment must be made electronically-ACH Debit or fee assessed

 NORTH DAKOTA: Negative Reports only required

 OKLAHOMA: Signed cover sheet still required

 OREGON: New Government Agency Handling Unclaimed Property

 TENNESSEE; Payment must be made electronically

 VIRGINIA: Signed cover sheet still required

 WASHINGTON: Introduced New Online Portal for Fall 2021 Payment must be made electronically or 5% penalty

8 UNCLAIMED PROPERTY COMPLIANCE WEBINAR COMPLIANCE BEST PRACTICES

9 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Compliance Best Practices

UP Liability Written Policy Monthly Early Deminimus Account & Procedures Recon Process Reach Out Amounts

Role Acquisitions & Centralized Record Annual Assignments Divestitures Repository Retention Compliance Policy Process

10 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Top Common Compliance Mistakes

 Using the wrong time period for reporting – Includes too many items in a report or does not capture all the required reportable items for a given report cycle  Using the wrong property type code – Using the incorrect property type code could lead to incorrect reporting of property due to different dormancy periods being used for different property type codes • It could also lead to the misapplication of the available exemptions  Not realizing that foreign addressed items needs to be included in reporting and should be escheated to the state of incorporation  Holders not taking advantage of exemptions or deductions  Holders not realizing that not all states utilize a fall report deadline and that about 1/5 of the states use a different report deadline than Oct 31/Nov 1.

11 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Common Reasons States Reject Annual Reports

Certain states require specific information to be included on their annual reports or be submitted in a certain format or they will reject the reports. The following are some examples:  California and Florida both require Social Security Numbers be provided for payroll property included on their annual reports  Tennessee requires that the NAICS code be included in their upload file for it to be accepted  Tennessee, Washington, District of Columbia and Delaware are a few examples of states that will only accept reports that are uploaded to their respective state portals  Certain states such as Texas, Arkansas and Oklahoma require well name, well number and well location be included for mineral royalties  Several States will Reject a Report if Payment is not made electronically such as Alabama, Nevada, and Tennessee.  California will reject their reports for sending payment with the Notice Report or adding new property to the Remit Report.

12 UNCLAIMED PROPERTY COMPLIANCE WEBINAR UNCLAIMED PROPERTY TRENDS

13 UNCLAIMED PROPERTY COMPLIANCE WEBINAR UNCLAIMED PROPERTY TRENDS

State Outreach

14 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Compliance Review Trend STATES DOING REVIEWS:

COMMON REQUESTS MADE DURING THESE REVIEWS:

 Written policy and procedures  Expectations of certain property types Delaware California Florida  Deminimus policy  Filing history for all entities, including acquisitions/divestitures  Handling of outstanding checks on closed bank accounts

Virginia Washington DC

15 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Direct Outreach Trends

 Delaware SB No. 104 and the recent litigation in the unclaimed property space point toward continued enforcement efforts by Delaware through its audit and VDA programs.  More states are now adopting a similar approach to Delaware and BDO has seen an uptick in audits and direct outreach from states, including MA, TX, MI, FL, IL, MN, UT, and NY.  States are utilizing new available software and techniques to review their records and determine companies that may not be complying. For the annual online filings, over half of the states utilize a portal developed and maintained by Kelmar.  Companies receiving self-audit notices, voluntary/amnesty program invitations, and questionnaires must ensure to address these items in a timely matter in order to avoid an audit, which can be quite burdensome and costly.

16 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Self Audit Outreach Example - MA

 The Commonwealth of Massachusetts began a new unclaimed property program around April 1, 2021, to identify noncompliant companies that are incorporated, have locations or carry business permits in the state.  Companies that have failed to file unclaimed property reports regularly or have filed incomplete reports with the state may be contacted by a third-party company notifying them that they must conduct a self-audit.  Companies that receive a notice of noncompliance will be expected to conduct a self-review for all property owed to the state for the last six report years (nine transaction years), due Nov 1, 2021.  A third-party audit firm is assisting the state with the self- audit program.

