03 February 2026

Escrow Accounts in Russia: Legal Framework, Judicial Trends, and Risk Management for Investors

February 3, 2026

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Although the escrow account agreement appeared in Russian civil legislation quite some time ago, it continues to raise questions in both theory and law enforcement practice.

In this article, we examine the legal nature of the escrow account agreement, its scope of application, regulatory challenges, and current judicial practice regarding escrow account agreements.

The Escrow Account Agreement

The term "escrow" in Russian legislation has two meanings:

A specific type of bank account agreement;
A type of storage (escrow) of property.

In the first case, escrow is qualified as a method of settlement between the parties to a contract. In the second case, it is a special conditional contract (a conditional storage agreement).

Under an escrow account agreement, the bank (the "escrow agent") opens a special escrow account to record and block funds received from the account holder (the "depositor") for the purpose of transferring them to another person (the "beneficiary") upon the occurrence of grounds provided for by the escrow account agreement. Based on the meaning of this provision, an escrow account agreement is a tripartite agreement involving the escrow agent, the depositor, and the beneficiary (Article 860.7 of the Civil Code of the Russian Federation (the "Civil Code")).

The escrow account agreement serves the purposes of protection, secure storage of funds in a special account, and verification of the grounds for the expenditure or transfer of funds to the other party to the contract. Such an agreement significantly reduces the risks of losing assets invested, for example, in the purchase of housing. In Western countries, escrow is viewed as a financial mechanism performing settlement functions and an obligation with multiple persons characterized by security and guarantee functions. [1]

Rights to the funds in an escrow account belong to the depositor until the date the grounds for transferring the funds to the beneficiary arise; after said date, they belong to the beneficiary. Obligations under an escrow account agreement may be contained in another contract where the bank acts as the escrow agent, alongside the escrow account agreement itself.

Please note that the amount of funds placed in an escrow account as payment for goods (works, services) should be considered a prepayment for goods (works, services) if the beneficiary, acting as the seller of the goods (works, services), acquires the right to receive the funds placed in the escrow account prior to the date of their shipment (performance, provision). В In such a situation, the amount of funds placed in the escrow account should be treated as a prepayment and, accordingly, included in the VAT tax base pursuant to Articles 154 and 167 of the Tax Code of the Russian Federation (the "Tax Code") on the date such right arises. [2]

To open an escrow account, documents and information required by the legislation of the Russian Federation, Bank of Russia Instruction No. 204-I dated June 30, 2021, On the Opening, Maintenance, and Closing of Bank Accounts and Accounts for Deposits (Deposits), and banking rules must be submitted. The bank notifies the tax authority of the opening (closing, or change of details) of an escrow account, indicating information about the depositor (Article 86 of the Tax Code). [3]

In case No. A45-14303/2021, the plaintiff filed a lawsuit against a bank to declare the bank's refusal to open a special escrow account illegal. A bank may not refuse to open an account for which the performance of relevant operations is provided for by law, the bank's constituent documents, and the permit (license) issued to it, except when such refusal is caused by the bank's inability to accept the customer for banking services or is permitted by law or other legal acts. However, "having assessed the evidence presented in the case file in its entirety and interconnection, in particular, information regarding the plaintiff's location, according to which the society's legal address is a mass registration address; having analyzed all the bank's motives for refusing to open the account with reference to the provisions of Law No. 115-FZ, specifically in connection with suspicions that the purpose of concluding such an agreement is to perform operations for the purpose of legalizing (laundering) proceeds of crime or financing terrorism, the courts reached the lawful conclusion that the bank had sufficient legal grounds to refuse to conclude a bank account agreement with the society". [4]

The bank's remuneration as an escrow agent may not be deducted from the funds in the escrow account unless otherwise provided by the agreement. Unless otherwise provided by the agreement, neither the depositor nor the beneficiary may dispose of the funds in the escrow account, except in cases specified in this article. The crediting of other funds of the depositor to the escrow account, except for the escrowed amount specified in the escrow agreement, is not permitted. The suspension of operations on an escrow account, the attachment (seizure), or the debiting of funds in the escrow account for the obligations of the depositor to third parties or for the obligations of the beneficiary is not permitted.

