BILL REQ. #:  S-4633.1 

Read first time 01/28/08.   Referred to Committee on Financial Institutions & Insurance.

     AN ACT Relating to exchange facilitators; reenacting and amending RCW 42.56.270; adding a new chapter to Title 19 RCW; creating a new section; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) The legislature finds that presently persons and entities who facilitate like-kind exchanges pursuant to section 1031 of the internal revenue code and the treasury regulations promulgated under that section are not monitored and licensed as exchange facilitators. The purpose of this chapter is to create a law that imposes safeguards ensuring that persons or entities acting as qualified escrows, qualified trusts, qualified intermediaries, and exchange accommodation titleholders as defined under treasury regulation section 1.1031(k) through 1(g)(3) and (g)(4) and internal revenue service revenue procedure 2000-37, respectively, are regulated while they are acting as exchange facilitators in exchanges under section 1031 of the internal revenue code.
     (2) The legislature further finds that exchange facilitators must be licensed, thereby providing taxpayers with legal recourse if the exchange facilitator fails to fulfill the facilitator's material contractual obligations to deliver property or funds to a taxpayer or misappropriates taxpayers' funds. This chapter ensures users of exchange facilitator services that their exchange facilitator has been duly licensed in this state and that there are legal channels to follow in the event of a material breach of contractual provisions to deliver property or funds to a taxpayer or misappropriation of funds by the exchange facilitator during the exchange process. This chapter also requires that exchange facilitators possess a level of competency defined in this chapter.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Department" means the department of financial institutions.
     (2) "Director" means the director of financial institutions.
     (3)(a) "Exchange facilitator" means a person who:
     (i) For a fee facilitates an exchange of like-kind property by entering into an agreement with a taxpayer by which the exchange facilitator acquires from the taxpayer the contractual rights to sell the taxpayer's relinquished property located in this state and transfer a replacement property to the taxpayer as a qualified intermediary as that term is defined under treasury regulation section 1.1031(k) through 1(g)(4), or enters into an agreement with a taxpayer to take title to a property in this state as an exchange accommodation titleholder as that term is defined in internal revenue service revenue procedure 2000-37, or enters into an agreement with a taxpayer to act as a qualified trustee or qualified escrow holder as those terms are defined under treasury regulation section 1.1031(k) through 1(g)(3);
     (ii) Maintains an office in this state for the purpose of soliciting business as an exchange facilitator; or
     (iii) Holds themselves out as a qualified intermediary as that term is defined under treasury regulation section 1.1031(k) through 1(g)(4) in any manner including but not limited to by advertising their services or soliciting customers in printed publications, direct mail, television or radio advertisements, telephone calls, facsimile transmissions, or other electronic communications directed to the general public in this state; and
     (iv) Is not the taxpayer or disqualified person as that term is defined under treasury regulation section 1.1031(k) through 1(k) seeking to qualify for the nonrecognition provisions of section 1031 of the internal revenue code of 1986, as amended.
     (b) "Exchange facilitator" does not include any financial institution as defined in this section or title insurer or title company that is (i) merely acting as a depository for exchange funds and is not facilitating exchanges or that is (ii) acting solely as a qualified escrow holder or as a qualified trustee as those terms are defined under treasury regulation section 1.1031(k) through (g)(3) and is not otherwise facilitating an exchange.
     (c) "Exchange facilitator" does not include advertising for and teaching seminars or classes, or otherwise giving presentations to attorneys, accountants, real estate professionals, tax professionals, or other professionals where the primary purpose is to teach the professionals about tax deferred exchanges or train them to act as exchange facilitators.
     (d) "Exchange facilitator" does not include:
     (i)(A) A qualified intermediary as defined under treasury regulation section 1.1031(k) through (g)(4) that holds exchange funds from the disposition of relinquished property that is located outside the state.
     (B) The exception under (d)(i)(A) of this subsection does not apply when the qualified intermediary maintains an office in this state for the purpose of soliciting business as an exchange facilitator as provided in (a)(ii) of this subsection.
     (C) The exception under (d)(i)(A) of this subsection does not apply when the person holds themselves out as a qualified intermediary as that term is defined under treasury regulation section 1.1031(k) through 1(g)(4) in any manner including but not limited to by advertising their services or soliciting customers in printed publications, direct mail, television or radio advertisements, telephone calls, facsimile transmissions, or other electronic communications directed to the general public in this state;
     (ii) An entity that is owned entirely by a licensed exchange facilitator; or
     (iii) An entity that is owned entirely by the same persons as a licensed exchange facilitator and is used by the licensee to facilitate exchanges or to take title to property in this state as an exchange accommodation titleholder.
     (e) For the purposes of (a)(i) of this subsection, "fee" means compensation of any nature, direct or indirect, monetary or in-kind, that is received by a person or a related person as defined in section 267(b) or 707(b) of the internal revenue code for any services relating to or incidental to the exchange of like-kind property.
     (4) "Financial institution" means:
     (a) Any person doing business under the laws of the state of Washington or the United States, and any federally insured depository institution doing business under the laws of any other state, relating to commercial banks, bank holding companies, savings banks, trust companies, savings and loan associations, credit unions, or real estate investment trusts as defined in 26 U.S.C. Sec. 856 and the affiliates, subsidiaries, and service corporations thereof; and
     (b) Subject to the director's written approval, the exclusive agents of an affiliate of a bank that is wholly owned by the bank holding company that owns the bank.
     (5) "Financial regulator" means a state or federal agency that regulates financial institutions, insurance, or securities.
     (6) "Licensee" means any person duly licensed by this state under this chapter to conduct business as an exchange facilitator.
     (7) "Person" means, in addition to the singular, persons, groups of persons, cooperative associations, limited liability companies, firms, partnerships, corporations, or other legal entities, and includes the agents and employees of such a person.
     (8) "Principal" or "principal stockholder" means any person who controls, directly or indirectly through one or more intermediaries, or alone or in concert with others, a ten percent or greater interest in a licensed exchange facilitator partnership, company, association, or corporation, and the owner of a sole proprietorship.
     (9) "Publicly traded company" means a corporation whose securities are publicly traded on the New York stock exchange, the American stock exchange, or the national association of securities dealers automated quotations tier 1, and the subsidiaries of the corporation.
     (10) "Related company" means any cooperative associations, limited liability companies, firms, partnerships, corporations, or other legal entities owned by a licensee to further the licensee's business as an exchange facilitator and at least ten percent in value of the outstanding stock, shares, or similar certificates of ownership in the related company are owned, directly or indirectly, by or for the licensee.
     (11) "Taxpayer" means the owner of property that is or is intended to be exchanged for the purposes of section 1031 of the internal revenue code.

