Escrow in international transactions: how it works

Nikita Veremeev

13.12.2025 | 6 min read

Updated: 13.12.2025

The statistics of major international disputes over payments in trade and investments consistently remain at the level of tens of billions of dollars annually, according to European and Asian tribunals. Each such dispute is a frozen cash flow, a lost ROI, and a risk that is managed but not controlled.

I regularly see the same scenario: the parties agree on the price, specify the delivery, sign the contract, but when settling accounts a “minefield” begins — prepayment, postpayment, guarantee letters, bank guarantees, letters of credit. Result: the deal is delayed or goes to arbitration.

At the same time, there is an instrument that has long become standard in a number of EU and Asian jurisdictions, but many companies from the CIS still do not use systematically: escrow (conditional deposit). And it is often the quality of its setup today that determines how safely and predictably you will scale international deals.

Ready to look at escrow not as an abstract legal term but as a practical tool for risk management and liquidity control? In this article I will examine how escrow works in international transactions, which legal and AML aspects need to be considered, how it aligns with company registration in the EU and Asia, and what practical steps your business should take to use this instrument strategically rather than formally.

What is escrow and how does an escrow account work in settlements?

Illustration for the section 'What is escrow and how an escrow account works in settlements' in the article 'How escrow works in international deals'

If simplified, escrow is a mechanism in which money or assets are temporarily transferred to a neutral third party until the parties fulfill the pre-agreed conditions. It is a conditional deposit recorded in a tripartite agreement between the seller, the buyer and the escrow agent.

Basic escrow structure

The classic model includes three elements:

Escrow account (escrow account for companies) at a bank or with a licensed provider – the transaction amount is deposited into it.
Escrow agreement: details the conditions under which funds are “released” and transferred to the seller or returned to the buyer.
Escrow agent (third party) oversees the fulfilment of the contract terms, holds the funds (funds are blocked), keeps records and initiates payments.

For international transactions, it is not just a convenient payment service but a legal guarantee of settlements: without documentary confirmation of the agreed conditions, the funds do not move anywhere.

How an escrow account works in international trade

In practice, the mechanism of an escrow account in international trade looks like this:

Negotiations and deal structure.
- The parties agree on the subject, price, delivery schedule, deadlines and the form of performance confirmation (bills of lading, acceptance certificates, independent inspector reports, registration of ownership, etc.).
Conclusion of the tripartite agreement.
- An escrow agreement is signed, which specifies:
Transfer of funds to the escrow account.
- The buyer transfers the money to the bank escrow account or to a specialized account of a financial provider. The funds are debited from his operating account but are not yet available to the seller.
Performance of contractual obligations.
- The seller delivers the goods, performs the work or transfers an asset (for example, company shares, real estate, intellectual property rights).
Confirmation of fulfilment of conditions.
- Documents predetermined by the agreement are sent to escrow: shipping documents, quality certificates, an extract from the real estate register, an extract from the commercial register (in the sale of a company), reports of independent inspectors.
Release of funds and payment automation.
- The escrow agent checks the documents, performs additional KYC/AML analysis if necessary, and initiates the transfer of funds to the seller in full or in stages (important for multi-stage international contracts). Payment automation is often used here, especially in FinTech projects and investment schemes with tranches.
Closure of the escrow account and reporting.
- After all conditions are met, the agreement is considered complete, the escrow account is closed, and the parties receive final reports – important for financial reporting and audit.

This model allows the use of escrow in cross-border trade, investments, M&A, equipment supply, IT projects and transactions with digital assets – and each time it is simultaneously an intermediary in settlements and a tool for managing contractual risks.

Legal support for transactions via escrow

Illustration for the section «Legal support for transactions via escrow» in the article «How escrow works in international transactions»

In COREDO’s practice, it is precisely the legal support for companies and escrow transactions that determines whether escrow will be a protection or a source of new risks.