In case No. A40-262680/24, the plaintiff filed a lawsuit to recover the amount of debt under an escrow account agreement (commission). The bank opened an escrow account. The agreement established a commission for opening the escrow account. Through electronic interaction channels, the bank sent a demand for payment of the commission to the bank whose details were specified for debiting the commission. Said demand was not executed, and the commission was not paid. Under the terms of the escrow account agreement, the expiration date for the conditional escrow of funds was May 1, 2024 (inclusive). The courts established that "the disputed escrow account was closed on May 2, 2024, due to the expiration of the conditional escrow period; thus, no escrow actually occurred, since the real estate purchase and sale transaction for which the disputed account was opened did not take place". Considering the foregoing, the courts concluded that "in this case, the bank's actions in opening the account did not constitute a banking service that created any benefit for the customer within the framework of the disputed agreement. The bank did not prove that it incurred any expenses or losses in connection with opening the escrow account that should be compensated by charging the disputed commission, which was set as a percentage of a transaction that did not occur". [5]

Upon the occurrence of grounds provided for by the escrow account agreement, the bank must, within the period established by such agreement, or in its absence, within 10 days, issue the escrowed amount to the beneficiary or transfer it to the account specified by the beneficiary (Article 860.8).

Both the depositor and the beneficiary have the right to demand information from the bank that constitutes a bank secret.

Unless otherwise provided by the escrow agreement, the bank closes the escrow account upon the expiration of the term of the escrow agreement or its termination on other grounds. We note that the rules established by paragraphs 1 and 2 of Article 859 of the Civil Code do not apply to escrow account relationships (Article 860.10 of the Civil Code). We remind you that, in accordance with the specified paragraphs, a bank account agreement is terminated upon the customer's application at any time.

In the absence of funds on the account of a customer who is a natural person and operations on this account for 2 years, the bank may unilaterally refuse to perform the bank account agreement by warning the customer in writing or in another manner provided for by the agreement, unless the bank account agreement provides for the bank's waiver of this right. The bank account agreement is considered terminated upon the expiration of 2 months from the date the bank sends such a warning, if no funds have been received in the customer's account during this period (Article 859 of the Civil Code).

Unless otherwise provided by the agreement between the depositor and the beneficiary, upon termination of the escrow account agreement, the remaining funds are transferred or issued to the depositor, or, if the grounds for transferring funds to the beneficiary have arisen, they are transferred or issued to the beneficiary (Article 860.10 of the Civil Code).

As a type of storage (escrow) of property, escrow is presented in the Civil Code as a conditional escrow agreement.

Conditional Escrow Agreement (Escrow)

The conditional escrow agreement (escrow) is regulated by Chapter 47.1 of the Civil Code (Articles 926.1 – 926.8).

Under a conditional escrow agreement (escrow), the depositor undertakes to transfer property to the escrow agent for escrow for the purpose of fulfilling the depositor's obligation to transfer it to another person in whose favor the property is escrowed (the "beneficiary"), and the escrow agent undertakes to ensure the safety of this property and transfer it to the beneficiary upon the occurrence of the grounds specified in the agreement.

The escrow agreement is concluded between the depositor, the beneficiary, and the escrow agent and must provide for the period of property escrow.

The term of an escrow agreement may not exceed 5 years. An escrow agreement concluded for a longer term or without specifying a term is considered concluded for 5 years.

An escrow agreement is subject to notarization, except for cases of escrowing non-cash funds and/or book-entry securities.

Upon the occurrence of the grounds specified in the agreement for transferring property to the beneficiary (including the performance by the beneficiary or a third party of actions provided for by the agreement or the occurrence of a term or event established by the agreement), the escrow agent must transfer the escrowed property to the beneficiary in accordance with the terms of the agreement. If the grounds for transferring the property to the beneficiary specified in the agreement do not arise during the term of the agreement, the escrow agent must return the received property to the depositor.

Movable things (including cash, documentary securities, and documents), non-cash funds, and book-entry securities may be objects of escrow. After the object of escrow is transferred to the escrow agent and during the entire period of the escrow agreement, the depositor may not dispose of said property unless otherwise provided by the agreement. The depositor's obligation to transfer the property to the beneficiary is considered fulfilled from the moment this property is transferred to the escrow agent.