NEW SECTION.  Sec. 3   (1) A person, unless specifically exempted from this chapter, may not engage in the business of an exchange facilitator without first obtaining and maintaining a license under this chapter.
     (2) A person may not bring a suit or action for the collection of compensation in connection with duties performed as an exchange facilitator unless the plaintiff alleges and proves that he or she was a duly licensed exchange facilitator, or exempt from the license requirement of this chapter, at the time of offering to perform or performing such an act or service regulated by this chapter.
     (3) An exchange facilitator license must be prominently displayed in the exchange facilitator's place of business.
     (4) Every licensed exchange facilitator must at all times have a designated exchange facilitator officer responsible for all activities of the exchange facilitator in conducting the business of an exchange facilitator. A designated exchange facilitator officer, principal, or owner who has supervisory authority over an exchange facilitator is responsible for a licensee's, employee's, or independent contractor's violations of this chapter and its rules if:
     (a) The designated exchange facilitator officer, principal, or owner directs or instructs the conduct or, with knowledge of the specific conduct, approves or allows the conduct; or
     (b) The designated exchange facilitator officer, principal, or owner who has supervisory authority over the licensed exchange facilitator knows or by the exercise of reasonable care and inquiry should have known of the conduct, at a time when its consequences can be avoided or mitigated and fails to take reasonable remedial action.

