Financial industry alarmed by new Bill on unclaimed assets

CBK governor, Prof Njuguna Ndung’u. Parliament is about to pass a Bill that will create a new government agency, the Unclaimed Assets Authority, with powers to take over all unclaimed assets sitting in dormant accounts with either commercial banks or insurance companies or unpaid dividends sitting on the books of quoted companies. Photo/FILE 

By JAINDI KISERO, jkisero@ke.nationmedia.com
Posted  Sunday, July 24  2011 at  10:23

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If you migrated from Kenya and left a fixed deposit account in a bank you have not transacted for a long time — dividends you have not claimed for years or a life insurance policy that matured while you were way — move quickly and claim your money before a new law now pending in Parliament catches up with you.

Parliament is about to pass a Bill that will create a new government agency, the Unclaimed Assets Authority, with powers to take over all unclaimed assets sitting in dormant accounts with either commercial banks or insurance companies or unpaid dividends sitting on the books of quoted companies.

If you migrated overseas a long time ago and left behind a deposit with a utility company such as Kenya Power or Nairobi Water Company Ltd, the monies will be deemed as abandoned assets under the new law and handed over to the new government agency.

Monies kept for long periods in safe deposits boxes with commercial banks will also be declared abandoned and remitted to the new government agency.

The list of assets to be treated as unclaimed assets and handed over to the government agency include mature life insurance policies, travellers cheques, money orders, and bankers cheques which have not been cashed for long periods.

Perhaps the most controversial aspect of the Unclaimed Assets Bill — a private members motion by Laisamis MP Joseph Lekuton — is the proposal to grant the proposed new government agency powers to sell the abandoned assets at public auction to the highest bidder after only three years.

The implication of this is that an owner or beneficiary whose assets are handed over to the proposed authority shall not be entitled to interest or dividends on the assets once they have been liquidated.

Banks and insurance companies are also alarmed at the intention to make the proposed law retroactive.

If it is passed, the new law would apply even to dormant bank accounts and matured life policies that existed before the new law comes into effect.

The Unclaimed Assets Bill was tabled for first reading on May 10, 2011.

On Thursday, the leader of government business and vice-president Kalonzo Musyoka listed it among the urgent Bills to be processed during the current session of Parliament.

This action has sent shock waves through board rooms of big banks and insurance companies who are uncomfortable with the prospect of having to hand over unclaimed assets to an authority under the control of political appointees.

Their point is that the Bill as as presently crafted may force them to hand over assets to the new government agency, yet they would remain liable to any owners who emerge later to lay claim to the assets.

Under the Limitation of Actions Act, assets can only be treated as abandoned after a period of seven years. Banks and insurance companies maintain that it is a bad Bill because it seeks to circumvent the law of contract by breaking the six-year limitation.

Industry sources have told the Sunday Nation that players are planning meetings to lobby for amendments to the Bill to introduce a longer period after which unclaimed assets can be declared abandoned.

They will also be seeking an amendment to state clearly that once assets have been handed over to the authority, the owners cannot claim anything from them.

Kenya has not had a comprehensive law governing the handling and disposition of unclaimed assets.

Indeed, the country does not have so much as a rudimentary system of monitoring unclaimed assets sitting in dormant bank accounts or dividends that remain unpaid for years.

In 2007, then minister for Finance Amos Kimunya amended the CMA Act by providing that any dividend unclaimed for a period of seven years must be transfered to the Investors Compensation Fund. However, the compensation fund is yet to take root.

Initially, it was estimated that the value of unclaimed assets sitting within the financial system, the corporate sector and even utilities was in the region of Sh200 billion. But an empirical study by a government task force on unclaimed assets in 2007 came up with a much lower figure.

The survey put the total unclaimed assets at Sh9.1 billion. Of this, banks reported Sh7.4 billion, listed companies Sh1.5 billion, insurance companies, Sh283 million, one pension fund (NSSF) Sh243 million and one utility (Kenya Power) Sh66.8 million.

The survey did not receive sufficient response from insurance companies.

Furthermore, the survey excluded non-financial assets such as land and property and found significant under-reporting of unclaimed assets by government agencies like the Public Trustee.

The biggest contention is how the Bill defines an unclaimed asset and how it shortens the period for which monies left in dormant accounts can be declared unclaimed.

While CMA Act stipulates that dividends can only be designated as unclaimed after a period of seven years, the cut-off point stated in the Bill is much shorter. In the case of dividends, a listed company would have to immediately hand over to the government agency dividends not claimed after three years.

Cheques, bankers’ cheques, and drafts that remain outstanding for two years after they were payable will be presumed abandoned and handed over to the government agency.

In the case of demand, savings or mature deposits, the Bill proposes that money and value must be presumed abandoned and designated as unclaimed unless the owner has within five years communicated in writing with the bank.

Under the Bill, any funds held or owing under any life or endowment insurance that has matured or terminated will be presumed abandoned if unclaimed after two years. Any payment made pursuant to a court order which remain unclaimed for more than two years from the date of the order will be presumed to be abandoned.

Wages, unpresented payroll cheques, allowances, bonuses and terminal benefits that remain unclaimed by the owner for more than one year after becoming payable shall be presumed to be abandoned.

The Bill proposes that assets that remain unclaimed for more than two years after the expiry of the rental period will be presumed abandoned.

Clearly, the regime proposed by the new Bill deviates from international practice in major ways.

In Canada unclaimed balances from federally regulated banks and trust companies are managed for 10 years at the original holding institutions.

After expiry of this period, they are remitted to the bank of Canada which manages them at the Central Bank for an additional 30 years before transferring them to ordinary government revenue.

In Ireland, banks are obliged by law to transfer the balance of any account that has not had a customer-initiated transaction for 15 years to the National Treasury Management Authority.

In the United Kingdom, the Dormant Bank and Building Society Accounts Act 2008 describes a dormant account as an account on which there have been no customer-initiated transactions for 15 years.

Unclaimed property laws in the United States provide for reporting periods each year whereby unclaimed bank accounts, stocks, insurance proceeds, utility deposits and uncashed cheques are reported first to the individual state’s unclaimed property office.

Thereafter, the claims are published in a local newspaper and finally turned over to the state for safe keeping until its rightful owner makes a claim.

Depending on the laws of the specific state, the money may be held in perpetuity.