Keanotes

Virtual Currency and New York A 8314

Heather Gabell, J.D., Director of Compliance

August 28, 2019

Introduced on June 13, 2019, NY A 8314 provides that virtual currency (cryptocurrency) escheats to the state of New York after a 3 year dormancy period, if the entity holding it has engaged in “virtual currency business activity” and the owner’s last known address is in New York or if the entity is incorporated in New York, if the address is unknown.[1]

“Virtual currency” is defined in the bill as any type of digital unit used for a medium of exchange or a form of digitally stored value, which is to be broadly construed to include digital units of exchange that have a central depository or administrator; are decentralized and have no centralized repository or administrator; or may be created or obtained by computing or manufacturing effort. Virtual currency excludes digital units solely used within online gaming platforms, redeemed for goods, services, discounts or purchases as part of a reward program, or used as part of prepaid cards.

“Virtual currency business activity” is defined as (i) receiving virtual currency for transmission or transmitting virtual currency, except where the transaction is undertaken for non-financial purposes and only involves a nominal amount of virtual currency; (ii) storing, holding or maintaining custody or control of virtual currency on behalf of others; (iii) buying and selling virtual currency as a customer business; or (iv) controlling, administering, or issuing a virtual currency.

Introduced in 2016 as a Model Act by the Uniform Law Commission to encourage states to update their archaic laws and respond to technological advancements, the Revised Uniform Unclaimed Property Act (RUUPA) defines virtual currency as a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States. The term excludes the software or protocols governing the transfer of the digital representation of value, game-related digital content and loyalty cards (or gift cards). The states that have revised their laws based on RUUPA (Colorado, Illinois, Kentucky, Tennessee and Utah) include the RUUPA definition of virtual currency in their law, and in the definition of “property.” Neither RUUPA nor any of these states otherwise address virtual currency. All states that have included it in their definition of “property”could argue that virtual currency falls within their catchall provision of their laws and is subject to escheat under the dormancy period provided therein, but those statutes require that property be “due and payable.” If virtual currency is not redeemable for cash, is it ever due and payable?

Virtual currency was designed to be decentralized and to operate outside the regulatory space. Owners are often anonymous and are the only persons able to transfer the virtual currency, with the use of a unique identifier, password, or “private key.” It is unknown whether a financial institution, exchange, or an online wallet provider can be deemed a holder if it cannot access and/or transfer the virtual currency to the state. How could the entity have possession or control over it? Can the state even assert a right to custody? Does the state have the technology to maintain it as virtual currency, or would the holder need to covert or liquidate the virtual currency first? Would the holder be indemnified by the state for any losses suffered by the owner?

Per NY A 8314, the comptroller is authorized to sell virtual currency on any established exchange, or by any means he or she deems advisable, as soon as he or she deems practicable, and in his or her discretion. Liquidating virtual currency upon receipt means that a claimant would only be entitled to the proceeds of the sale at the time of liquidation, and would not entitled to any appreciation in value. This could be viewed as an unconstitutional taking under the US Constitution. Additionally, it would be difficult to claim ownership of the virtual currency once it is liquidated by the state.
The bill also directs the comptroller to promulgate rules and regulations that will establish when electronic communication constitutes “written contact” for the purposes of tolling the dormancy period.

We will continue to monitor this bill and provide timely updates on the status of the bill, as it is expected to move forward.



[1] For the full text of NY A 8314, or to check on the status of the bill, see: https://nyassembly.gov/leg/?default_fld=&leg_video=&bn=A08314&term=2019&Summary=Y&Actions=Y.

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