NEW SECTION.  Sec. 4   (1) Applications for an exchange facilitator license under this chapter shall be in writing and in the form prescribed by the director. The application shall contain at least the following information:
(a) The name, address, date of birth, and social security number of the applicant, and any other names, dates of birth, or social security numbers previously used by the applicant, unless waived by the director;
(b) If the applicant is a partnership or association, the name, address, date of birth, and social security number of each general partner or principal of the association, and any other names, dates of birth, or social security numbers previously used by the members, unless waived by the director;
     (c) If the applicant is a corporation, other than a publicly traded company, the name, address, date of birth, and social security number of each officer, director, registered agent, and principal, and any other names, dates of birth, or social security numbers previously used by the officers, directors, registered agents, and principals unless waived by the director;
     (d) The name, address, date of birth, and social security number of the applicant's designated exchange facilitator officer, and any other names, dates of birth, or social security numbers previously used by the designated exchange facilitator officer;
     (e) A complete set of fingerprints taken by an authorized law enforcement officer for each officer, director, principal, and the designated exchange facilitator officer and for each person who has the authority to deposit, transfer, and disburse exchange funds. The fingerprint information for an officer, director, or principal is not required if the corporation is a publicly traded company; and
     (f) Other information regarding the applicant's or designated exchange facilitator officer's background, financial responsibility, experience, character, and general fitness as the director may require by rule.
     (2) As a part of or in connection with an application for any license under this section, the applicant shall furnish information concerning the identity of the designated exchange facilitator, each officer that will be conducting the business of the applicant in this state, and each person who has the authority to deposit, transfer, and disburse exchange funds held by the applicant. This information must include the fingerprints required in subsection (1)(e) of this section for submission to the Washington state patrol, the federal bureau of investigation, and any governmental agency or entity authorized to receive this information for (a) a state and national criminal history background check; (b) personal history, experience, or business record purposes; and (c) other pertinent facts, as the director may reasonably require. As part of or in connection with an application for a license under this chapter, the director is authorized to receive criminal history record information that includes nonconviction data as defined in RCW 10.97.030. The department may only disseminate nonconviction data obtained under this section to criminal justice agencies. This section does not apply to financial institutions regulated under chapters 31.12 and 31.13 RCW and Titles 30, 32, and 33 RCW or insurers regulated under Title 48 RCW.
     (3) Each applicant for an exchange facilitator's license shall:
     (a) File and maintain a fidelity bond, in an amount of not less than one million dollars executed by an insurer authorized to transact that business in this state and approved by the director; or
     (b) Deposit an amount of cash and securities or irrevocable letters of credit equivalent to one million dollars under the terms and conditions acceptable to the director. The deposit must be made into an interest-bearing deposit or money market account of the facilitator's choice and the interest earned accrues to the facilitator.
     (4) An applicant for an exchange facilitator's license shall:
     (a) Have and maintain a policy of errors and omissions of not less than five hundred thousand dollars issued by an insurer authorized to transact that insurance in this state and approved by the director; or
     (b) Deposit an amount of cash and securities or irrevocable letters of credit equivalent to five hundred thousand dollars under the terms and conditions acceptable to the director. The deposit must be made into an interest-bearing deposit or money market account of the facilitator's choice and the interest earned accrues to the facilitator.
     (5) An exchange facilitator may maintain a bond or insurance or deposits in greater amounts than required in subsections (3) and (4) of this section.
     (6) If the director determines that the bonds or insurance are not commercially, reasonably available, the director may waive or modify the requirement for the bonds or insurance for a period of time to be determined by the director. Any waiver or modification must be made by rule.
     (7) The bonds or insurance required in this section may not be canceled without thirty days prior notice to the director. If the licensee has approved deposits in lieu of the bond or insurance, those deposits may not be withdrawn without thirty days prior notice to the director. The director must suspend the license of the licensee unless the licensee has secured an adequate replacement for the required amount of bonds, insurance, or deposits.

NEW SECTION.  Sec. 5   The director or any person claiming to have sustained damage by reason of the failure of an exchange facilitator to comply with this chapter, may file a claim against the exchange facilitator and seek to recover damages from the bonds, insurance, deposits, or letters of credit required in section 4 of this act.

NEW SECTION.  Sec. 6   (1) The director shall issue and deliver an exchange facilitator license to an applicant if, after investigation, the director makes the following findings:
     (a) The applicant has complied with section 5 of this act;
     (b) Neither the applicant, any of its principals, or the designated exchange facilitator have had a license issued under this chapter or any similar state statute suspended or revoked within five years of the filing of the present application;
     (c) Neither the applicant, any of its principals, or the designated exchange facilitator officer have been convicted of a gross misdemeanor involving dishonesty or financial misconduct or a felony within seven years of the filing of the present application;
     (d) The designated exchange facilitator officer (i) is an attorney or certified public accountant admitted to practice in any state or territory of the United States or (ii) the designated exchange facilitator officer has been actively conducting the business of exchange facilitation on a full-time basis for the last three years and has passed a written examination whose content is established or approved by the director;
     (e) The applicant, its principals, and the designated exchange facilitator officer have demonstrated financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a belief that the business will be operated honestly, fairly, and efficiently within the purposes of this chapter; and
     (f) Neither the applicant, any of its principals, or the designated exchange facilitator officer have been found to be in violation of this chapter or rules.
     (2) If the designated exchange facilitator officer terminates employment with the licensee, the licensee shall immediately notify the director in writing of the termination of the exchange facilitator officer. The licensee shall also immediately inform the director in writing of any newly designated exchange facilitator officer for the licensee, setting forth the experience, integrity, and competency of the newly designated exchange facilitator officer in facilitating exchange transactions, and shall provide any other information required by the director, including current fingerprint cards for the exchange facilitator officer.
     (3) If the director does not find the conditions of subsection (1) of this section have been met, the director shall not issue the license. The director shall notify the applicant of the denial and return to the applicant the bond or approved alternative.
     (4) A license issued under this section expires on the date one year from the date of issuance which, for license renewal purposes, is also the renewal date. The director shall adopt rules establishing the process for renewal of licenses.
     (5) A licensee may surrender a license by delivering to the director written notice of surrender, but the surrender does not affect the licensee's civil or criminal liability or any administrative actions arising from acts or omissions occurring before such surrender.
     (6) To prevent undue delay in the issuance of a license, an interim license with a fixed date of expiration may be issued when the director determines that the exchange facilitator has substantially fulfilled the requirements for licensing as defined by rule.