The parties may conclude an agreement under which property must be escrowed with the escrow agent, which is subject to transfer by the parties of a bilateral contract to each other — mutual escrow.

The escrow agent may demand payment of remuneration for the performance of its obligations unless otherwise provided by the agreement. In this case, the obligation of the depositor and the beneficiary to pay remuneration to the escrow agent is solidary unless otherwise provided by the agreement. The escrow agent may not set off or withhold property received from the depositor against the payment or security for the payment of its remuneration unless otherwise provided by the agreement.

Property transferred for escrow to the escrow agent must be segregated from its property. This property is reflected on a separate balance sheet and/or a separate accounting is maintained for it. The escrow agent's commingling of property transferred to it for escrow with other property (including its own) of the same kind does not terminate the escrow agent's obligations to the depositor and the beneficiary. Unless otherwise provided by the agreement or following from the essence of the obligation, the escrow agent may not use the property transferred to it for escrow or dispose of it.

Unless otherwise provided by law, if things are transferred for escrow, the depositor retains the right of ownership to them until the date the grounds for their transfer to the beneficiary arise; after said date, the right of ownership to the escrowed things passes to the beneficiary.

The escrow agent is liable for the loss, shortage, or damage of things transferred to it for escrow unless it proves that these circumstances occurred due to force majeure, or due to the properties of the things of which the escrow agent, when accepting them for escrow, did not know and should not have known, or as a result of the intent or gross negligence of the depositor.

As a general rule, the provisions of Chapter 47 of the Civil Code (Storage) apply to relationships under an escrow agreement providing for the transfer of things for escrow where the right of ownership is retained by the depositor, unless otherwise provided by Chapter 47.1 of the Civil Code, the agreement, or following from the essence of the obligation.

The foreclosure on escrowed property, the attachment of such property, or the adoption of security measures in relation to it for the debts of the escrow agent or the depositor is not permitted. Foreclosure for the debts of the depositor may be applied to the depositor's right (claim) against the beneficiary or the escrow agent in cases of termination of the escrow agreement or violation of obligations under it. When opening a nominal account for the purpose of escrowing non-cash funds, the rules of Article 860.5 of the Civil Code on the attachment or debiting of funds do not apply.

For the debts of the beneficiary, foreclosure may be applied to its right (claim) against the escrow agent for the transfer of the escrowed property.

An escrow agreement is terminated due to the following events:

The death of the citizen who is the escrow agent;
Recognition of him as incapacitated, limitedly incapacitated, or missing;
Termination of the powers of the notary who is the escrow agent;
Liquidation of the escrow agent that is a legal entity;
Expiration of the term of the escrow agreement;
On other grounds provided for by the Civil Code.

The depositor and the beneficiary may waive the escrow agreement by sending a joint notice of this to the escrow agent in writing or in another manner provided for by the escrow agreement.

Upon termination of the escrow agreement, the escrowed property, unless otherwise provided by the agreement between the depositor and the beneficiary, is subject to return to the depositor, or, upon the occurrence of grounds for transferring this property to the beneficiary, it is subject to transfer to the beneficiary.

Scope of Application of the Escrow Agreement

Escrow accounts are primarily used for secure settlements in the field of construction, specifically in the shared-equity construction of apartment buildings, as well as in individual housing construction. In addition, they are used in the purchase/sale of businesses and securities, the transfer of intellectual property rights, and in the conclusion of settlement agreements in court to guarantee the fulfillment of obligations by the parties to the transaction.

Main areas of application:

Housing construction: the buyer deposits money into an escrow account, and the developer receives it only after the delivery of the building;
Secondary market real estate transactions: in this case, the use of an escrow account serves to guarantee the transfer of ownership, as funds pass to the seller after the registration of rights to the real property in Rosreestr;
Purchase/sale of a business, where funds are frozen until the conditions of the transaction are fulfilled;
For settlements during the transfer of shares and bonds;
When concluding settlement agreements to ensure their performance;
International trade.

Since the most popular area of application for escrow accounts is construction, let us examine its application in this field in more detail.

