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By John Ulla, COO

Escheatment is the process of remitting an asset to the state of the address of record as unclaimed property. Escheatment is an unfortunate fact of life for financial institutions and one that comes with many pitfalls if not managed correctly.

When not correctly managed and reported, there can be financial liabilities that can be imposed, coupled with the risk of state audits. These fines and penalties can be material to your annual review findings and negatively affect your organization not only materially but reputationally. As you may or may not be aware, given the economic situation in many states, unclaimed property accounting audits are occurring more frequently than ever before. It is imperative more than ever to be vigilant and to conduct proper escheatment for all aspects of your organization.

The responsibility for unclaimed property compliance and escheatment for your registered shareholders is generally managed by your transfer agent, but be mindful that within your organization there should be a person or persons to manage your other escheatment needs. Because many organizations have multiple business units, and may not have a centralized escheatment compliance unit, it is imperative to understand and address the details necessary for accurate and timely compliance of the escheatment process.

If you have concerns as to whether your organization is compliant, there are many firms that can review and assist you in reviewing your escheatment compliance and developing procedures. Thankfully, on the registered shareholder side, life is simpler for our corporate partners when it comes to managing abandoned property. As your transfer agent, Continental monitors, tracks, and performs escheatment compliance for all reporting jurisdictions’ for your registered shareholders.

If your organization is selected for an unclaimed property audit by one of the many firms proliferating the industry, such as Kelmar Associates, it is important that the audit be taken seriously and the appropriate individuals with your organization be notified. Kelmar, in many cases, has been retained as the third-party auditor initiating a recent surge in multi-state examinations affecting many corporations. These unclaimed property audits of public corporations may or may not be specific in scope to securities or equity related property and may extend to other areas of your organization.

Over the last few years, audit firms and the states have taken a new approach to audits of corporate issuer records. Firms such as Kelmar, partner with states on abandoned property audits and have been convincing states to conduct wholesale audits of transfer agents attempting to have the transfer agent disclose information that would lead to audits of their client base. Continental’s position is that our client’s information, which has been entrusted to Continental, is confidential and that we do not have the right or unilateral ability to share that information without our issuer’s consent. Continental is closely monitoring these developments and will provide further updates as necessary to ensure that our issuer clients and their shareholder’s interests are protected.

It is important to note that for the purposes of unclaimed property liability, the states typically consider the business with the ultimate responsibility for compliance regardless of contractual provisions to the contrary. The issuer, not the transfer agent, will be susceptible to fines, penalties, and interest imposed by the states for any out of compliance property. If your company is currently under audit, or if it should come under audit in the future, it is recommended that you consider retaining the services of an independent and objective holder advocate to guide you through the audit process in addition to trusted in-house or external legal counsel.

Companies should take proactive and precautionary measures by revisiting their existing unclaimed property policies and procedures, as well as conducting a full risk and liability assessment to identify and remediate any compliance gaps or potential areas of exposure prior to the onset
of an audit.

You should rest a little easier knowing that Continental, as your transfer agent and/or exchange agent, has you covered when it comes to abandoned property compliance.

If you would like to further discuss, please reach out to your Account Manager.


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