A well-drafted escrow agreement: how it is structured

A properly structured escrow agreement always answers four key questions:

What exactly is being deposited.
- Funds, securities, tokens, claims, company shares. In transactions with digital assets we often build a hybrid scheme: funds in a bank escrow account, and digital assets in a controlled wallet with a pre-determined unlocking algorithm.
When and under what conditions performance occurs.
- Execution criteria are clearly specified: «confirmation of registration of title in registry X has been received», «an acceptance certificate for the works has been signed without reservations», «a report from an independent inspector confirming the fulfilment of KPIs has been received».
How legal risks are allocated.
- The legal liability of the parties and of the escrow agent itself is described, standards of care and checks (due diligence), and the procedure to follow in case of conflicting documents.
How disputes are resolved.
- Jurisdiction, an arbitration clause, and the applicable law are specified: this is especially important for litigation in international disputes.

The COREDO team has repeatedly been involved in transactions where the escrow agreement was drafted “by template”, without taking into account the specifics of EU and Asian jurisdictions, and in fact did not cover key contractual risks. As a result, the escrow agent was left “blocked” between the conflicting parties, and the funds frozen for an indefinite period.

Registration of legal entities in the EU and Asia with escrow

In many cases, having a local company in the EU or Asia is optimal for working with escrow. This provides:

access to local banks and a bank escrow account;
predictable taxation of international transactions;
convenience in terms of corporate law and arbitration.

Our experience at COREDO shows that when registering legal entities in the EU and Asia (Czech Republic, Slovakia, Cyprus, Estonia, United Kingdom, Singapore, Dubai), already at the jurisdiction selection stage you should consider how you plan to use escrow: where the account will be, in which currency, which law will apply, and how this will be reflected in your financial reporting and group structure.

Escrow, international law and AML compliance

Today any serious escrow provider works in close coordination with:

AML (anti-money laundering) requirements;
sanctions control regimes;
KYC/sanctions screening standards.

The solution developed by COREDO for clients with multiple legal entities in the EU and Asia typically includes:

alignment of compliance in international transactions (group AML policies and sanctions policies);
choice of jurisdiction with predictable international financial regulation regarding escrow;
setting up internal procedures so that escrow is organically integrated into your overall risk management and internal control system.

Use of escrow in international transactions

Illustration for the section “Use of escrow in international transactions” in the article “How escrow works in international transactions”
Use of escrow in international transactions: sectors and specifics is particularly in demand where parties are in different jurisdictions, handle large sums and require additional guarantees of contractual performance. This is most evident in real estate transactions in the EU and Asia, where escrow helps record agreements, protect the buyer’s funds and structure settlements taking into account local legal specifics.

Real estate in the EU and Asia

The specifics of using escrow in real estate transactions in the EU have long become standard: funds go into an escrow account until:

the buyer’s ownership rights are registered in the state registry;
all encumbrances are removed;
the necessary authorizations from authorities are obtained.

The escrow account to protect the interests of seller and buyer works symmetrically here: the buyer is confident that funds will be released only upon confirmation of the fulfillment of delivery conditions (in this case: transfer of ownership), the seller — that they will not surrender the asset without confirmed financing.

In some Asian countries the structure is similar but is supplemented by checks for compliance with local restrictions for foreigners and urban planning regulations. The COREDO team has supported such transactions for clients acquiring properties both for their own business and for investment.

Investment projects and transactions in Asia and Africa

Escrow for investment projects in Asia and Africa is especially useful when:

investments are made in tranches as KPIs are met;
political or regulatory risks arise;
the project involves multiple investors from different countries.

Here escrow helps structure the scaling of international deals, lets the investor clearly see how stages are implemented, and enables the recipient to plan cash flow. Moreover, the use of escrow directly impacts ROI: the reduction in delivery failures and disputes often compensates the agent’s fee.

Equipment and intellectual property

In deliveries of complex equipment, escrow in international payments works well when:

deliveries are made in multiple batches;
factory acceptance tests and commissioning are required;
an independent inspector is involved.