Use of Escrow Accounts in Shared-Equity Construction

Federal Law No. 478-FZ dated December 25, 2018, introduced amendments to Federal Law No. 214-FZ dated December 30, 2004, On Participation in Shared-Equity Construction of Apartment Buildings and Other Real Estate Objects and on Amendments to Certain Legislative Acts of the Russian Federation (the "Law No. 214-FZ" or the "Law on Shared-Equity Construction"), according to which shared-equity construction agreements submitted for registration after July 1, 2019, must mandatorily provide for the use of escrow accounts for settlements between the parties. The use of escrow accounts became mandatory for settlements under shared-equity construction agreements.

Thus, according to parts 1.2 and 4 of Article 3 of the Law on Shared-Equity Construction, a developer may attract funds from participants and carry out the construction of real estate objects, including apartment buildings, either by placing the participants' funds in escrow accounts or by fulfilling the obligation to pay contributions to a special compensation fund.

Articles 15.4 and 15.5 of the Law on Shared-Equity Construction establish specific features for a developer to attract funds from participants in shared-equity construction in the event of placing such funds in escrow accounts, as well as specific features for opening, maintaining, and closing an escrow account for settlements under a shared-equity construction agreement.

Requirements for Escrow Agents in Shared-Equity Construction

An escrow account for settlements under a shared-equity construction agreement is opened by an authorized bank (the "escrow agent") for recording and blocking funds received by the bank from the account holder — the participant in shared-equity construction (the "depositor") — toward the payment of the price of the shared-equity construction agreement in relation to an apartment building and (or) other real estate object, for the purpose of the escrow agent transferring such funds to the developer (the "beneficiary").

The introduction of the escrow account mechanism in the field of shared-equity construction is aimed at minimizing the risks for investor-participants. This system functions on the principle of escrowing the financial resources of shared-equity construction participants in specialized bank accounts until the developer fulfills its contractual obligations. In the field of shared-equity construction, the participant of the investment-construction project performs the function of the depositor, while the role of the beneficiary is assigned to the developer. [6]

Foreign legal systems provide for the possibility of transferring any types of assets to an escrow account, while in Russia, only funds may be transferred to such accounts. Furthermore, in other countries, the functions of escrow agents may be performed by various legal and financial professionals, including notaries, attorneys, and tax consultants. In Russia, the role of escrow agents is limited to credit organizations. [7]

The inability to accrue interest on the funds placed in such accounts can be named as a disadvantage of using escrow accounts in the construction sector, since interest is not accrued on the amount of funds in the escrow account. No remuneration is paid to the authorized bank acting as the escrow agent for the escrow account (Article 15.5 of the Law on Shared-Equity Construction).

A construction participant can expect only the return of the initially deposited amount, without considering potential financial losses associated with inflation. Some researchers propose including provisions in legislation obliging banks to pay interest to participants, calculated based on the weighted average deposit rate in the relevant region, in the event of early termination of a shared-equity construction agreement. This proposal is primarily aimed at ensuring the financial security of shared-equity construction participants and compensating for potential losses, since under the existing system for financing shared-equity construction, banks acting as escrow agents have the opportunity to operate with the funds placed in escrow accounts, whereas the participants' funds are not protected from inflation. [8]

Russian Government Decree No. 697 dated June 18, 2018, approved the criteria (requirements) that authorized banks and banks entitled to open escrow accounts for settlements under shared-equity construction agreements must meet in accordance with the Federal Law on Shared-Equity Construction.

Thus, a bank must simultaneously possess at least 2 credit ratings:

Not lower than the "BBB-(RU)" level according to the national rating scale of the credit rating agency Analytical Credit Rating Agency (Joint Stock Company);
Or not lower than the "ruBBB-" level according to the national rating scale of the credit rating agency Expert RA Rating Agency (Joint Stock Company);
Or not lower than the "BBB-.ru" level according to the national rating scale of the credit rating agency National Credit Ratings (Limited Liability Company);
Or not lower than the "BBB-|ru|" level according to the national rating scale of the credit rating agency National Rating Agency (Limited Liability Company).

The limit for lending to developers for the construction (creation) of apartment buildings and (or) other real estate objects is set at an amount not exceeding 20% of the value of the bank's own funds (capital).

By establishing such requirements, the state aims to exclude the participation of financially unstable banks and ensure access to construction loans for banks whose bankruptcy is unlikely, which, in turn, reduces the risk of violating the rights of shared-equity construction participants and developers and maintains the stability of civil circulation.

