On October 11, California enacted SB 822 amending its Unclaimed Property Law to clarify that “digital financial assets,” as defined in Cal. Fin. Code § 3102(g), are a form of intangible property subject to escheat. This law mandates that digital financial assets held or owed by a business association escheat to the state if they remain unclaimed by the owner for more than three years, based on either the date a mailed or electronic communication is returned undelivered or the date of the last “act of ownership interest” by the owner in the digital asset account if the owner (i) does not receive written or electronic communications from the holder of the assets, or (ii) the holder does not have the means of systematically tracking or monitoring the nondelivery of those communications.

The law specifies that an exercise of an “act of ownership interest” includes transactions such as buying or selling digital assets, depositing or withdrawing funds, electronically accessing the account, conducting activity with respect to other property the owner holds with the business, or any activity that “reasonably demonstrates” the owner’s awareness of the property. The amendments introduce notice requirements for holders to give to owners before transferring the assets to the state controller, and reporting requirements to the state.

The law also introduces and defines “private key” as “a unique element of cryptographic data used for signing transactions on a blockchain.” The law requires holders with only a partial private key to obtain the requisite number of keys to transfer the asset to the state within 60 days of determining the asset’s eligibility for escheatment. Until such time as the holder obtains the requisite number of private keys, the law states “the holder shall maintain the digital financial asset.”

Holders are required to transfer escheated digital financial assets to the controller’s cryptocurrency custodian within 30 days after the final date for filing a report to the controller. The controller may convert digital financial assets to fiat currency, but only between 18 and 20 months after the report is filed. A person making a valid claim for the digital financial assets is entitled to receive them from the controller, but if they have been converted, the person is entitled to receive the net proceeds received by the controller from the sale. Finally, the law authorizes the controller to select one or more licensed custodians for managing escheated digital financial assets, considering criteria such as storage security, private key management, compliance, reporting, and processes for reuniting owners with their assets.