NEW SECTION.  Sec. 7   (1) A licensee shall file with the director within thirty business days any material changes in information provided in a licensee's application as prescribed in rule by the director. If this information indicates that the licensee is no longer in compliance with this chapter, the director may take any action authorized under this chapter to ensure that the licensee operates in compliance with this chapter.
     (2) A licensee shall file a report with the director within one business day after the licensee has reason to know of the occurrence of any of the following events:
     (a) The filing of a petition by or against the licensee, or any authorized delegate of the licensee, under the United States bankruptcy code (11 U.S.C. Sec. 101-110) for bankruptcy or reorganization;
     (b) The filing of a petition by or against the licensee, or any authorized delegate of the licensee, for receivership, the commencement of any other judicial or administrative proceeding for its dissolution or reorganization, or the making of a general assignment for the benefit of its creditors;
     (c) The commencement of a proceeding to revoke, suspend, restrict, or condition its license, or otherwise discipline or sanction the licensee, in a state or country in which the licensee engages in business or is licensed;
     (d) The cancellation or other impairment of the licensee's bond or other security; or
     (e) A felony charge or felony conviction of an officer, director, principal, or the designated exchange facilitator officer.

NEW SECTION.  Sec. 8   A licensee may apply to the director for authority to establish one or more branch offices under the same or different name as the main office. Provided that the applicant is in good standing with the department, as defined in rule by the director, the director shall promptly issue a duplicate license for each of the branch offices showing the location of the main office and the particular branch. Each duplicate license shall be prominently displayed in the office for which it is issued.

NEW SECTION.  Sec. 9   (1) Every licensee under this chapter has the responsibility to act as a custodian for all exchange funds, including money, property, other consideration, or instruments received by the licensee from, or on behalf of, the client, except funds received as the licensee's compensation. Every licensee shall invest exchange funds in investments that meet a prudent person standard and satisfy investment goals of liquidity and preservation of principal. For purposes of this section, a prudent person standard is violated if:
     (a) Exchange funds are knowingly commingled by the exchange facilitator with the operating accounts of the exchange facilitator;
     (b) Exchange funds are loaned or otherwise transferred to any related company or person or entity affiliated with or related to the exchange facilitator except that this subsection (1)(b) does not apply to a transfer or loan made to a financial institution that is the parent of or related to the exchange facilitator; or
     (c) Exchange funds are invested in a manner that does not provide sufficient liquidity to meet the exchange facilitator's contractual obligations to its clients or does not preserve the principal of the exchange funds.
     (2) A person who, without doing more, performs the act of an exchange facilitator is not performing a trust service or acting as a trustee for a taxpayer.

NEW SECTION.  Sec. 10   A licensed exchange facilitator is liable for any conduct violating this chapter by the designated exchange facilitator officer or other person while employed or engaged by the licensed exchange facilitator.

NEW SECTION.  Sec. 11   (1) A license issued under this chapter does not authorize any person other than the person to whom it is issued to do any act by virtue thereof nor to operate in any other manner than under his or her own name except:
     (a) A licensed exchange facilitator may operate or advertise under a name other than the one under which the license is issued by obtaining the written consent of the director to do so; and
     (b) An exchange facilitator may establish one or more branch offices under a name or names different from that of the main office if the name or names are approved by the director, so long as each branch office is clearly identified as a branch or division of the main office. Both the name of the branch office and of the main office must clearly appear on the sign identifying the office, if any, and in any advertisement or on any letterhead of any stationery or any forms, or signs used by the mortgage firm on which either the name of the main or branch offices appears.
     (2) Exchange funds are not subject to execution or attachment on any claim against the exchange facilitator. An exchange facilitator shall not knowingly keep or cause to be kept any money in any financial institution under any name designating the money as being set aside for the benefits of the clients of any exchange facilitator, unless the money was actually entrusted to the exchange facilitator by the client.

NEW SECTION.  Sec. 12   (1) An exchange facilitator shall use consistent and accurate accounting procedures to account for exchange funds. The director may adopt rules regarding trust fund accounting.
     (2) Except as otherwise provided in subsection (3) of this section, an exchange facilitator shall maintain accurate and current books and records which must be readily available at a location available to the director until at least twenty-five months have elapsed following the effective period to which the books and records relate.
     (3) Where the usual business location of an exchange facilitator is outside the state of Washington, the exchange facilitator shall, as determined by the director by rule, either maintain its books and records at a location in this state, or reimburse the director for his or her expenses, including but not limited to transportation, food, and lodging expenses, relating to any examination or investigation resulting under this chapter.
     (4) "Books and records" includes but is not limited to:
     (a) Copies of all advertisements placed by or at the request of the exchange facilitator that mention rates or fees. In the case of radio or television advertisements, or advertisements placed on a telephonic information line or other electronic source of information including but not limited to a computer database or electronic bulletin board, an exchange facilitator shall keep copies of the precise script for the advertisement. All advertisement records shall include for each advertisement the date or dates of publication and name of each periodical, broadcast station, or telephone information line which published the advertisement or, in the case of a flyer or other material distributed by the exchange facilitator, the dates, methods, and areas of distribution; and
     (b) Copies of all documents, notes, computer records if not stored in printed form, correspondence, or memoranda relating to a person from whom the exchange facilitator has accepted a deposit or other funds, or accepted property, or with whom the exchange facilitator has entered into an agreement to assist in facilitating an exchange.