Depositing Funds into an Escrow Account in Shared-Equity Construction

Funds are deposited into the escrow account after the registration of the shared-equity construction agreement for a conditional escrow period, which may not exceed by more than six months the deadline for commissioning the apartment building and (or) other real estate object specified in the project declaration. Upon the application of the shared-equity construction participant, the conditional escrow period may be extended after six months, but by no more than two years. This provision applies to legal relationships arising from shared-equity construction agreements concluded using escrow accounts before March 14, 2022.

Funds are deposited into an escrow account opened for the purpose of paying the price of the agreement in relation to an individual residential building within the boundaries of a low-rise residential complex after the registration of the agreement for a conditional escrow period, which may not exceed the commissioning deadline by more than six months.

The funds deposited in the escrow account are transferred by the escrow agent to the developer no later than 10 business days after the developer submits the permit for commissioning the apartment building and (or) other real estate object to the authorized bank, or are directed toward the payment of the developer's obligations under a credit agreement (loan agreement) if the credit agreement (loan agreement) contains an instruction from the developer to the authorized bank to use such funds (part of such funds) to pay the developer's obligations under the credit agreement (loan agreement), or to the developer's opened pledge account, the rights to which have been pledged to the authorized bank that provided the funds to the developer, if provided for by the credit agreement (loan agreement).

Termination and Rescission of the Escrow Account Agreement

In addition to the grounds for termination of an escrow account agreement provided for by the Civil Code, an escrow account agreement for settlements under a shared-equity construction agreement is also terminated on the following grounds:

Upon rescission of the shared-equity construction agreement;
Upon unilateral waiver of the shared-equity construction agreement.

The authorized bank (the escrow agent) may unilaterally waive the escrow account agreement if funds are not deposited into the escrow account for more than 3 months from the date of concluding such an agreement.

In case No. A32-9450/2025, an LLC filed a lawsuit with an arbitration court against a defendant to declare the transaction for rescinding a shared-equity construction agreement invalid, to apply the consequences of the invalidity of the transaction in the form of declaring the shared-equity construction agreement valid, and to restore the registration entry in the USRN. The plaintiff, as a participant in shared-equity construction, was obliged to deposit funds toward the payment of the agreement price into a special escrow account opened with a bank (the escrow agent) under an escrow account agreement concluded for the purpose of recording and blocking funds. However, the funds were deposited with a deviation from the schedule agreed upon by the parties. The defendant sent a notice of unilateral waiver of performance of the agreement and its unilateral rescission. Rosreestr performed the state registration of the termination of the shared-equity construction agreement, and the registration entry for the DDU was cancelled (annulled). During the consideration of the case, the courts established that "the agreement concluded between the parties provides that a delay in making a payment by the shared-equity construction participant for more than two months is grounds for the developer's unilateral waiver of performance of the terms of the agreement. This is anchored in part 5 of Article 5 of Law No. 214-FZ — a systematic violation of payment deadlines by a shared-equity construction participant, i.e., a violation of the payment deadline more than three times within twelve months or a delay in making a payment for more than two months, is grounds for the developer's unilateral waiver of performance of the agreement in the established manner. According to the documents presented in the case file, the plaintiff's delay in performing its obligations was more than two months; therefore, the defendant applied the clause of the agreement providing for the possibility of unilateral rescission of the agreement, subject to compliance with the procedure for notifying the party to the agreement provided for by law". [9]

In the event of termination of the escrow account agreement on the grounds specified above, the funds from the escrow account, based on information received by the authorized bank regarding the cancellation of the entry for state registration of the shared-equity construction agreement, are subject to return to the shared-equity construction participant or are transferred to its pledge account, the rights to which have been pledged to the bank or other credit organization that provided the funds to the shared-equity construction participant for payment of the shared-equity construction agreement price, if such a condition is provided for by the agreement concluded between the participant and the creditor.

