ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

Prepared by The Century Idea Consultancy

MAY 2020 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

ESCHEATED ASSETS EXECUTIVE SUMMARY AND UNCLAIMED PROPERTY International governments around the world are In compiling this report, escheat and unclaimed becoming increasingly aware of the need to property laws were considered across different properly regulate unclaimed assets, in part thanks countries - including GCC countries - to find the gaps and best practices around the world, and to Our focus here is on cases, to the notable benefits socially and financially arrangements, and considerations certain U.S. states have recently gained from identify the legal practice gaps and provide an through which escheated assets and escalating their unclaimed property enforcement. estimate of those assets size and significance. unclaimed property are transferred to state ownership or guardian In KSA, the Non-Oil Revenue Development After a thorough analysis of the facts and figures Center has committed to diversifying KSA’s from various nations, we conclude that the Recent increase in the size of revenue streams by implementing new taxes and requirements for an efficient escheat regulations unclaimed assets has heightened levies, as well as investigating new sources of should include incorporating due diligence, the need for a comprehensive legal income. In our analysis, Escheated funds and citizen education and a simplified process for framework to properly govern it. unclaimed properties can represent a viable property reclamation. Today, in Pennsylvania, for example, one in ten residents have unclaimed opportunity for such revenue diversification. money being held for them. However, unclaimed property law can be The report uses unclaimed assets and total challenging, and KSA will need to create a robust revenue data in California and other comparable and thoughtful policy to protects different size economies to project estimated figures of stockholders Saudi percentage potential revenues from unclaimed assets.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 2 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

1 INTRODUCTION

2 CATEGORIES OF ESCHEAT

3 HISTORICAL BACKGROUND Our report includes the following sections: 4 THE GLOBAL LANDSCAPE

5 UNCLAIMED PROPERTY ASSETS

6 GAPS AND BEST PRACTICES

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 3 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

Introduction

THE BASICS The Conditions for Escheat

Escheat refers to the transfer of assets or property to All jurisdictions have their own laws and regulations governing escheat and related matters. the state when an individual dies without a will or Generally though, there are some rules and conditions for escheat: legal heirs. It can happen with physical property, or when there is money in a bank account that has gone 1. A property owner dies without a will or legal heirs. Escheat can also happen when the unclaimed for years. legal heirs are deemed incompetent, or when a will is deemed defective.

The concept of escheat maintains that property always 2. Financial assets go unclaimed for a long period of time, known as the ‘dormancy’ has a recognized owner, which is the state or period. This period requires that no activity or contact has been made regarding the government if no other claimant is readily identifiable. financial accounts. Escheat is usually done on a revocable basis, which means that ownership of the estate or property would 3. Assets remain unclaimed after the state has taken receivership of them. revert to a lawful heir should one appear.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 4 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

COMMON TYPES OF UNCLAIMED PROPERTY:

• Financial Assets • Stocks . Contents of safe deposit boxes • Property • Uncashed dividends . Insurance payments or refunds • Payroll checks • Refunds . Life insurance policies • Dormant stocks • Traveler’s checks . Annuities • Checking and savings accounts . Gift cards . Trust distributions • Funds from court proceedings . Certificates of deposit • Unclaimed wages • Uncashed checks • Utility security deposits . Customer overpayments

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 5 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

REVERSING ESCHEAT

If an account owner re-appears, he can reclaim escheated funds. The bank can reverse the escheat in most instances, but If it has already been transferred to the state, it is ultimately up to the state to decide. In many cases, states may have already spent the money before the Introduction owner reappearance

TYPICAL ESCHEATMENT PROCESS IN THE US

1. The specifics of escheat laws vary by jurisdiction. Financial institutions are required by law to make efforts to locate the owners of dormant or abandoned assets, before transferring title to the state under escheat. These efforts can include sending reminders and issuing notices.

2. Some states maintain online registries of dormant assets. This enables their rightful owners to reclaim them - since escheat is revocable in many cases. However, these efforts are ultimately subject to state law.

3. The intricate details of what kinds of assets can be reclaimed and how long an owner has to reclaim them vary widely. For example, a person can have between one and seven years to reclaim an uncashed check.

Time is of paramount importance to anyone hoping to reclaim escheated financial assets, as some states may sell the assets and spend the proceeds.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 6 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

The origin of the word itself goes back to 1250–1300. “ESCHETE” meant HISTORICAL “inheritance” and is derived from the Latin “EXCADERE,” meaning “to fall out.” BACKGROUND

HOW DID ESCHEAT LAWS ANCIENT ENGLISH COMMON LAW ORIGINATE? English common law laid down two different types of escheat.

