COVID Challenges to Reporting Unclaimed Safe Deposit Boxes and Other Repositories
By Freda Pepper, Reed Smith & Laurie Andrews, Principal Consulting Director
September 4, 2020
September 4, 2020
Right now, we are all struggling with the new normal – wearing face masks, social distancing, and finding ways to effectively work from home among a whole host of other issues during the pandemic. When it comes to safe deposit box reporting and all of the tasks that are required in order to effectively report, financial institution clients are wondering how they can overcome some of these obstacles that require in-person, manual work.
Keeping in mind that the reporting and delivery of safe deposit box contents can vary by state as each state has a unique set of requirements related to dormancy periods, contents they accept and delivery requirements. We will discuss challenges related to these requirements in today’s world. While we do not have all of the answers for you just yet, we wanted to lay out some of the challenges that holders are facing and provide a few suggested strategies going forward.
By now you should have found a way to navigate the due diligence notification process as this is similar to your other unclaimed property due diligence requirements. After that, when it comes to the safe deposit box unclaimed property journey, the challenges become more complex.
Drilling – If the box owner has failed to respond to your due diligence letter, it is likely you will need to drill the box. Of course, social distancing in a vault is not easy, as you need adequate staff to ensure dual control and conduct an inventory and/or valuation of contents. We can’t forget that we also need to fit a locksmith in the vault too – if you can find one right now who is willing to do the job. You may want to consider enhanced due diligence efforts to entice box owners to come forward to avoid the escheatment process altogether.
Inventory – Depending on your process, you may do inventory upon drilling, you may send your items to a central repository for cataloging, or both. Either way, enhancing workstations to stay adequately distanced from one another while maintaining dual-control to prevent fraud may be a challenge.
Customer Reclamations – If the box owner or heir reaches out to you post-drill, it will be necessary to return their contents prior to submission to the state. However, if your normal process is to have a customer pick up their contents at the branch, what happens if that branch is shut down due to COVID? Do you have an alternate reclamation process in place?
Liquidation of Contents – Some states require holders to auction safe deposit box contents. In today’s world, will auctioneers able to hold live auctions? Do alternatives need to be sought including auctioneers that hold virtual auctions?
Escheatment of Contents – What if the state is unable to take possession of the contents of the boxes due to the pandemic related restrictions? Do you have adequate space to securely hold drilled contents? What if the state still wants you to send items and due to COVID you haven’t been able to drill and inventory?
Clearly, there are numerous compliance obstacles arising out of pandemic restrictions. Given these challenges, how are the states accommodating holders? If the actions of the states with Spring and Summer 2020 reporting deadlines are any indication, the answer is “very little.” In fact, no state specifically addressed safe deposit box compliance on their websites. However, some states generally extended deadlines and some even did so without the need for a formal request. While the extra time was extremely helpful to companies navigating compliance from mostly remote locations, in reality it was mostly useful for the analysis and reporting of intangible property. The extra time did little to accommodate holders looking to comply with requirements for reporting unclaimed safe deposit boxes and other repositories.
With pandemic restrictions still in place and no clear end in sight, holders of unclaimed safe deposit boxes and other repositories will likely need an indefinite amount of time to comply. This poses a dilemma for holders as they face the possibility of interest and penalty assessments due to late reporting.
How Should Holders in this Predicament Proceed?
Like most other things in these unprecedented times, the future is uncertain. However, there may be a few practical steps holders can take in an effort to minimize the risk of an interest and/or penalty assessment.
Holders who simply need a little extra time may request deadline extensions from the states in which the unclaimed safe deposit boxes are located. In doing so, it is important to understand each states’ requirements for requesting extensions (e.g. a letter on company letterhead explaining the need for the extension) as the requirements vary per state. As Fall Reporting deadlines get closer, we are hopeful that states will provide extended deadlines that do not require holders to submit a formal request. But, in the meantime, holders should take the opportunity to prepare themselves.
Unfortunately, not all states provide for extensions. In these states, it makes sense to request the extension anyway due to the extenuating circumstances. There will be no guidance from the state on how to request the extension. However, a phone call or an email to the state should be the first line of defense.
For some holders, a few extra months in 2020 for compliance may still not be enough to overcome reporting challenges. That is, there may be holders that are unable to comply in 2020. Waiting until 2021 may be the only option. In that case, holders should begin as soon as possible to perform state-by-state outreach to state administrators with the ultimate goal of ascertaining an assurance that waiting until 2021 would not result in an interest and/or penalty assessment. Holders should take the opportunity to reach out via email or by placing a phone call to state unclaimed property administrators and educate the administrator as to why the obstacles caused by COVID make compliance in 2020 impossible. Should the state provide a verbal assurance, it is important to get a confirmation in writing. A written confirmation could be used as evidence in the event interest is mistakenly assessed or if, years later, there is a finding as a result of an unclaimed property audit.
Outreach may not always be necessary, as there are some states that do not, in fact, assess interest and penalties; either because their law does not provide for it or because the state has not historically enforced that part of their law. Identifying these states can help streamline an outreach plan.
The suggested state-by-state research and outreach is no doubt time consuming and requires a commitment of resources. It is always helpful to leverage your or your advocates’ resources and state contacts. No matter how you approach your state outreach, however, it is best to begin now to assess your companies’ challenges, understand extension requirements and to begin the process of outreach to the various states all in an effort to minimize risk.