17 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Self Audit Outreach Example - NY

 The New York State Comptroller’s Office of Unclaimed Funds (OUF) contacts companies through a series of notices to participate in the state’s Voluntary Compliance Program (VCP).  The letters inform holders, based on a record of noncompliance and business activity, that the state offers a VCP program that may allow them to self-report unclaimed property with a waiver against interest and penalties.  Failure to respond to this letter could result in: • Further inquiry or audit, or • Lack of future admittance into the program.  If your organization has received an unclaimed property notice or letter, it is important to act quickly.

18 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Self Audit Outreach Example - IL

 At the beginning of July, the Office of the Illinois State Treasurer begun sending “Unclaimed Property Compliance and Reporting Outreach” letters to companies in the state that may be noncompliant with their unclaimed property reporting.  The recipient’s company, its subsidiaries and related entities have an obligation to report and remit property to achieve full compliance with the Illinois Revised Uniform Unclaimed Property Act.  Any company that receives a notice from the state or its third-party audit firm will be expected to conduct a self-review.  The self-review should cover the last 10 report years including past due unclaimed property as of December 31, 2020.  Main issues: • Per the letter, it only gives 4 months to complete the review and file a report. Waiting to hear if extensions will be given. • Unclear what role Kelmar will play in the review

19 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Self Audit Outreach Example - MN

 The State of Minnesota began a new unclaimed property program around June 1, 2021, to identify noncompliant companies that are incorporated, have locations or carry business permits in the state.  Companies that have failed to file unclaimed property reports regularly or have filed incomplete reports with the state may be contacted by the Minnesota Department of Commerce notifying them that they may come into compliance by performing a self-audit.  Companies that receive notices like this one from the State of Minnesota should act quickly to address the issue, as the notice permits 45 days for a holder to respond.  Holders may request an extension of time if additional time is needed.

20 UNCLAIMED PROPERTY COMPLIANCE WEBINAR UNCLAIMED PROPERTY TRENDS

State Compliance Updates

21 UNCLAIMED PROPERTY COMPLIANCE WEBINAR State Updates

REMINDER - COLORADO SB 19-088 Signed by the Governor on April 16, 2019; Effective July 1, 2020

 This bill enacted the adopted RUUPA into law.  The new bill ELIMINATED the previous allowable deduction that allowed holders to voluntarily, prior to payment or delivery of said abandoned property, deduct and retain 2% of the value of the property of $25.00 whichever is greater.  Reports submitted on or after 7/1/2020, no property deductions will be allowed, and holder reports taking deductions will be rejected by the Colorado Unclaimed Property Division.  NOTE: This is being treated as retroactive, so if you are reporting past due property now, no deduction is allowed, even though the deduction would have been allowed if the property was filed prior to 7/1/2020.  REMINDER: 5-year dormant property types were changed to a 3-year dormancy period.

22 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Reporting of IRAs and Tax Withholding NAUPA File Input

Field NAUPA Sample Reporting REMINDER - IRS REVENUE RULING 2018-17 # Field ID Input Effective January 1, 2020 Value of Prop- Property  In response, NAUPA issued guidance on how to report the unclaimed 23 amount- $1,000 before reported IRAs and their tax withholding within the NAUPA II format Deductions  Holders will make use of the NAUPA Standard Deduction and Prop- Deduction 24 deduction Tw Withholding code (“TW”) to represent “Income Tax Withheld” Type -type  In the event of multiple deductions, the TW code should take

priority Amount of Prop-  Federal Tax 25 deduction $100 State and federal withholdings should be totaled as only one Withheld -amount deduction field is available Amount  All withheld taxes are to be reflected in UP reports so that Remitted to Prop- claimants may be so advised and address with their tax reporting. the State 31 amount- $900 after Tax remitted Withholding

23 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

HAWAII ACT 184 Effective July 1, 2024  Session Laws of Hawaii 2014 requires that claims for funds less than $100 in the unclaimed property trust fund must be claimed within ten (10) years of deposit into the trust fund, or the funds will escheat to the State and be transferred to the general fund.  Beginning July 1, 2024, unclaimed funds less than $100 and received before 2015 will escheat to the State if not claimed.