Many of our modern unclaimed property The first was related to landowners who died without heirs. In early times, any regulations originated in BONA VACANTIA property for which no known heir could take title would revert to the crown, common law, from the United Kingdom. because the monarch was the original proprietor of all land in the kingdom. The Under the bona vacantia principle, property second type of escheat was for individuals who had committed crimes. If a property owner committed a felony or treason, it was held that they had with no identifiable owner belongs to the forfeited their rights as a landowner, and the land would escheat to the sovereign crown. monarch.

These days, escheat is most commonly applied to the transfer of a deceased person’s property to the state when the person dies without capable heirs.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 7 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

HISTORICAL EVOLUTION OF ESCHEAT LAWS IN THE UNITED STATES BACKGROUND

19TH CENTURY MID 20th CENTURY

Up till late 19th Century, some state laws existed • The Uniform Disposition of Unclaimed Property Act governing: of 1954 prompted states to put systems in place to . Escheat of properties belonging to deceased hold organizations accountable for unclaimed persons without known heirs property . Bank reports to the state concerning dormant • Between 1946 and 1961, at least 20 states expanded accounts their escheat laws, with half adopting the Uniform . Posting notices about those accounts in newspapers Law Commission’s model legislation • Subsequent revisions to the Act were made in 1966, EARLY 20TH CENTURY 1981 and 1995

• Escheat laws set up to require the escheat of NOW dormant accounts at active banks • The laws of this era created a process for the state to Today, every state in the US have unclaimed property permanently escheat property laws on the books, derived from the Uniform Law Act. Each succeeding version of the Act has shortened Presumption of Abandonment periods.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 8 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

The unclaimed property laws both within and outside of UNITED ARAB EMIRATES the United States are in a constant state of change.

The National Association of Unclaimed Property Since May 2018, the Central Bank of the UAE applied the Dormant Accounts Regulation pursuant to Circular No. 10 of 2018 (‘the Regulation’). Administrators (NAUPA) is the premier authority on unclaimed property. Its membership consists of the THE GLOBAL The new Regulation expands greatly on the scope of duties on banks. leading unclaimed property administrators representing: LANDSCAPE It addresses: • All 50 states of United States . How to handle dormant accounts and unclaimed balances • The District of Columbia . A general framework to control and protect dormant accounts in UAE • The Commonwealth of Puerto Rico banks • Several Canadian provinces . A process for customers to receive the available balances of those accounts

The UAE law also addresses: MALAYSIA The Unclaimed Money Act 1965 deals with money, securities, . Transfer of Dormant Funds to the Central Bank . income and dividends held by courts and financial institutions. Claims by Customers for Funds in Dormant Accounts . Protection of Customers’ Rights

. It is the duty of the court, company, firm, and any person who possesses unclaimed money to transfer it to the government. . The unclaimed money has to be paid to the government after 15 years. THE TOTAL AMOUNT OF UNCLAIMED Before 15 years, it can be recovered without interest. PROPERTY IN THE UNITED STATES BY . Land in Malaysia belongs to the State and on application the 2015 WAS $41.7 BILLION State alienates it to individuals in perpetuity or for a specific time up to 99 years. When one passes away intestate, the land is escheated.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 9 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

THE GLOBAL LANDSCAPE

The following table indicates the commonalities and differences between various countries’ unclaimed property laws. Other countries have more general laws containing abandoned and unclaimed property.

Country Canada Australia New Zealand UK India Malaysia Phillipines Switzerland

Dormant Bank Accounts X X X X X X X X

Certified Checks X X X X

Bank Drafts X X X X

Reportable Property Insurance Policies X X X X Types

Safe Deposit Box Contents X X X

Shares X X X X

Lottery Prizes X X X

Employee Benefits X X X

Dormancy Period 10yrs 7yrs 6yrs 15yrs 5yrs 15yrs 10yrs 10yrs

Minimum Amount Required $100 CHF 500 Other Australian Bank of Reserve Bank of Malaysian Federal Finance Reference Security and The Treasury UK Government Bureau of Treasury Canada India Government Administration Investments

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 10 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

UNCLAIMED ASSET VALUES

AMOUNT IN UNCLAIMED COUNTRIES REPORTED AS ON TYPE ASSETS FORECASTING US $41.7 billion 2015 Not specified

Life policies: 1 bn GBP Pensions: 3 bn GBP Shares and dividends: 3 bn GBP United Kingdom 15 billion GBP Feb 2018 Dormant accounts: 5 bn GBP National Savings: 3 bn GBP Lotteries and other: 0.3 bn GBP

Unpaid salaries, dividends, tender deposits and insurance claims, RM6: $932 billion matured fixed deposits and Nov 2019 Malaysia US$ $1.68 billion money in dormant trade, savings, current and fixed deposit accounts.