In case No. 88-26863/2025, the plaintiff filed a lawsuit against the developer, in which she requested the court to rescind the shared-equity construction agreement, recover the amount paid under the agreement, interest for the use of other people's funds provided for by part 6 of Article 9 of the Law on Shared-Equity Construction, a fine under the consumer rights protection procedure, and penalties (forfeit provided for by part 2 of Article 6 of the Law on Shared-Equity Construction for violation of the deadline for transferring the shared-equity construction object to the participant). The deadline for transferring the object was established no later than June 30, 2024. On August 27, 2024, the plaintiff sent a notice of rescission of the agreement to the defendant due to the violation of the deadline for transferring the object. In response to the plaintiff's appeal, the defendant sent a notice of change in the deadlines for transferring the shared-equity construction object, extending the transfer deadline until December 31, 2024, and proposed signing an additional agreement to the contract. The deadline for transferring the shared-equity construction object was not extended in the manner prescribed by law, and no additional agreement was concluded between the parties. The shared-equity construction object was not transferred to the plaintiff, and no agreement on rescission was concluded between the parties.

Resolving the dispute on the merits, the courts, having established a violation by the developer of the obligation to timely transfer the shared-equity construction object by more than two months, as well as the plaintiff's waiver of performance of the agreement, concluded that there were grounds for rescinding the shared-equity construction agreement and recovering funds and compensation for moral damage in favor of the plaintiff. Guided by the provisions of part 4 of Article 15.4 of the Law on Shared-Equity Construction, having established that the plaintiff paid for the agreement using an escrow account, the courts concluded that "there were no grounds for recovering interest from the developer for the use of other people's funds provided for by part 6 of Article 9 of Law No. 214-FZ". Taking into account the provisions of Russian Government Decree No. 326 dated March 18, 2024, On Establishing the Specifics of Applying the Forfeit (Fine, Penalty), Other Financial Sanctions, as Well as Other Liability Measures for Non-performance or Improper Performance of Obligations Under Shared-Equity Construction Agreements Established by the Legislation on Shared-Equity Construction, providing for periods of the moratorium on the calculation of forfeits and fines, the courts also concluded that "there were no grounds for satisfying the claims regarding the forfeit and fine". [10]

What Should an Escrow Agreement Contain?

An escrow account agreement must contain information about the depositor's bank account to which the funds are transferred, as well as information about the pledgee and the details of the pledge account to which the funds are transferred by the escrow agent if the shared-equity construction agreement contains an indication of the use of borrowed funds by the participant to pay the shared-equity construction agreement price.

In the event of an assignment by the shared-equity construction participant, who is the escrow account holder, of the rights of claim under the shared-equity construction agreement or the transfer of such rights of claim on other grounds, including by way of universal succession or upon foreclosure on the debtor's property, all rights and obligations under the escrow account agreement concluded by the former shared-equity construction participant pass to the new participant from the moment of state registration of the agreement (contract) on the basis of which the assignment of rights of claim is performed, or from the moment of the transfer of rights of claim under such an agreement on other grounds.

In the event of a refusal by an authorized bank to conclude an escrow account agreement with a person who is a party to a shared-equity construction agreement, or the rescission of an escrow account agreement by an authorized bank with a customer who is a party to a shared-equity construction agreement in accordance with Federal Law No. 115-FZ dated August 7, 2001, On Counteracting the Legalization (Laundering) of Proceeds of Crime and the Financing of Terrorism, the other party to the shared-equity construction agreement may unilaterally waive the performance of the shared-equity construction agreement.

Escrow in the Construction of Residential Buildings under Construction Subcontracts

On March 1, 2025, Federal Law No. 186-FZ dated July 22, 2024, On the Construction of Residential Buildings under Construction Subcontracts Using Escrow Accounts (the "Law No. 186-FZ") entered into force. This law regulates relations associated with the construction by legal entities or individual entrepreneurs of residential buildings on land plots belonging to Russian citizens by right of ownership, right of lease, or gratuitous use for the purpose of their acquiring the right of ownership to residential buildings constructed on such land plots in accordance with a construction subcontract, the funds toward the payment of the price of which are placed by customers in escrow accounts to protect their rights and lawful property interests.

In accordance with Law No. 186-FZ, a construction subcontract must provide for a condition on the customer's obligation, for the purpose of paying the price of the construction subcontract, to open an escrow account in the authorized bank that provided a target loan to the contractor for the construction of residential buildings, and in the absence of a target loan for the contractor — in the authorized bank in relation to which the parties to the construction subcontract have reached an agreement on placing funds for said purposes (Article 5 of Law No. 186-FZ).

the customer's obligation under the construction subcontract (the "depositor") to pay the price stipulated by the construction subcontract is considered fulfilled from the moment the funds are received in the escrow account opened in the authorized bank.