NEW SECTION.  Sec. 13   (1) For the purpose of discovering violations of this chapter or securing information lawfully required under this chapter, the director may at any time, either personally or by designees, investigate or examine the exchanges and business and, wherever located, the books, accounts, records, papers, documents, files, and other information used in the business of every licensee and of every person who is engaged in the business of facilitating exchanges under this chapter, whether the person acts or claims to act as principal or agent, or under or without the authority of this chapter. For these purposes, the director or designated representatives shall have free access to the offices and places of business, books, accounts, papers, documents, other information, records, files, safes, and vaults of such a person. The director or persons designated by the director may require the attendance of and examine under oath all persons whose testimony may be required about the loans or the business or the subject matter of any investigation, examination, or hearing and may require such a person to produce books, accounts, papers, records, files, and any other information the director or designated persons deem relevant to the inquiry. The director may require the production of original books, accounts, papers, records, files, and other information; may require that the original books, accounts, papers, records, files, and other information be copied; or may make copies himself or herself or by designee of the original books, accounts, papers, records, files, or other information. If a licensee or person does not attend and testify, or does not produce the requested books, accounts, papers, records, files, or other information, then the director or designated representatives may issue a subpoena or subpoena duces tecum requiring attendance or compelling production of the books, accounts, papers, records, files, or other information.
     (2) The director shall make periodic examinations of the affairs, business, office, and records of each licensee as determined by rule.
     (3) Every licensee examined or investigated by the director or the director's designee shall pay to the director the cost of the examination or investigation of each licensed place of business as determined by rule by the director.
     (4) The director may enter into cooperative and reciprocal agreements with the appropriate financial regulatory authorities of the United States, any state, the District of Columbia, or any trust territory of the United States for the periodic examination of exchange facilitators and their subsidiaries or holding companies in other states, the District of Columbia, or trust territories. The director may accept reports of examination and other records from such authorities in lieu of conducting his or her own examinations. The director may enter into joint actions with other regulatory bodies having concurrent jurisdiction or may enter into such actions independently to carry out his or her responsibilities under this chapter and assure compliance with the laws of this state.
     (5) As a part of the examination process, a licensee shall provide the director with an annual report of exchange facilitator activity. The director may by rule create a schedule and format for the annual report. The annual report may only include the following for exchange facilitator activities in Washington state:
     (a) The total number of property exchanges facilitated by the licensee; and
     (b) The total dollar volume of property exchanges facilitated by the licensee.
     Any information provided by an exchange facilitator in an annual report that constitutes a trade secret as defined in RCW 19.108.010 is exempt from the disclosure requirements in chapters 42.17 and 42.56 RCW, unless aggregated with information supplied by other exchange facilitators in such a manner that the individual information of an exchange facilitator is not identifiable.
     (6) Financial information, business plans, examination reports, and any information produced or obtained in examining an exchange facilitator under this chapter is exempt from disclosure as provided in RCW 42.56.270.

NEW SECTION.  Sec. 14   It is a violation of this chapter for a person required to be licensed under this chapter as an exchange facilitator to:
     (1) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead any person;
     (2) Engage in any unfair or deceptive practice toward any person;
     (3) Obtain property by fraud or misrepresentation;
     (4) Fail to account for any moneys or property belonging to others that may be in the possession or under the control of the licensee;
     (5) Fail to fulfill its contractual duties to the taxpayer to deliver property or funds to the taxpayer in a material way unless such a failure is due to circumstances beyond the control of the licensee;
     (6) Fail to make disclosures required by any applicable state or federal law;
     (7) Make, in any manner, any false or deceptive statement or representation;
     (8) Negligently make any false statement or knowingly and willfully make any omission of material fact in connection with any reports filed by an exchange facilitator or in connection with any investigation conducted by the department;
     (9) Commit, in the case of an entity, including commission by its owners, officers, directors, employees, agents, or independent contractors, any crime involving fraud, misrepresentation, deceit, embezzlement, misappropriation of funds, robbery, or other theft of property;
     (10) Knowingly commingle funds held for a taxpayer in any account which holds the licensee's own funds;
     (11) Fail to get a license as required by this chapter;
     (12) Fail to comply with a final order issued by the director; or
     (13) Fail to comply with this chapter or any rule adopted under this chapter.