Escrow in equipment transactions allows payments to be linked to stages: delivery, installation, testing, commissioning.

In IP transactions (licenses, patents, software), a model is more often used where escrow and intellectual property protection are combined: code or documents are delivered to a third party for safekeeping, and payments are tied to rights registration, source code transfer or achievement of certain metrics.

E-commerce and digital contracts in FinTech

COREDO is particularly interested in the following in e‑commerce and FinTech:

escrow and digital contracts (smart contracts, electronic signatures, online KYC);
integration of escrow into marketplaces’ payment gateways;
escrow solutions for e‑commerce and transactions with digital assets.

Here escrow and financial technologies (FinTech) allow setting up automated verification of event occurrence (delivery confirmed, no dispute opened, no return requested); implementing partial automation of payments to suppliers and merchants; integrating compliance and AML and escrow directly into the payment flow.

Advantages and risks of escrow in international business

Illustration for the section «Advantages and risks of escrow in international business» in the article «How escrow works in international transactions»

The advantages and risks of using escrow in international business are directly related to managing trust and security in deals between companies from different jurisdictions. Such a mechanism helps reduce legal and financial uncertainties, but at the same time introduces operational and reputational risks that are important to understand before launching an escrow scheme at the international level.

Key advantages

For an owner and CFO what matters are not abstract ‘benefits’ but manageable effects:

Security of international transactions.
Funds are not released to the counterparty until the conditions are met and confirmed. This is critical for foreign trade operations and M&A.
Escrow advantages for reducing risks in foreign trade operations.
Reduces the risk of non-delivery, delivery of substandard goods, and unilateral refusal to perform.
Financial security of transactions and liquidity management.
You plan in advance what amount of liquidity will be ‘blocked’ and for how long, and this can be correctly reflected in liquidity management and financial planning.
Transparency and control over contract performance.
A clear set of documents tied to payments disciplines both parties and reduces room for interpretation.

Risks and limitations

At the same time, escrow is not a ‘magic pill’. COREDO’s practice shows several typical risks:

incorrectly drafted or vague escrow agreement terms;
choosing a jurisdiction with unpredictable case law;
‘narrow’ scope of the escrow agent’s duties, not covering the real risks of a dispute;
lack of synchronization with tax and currency regulation.

All of this is reflected in the financial statements, can distort the picture of the company’s liabilities and, in some cases, complicate audits.

Escrow, ROI and scaling international transactions

The use of escrow, especially when scaling international transactions, affects:

the speed at which counterparties make decisions (escrow increases trust);
the margin structure (agent’s fee vs reduced risk of losses);
ROI when scaling business in Asia and the EU due to predictability of settlements and reducing the ‘counterparty factor’.

In large transactions, by reducing the likelihood of conflicts and arbitrations, the effect on ROI is usually positive, especially if escrow is integrated into the overall risk management system.

Working with escrow in international transactions

Illustration for the section «Working with escrow in international transactions» in the article «How escrow works in international transactions»

In international transactions, working with escrow helps reduce legal and financial risks, but in practice the instrument proves effective only with proper organization of the process. In these practical recommendations on working with escrow in international transactions we will examine what to pay attention to when choosing terms, checking documents and, first and foremost, how to correctly choose an escrow agent.

How to choose an escrow agent?

Practical criteria I always consider:

license and status (bank, payment organization, specialized provider);
experience in your industry and types of transactions;
a clear model of liability and professional liability insurance;
transparent fees and a logical mediation scheme in settlements;
competence in compliance for international transactions and AML.

The COREDO team often builds a structure where the escrow agent in the EU or Asia interfaces with the client’s local company and its bank, and we cover the legal and compliance part.

Documents required to open an escrow account for a legal entity

A standard package includes:

company incorporation documents;
information about beneficial owners;
description of the transaction and the parties;
draft of the main agreement and the escrow agreement;
internal AML/compliance policies (for large entities).