Funds are deposited into the escrow account after the parties sign the construction subcontract for a conditional escrow period, which may not exceed by more than 6 months the deadline for the completion of the construction of the residential building provided for by the construction subcontract.

Interest is not accrued on the amount of funds in the escrow account. No remuneration is paid to the authorized bank acting as the escrow agent for the escrow account.

The funds deposited in the escrow account are transferred by the escrow agent to the contractor no later than 5 business days after the contractor submits information to the bank on the state registration of the customer's right of ownership to the residential building constructed in accordance with the construction subcontract, or are directed toward the payment of the contractor's obligations under a credit agreement.

In the event of a change in the price of the construction subcontract, the parties to the construction subcontract must notify the escrow agent of this, providing supporting documents, no later than 5 business days from the date of the change in price. Within 5 business days from the date of receiving said information, the parties to the escrow account agreement conclude an additional agreement to this contract regarding the corresponding change in the escrowed amount.

Escrow can also be used in international trade.

Application of Escrow in International Trade

The use of escrow accounts in foreign trade transactions ensures the security of settlements by blocking the buyer's funds until the seller fulfills its contractual obligations (delivery of goods, transfer of documents). This protects the parties from the risk of bad faith, currency restrictions, and transaction disruptions, acting as an instrument of "frozen payment". The buyer deposits funds into a special account, freezing them until the moment the fulfillment of the conditions is confirmed. The participants are, respectively, the buyer (the "depositor"), the seller (the "beneficiary"), and the bank/agent (the "escrow agent"), acting as an independent third party.

The use of an escrow account for settlements with counterparties is similar to the letter of credit form of settlement. Letters of credit are more common in international trade; however, escrow accounts provide a similar, often more flexible level of security. In conditions of difficulties with cross-border transfers, an escrow account acts as a reliable financial intermediary.

In the letter of credit form of settlement, the bank, upon the instruction of the payer, undertakes an obligation to make a payment of funds to the recipient subject to the submission of certain documents in accordance with its terms (Article 867 of the Civil Code). A letter of credit has a wider scope of application than an escrow bank account, since in addition to paying funds to the recipient, the bank can also accept and pay a bill of exchange issued by the recipient, as well as perform other actions to execute the letter of credit. Furthermore, not only the recipient itself but also a person specified by it can receive performance under a letter of credit from the bank in accordance with the terms of a transferable letter of credit (Article 870.1 of the Civil Code).

A letter of credit can be revocable, which gives the payer the right to change or cancel it at any time without prior notice to the recipient of the funds by virtue of Article 868 of the Civil Code, whereas such a possibility is not provided for by law for an escrow bank account.

The bank, both within the letter of credit form of settlement and under an escrow account agreement, checks the submitted documents only by external features (Article 871, Article 860.7, and Article 926.3 of the Civil Code). The bank bears no responsibility for the authenticity of documents and the reliability of the information presented in them.

For an escrow account, the suspension of operations, attachment, or debiting of money for the obligations of both the depositor itself and the beneficiary is not permitted, which increases the reliability of said instrument (Article 860.8 of the Civil Code). For the payer's funds transferred to the bank in a letter of credit, such rules are not provided for by law; therefore, certain prohibitions and restrictions may be introduced in relation to such amounts in accordance with the current legislation of the Russian Federation.

It should be taken into account that the risk of a bank's license to perform banking operations being revoked is distributed differently among participants in civil circulation when using a letter of credit and an escrow account. Thus, according to paragraph 1 of Article 860.7 of the Civil Code, the rights to funds in an escrow account belong to the depositor until the date the grounds for transferring funds to the beneficiary arise; after said date, they belong to the beneficiary. Accordingly, the risk of the escrow agent's license to perform banking operations being revoked falls on the party to the agreement that, at the time such risk arises, has a right of claim against the escrow agent. The situation is different with a letter of credit. Thus, from the content of Article 872 of the Civil Code, it follows that the bank itself, and not the payer, bears responsibility to the recipient of funds for the performance of the terms of the letter of credit.

