Background

In June 2025, the Delaware Office of Unclaimed Property published an administrative policy, Guidelines for the Reporting of “Illicit Property,” addressing how holders should report property they reasonably believe someone deposited, transferred, or obtained using a false identity.¹ Last year, Reed Smith reported on that policy and the practical pitfalls of following it. As that alert explained, the most troubling instruction was Delaware’s direction to report suspected-fraud property to other states in the name and at the address of the false identity — which risked having holders make knowingly false statements to government agencies and facilitate the very fraud the policy targeted. The alert also flagged a threshold defect: Delaware simply posted the policy online, without the notice-and-comment rulemaking the Delaware APA requires.²

Delaware pulls the policy

Delaware has now removed the policy from its website. During a recent panel session on fraud-related unclaimed property, a Delaware Office of Unclaimed Property representative acknowledged that the June 2025 guidance produced “more questions than answers” when put into practice, and that a "well thought out plan" did not translate into a workable process. ³ The state signaled that its next steps include developing clearer guidance — potentially through regulations or statutes.

Two points are particularly relevant for holders. First, the policy never carried the force its language implied. Because Delaware adopted it outside the APA — without a proposed regulation, public notice, or comment period — it was never enforceable. Second, while Delaware’s specific reporting protocol is gone for now, the underlying question remains: what should holders do with property they reasonably believe results from fraud? The issue is now squarely on NAUPA’s agenda.

What the NAUPA draft would require

The NAUPA Fraud Committee is drafting a model template to give the states a common framework. It remains a work in process and the language below is in draft form, but the operative provisions — quoted from a draft presented to state administrators — are now visible.⁴

Definition. The draft defines illicit property as “unclaimed property associated with an owner utilizing a false identity where a holder has a reasonable belief that fraud or illegal activity is likely involved.” It applies “when a holder reasonably believes an owner provided a false name, identity, and/or address, and where the holder has a reasonable belief that fraud or illegal activity has occurred regarding the property.” The draft adds that this “belief can stem from an analysis of owner information the holder deems suspicious, fraudulent, or illegally procured,” and “does not apply merely where owner information is inaccurate, missing, or non-existent.”

Where to report. The draft preserves the federal priority framework: “[P]roperty is first reported to the state of the owner’s last known address, even if the legitimacy of the address is questioned (First Priority Rule).” It also directs holders “not to alter or delete owner information, or transfer property between entities, for the purpose of inducing reporting … under either priority rule.”

Pre-reporting steps. “Prior to reporting Illicit Property … holders should first contact the appropriate state or federal law enforcement agency if fraud or illegal activity is suspected and turn the property over, or attempt to return the property to the source. A documented attempt to contact law enforcement with a summary of outcome, or documentation that law enforcement declined to accept a report, shall satisfy this requirement.”

Separate reporting. The draft would require separate reporting, providing that “holders must not knowingly commingle [illicit property] with other property in any report,” and “must submit a separate, specialized ‘Report of Illicit Property’ to the proper state.” Reporting also “requires a written notification … that includes the holder’s identification information, the aggregate amount, and a disclosure of the basis for the reasonable belief of fraud.” For coding, the draft uses a NAUPA III report type of “Illicit Property.”

Unresolved risks for holders

While a uniform model presents potential benefits, the draft, in its initial form as presented, carries forward the same exposure that made Delaware’s policy so difficult in practice.

1. Notifying authorities — and “returning” property to the source. The draft does not appear to define the “appropriate law enforcement agency” holders should contact, and the instruction to “return the property to the source” raises even greater concerns. By the draft’s own logic, the “source” is a suspected fraudster. As Reed Smith’s prior article explains, a holder that returns funds it reasonably believes are the proceeds of identity theft or wire fraud may expose itself under federal money-laundering and aiding-and-abetting principles — or risk violating an Office of Foreign Assets Control (“OFAC”) hold.
2. Reporting to a suspect address. The draft directs holders to report to the address of record “even if the legitimacy of the address is questioned.” Where that address is a fabrication, the draft effectively tells the holder to report — using information it knows to be questionable — to whichever state the fraudster named, rather than to the holder’s state of incorporation as owner-unknown. A state that has not adopted matching safeguards may simply make the funds easier for the fraudster to claim.
3. No safe harbor. Like Delaware’s former policy, the draft offers holders no indemnification and no assurance of “good-faith” treatment; it points holders back to existing statutes and their own counsel.

Recommended steps for holders

• Treat Delaware’s protocol as revoked and await further guidance in reporting to Delaware.
• Review and, where needed, update internal procedures for identifying, segregating, and handling suspected-fraud property.
• Before contacting law enforcement or “returning” property to a source, consult counsel on risks, including potential criminal exposure.
• Coordinate with counsel before reporting property tied to a suspect address.
• Monitor the NAUPA model and state-by-state adoption, and revisit your reporting playbook once a standard is finalized.

Conclusion

By pulling its illicit property guidance, Delaware has acknowledged that the policy created more questions than it answered. NAUPA’s Fraud Committee is now drafting a model for state adoption, but preliminary drafts raise key questions for holders: which authorities to contact, whether doing so creates new liability, and how to report when the only address of record appears fraudulent. Until these questions are resolved, holders should review their internal procedures for handling suspected-fraud property and continue to monitor changes in individual state policies as this states’ model takes shape.

1. Guidelines for the Reporting of “Illicit Property,” Delaware Office of Unclaimed Property (published June 2025).2. Del. Code Ann. tit. 29, § 10101 et seq.3. Remarks of the Deputy Director, Office of Unclaimed Property, Delaware Department of Finance on the “Dirty Assets, Clean Reports, Cleaner Returns: Navigating Reporting Expectations for Fraud-Related Property and Protecting Departments Against Fraud” panel, National Association of State Treasurers (June 16, 2026).4. NAUPA Draft Illicit Property Reporting Template (draft, in process). Quoted provisions are in draft form and subject to change; bracketed placeholders (e.g., state name and email address) appear in the draft. Holders should check with the relevant state before selecting an “Illicit Property” report type.

Client Alert 2026-136