Wednesday, October 13, 2010

Unclaimed Property Inferno Comes to Corporate Paradisio: Cayman Islands and the Dormant Accounts Law

Earlier this summer, the government of the Cayman Islands passed "A Law to Provide for the Monies in Dormant Accounts to be Transferred to the General Revenue of the Islands" -- in other words, an unclaimed property law (Law 28 of 2010).   Generally, accounts held in financial institutions that have been dormant for 6 years, are to be reported and remitted to the government, where they are thereafter held for the "general revenue of the Islands."  (Dormant Accounts Law, Sections 4(1) and 7(1).  As with most U.S. unclaimed property laws, once the financial institution has turned over the funds, the owner no longer has a claim against the financial institution, but rather, must try to claim the funds from the government.  (Dormant Accounts Law, Section 9(1)(a) & (b)). 

Another regular feature of U.S. escheat laws that appears in its Cayman counterpart is due diligence requirements -- i.e., attempts by the holder to contact the owner before turning over seemingly unclaimed money.  The Cayman law, however, has a unique feature.  In those instances where "the financial institution has been instructed by the dormant account holder not to correspond with or contact the dormant account holder" the financial institution is required to publish notice of the "nature and type of such dormant accounts" in "one or more daily newspapers circulating in the Islands . . . [and] any other media as the financial institution deems necessary."  (Dormant Accounts Law, Section 6(1)).

Unsurprisingly, some financial institutions and others are none too happy about the new law, including the publication requirement.  According to one legislative committee, the requirement of publishing account details “would be a great cause of consternation for most banks and trust companies involved in private wealth management and would be a deterrent to any clients of the licensees wanting to have their affairs managed through the Cayman Islands . . . ."

Also interesting is the legislative committee's response to breadth of the new law (which is actually narrower than many U.S. states' laws), wherein the committee opined that because the law “could cover any type of asset or property held by a financial institution ... the logistics of monitoring such assets for the purposes of dormancy are inconceivable . . . ."  Accordingly, the committee intends to suggest a new law that will be designed to cover "truly dormant" property, but not affect long-term investment vehicles.  We will review the new law when it's enacted.  In the meantime, the Cayman kerfuffle is a valuable reminder to those who deal with unclaimed property that the scope and requirements of the express terms of the law are generally surprising to those who don't come across them on a regular basis. 

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