Making use of dormant accounts

The Diet enacted a law last month that enables the government to utilize money kept in dormant bank accounts to financially support nonprofit organizations engaged in such activities as promoting welfare and revitalizing communities. Since the law can make vast amounts of funds — estimated at tens of billions of yen a year — available for use by these organizations, it is imperative to work out a transparent scheme to make sure the money will be distributed and spent in a fair and appropriate manner.

A main idea behind the legislation, which was proposed by lawmakers in both the ruling and opposition camps, is to help private-sector organizations that serve the public interest but otherwise find it difficult to get official government funding. Distribution of money to these organization can start as early as 2019.

Customarily, banks designate accounts by their customers that have been left unused for 10 years or longer as dormant. From fiscal 2010 through 2013, an average of about 11.5 million bank accounts worth ¥105 billion in total became dormant each year. Under the new law, money remaining in such accounts — after the banks have repaid deposits and interest on claims to depositors and people who have inherited the assets of deceased depositors — will be utilized by the government in the form of grants or loans to NPOs and community associations. Until now, banks have entered such remaining deposits — which amount to ¥50 billion to ¥60 billion — as revenue in their books.

The law, which aims to utilize money that originally belonged to individual depositors, sets down rules on how to handle long-dormant bank accounts. If nine years have passed since the last withdrawal or deposit from or into an account and if the remaining amount is ¥10,000 or more, the bank sends a notice to the depositor. If the depositor does not reply nor makes any withdraw or deposit within a year, the bank will designate the account as dormant. An account with less than ¥10,000 remaining and left unused for 10 years will be designated as such without going through such a procedure. Even after the accounts are designated as dormant, the law guarantees the right of depositors or inheritors of the deposits to seek a refund of all the money plus interest.

Since the program involves vast sums of money, transparency in both distribution of the funds and management of the overall scheme will be essential. Under the law, money from dormant accounts will first be transferred from the banks to the Deposit Insurance Corp. of Japan. The money will then be moved to organizations that supervise bodies in charge of distributing the funds in grants or loans to individual private-sector groups engaged in public-interest activities. The government can request reports from supervising organizations or carry out on-site inspections of them. They may be disqualified as supervising bodies if their activities are found to be improper. Government oversight of these organizations will be of crucial importance to the overall scheme.

People need to watch carefully as the government develops a basic policy for utilizing money from dormant bank accounts and works out an annual basic plan every year — subjects that will be discussed by a council to be set up within the Cabinet Office. Its discussions will cover the standards and procedures to set up the supervising organizations, and the criteria to be used in selecting recipient organizations — points that are essential to running the scheme in a fair manner. The government reportedly plans to urge prospective recipient groups to publicly apply for the funds.

Since the scheme uses a large amount of money that originally belonged to individual depositors, the government must disclose all of the information concerning the council’s discussions as well as organizations that handle or receive the funds. A mechanism needs to be secured to prevent political intervention to prioritize interested groups, including those engaging in activities that are tied to the administration in power or linked to certain political groups, in the distribution of the funds. Disclosure of relevant information will be vital to ensure that the money is indeed used in the way it’s intended under the law.