BILL REQ. #:  S-4358.1 

READ FIRST TIME 02/01/12.   

     AN ACT Relating to exchange facilitator requirements; amending RCW 19.310.040, 19.310.120, and 19.310.150; creating new sections; prescribing penalties; and providing an expiration date.

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

NEW SECTION.  Sec. 1   The legislature finds that exchange facilitators are a specialized business in Washington state that involves the transfer of certain assets of citizens for investment purposes. In 2009 legislation was passed that provided enhanced reporting requirements, as well as civil and criminal penalties, to serve as additional protections for citizens involved in these types of transactions. The legislature finds that current law is still inadequate to protect those who trust these companies with assets they may have spent a lifetime accumulating. Additional protections are required to properly regulate the companies engaged in these transactions.

Sec. 2   RCW 19.310.040 and 2009 c 70 s 5 are each amended to read as follows:
     (1) A person who engages in business as an exchange facilitator ((shall)) must:
     (a)(i) Maintain a fidelity bond or bonds in an amount of not less than one million dollars executed by an insurer authorized to do business in this state for the benefit of a client of the exchange facilitator that suffers a loss as a result of the exchange facilitator's covered dishonest act. Such fidelity bond must cover the acts of employees of an exchange facilitator and owners of a nonpublicly traded exchange facilitator; or
     (((b) Deposit an amount of cash or securities or irrevocable letters of credit in an amount of not less than one million dollars into an interest-bearing deposit account or a money market account with the financial institution of the exchange facilitator's choice. Interest on that amount accrues to the exchange facilitator; or
     (c))) (ii) Deposit all exchange funds in a qualified escrow account or qualified trust, as both terms are defined under treasury regulation section 1.1031(k)-1(g)(3), with a financial institution ((and)). The qualified escrow account or qualified trust must provide that a withdrawal from that escrow account or trust requires the exchange ((facilitator's and the client's written authorization.
     (2) A person who engages in business as an exchange facilitator may maintain a bond or bonds or deposit an amount of cash or securities or irrevocable letters of credit in excess of the minimum required amounts under this section.
     (3) The requirements under subsection (1)(a) of this section are satisfied if the person engaging in business as an exchange facilitator is listed as a named insured on one or more fidelity bonds that have an aggregate total of at least one million dollars.
     (4))) facilitator and the client to independently authenticate a record, as defined under RCW 62A.9A-102, of the transaction;
     (b) Disclose on the company web site and contractual agreement the following statement in large, bold, or otherwise conspicuous typeface calculated to draw the eye: "Washington state law, RCW 19.310.040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or hold all client funds in a qualified escrow account or qualified trust." If recommending other products or services, the exchange facilitator must disclose to the client that the exchange facilitator may receive a financial benefit, such as a commission or referral fee, as a result of such recommendation. The exchange facilitator must not recommend or suggest to a client the use of services of another organization or business entity in which the exchange facilitator has a direct or indirect interest without full disclosure of such interest at the time of recommendation or suggestion.
     (2) An exchange facilitator must provide evidence to each client that the requirements of this section are satisfied before entering into an exchange agreement.
     (((5))) (3) Upon request of a current or prospective client, or the attorney general under chapter 19.86 RCW, the exchange facilitator must offer evidence proving that the requirements of this section are satisfied at the time of the request.

NEW SECTION.  Sec. 3   (1) A stakeholder task force comprised of the department of financial institutions, the office of the insurance commissioner, exchange facilitators, and title holders shall convene to identify effective regulatory procedures for the exchange facilitator industry. Issues for discussion must include, but not be limited to: The feasibility and cost of regulation; regulatory and enforcement standards; certification or licensing options; and the feasibility of adopting provisions within the escrow agency act. Specific recommendations on these issues are due to the legislature by December 1, 2012.
     (2) This section expires December 1, 2012.

Sec. 4   RCW 19.310.120 and 2009 c 70 s 13 are each amended to read as follows:
     (1) Failure to fulfill the requirements under RCW 19.310.040 constitutes prima facie evidence that the exchange facilitator intended to defraud a client who suffered a subsequent loss of the asset entrusted to the exchange facilitator.
     (2) A person who engages in business as an exchange facilitator and who violates RCW 19.310.100 (1) through (8) or fails to comply with the requirements under RCW 19.310.040 is guilty of a class B felony under chapter 9A.20 RCW. However, an exchange facilitator is not guilty of a class B felony for failure to comply with the requirements under RCW 19.310.040 if: (a) Failure to comply is due to the cancellation or amendment of the fidelity bond by the bond issuer; and (b) the exchange facilitator:
     (i) Within thirty days, takes all reasonable steps to comply with the requirements under RCW 19.310.040; and
     (ii) Deposits any new exchange funds into a qualified escrow account or qualified trust until a fidelity bond is obtained that meets the requirements under RCW 19.310.040(1)(a)(i).

Sec. 5   RCW 19.310.150 and 2009 c 70 s 16 are each amended to read as follows:
     (1) A person who violates this chapter is subject to civil suit in a court of competent jurisdiction.
     (2) Damages awarded to a current client for a civil suit filed for a violation of the requirements under RCW 19.310.040 include treble damages and attorneys' fees.