NEW SECTION.  Sec. 15   (1) The director may enforce all laws and rules relating to the licensing of exchange facilitators, grant or deny licenses to exchange facilitators, and hold hearings.
     (2) The director may impose fines or order restitution against licensees or other persons subject to this chapter, or deny, suspend, decline to renew, or revoke licenses for:
     (a) Violations of orders, including cease and desist orders;
     (b) False statements or omission of material information on the application that, if known, would have allowed the director to deny the application for the original license;
     (c) Failure to maintain the required insurance or maintain the required bond;
     (d) Failure to comply with any directive, order, or subpoena of the director; or
     (e) Any violation of this chapter.
     (3) The director may impose fines on an employee, independent contractor, or agent of the licensee, or other person subject to this chapter for:
     (a) Any violations of this chapter; or
     (b) Failure to comply with any directive or order of the director.
     (4) The director may issue orders directing a licensee, its employee, independent contractor, agent, or other person subject to this chapter to cease and desist from conducting business.
     (5) The director may issue orders removing from office or prohibiting from participation in the conduct of the affairs of a licensed exchange facilitator, any officer, principal, designated exchange facilitator officer, employee of any licensed exchange facilitator or any person subject to licensing under this chapter for:
     (a) Any violation of this chapter;
     (b) False statements or omission of material information on the application that, if known, would have allowed the director to deny the application for the original license;
     (c) Conviction of a gross misdemeanor involving dishonesty or financial misconduct or a felony after obtaining a license; or
     (d) Failure to comply with any directive or order of the director.
     (6) Each day's continuance of a violation or failure to comply with any directive or order of the director is a separate and distinct violation or failure.
     (7)(a) The director may adopt reciprocity standards for licensure of applicants licensed in other jurisdictions that meet the following requirements:
     (i) The applicant is licensed in a jurisdiction that grants reciprocal licensing to exchange facilitators licensed in this state;
     (ii) The reciprocal jurisdiction has requirements for licensing that are equal to or greater than the requirements set forth in this chapter;
     (iii) The applicant provides evidence to the director of the financial security requirements in section 4 of this act;
     (iv) The applicant has designated the director as its representative to receive service of process for matters arising in this state;     
     (v) The applicant does not maintain an office in this state in connection with the conduct of an exchange facilitator.
     (b) The director shall undertake necessary and sufficient measures to identify reciprocal jurisdictions as they meet the reciprocity standards in (a)(i) and (ii) of this subsection. From time to time, the director shall publish a list of those reciprocal jurisdictions.
     (c) Each reciprocal license under this section may be renewed annually if:
     (i) The applicant remains licensed in good standing in the reciprocal jurisdiction; and
     (ii) The reciprocal jurisdiction continues to meet the reciprocity standards in (a)(i) and (ii) of this subsection.
     (8) The director shall immediately suspend the license or certificate of a person who has been certified under RCW 74.20A.320 by the department of social and health services as a person who is not in compliance with a support order. If the person has continued to meet all other requirements for reinstatement during the suspension, reissuance of the license or certificate shall be automatic upon the director's receipt of a release issued by the department of social and health services stating that the licensee is in compliance with the order.
     (9) In the event that the director suspends or revokes the license of a licensee, the director may appoint a receiver licensee or successor licensee for the purpose of winding up and completing the existing exchanges but that receiver licensee or successor licensee does not have the authority to accept any new business as an exchange facilitator.

NEW SECTION.  Sec. 16   The director may, at his or her discretion and as provided for in section 15 of this act, take any action specified in this chapter. If the person subject to such an action does not appear in person or by counsel at the time and place designated for any administrative hearing that may be held on the action then the person has consented to the action. If the person subject to the action consents, or if after hearing the director finds by a preponderance of the evidence that any grounds for sanctions under this chapter exist, then the director may impose any sanction authorized by this chapter.

NEW SECTION.  Sec. 17   A person that intentionally violates section 14 (1) through (5) and (9) through (12) of this act is guilty of a class B felony under chapter 9A.20 RCW.

NEW SECTION.  Sec. 18   The administrative procedure act, chapter 34.05 RCW, governs the processes and the proceedings for:
     (1) Denying license applications;
     (2) Suspending or revoking licenses;
     (3) Issuing cease and desist orders;
     (4) Imposing civil penalties or other remedies issued under this chapter;
     (5) Any appeal or review of an action; and
     (6) Rule making.

NEW SECTION.  Sec. 19   (1) The director may make necessary public or private investigations within or outside of this state to:
     (a) Determine whether any person has violated or is about to violate this chapter or any rule or order under this chapter, or to aid in the enforcement of this chapter or in the prescribing of rules and forms under this chapter; or
     (b) Require or permit any person to file a statement in writing, under oath or otherwise as the director determines, as to all facts and circumstances concerning the matter to be investigated.
     (2) For the purpose of any investigation or proceeding under this chapter, the director or any officer designated by the director may administer oaths or affirmations, and upon his or her own motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter which is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge or relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
     (3) Upon failure to obey a subpoena or to answer questions propounded by the investigating officer and upon reasonable notice to all persons affected thereby, the director may apply to the superior court for an order compelling compliance.