Ontario/Canada 2 billion CAD 2015 Not specified

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 11 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

Unclaimed Assets as a Percentage of GDP

0.05 Our comparison economies (in USD) are: FORECASTING Saudi Arabia: GDP $687bn

0.04 . Switzerland: GDP $679bn . Netherlands: GDP $831bn . Turkey: GDP $852bn . U.S. state of New Jersey: GDP $511bn 0.03 . Kuwait: GDP $121bn

COMPARISONS TO 0.02 SAUDI ARABIA Their unclaimed assets stand at: . New Jersey: USD4.5bn Unclaimed Assets (% per GDP)per Assets (% Unclaimed By identifying countries with . Switzerland: USD44.6 million comparable economies to Saudi . Netherlands: EUR350 million 0.01 Arabia, we can compare unclaimed . Turkey: USD41 million assets in these countries, for an . estimate of the potential size of Kuwait: USD326 million unclaimed assets in Saudi Arabia. 0.00 Turkey Switzerland Kuwait Netherlands

* Unclaimed assets values are recorded in different years for different countries (but all between 2015-2019)

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 12 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

UNCLAIMED ASSET VALUES IN LARGE US STATES

USD 16

FORECASTING o Studies in United States have suggested that unclaimed property management can 14 account for as much as 13% of some states revenues. 12

● In 2013 unclaimed cash and benefits 10 amounted to roughly $186 for every U.S.

resident. 8 Billions USD Billions

6

● In March 2017, Reports indicated that the

amount sat forgotten in British bank 4 accounts roughly doubled in the ten years

since 2006. 2

0 Virginia Pennsylvania New Jersey Texas California New York

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 13 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

FORECASTING THE POTENTIAL REVENUES FROM ESCHEATED FUNDS - California As a Benchmark

In order to gain an estimate of the potential public revenues from escheated funds in Saudi Arabia, assuming the implementation of a comprehensive Escheat Law, we have used California state data. This is because California has the most complete FORECASTING data available - both in terms of dollar amounts and asset types. . California State Controller’s Office (SCO) states that unclaimed assets generate over $400 million in annual revenue (reported as the state’s fifth largest revenue source in 2015). The same figure is reported in 2015 and 2019. So, we can assume that unclaimed assets revenue generation was averages $400 million annually.

In 2010, California’s general state revenue was $94 billion. By 2017, revenue had grown by 56%, to $148 billion.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 14 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

California General fund Revenue From Unclaimed Property (In Millions)

1000 FORECASTING 900 NOTE THAT OF THE TOTAL UNCLAIMED 800 ASSETS, 95% ARE CASH ASSETS 700

600

500

400

300

200

100

0 1984-85 1989-90 1994-96 1999-00 2004-05 2009-10 2014-15 2019-20

Source: Legislative Analyst’s Office, California

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 15 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

From a thorough analysis of the issues raised and the suggested reforms in unclaimed property legislation, all over the world taking into consideration the Saudi local context, we can condense recommendations for KSA Escheat Law as follows:

2 TRANSPARENCY & FAIR PRACTICES GAPS AND BEST 1 UNKNOWN NATURE OF FAMILY ASSETS PRACTICES- ISSUES In their opening account agreements, Saudi banks should practice more transparency regarding the methods utilized Families encounter difficulty retrieving their rightful assets when finding the true owners of unclaimed money. This results AND REFORMS because many Saudis do not readily disclose their assets to in agreements that contain uncertainty (the Gharar). Account family members, due to a cultural reasons. In addition, the holders are in a vulnerable position, because they lack current law does not protect private property as an knowledge of the terms and conditions of the account essential right under Islamic objectives. agreements.

SUGGESTED REFORMS SUGGESTED REFORMS

• Apply corporate governance in banks agreements and • The Saudi Arabian Monetary Agency (SAMA), as a services, which includes an examination of opening legislative body for banking sector, should set up more account agreements of banks in Saudi Arabia. SAMA should rules that protect the interest of the account holders. thoroughly review banks’ agreement terms to best • SAMA and banks need to engage in a public awareness determine what’s in the interests of account holders and campaign for account holders, family members, and reject or modify any terms causing the Gharar. society in general, highlighting the importance of • The revised law should require banks to report all inactive providing accurate contact information, and how to and dormant accounts to SAMA in great details, including obtain unclaimed money to which they are entitled. names, contact information, account numbers, and balance • Sufficient policies and procedures should be set for of these accounts. communication with unclaimed money owners, • The Shariah supervisory board in the banks should be including use of the National Postal Addressing System. independent and should have full authority to review and certify the bank’s conduct and products based on Islamic law. The board’s decisions should be binding.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 16 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

