The problem of unclaimed money/assets (from bank deposits, shares, mutual funds, insurance, pensions and government saving schemes) is not unique to India. It happens all over the world. But most developed countries have found ways of dealing with it in a fair and equitable manner. India has done only half the job. Since 2000, starting with the ministry of corporate affairs (MCA), unclaimed financial assets are being pooled after 7-10 years and controlled by different financial regulators. There is no effort to trace the rightful owners. On the contrary, when the owners attempt to claim their funds, they have to run the gauntlet of tedious processes, tied up in complex red-tape.
Like in India, all developed countries require unclaimed public funds to be transferred to a government agency after a specific period. But the primary objective in most cases is to “reunite unclaimed property with the rightful owner.” None of the Indian regulators makes an effort to reach the rightful owners or even to enable the true owners or their heirs to track, search and make valid claims in a simple manner. Instead, the money is pooled in investor/depositor education and awareness funds and the only focus is to control the pools and use the interest earned on ineffectual financial literacy initiatives. It is instructive to look at how other countries deal with unclaimed public funds and why we need to demand better from our own government.
The US Way
Despite a complex federal structure, with law-making powers of each state, the US has put in place multiple systems and processes for ensuring that owners get their rightful money. There is no central database, but a government website for unclaimed money (https://www.usa.gov/unclaimed-money) provides links to a number of recognised organisations at the Federal and state level to help track a wide array of unclaimed assets.
In addition, the National Association of Unclaimed Property Administrators NAUPA, comprising ‘unclaimed property administrators’ representing the governments of all 50 states of America, provides free assistance to the public to search for unclaimed assets. It also helps several other countries set up claims processes.
NAUPA engages in regulatory advocacy and for laws to ensure that unclaimed assets are returned to owners. Its definition of unclaimed assets covers unclaimed tax returns, mining rights, safe deposit boxes, security deposits, uncashed bank and traveller cheques, etc, in addition to bank deposits, shares, interest, dividend, insurance and other issues that worry us in India.
NAUPA, in turn, endorses MissingMoney.com (https://www.missingmoney.com/en/) an organisation that started in 1999 to help state governments gather and track lost property such as uncashed paychecks, stocks and bonds and safe deposit box contents. The states share information with MissingMoney.com, which also handles claim verification and payment processes. It has processed several billion dollars of unclaimed money, over the years.
For instance, the California government’s website allows people to search and claim forgotten assets such as savings accounts, checking accounts, certified checks, drafts, dividend and interest payments, wages, pension funds, stocks, mutual funds, bonds, debentures, certificates of deposit, insurance policies, estates, trust funds, escrow accounts and even mineral rights or royalty payments. Real estate is excluded from its ambit. In California, unclaimed assets are transferred to the state controller’s office after adequate effort to connect with owners. The state permits investigators/heir finders to help people to locate their assets and file valid claims, but has strict rules governing their fees and operations.
The UK System
The United Kingdom enacted the Dormant Bank and Building Society Accounts Act in 2008, which operates the ‘Dormant Accounts Scheme’ as a purely voluntary effort backed by the government but led by industry. Banks and building societies transfer money to the dormant account scheme if unclaimed for at least 15 years, despite efforts to trace the owner. Only cash is transferred to the scheme and non-cash assets are first converted to cash. However, it provides that owners will “always be able to reclaim the full amount owed to them, and the transfer and reclaim process will be tax neutral.”
The scheme is administered by the Reclaim Funds Ltd which works with industry associations of banks and building societies. It ensures that at least 40% of the unclaimed money is retained for meeting claims, while the rest can be released for social and environmental causes across the UK via the National Lottery Community Fund. After the success of an initial voluntary effort limited to banks and building societies, a wider range of unclaimed assets across pension, insurance and securities are to be brought into its ambit.
The Canadian System
In Canada, bank deposits or negotiable instruments held by federally regulated banks are transferred to the Unclaimed Properties Office if they remain inactive for 10 years and the owners cannot be contacted in that time. There is a legal obligation to make the effort to reach out to the owners of those funds, through written notifications after two, five and nine years of inactivity. The Unclaimed Properties Office holds such funds for decades and provides a simple and free online mechanism to file claims. It also provides a reporting tool for financial institutions to report forgotten assets to the Unclaimed Properties Office.
In contrast, India has five different entities collecting unclaimed assets; the four financial regulators and the senior citizens welfare fund (which pools unclaimed provident funds and Central saving schemes). There is no effort—legally mandated or otherwise—by any of them to contact the real owners; nor is there an effort to create a robust and searchable database that will allow true owners or heirs to track the funds and file claims. So far, only the Investor Education and Protection Fund (IEFP) has a comprehensive website; but the claims effort remains cumbersome leading to the proliferation of agents offering a claims service for high fees.
The value of unclaimed assets in India, at well over Rs82,000 crore, is large enough to warrant a legal effort to reunite rightful owners or claimants with their money. This would best be done through a Central regulation to put in place a comprehensive database of unclaimed assets and their owners across insurance, pensions, banks deposits, stocks, mutual funds and government savings schemes. We need standard operating procedures (SOPs) and processes to be framed for filing and verifying claims online and a mechanism to investigate and resolve conflicting claims or simple disputes, without long-drawn legal processes.
Regular readers of this column would remember that on 12 August 2022, the Supreme Court of India (SC) issued notices to various regulators in connection with a public interest litigation (No 185/2022) that I had filed through the generous help and support of senior counsel Prashant Bhushan. The bench of justice S Abdul Nazeer and justice JK Maheshwari also offered a ray of hope when it issued notices to various ministries and financial regulators, returnable in eight weeks. Our key prayer to the apex court was to issue a writ of mandamus asking the government and its ministries to set up a central database and process to allow people to claim money that is rightfully theirs.
Only a court order or a government decision will set the ball rolling on the creation of a central database; but that is only the beginning. It will require many legislative changes to put in place an automated system to file information, verify claims, notarise documents, investigate conflicting claims in case of multiple heirs and, finally, release funds in a time-bound manner.
For instance, the creation of a robust central death registry, which mandates every municipal authority to upload death certificates in a specified format, can hasten the process of contacting a registered nominee and transferring funds through an online verification process. Ideally, the central authority that will run this database will be empowered to incorporate and simplify expensive and time-consuming legal process such as verifying succession/legal heir certificates and Wills.
It requires significant work to set up a central authority to handle unclaimed assets. But, for once, there is no shortage of money. The funds for putting in place the best possible system could come out of unclaimed public money that is being squandered on meaningless initiatives and overheads.