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Unclaimed Property Abroad: A New Target For Auditors?

By Valerie M. Jundt, Managing Director – Keane National Consulting & Advisory Group

Reflecting our global economy, many shareholders of today’s public corporations live in countries other than the United States.

Keane has observed that this population can be significant for some firms, reaching as high as 10% of the investor population. As with all domestic shareholders, international owners must maintain their contact information and activity levels to prevent their shares from becoming dormant. However, when foreign shares become dormant, the challenge of locating the lost or disconnected shareholders outside of the United States is much more complex.

Challenges to Locating Foreign Shareholders

Awareness is the primary issue. Like the majority of US citizens, most foreign shareholders are simply unaware of unclaimed property laws and the risk that their U.S.- based investments may escheat. Often, these owners just need help understanding the issue. For domestic shareholders, Keane has helped companies address this concern for years through due diligence and communication programs designed to alert the shareholder and avert escheatment.

However, communicating with shareholders in non-English speaking countries is far more difficult as the traditional research methods and English-based communications programs are largely ineffective. This simple fact has led to the escheatment of millions of foreign accounts.

More problematic than the language barrier is the nature of the account data and the quality of the research resources. Unlike domestic accounts, most foreign accounts lack Social Security Numbers. SSNs are an important data point that streamlines the owner location process in the United States. Without this unique identifier, research must be conducted based on other information, such as previous names, addresses, and when available – other vital statistics such as date of birth.

However, most foreign countries lack any type of centralized identification numbers and many have no electronic records of any kind. Physical archives are the common standard abroad. Even then, this information is kept out of the public domain for 50 to 100 years in many places and can only be accessed by licensed investigators or genealogists due to strict personal privacy laws.

Combined, these factors significantly limit the effectiveness of traditional resources and research techniques that are commonplace in the US. Rather, locating foreign shareholders requires in-depth genealogical research, which often consists of searching through the archives of churches, courthouses, and town halls to find a missing address, or just the next clue needed to locate the investor. Further, the research is so specialized that it typically requires a specialist who concentrates on a specific country to do the work.

To help our clients overcome these challenges, Keane recently launched a new customizable service for locating and communicating with foreign account owners. The service leverages Keane’s extensive network of researchers and professional genealogists around the globe that can locate missing shareholders, shareholders, and account owners. Through this network research can be conducted in more than 70 countries.

The Next Red Flag for Auditors?

Large populations of inactive foreign accounts or shareholders can signal a red flag to auditors and increase audit exposure. Aside from simply locating investors whose shares are at risk of escheatment, an organization’s overall level of unclaimed property compliance can be improved through stronger internal controls by being proactive and locating foreign owners.

While each of these auditors has their own unique tactics, strategies, and processes; you can be sure that they will be examining the status of your foreign investor base as part of an audit. Foreign investors and their shares have become “low-hanging fruit” for the auditors and the states they represent.

Proactive measures can also offer compliance and risk reduction benefits to companies currently facing an audit or participating in a voluntary disclosure program, such as the one being offered in Delaware. While Delaware has had tremendous response to their VDA program, they also benefit greatly from the escheatment of foreign shareholders due to the abundance of companies incorporated there. As a reminder, a foreign investor’s shares would escheat to the state of incorporation if they are unable to be found.

Keane clients are already realizing the value in locating foreign shareholders. Keane was able to locate owners in 24 individual countries across North America, Eastern & Western Europe, South America, Africa, Asia, and Australia. In total, millions of dollars in assets were prevented from escheating. Aside from the compliance value, the company saw significant return on investment as a result of the volume of accounts retained.

We understand that foreign account owners face a distinct disadvantage when it comes to unclaimed property. We hope that companies with foreign shareholders will take advantage of the opportunity to preserve these valuable relationships and protect their assets from escheatment.

For more information on locating foreign shareholders, please contact Valerie Jundt vjundt@keaneup.com or call 1.800.848.8896.