24 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

TEXAS – HOUSE BILL 1514 – CHANGES TO THE INSURANCE CODE RELATING TO THE UNCLAIMED PROPERTY REPORTING DUE DATE Effective 5/12/2021

 HB 1514 was enacted on May 12, 2021 and had an immediate effect.  Among other changes to Texas’ unclaimed property statutes, the bill makes changes to Insurance Code Section 1109.013(c), which affects how unclaimed insurance proceeds are reported to the Comptroller’s office.  Insurance proceeds are now reportable on July 1 each year instead of Nov. 1.  Because of this change, insurance proceeds that would have been reported on Nov. 1, 2021, should now be reported on July 1, 2022.  Insurance companies are still responsible for meeting this year’s July 1 deadline for other types of property that are reportable as unclaimed property.

25 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

VIRTUAL CURRENCY Several states are working towards updating their unclaimed property laws to include the reporting of virtual currencies. Some examples include:

 Delaware – SB 103 – Effective August 1, 2021 - This Act adopts an express reporting requirement for virtual currency and requires conversion of virtual funds into U.S. Dollars for reporting.  Illinois – SB0338 – Sent to Governor 6/28/2021 - Changes definition of Virtual Currency, Established a 5-year dormancy period and requires conversion of virtual funds into U.S. Dollars for reporting.  New York – AB 7742 – Defines virtual currency and amends unclaimed property law to cover virtual currency. Act would take effect immediately if passed.  Nevada – SB 71 – Effective October 1, 2021- Defines virtual currency and amends unclaimed property law to cover virtual currency.

26 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

STATE PREVIOUS NEW Submitting .HDE NAUPA New State Portal launching July 2021 - .TXT Alaska – Reporting Update reports via email formatted NAUPA files only Colorado Department of Treasury Colorado State Treasury Unclaimed Property Division Unclaimed Property Division Colorado – Address Update 1580 Logan St. 200 E. Colfax Ave. Room 141 Suite 500 Denver, CO 80203-1722 Denver, CO 80203

Bureau of Unclaimed Property Delaware Dept. of Finance C/O Division of Finance Office of Unclaimed Property 820 North French Street Attn: Receipts and Wires Team Delaware – Contact Update 8th Floor 820 North French Street Wilmington, DE 19801 8th Floor Wilmington, DE 19801

ACH and Wire Bank Name, Routing Number and Delaware – EFT Payment Update Account Numbers updated

27 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

STATE PREVIOUS NEW Florida – Address Attn: Updated Florida Department of Financial Services Florida Department of Financial Services Reporting Section - Bureau of Unclaimed Property Division of Unclaimed Property 200 E. Gaines Street 200 E. Gaines Street Larson Building Tallahassee, FL 32399-0358 Tallahassee, FL 32399-0358 Kansas – Address Attn: Updated Kansas State Treasurer Kansas Unclaimed Property Unclaimed Property Attn: Holder Services 900 SW Jackson 900 SW Jackson Ste 201 Suite 201 Topeka, KS 66612 Topeka, KS 66612-1235 Maine – Address Attn: Updated State of Maine - Office of the Treasurer Office of the State Treasurer Attn: Unclaimed Property Unclaimed Property/Holder Report 39 State House Station 39 State House Station Augusta, ME 04333-0039 Augusta ME 04333-0039 Minnesota – Address Attn:& Suite Minnesota Department of Commerce Minnesota Department of Commerce Updated Unclaimed Property Unit Unclaimed Property Program 85 7th Place East 85 7th Place East Suite 500 Suite 280 St. Paul, MN 55101-2198 St. Paul, MN 55101-2198

28 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other State Updates

STATE PREVIOUS NEW North Dakota - Attn: Updated ND State Land Department North Dakota Unclaimed Property Unclaimed Property Division 1707 N 9th Street 1707 North 9th Street Bismarck, ND 58501 Bismarck, ND 58506 New Hampshire - Attn: Updated State of New Hampshire New Hampshire Abandoned Property Division Treasury Department 25 Capitol Street Abandoned Property Division Room 205 25 Capitol Street Concord, NH 03301 Room 205 Concord, NH 03301-6312 Oregon – Gov’t Entity and Address Dept. of State Lands Unclaimed Property Section Oregon State Treasury Update 775 Summer St NE, Suite 100 Salem, OR 97301- 350 Winter St. NE 1279 Salem, OR 97301-3896 Oregon – ACH Credit Payment Update US Bank National Association KeyBank N.A. Routing Number:123206707 Routing Number: 123207010 Account Number: 1410013000 Account Number: 891700002075