3 DUE DILIGENCE 4 LACK OF UNIFORMITY 5 REPORTING FAILURES

Most businesses fail to report unclaimed property (Even The due diligence requirements for banks and There are more than 90 asset types for other institutions to correctly identify and find Internationally, for example California estimates the corporations to consider, all with varied reporting unclaimed money owners are insufficient, and compliance rate is about 2%.) deadlines, and every jurisdiction has its own laws. do not consider people’s varying access to communication methods. SUGGESTED REFORMS SUGGESTED REFORMS SUGGESTED REFORMS • The current regulations should contain To increase holder compliance with unclaimed property additional due diligence requirements for law: banks to find unclaimed money owners • Organizations and banks can build a matrix of ● Set up a holder compliance unit. during the five-year dormancy period. all property types, dormancy periods, and cut- ● Tax law (Zakah Law) should require businesses to • The revised regulation should require banks off dates by jurisdictions. respond to a question about unclaimed property as to send notice every month to inactive and • Utilize unclaimed property reporting software part of their tax/ Zakah filings (this will also increase dormant account holders, via last mailing businesses’ awareness of the law) address, cell phones, and email addresses. or outsource unclaimed property reporting. ● Set up a one-time amnesty for holders who voluntarily • The revised regulation should require banks report past-due unclaimed property. Temporarily to maintain all communication records waive any penalty associated with delinquent reports, during the dormancy period. to address the problem of willful non-compliance.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 17 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

RESEARCH METHODS DEFINITIONS

● Last Known Address: The location of the owner of unclaimed property as reflected on the holder’s This report synthesized information from varied sources to records; often meaning sufficient for the purposes of the delivery of mail. create one comprehensive document that lays down the basic

definitions of Escheat and Unclaimed Property, its evolution, its ● Rightful Owner: A person and/or entity who has the legal right to make a claim to the property (parens types, and in what form it prevails in different countries. patriae).

The report informs the practices in Saudi Arabia and compares it ● State: Can mean any jurisdiction that “steps into the shoes” of a holder after a statutorily defined to the practices in other countries. The document highlights a dormancy period. typical tension in the escheatment law related to the conflicting ● Intestate: Refers to property not subjected to will, or the document of will is not validly executed, or the interests in case of unclaimed property as a consumer executor (and wasi) fail to execute the wishes of the deceased. protection program versus a source of General Fund revenue.

● Custodian: An individual or entity that holds property until it is delivered to the rightful owner (State). The report informs unclaimed property law trends, such as increasingly shorter dormancy periods, followed by public ● Dormancy Period: Period of time the holder retains the property before reporting compliance is required. criticisms. ● Due Diligence: A series of efforts required by law that a holder must perform to find the rightful owner before remitting the property to the state. Gaps in legislative and administrative processes are highlighted

and recommendations are made using best practices from ● Holder: The entity that is in possession of, or controls the property until it is transferred to the state on different countries. Finally, the report uses unclaimed assets behalf of the lost owner. and total revenue data in California to project estimated figures of percentage revenues from unclaimed assets.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 18 ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE

DISCLAIMER OF LIABILITY

UNLESS OTHERWISE STATED, ALL INFORMATION CONTAINED IN THIS DOCUMENT SHALL NOT BE REPRODUCED, IN

WHOLE OR IN PART, WITHOUT THE SPECIFIC WRITTEN PERMISSION OF THE CENTURY IDEA CONSULTANCY.

THE CENTURY IDEA CONSULTANCY MAKES ITS BEST EFFORT TO ENSURE THAT THE CONTENT IN THE PUBLICATION

IS ACCURATE AND UP TO DATE.

THE CENTURY IDEA CONSULTANCY MAKES NO WARRANTY, REPRESENTATION OR UNDERTAKING WHETHER

EXPRESSED OR IMPLIED, NOR DOES IT ASSUME ANY LEGAL LIABILITY, WHETHER DIRECT OR INDIRECT, OR

RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY INFORMATION THAT IS CONTAINED

IN THE PUBLICATION AND IT IS NOT THE INTENTION OF THE PUBLICATION TO BE USED OR DEEMED AS FINAL

RECOMMENDATION, OR ADVICE FOR ANY ACTION (S) THAT MAY TAKE PLACE IN FUTURE.

THIS REPORT WAS PREPARED INDEPENDENTLY AND DID NOT RECEIVE ANY HELP OR FUNDING FROM ANY PRIVATE

COMPANY OR GOVERNMENT.

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 19 thecenturyidea.com

The Century Idea ESCHEAT AND UNCLAIMED ASSETS LAW: A GLOBAL PERSPECTIVE FOR A SOURCE OF PUBLIC REVENUE 20