The specifics of opening an escrow account for legal entities in Europe and Asia depend on the jurisdiction: the level of KYC detail, requirements for disclosing beneficiaries, possible currency restrictions. It is important here to reconcile this in advance with your group’s model and plans for company registrations in Europe and Asia.

How to draft an escrow agreement for a transaction

I advise clients to include at least the following sections:

clearly described subject matter and deposit amount;
conditions and format for confirmation of performance;
timelines and notification procedures;
the law applicable to the escrow agreement and arbitration/court;
procedures in case of a dispute or incomplete performance;
allocation of tax and commission expenses.

For complex structures (multiple jurisdictions, investment tranches, option mechanisms), a solution developed at COREDO often includes a separate tax opinion and coordination with the auditor to avoid issues with taxation of international transactions and the recognition of liabilities.

What to do if the terms of the escrow agreement are breached?

The “what to do if the escrow agreement is breached” scenario should be set out from the start:

procedure for filing objections;
the period for which the hold on funds is extended;
the possibility of going to court/arbitration and consequences for the funds in the account;
the competence and liability of the escrow agent in the event of conflicting instructions.

Deal support with escrow at COREDO usually includes the development of an “action plan” for conflicts: this reduces response time and lowers the risk of uncontrolled escalation.

Escrow and integration with AML and compliance

Escrow accounts are becoming a key security tool in international transactions, but their effectiveness directly depends on proper integration with AML, compliance and international regulatory requirements. Without this integration even the most reliable escrow becomes a vulnerable link in the chain of financial operations.

AML and compliance in international transactions

In the modern paradigm one cannot consider escrow separately from:

global AML standards (FATF, regional directives);
sanctions and reporting requirements;
the group’s internal policies.

Escrow and AML compliance in international business are closely linked: money or assets passing through escrow must be “clean” in terms of origin and purpose. This affects:

the set of documents from the parties;
the need for additional KYC;
the timelines for review and release of funds.

COREDO’s experience confirms: those who synchronize escrow and their AML policies in advance end up spending less time on approvals and reviewing non-standard transactions.

International financial regulation and standards

Different jurisdictions regulate escrow accounts for companies differently, but several trends are common:

increased requirements for disclosure of beneficial owners and sources of funds;
strengthening of international standards on reporting and information exchange;
integration of escrow into regulatory frameworks for FinTech and digital assets.

For companies with multiple legal entities in the EU and Asia, the COREDO team often builds a unified methodology: which types of transactions go through escrow, which through a letter of credit, and which through standard payments.

Escrow against fraud and money laundering

If the structure is set up correctly, escrow helps to:

exclude schemes with deliberately fictitious deliveries;
minimize the risk of involvement in money laundering;
reduce the likelihood of legal disputes by ensuring transparent control over contract performance.

Key takeaways and practical steps for businesses

In summary, escrow in international financial transactions is:

a practical tool for the financial security of transactions and for managing contractual risks;
a way to strengthen trust with new partners, especially in settlements between companies from different countries;
an element of your strategy for scaling international transactions and protecting ROI.

A practical checklist that I recommend to owners and CFOs:

Identify which types of transactions (real estate, equipment, investments, digital assets) escrow will have the most impact on.
Agree internally on the approach to selecting jurisdictions and escrow agents.
Synchronize escrow with the registration of legal entities in the EU and Asia, tax planning and financial reporting.
Update internal AML and compliance policies to reflect the use of escrow.
Set up standard escrow agreement templates for different scenarios and transaction amounts.

The COREDO team regularly designs comprehensive structures for clients: from registering legal entities in the EU, obtaining financial licenses and implementing AML to supporting transactions using escrow, from real estate in the EU to investment projects in Asia and digital assets. With a competent approach, escrow stops being a formal “option” and becomes part of your risk management and growth system.

If you plan to expand the geographic scope of your business or enter jurisdictions new to you, it makes sense to integrate escrow into the payment architecture in advance – it will save you time, money and nerves at the stage when the stakes are already too high.

How does escrow work in international transactions