29 UNCLAIMED PROPERTY COMPLIANCE WEBINAR UNCLAIMED PROPERTY TRENDS

New Delaware Senate Bill

30 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Delaware Senate Bill No. 104 - Overview

SENATE BILL NO. 104 WAS INTRODUCED ON APRIL 14, 2021  The bill was fast tracked and signed into law on June 30, 2021.  According to the bill synopsis, the bill “clarifies various aspects of the State’s procedures to operate its unclaimed property program, including promoting and determining holder compliance, processing owner claims, and preventing fraudulent claims.”  Notably, the bill is a reaction to the recent litigation involving Delaware, where courts have addressed the state’s use of contingent-fee based 3rd party auditors and the limits of Delaware’s subpoena power.  The synopsis specifically states that certain sections of the bill “confirm current practice and address recent court decisions…”  While some sections of the act would take affect on or after August 1, 2021, other sections became effective upon signature by the Governor and “apply retroactively to any claims, examinations, or litigation pending as of the effective date of this legislation.”

31 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Sections 1 & 13: Verification of Completeness & Accuracy of Records

Sections 1 & 13 allow the State Escheator to request and review any records, even if they don’t identify property reportable to DE , in order to verify completeness and accuracy of a holder’s records  Updates Sections 1102 and 1171 of the Delaware Code Relating to Unclaimed Property (UPL)  Reaction to Delaware Chancery Court decision in Delaware v. AT&T, where Court refused to enforce DE subpoena (broad request, non-DE addresses, non-escheatable property, etc.)  Makes broad and voluminous record requests by third party auditors enforceable by statute

32 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Section 14: Permanent Expedited Audit Program (See Del Code Sec. 1172)

ELIGIBLE HOLDER GROUPS:  Exams authorized after 2/2/2017 and before 8/1/2021  Exams authorized by State Escheator after 8/1/2021  Holders who receive a VDA notice from the Secretary of State as of 8/1/2021 HOW TO CONVERT:  Exams authorized after 2/2/2017 and before 8/1/2021: • In general, submit form to DE, along with a workplan for completing the examination and any outstanding information within 60 days of the law becoming effective  Exams authorized by State Escheator after 8/1/2021: • Same requirements as above; however, presumably request can be made at any time (no prescribed timing in the statute)  Holders who receive a VDA notice from the Secretary of State as of 8/1/2021: • Request within 90 days after the request to enter VDA was delivered

33 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Section 14: Permanent Expedited Audit Program (See Del Code Sec. 1172)

ACCEPTANCE:  Within 60 days, State Escheator must accept or deny the request to expedite, or work with holder to revise work plan and schedule so that State Escheator can accept the request  Determination to accept is within the complete discretion of the State Escheator and subject only to the review of the Secretary of Finance TIMELINE:  18 Months - All requests for records, testimony, and information must be made to holder.  2 Years - State Escheator shall complete the examination and provide an examination report (if the holder provides sufficient responses within the timeframe and in the manner established by the State Escheator)

34 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Section 14: Permanent Expedited Audit Program Issues & Concerns (See Del Code Sec. 1172)

 Failure to abide by the requirements, may result  Concerns: in termination and conversion to a conventional • Determination whether holder has responded audit, with associated interest and penalties. within the time and in the manner established  Past Experience – 2-year timeframe for and a resulting decision to terminate expediting completing expediated audits is difficult for large, the holder’s examination is within the complete decentralized, and complex holders. discretion of the State Escheator and subject  For example, the following expedited audits only to the review of the Secretary of Finance. resulted in termination, leading to litigation: • Holder unable to challenge termination in court • Eaton (see consolidated case for Eaton, Fruit of the Loom, and Siemens, where Federal District Fruit of the Loom • Court ruled that benefit of an expedited audit • Siemens is not a protected entitlement and due process • AT&T does not apply)

35 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Section 14: Permanent Expedited Audit Open Items and Questions (See Del Code Sec. 1172)

OPEN ITEMS AND QUESTIONS (NOT EXHAUSTIVE LIST):

 Will the DE DOF promulgate regulations specific to the new expedited audit program?