NEW SECTION.  Sec. 20   Whenever the director determines that the public is likely to be substantially injured by delay in issuing a cease and desist order, the director may immediately issue a temporary cease and desist order. The order shall become effective at the time specified in the order. Every temporary cease and desist order shall include a provision that a hearing will be held, within fourteen days unless otherwise specified in chapter 34.05 RCW, upon request to determine whether the order will become permanent.
     If it appears that a person has engaged in an act or practice constituting a violation of this chapter, or a rule or order under this chapter, the director, with or without prior administrative proceedings, may bring an action in the superior court to enjoin the acts or practices and to enforce compliance with this chapter or any rule or order under this chapter. Upon proper showing, injunctive relief or temporary restraining orders shall be granted. The director shall not be required to post a bond in any court proceedings.

NEW SECTION.  Sec. 21   Every licensed exchange facilitator that does not maintain a physical office within the state must maintain a registered agent within the state to receive service of any lawful process in any judicial or administrative noncriminal suit, action, or proceeding against the licensed exchange facilitator which arises under this chapter or any rule or order under this chapter, with the same force and validity as if served personally on the licensed exchange facilitator. Service upon the registered agent is not effective unless the plaintiff, who may be the director in a suit, action, or proceeding instituted by him or her, no later than the next business day sends notice of the service and a copy of the process by registered mail to the defendant or respondent at the last address of the respondent or defendant on file with the director. In any judicial action, suit, or proceeding arising under this chapter or any rule or order adopted under this chapter between the department or director and a licensed exchange facilitator who does not maintain a physical office in this state, venue is exclusively in the superior court of Thurston county.

NEW SECTION.  Sec. 22   The legislature finds that the practices in section 14 of this act are matters vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW. Any violation of section 14 (1) through (12) of this act is not reasonable in relation to the development and preservation of business and is an unfair or deceptive act or practice and unfair method of competition in the conduct of trade or commerce in violation of RCW 19.86.020. Remedies provided by chapter 19.86 RCW are cumulative and not exclusive.

NEW SECTION.  Sec. 23   (1) There is established an exchange facilitator commission of the state of Washington, to consist of the director or his or her designee as chair, and five other members who shall act as advisors to the director as to the needs of the exchange facilitator profession, including but not limited to the design and conduct of tests to be administered to applicants, educational programs, audits and investigations of the profession designed to protect the consumer, and any other matters determined appropriate.
     (2) The director shall appoint the other members, each of whom has been a resident of this state for at least five years and has at least five years' experience as an exchange facilitator.
     (3) The members of the first commission shall serve for the following terms: One member for one year, one member for two years, one member for three years, one member for four years, and one member for five years, from the date of their appointment, or until their successors are duly appointed and qualified. Every member of the commission shall receive a certificate of appointment from the director and before beginning the member's term of office shall file with the secretary of state a written oath or affirmation for the faithful discharge of the member's official duties. On the expiration of the term of each member, the director shall appoint a successor to serve for a term of five years or until the member's successor has been appointed and qualified.
     (4) The director may remove any member of the commission for cause. Vacancies in the commission for any reason shall be filled by appointment for the unexpired term.
     (5) Members shall be compensated in accordance with RCW 43.03.240, and shall be reimbursed for their travel expenses incurred in carrying out the provisions of this chapter in accordance with RCW 43.03.050 and 43.03.060.

NEW SECTION.  Sec. 24   If the federal government changes a federal rule or statute cited in this chapter, the director may determine if a successor section has been adopted by federal law or rule for the purposes of this chapter. The director is urged to pursue correcting legislation for the citation at a time when that is expedient and appropriate.

NEW SECTION.  Sec. 25   The director may adopt rules to implement and administer this chapter.

NEW SECTION.  Sec. 26   The director of the department of financial institutions or the director's designee may take such steps as are necessary to ensure this act is implemented on January 1, 2009.

