The Delaware Office of Unclaimed Property (OUP) published the administrative policy document Guidelines for the Reporting of “Illicit Property.” Dated June 2025, the policy appears to supplement basic guidance on the reporting of illicit property that was previously published in the OUP Holder Handbook.
According to the policy, “illicit property” is property that “has been identified as having been deposited, transferred, or otherwise obtained by a person using a false identity, including but not limited to fraudulent or illegal activity.” The policy applies when a holder “reasonably believes” that fraud or illegal activity has occurred and “not merely where … [that] activity is suspected.” A holder may determine that it has a reasonable belief that fraud or illegal activity has occurred based on an analysis “of an owner name, address, or other information in the holder’s … records that the holder reasonably believes is suspicious, fraudulent or provided or procured illegitimately or illegally.”
How does this policy impact a holder’s Delaware reporting obligations?
If the holder believes that it is in possession of illicit property, then the policy requires holders to undertake actions outside of Delaware’s normal unclaimed property reporting requirements. First, the policy directs holders to either contact law enforcement agencies if any potential fraud or illegal activity is suspected and turn the property over to law enforcement or attempt to return the illicit property “to the source.”
Second, if holders do report illicit property to Delaware, the policy announces a separate and specialized reporting requirement for illicit property. The policy instructs holders to “not knowingly comingle and include Illicit Property in a report that includes other property.” The policy further states that holders failing to comply with the policy’s illicit property reporting requirement may be deemed to not have reported in good faith, and that Delaware may not be required to indemnify holders under Del. Code Ann. Tit. 12, § 1153 as a result.
Finally and perhaps most crucially to holders that are domiciled in Delaware, the policy instructs holders “not to alter or delete owner name and address information, even if there are questions concerning the legitimacy of the owner’s name, last known address, or other information, for the purpose of inducing reporting to Delaware under the First or Second Priority Rules.” Holders are further directed not to transfer illicit property from a non-Delaware-domiciled holder to a Delaware-domiciled holder for the same reason. Accordingly, the policy seeks to alter the sensible practice followed by certain holders of deeming fraudulent property to be owner-unknown and therefore reportable to the holder’s state of domicile rather than to the primary-rule state in the name of the fraudster. This attempt to modify established holder practice raises a number of questions and concerns for holders.
How does this policy impact reporting to other states?
The OUP cannot dictate holders’ compliance with the unclaimed property laws of states other than Delaware, and the policy is careful to (correctly) note that it is “not meant as a substitute for a holder’s own legal counsel, or compliance with all applicable case law, statutes, and published regulations.” The policy nonetheless instructs holders that “[w]here the last known address of the owner of Illicit Property is in a jurisdiction with an applicable unclaimed property law, the Illicit Property should be reported to that state, notwithstanding questions concerning the legitimacy of the owner’s last known address.”
A holder that opts to follow this instruction would report suspected illicit property to the primary-rule state based on the purported owner’s last known address, even if the holder believes that information to be invalid and inaccurate. Doing so may enable the fraudster to recover the property from the state, exacerbating the original issue that the holder was seeking to mitigate by designating the property as owner-unknown.
In addition, the primary-rule state may not have the same guardrails in place as Delaware to allow holders to designate property as illicit. We are not aware of another state that has published guidelines similar to Delaware or that otherwise requires a separate reporting process. The policy may frustrate holders’ good-faith efforts to prevent fraudsters from receiving property that does not belong to them.
Alternatively, assuming that continuing to hold the fraudulent property is not a valid option under the circumstances, a holder could refuse to report property to the primary-rule state and instead turn the funds over to law enforcement, though this would obviously raise its own set of practical considerations (including how to turn over intangible property).
Is the policy legally enforceable?
Section 1132 gives the OUP through the State Escheator the power to “make such rules and regulations as the State Escheator may deem necessary to administer and enforce [Delaware’s unclaimed property laws].” However, this policy was not adopted pursuant to Delaware’s Administrative Procedures Act and may be considered an underground rule or regulation, which would not be enforceable and would be subject to challenge. The policy may instead be viewed as an informal pronouncement of the OUP’s interpretation of Delaware law, which is not binding. The policy creates additional legal obligations for holders to identify and report the illicit property that arguably is not expressly authorized by Delaware’s unclaimed property statutes or regulations. In addition, the policy purports to dictate a holder’s escheatment practices as it relates to other states, which exceeds the OUP’s authority.
Given the policy’s statement that the OUP will not provide additional guidance or any legal advice about the policy, a holder may choose to disregard the policy because it does not reflect binding rulemaking by the state, though this approach may result in an eventual dispute between the holder and state and could involve an assessment of interest or penalties by the state or initiation of an examination. In addition, the OUP may assert that it is not required to indemnify a holder that reports in contravention of the policy, though it is unclear that Delaware has a proper basis to refuse to indemnify in this situation given the language of the statute – i.e., once a holder pays or delivers property to the state in good faith, Delaware “shall defend the holder against the claim and indemnify the holder against any liability on the claim.” The statute does not include any carveout or exception for property reported to Delaware under the secondary rule based on a holder’s determination that its books and records do not reflect the actual name and address of the property owner due to fraud.
A holder could also decide to more proactively challenge the policy’s validity rather than wait for the State Escheator to make a determination that the holder is not in compliance if the holder believes that following the policy would create hardships or would result in problematic outcomes, such as the reporting of property to a state in the name of a fraudster rather than to Delaware as owner-unknown.
What happens to holders that already reported illicit property to Delaware?
It is unclear whether holders would face consequences for reporting illicit property to Delaware on an owner-unknown basis before the June 2025 policy date. In addition, Delaware may choose not to indemnify holders that fail to comply with the policy. It is possible that the state will seek to withhold indemnification from property that was reported before June 2025. The policy is silent on these points, and given the OUP’s statement that it will not provide additional guidance, holders may not receive a satisfactory answer on whether their past compliance creates future noncompliance.
Please do not hesitate to contact us to discuss how the OUP’s new policy may impact your compliance efforts. We also continue to monitor other states’ efforts to enact policies surrounding the reporting of illicit property similar to Delaware’s policy.
If you have any questions, or would like additional information, please contact one of the attorneys on our Unclaimed Property team.
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