 When will the expedited audit form be available?

 For requests to expedite audits authorized after 2/2/2017 and before 8/1/2021: • Confirm due date for request • Confirm what is necessary to satisfy requirement that responses to all pending or outstanding requests for records, testimony, and information be provided. • Requirements for workplan and parties involved in creation of workplan.

36 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Sections 21 & 22: Revised Interest

FORMER DELAWARE UNCLAIMED PROPERTY LAW ALLOWABLE INTEREST WAIVABLE Yes – Interest waived for holders that complete the 0.5% per month not to exceed 50% of amount paid VDA VDA in good faith.

0.5% per month not to exceed 50% of amount paid Yes – But only up to half of the calculable interest Conventional Audit (Mandatory Interest = 25%+)

0.5% per month not to exceed 50% of amount paid Yes – Interest is waived for any holder who Expedited Audit (No Mandatory Interest) completes an expedited audit.

DELAWARE UNCLAIMED PROPERTY LAW ALLOWABLE INTEREST WAIVABLE AS REVISED BY SENATE BILL 104 Yes – Interest waived for holders that complete the 0.5% per month not to exceed 50% of amount paid VDA VDA in good faith.

0.5% per month not to exceed 50% of amount paid Yes – But interest must be no less that 20% of past Conventional Audit (Mandatory Interest = 20%+) due liability

0.5% per month not to exceed 50% of amount paid Yes – Interest set at 1% of past due liability for any Expedited Audit (Mandatory Interest = 1%) holder who completes expedited audit. NOTE – PENALTIES SECTION WAS UNALTERED BY SB104

37 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Expedited Audit v. VDA

EXPEDITED AUDIT VDA Who Administers? DE Department of Finance DE Secretary of State Self-Review – Periodic check in with State Reviewer during 3rd Party Audit Firms Who Conducts Review? 4 phases of process Time Period for Completion 2 Years from acceptance of request to expedite 2 Years from acceptance of VDA-1 No – Conversion to conventional audit if payment in full not Yes – SOS can amend due date (Flexible – no legally received as prescribed (180-day discretionary extension for Extensions prescribed period) payment) Waivable at the discretion of the DOF if holder complies with expedited audit requirements; otherwise, conventional audit Penalty penalties my be assessed - (a) Lesser of up to 50% or up to Waived $5,000 for failure to file and (b) up to 25% for failure to pay.

Interest Non-waivable 1% interest assessment Waived SOS may refer claims that can’t be resolved to the State Sue in Court of Chancery within 90 days of Statement of Findings Remedies for Disputes Escheator for audit (No client has had this happed to date) No – Records cannot be used in joint examination without written consent; however, no prohibition on 3rd party auditors No – Holder must consent to additional other state VDAs Piggy-back Audits from conducting separate multi-state examination of holder. using DE VDA records

38 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes - Sections 17 & 19

SECTION 17: RECORDS OBTAINED IN EXAM OR VDA  Codifies that records obtained by the State Escheator in an examination or the Secretary of State in a VDA may not be used in a joint examination with another jurisdiction without the holder’s written consent.  Addresses holder and advocate concerns raised in Delaware v. Univar, where Univar argued that the state and Kelmar would not keep its sensitive business information confidential should the Court order Univar to comply with the subpoena.  Note: This change is not retroactive – Applies to exams 8/1/21 forward SECTION 19: HOURLY FEE FOR AUDITORS  Hourly requirement for all examinations of holders incorporated in Delaware  Exceptions: Compliance Reviews, Life Insurance and Securities Audits  Delaware reaction to long standing arguments by holders against contingent fee auditors, as well as recent UP litigation.