Sec. 27   RCW 42.56.270 and 2007 c 470 s 2, 2007 c 251 s 13, and 2007 c 197 s 4 are each amended to read as follows:
     The following financial, commercial, and proprietary information is exempt from disclosure under this chapter:
     (1) Valuable formulae, designs, drawings, computer source code or object code, and research data obtained by any agency within five years of the request for disclosure when disclosure would produce private gain and public loss;
     (2) Financial information supplied by or on behalf of a person, firm, or corporation for the purpose of qualifying to submit a bid or proposal for (a) a ferry system construction or repair contract as required by RCW 47.60.680 through 47.60.750 or (b) highway construction or improvement as required by RCW 47.28.070;
     (3) Financial and commercial information and records supplied by private persons pertaining to export services provided under chapters 43.163 and 53.31 RCW, and by persons pertaining to export projects under RCW 43.23.035;
     (4) Financial and commercial information and records supplied by businesses or individuals during application for loans or program services provided by chapters ((15.110)) 43.325, 43.163, 43.160, 43.330, and 43.168 RCW, or during application for economic development loans or program services provided by any local agency;
     (5) Financial information, business plans, examination reports, and any information produced or obtained in evaluating or examining a business and industrial development corporation organized or seeking certification under chapter 31.24 RCW;
     (6) Financial information, business plans, examination reports, and any information produced or obtained in examining an exchange facilitator under chapter 19.--- RCW (sections 1 through 25, 28, 29, and 31 of this act);
     (7) Financial and commercial information supplied to the state investment board by any person when the information relates to the investment of public trust or retirement funds and when disclosure would result in loss to such funds or in private loss to the providers of this information;
     (((7))) (8) Financial and valuable trade information under RCW 51.36.120;
     (((8))) (9) Financial, commercial, operations, and technical and research information and data submitted to or obtained by the clean Washington center in applications for, or delivery of, program services under chapter 70.95H RCW;
     (((9))) (10) Financial and commercial information requested by the public stadium authority from any person or organization that leases or uses the stadium and exhibition center as defined in RCW 36.102.010;
     (((10))) (11)(a) Financial information, including but not limited to account numbers and values, and other identification numbers supplied by or on behalf of a person, firm, corporation, limited liability company, partnership, or other entity related to an application for a horse racing license submitted pursuant to RCW 67.16.260(1)(b), liquor license, gambling license, or lottery retail license;
     (b) Independent auditors' reports and financial statements of house-banked social card game licensees required by the gambling commission pursuant to rules adopted under chapter 9.46 RCW;
     (((11))) (12) Proprietary data, trade secrets, or other information that relates to: (a) A vendor's unique methods of conducting business; (b) data unique to the product or services of the vendor; or (c) determining prices or rates to be charged for services, submitted by any vendor to the department of social and health services for purposes of the development, acquisition, or implementation of state purchased health care as defined in RCW 41.05.011;
     (((12))) (13)(a) When supplied to and in the records of the department of community, trade, and economic development:
     (i) Financial and proprietary information collected from any person and provided to the department of community, trade, and economic development pursuant to RCW 43.330.050(8) ((and 43.330.080(4))); and
     (ii) Financial or proprietary information collected from any person and provided to the department of community, trade, and economic development or the office of the governor in connection with the siting, recruitment, expansion, retention, or relocation of that person's business and until a siting decision is made, identifying information of any person supplying information under this subsection and the locations being considered for siting, relocation, or expansion of a business;
     (b) When developed by the department of community, trade, and economic development based on information as described in (a)(i) of this subsection, any work product is not exempt from disclosure;
     (c) For the purposes of this subsection, "siting decision" means the decision to acquire or not to acquire a site;
     (d) If there is no written contact for a period of sixty days to the department of community, trade, and economic development from a person connected with siting, recruitment, expansion, retention, or relocation of that person's business, information described in (a)(ii) of this subsection will be available to the public under this chapter;
     (((13))) (14) Financial and proprietary information submitted to or obtained by the department of ecology or the authority created under chapter 70.95N RCW to implement chapter 70.95N RCW;
     (((14))) (15) Financial, commercial, operations, and technical and research information and data submitted to or obtained by the life sciences discovery fund authority in applications for, or delivery of, grants under chapter 43.350 RCW, to the extent that such information, if revealed, would reasonably be expected to result in private loss to the providers of this information;
     (((15))) (16) Financial and commercial information provided as evidence to the department of licensing as required by RCW 19.112.110 or 19.112.120, except information disclosed in aggregate form that does not permit the identification of information related to individual fuel licensees;
     (((16))) (17) Any production records, mineral assessments, and trade secrets submitted by a permit holder, mine operator, or landowner to the department of natural resources under RCW 78.44.085;
     (((17))) (18)(a) Farm plans developed by conservation districts, unless permission to release the farm plan is granted by the landowner or operator who requested the plan, or the farm plan is used for the application or issuance of a permit;
     (b) Farm plans developed under chapter 90.48 RCW and not under the federal clean water act, 33 U.S.C. Sec. 1251 et seq., are subject to RCW 42.56.610 and 90.64.190;
     (((18))) (19) Financial, commercial, operations, and technical and research information and data submitted to or obtained by a health sciences and services authority in applications for, or delivery of, grants under RCW 35.104.010 through 35.104.060, to the extent that such information, if revealed, would reasonably be expected to result in private loss to providers of this information; and
     (((19))) (20) Information gathered under chapter 19.85 RCW or RCW 34.05.328 that can be identified to a particular business.

NEW SECTION.  Sec. 28   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 29    This act may be known and cited as the exchange facilitator act.

NEW SECTION.  Sec. 30   Sections 1 through 25, 28, 29, and 31 of this act constitute a new chapter in Title 19 RCW.

NEW SECTION.  Sec. 31   This act takes effect January 1, 2009.