39 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes –Sections 6 &16

SECTION 6: EXCLUSION OF INTEREST AND PENALTIES FROM INDEMNIFICATION  Delaware will not indemnify holders for interest and penalties imposed by other jurisdictions, where other state or jurisdiction is claiming property previously reported to DE.  Harms holders that deliver unclaimed property to Delaware in good faith (if property is later claimed by another jurisdiction)  Seems contrary to purpose and intent behind indemnification SECTION 16: SECRETARY OF STATE VDA NOTICES  Expands delivery methods for SOS VDA requests  Increases timing to respond from 60 days to 90 days  Adds option to request an expedited audit in lieu of a VDA

40 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes – Section 7: Period of Limitations

SECTION 7: 10-YEAR PERIOD OF LIMITATION (POL) TOLLED BY VDA INVITATION  Section 1156 of the UPL prohibits the State Escheator from examining property after a period of 10 years has passed since the property became reportable (DE audit scope is generally 15 years – 10 years + 5 year dormancy)  This POL was previously only tolled by examination notice  Under new law, tolling (pause/delay) of POL will now begin with earlier of the following: • Delivery of Notice of Examination; • Delivery of VDA Invitation; or • Holder’s written election to enter into a VDA  Audit reach-back will be 10 years + dormancy from earliest event above

41 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Analysis of Material Changes – Sections 4, 13, &15

SECTIONS 4 & 13: DIRECT HOLDER TO SEND DUE DILIGENCE OR SEND DIRECTLY  State can direct due diligence at any time or send directly  Potential for disagreement between holder and Delaware (e.g., holder would not want to send a due diligence letter for property it does not believe is unclaimed property) SECTION 15: INITIATE AN EXAMINATION TO DETERMINE COMPLIANCE FOR ANY REASON  Expands State Escheator’s authority to examine records, including any party in possession of the necessary information  Codifies that no reason or justification is necessary beyond the request being related to an exam to determine compliance  Seven States have reason to believe statutes

42 UNCLAIMED PROPERTY COMPLIANCE WEBINAR UNCLAIMED PROPERTY TRENDS

Litigation Updates

43 UNCLAIMED PROPERTY COMPLIANCE WEBINAR State of Delaware v. AT&T, Inc. HIGHLIGHTS:  Case is likely the impetus for Sections 1 & 13 of the new Delaware law which allows the State Escheator to  AT&T, which was terminated from the expedited audit program, request and review records to verify challenged Delaware’s subpoena of records request through completeness and accuracy of the litigation and additionally raised argument made in the prior holder’s records, even if such records Temple Inland case (due process violation, commerce clause may not identify property reportable violation, takings violation, etc.). to the State.  This was a case of first impression in  On July 10, 2020, the Court of Chancery quashed the subpoena DE regarding the procedural & in its current form, holding that enforcing the subpoena as substantive aspects of administrative written would be an abuse of the court's process. DE, thereafter, subpoena enforcement. appealed the decision to the DE Supreme Court.  Federal District Court stayed the proceedings pending the outcome of  On June 1, 2021, the DE Supreme Court affirmed the lower the Chancery Court’s decision on the court’s judgement & adopted the procedures and substance enforceability of the Subpoena. followed by the federal courts in administrative subpoena  Subpoena included auditor’s request enforcement proceedings. for information back to 1992 (beyond scope of DE’s review).  Court will allow DE to serve a new subpoena on AT&T that complies with the guidance in its opinion.

44 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Siemens USA Holdings., et al. v. Geisenberger, et al.

 Siemens USA Holdings also followed in filing suit after being terminated from Delaware’s expedited audit program with similar Temple inland case allegations.  On January 23, 2020, Delaware filed a motion to dismiss and on May 14, 2020, Siemens filed a motion for a preliminary injunction (asking the court to stay the audit while the litigation progresses).  On September 15, 2020, the Federal District Court denied Siemens’ motion for a preliminary injunction. Siemens thereafter appealed.  Siemens wants the Court of Appeals to reverse the District Courts order and find that there is a likelihood of irreparable harm if Delaware is allowed to continue with the audit (e.g., tolling of statute of limitations, never-ending audit, etc.).  The Court of Appeals has taken the case under advisement after hearing oral arguments dated April 19, 2021.

45 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Other Terminated Expedited Audit Cases HIGHLIGHTS:  AT&T, Siemens, Fruit of the Loom, Fruit of the Loom, Inc., et al. v. Geisenberger, et al. Eaton exemplify a major concern with Delaware’s Expediated Audit  Fruit of the Loom quickly followed in filing suit after also being Program, namely that the benefits of terminated from Delaware’s expedited audit program and the expedited audit are not a similarly alleged certain provisions of Delaware’s unclaimed protected entitlement. property law are in violation of numerous federal laws similar to  The Federal District Court ruled that Temple Inland case. “[g]iven the explicit ‘complete discretion’ afforded the State  The case settled in November of 2020 under confidential Escheator and Secretary of Finance, it settlement terms. is clear that the benefit of an Eaton Corporation, et al v. Geisenberger, et al. expedited audit under the Delaware UPL is not a protected entitlement to  Eaton, a Delaware incorporated, public, pharmaceutical company which procedural due process may also filed suit against Delaware after being terminated from apply.” Delaware’s expedited audit program with similar allegations as  Based on the above, companies need AT&T, Siemens, and Fruit of the Loom. to evaluate whether the 2-year time frame for completing an expedited  The case settled in December of 2020 under confidential audit is attainable and do a settlement terms. cost/benefit analysis of interest savings vs required effort to comply.

46 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Univar Inc. v. Geisenberger, et al.

On October 29, 2020, the Chancery Court issued its HIGHLIGHTS: decision, enforcing the subpoena and directing Univar  This case is likely the impetus for Section 17 to comply. of the new law, which does not allow VDA or CONFIDENTIALITY CONCERNS: audit records to be used in a multi-state examination, unless the holder consents in  Court found Univar’s concerns to be well founded; writing, as well as Section 19, which requires however, it did not excuse compliance with the hourly compensation of audit firms. subpoena.  BDO will monitor the Federal case (filed  Courts decision was based in part on the state’s representation that auditor would maintain ethical 12/3/2018 and stayed until decision on wall between DE only exam and other state exams. subpoena, now court has asked the parties to propose schedule for moving forward  DE required Kelmar to have a separate audit team with federal litigation), in conjunction with perform the Univar audit on behalf of DE only, and to the new DE law, to determine how multi- refrain from sharing information with others. state examinations will be affected going forward (e.g., recent DE only examinations).

47 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Yee v. ClubCorp Holdings, Inc., et al.

 California Controller is claiming that membership initiation deposits constitute unclaimed property.  Although the judge granted the Controller’s motion to remand the case to state court, the judge made it clear: contrary to the Controller’ argument, that federal common law rules (priority rules) apply.  Back in State Court, on April 27, 2021, the Judge found that ClubCorp’s allegations that CA did not satisfy the statutory pre- requisite to adopt official regs through the APA; thereby, prohibiting the use of third-party auditors until properly adopting those regs were proper and survived CA’s objections to the pleadings.

48 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Arkansas v. Delaware, c/w Delaware v. Pennsylvania and Wisconsin (Money Gram Case)

 Original jurisdiction matter at the Supreme Court; special master appointed to conduct discovery and factfinding.  Delaware asked other states to produce evidence of financial institutions’ escheat practices as well as identities to determine which states can escheat unclaimed “official checks” issued by MoneyGram.  Delaware now seeks to expand the scope of the suit to other types of checks.  On May 21, 2021, the special master issued an interim report, finding that the abandoned checks are not third-party bank checks, as DE argued, but instead likely money orders or “similar written instruments.”  If the Supreme Court agrees with the special master, escheatment of the checks would be controlled by the federal Disposition of Abandoned Money Orders and Traveler’s Checks Act, which would require them to be escheated to the state of purchase, not the state of incorporation of the holder.

49 UNCLAIMED PROPERTY COMPLIANCE WEBINAR CONCLUSION / Q&A

50 UNCLAIMED PROPERTY COMPLIANCE WEBINAR Thank You

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