Escrow accounts are also used in the field of environmental protection, which we will consider in the next section.

Escrow Accounts in Financial Support for Environmental Protection Measures

In accordance with Federal Law No. 7-FZ dated January 10, 2002, On Environmental Protection, financial support for the implementation of measures provided for by an action plan during the operation and decommissioning (conservation or liquidation) of hazardous production facilities of classes I and II is carried out using an escrow account.

According to Article 56.3 of the specified law, the funds of the reserve fund in the volume necessary for the implementation of measures provided for by an action plan or several action plans are placed in escrow accounts.

The escrow account is opened by the bank for recording and blocking funds received by the bank from the account holder — a legal entity or individual entrepreneur who owns individual production facilities (the "depositor") — for the purpose of the escrow agent transferring such funds to the federal budget (the "beneficiary") in the event of the depositor's bankruptcy.

The funds transferred by the escrow agent and credited to the federal budget are directed toward the implementation of measures to prevent and eliminate environmental pollution resulting from the operation of an individual production facility, including measures implemented during its conservation or liquidation. The use of funds transferred by the escrow agent and credited to the federal budget is carried out in the manner established by budget legislation, based on individual decisions of the Government.

Funds are deposited into the escrow account by the account holder (the "depositor") who owns individual production facilities, in the presence of an action plan for a conditional escrow period, which may not exceed by more than 6 months the term of operation of buildings and structures that are individual hazardous production facilities and (or) in which individual hazardous production facilities are located, and (or) the term of operation of waste disposal facilities of classes I and II, or the term of use of a subsoil plot or the term of development of mineral deposits (in relation to coal mines).

The funds deposited in the escrow account within the period provided for by the escrow account agreement, or in the absence of a period in the escrow account agreement — no later than the 10th calendar day after the account holder (the "depositor") — the owner of an individual production facility submits confirmation of the full implementation of the measures provided for by the action plan and a conclusion on the compliance of the implemented measures to prevent and eliminate environmental pollution, including measures implemented during the conservation or liquidation of an individual production facility, with the action plan, are transferred by the bank (the "escrow agent") to the account holder (the "depositor") — the owner of the individual production facility. [11]

The escrow account agreement can be terminated on one of the following grounds:

Reconstruction of buildings and structures that are individual hazardous production facilities and (or) in which individual hazardous production facilities are located (with the exception of coal mines), and a change in the term of operation of such buildings and structures contained in the project documentation that has received a positive conclusion of state expertise;
Extension of the term of use of a subsoil plot established by a license for subsoil use or the term of development of a mineral deposit provided for by the technical project for the development of mineral deposits (in relation to coal mines);
Introduction of amendments to the action plan, obtaining a conclusion of state environmental expertise, and a conclusion on the reasonableness of determining the estimated cost of implementing the measures provided for by the action plan, taking into account the amendments made to it;
Full implementation of the measures provided for by the action plan and the presence of a conclusion on the compliance of the implemented measures to prevent and eliminate environmental pollution, including measures implemented during the conservation or liquidation of an individual production facility, with the action plan.

In the event of a transfer of rights to an individual production facility, including by way of universal succession or upon foreclosure on the debtor's property, all rights and obligations under the escrow account agreement concluded by the former owner of the individual production facility pass to the new owner.

Thus, the escrow account agreement is an instrument for settlements and ensuring the performance of obligations, and is also a way to protect the interests of participants in civil circulation. The expansion of the scope of application of the escrow account agreement makes it possible to ensure the security of transactions through the guaranteed preservation of entrusted property and the minimization of risks for the parties.

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References

[1] Karkhalev D.N. Escrow Account Agreement in Civil Law. Notary Journal, 2021, No. 3.

[2] Letter of the Ministry of Finance of Russia No. 03-07-07/78232 dated August 18, 2023.

[3] Letter of the Ministry of Finance of Russia No. 03-02-07/1/21741 dated April 12, 2017.

[4] Resolution of the Seventh Arbitration Appeal Court dated February 20, 2022, in case No. A45-14303/2021.

[5] Resolution of the Ninth Arbitration Appeal Court dated July 25, 2025, in case No. A40-262680/2024.

[6] Ivanov A.A. Legal Regulation of the Use of Escrow Accounts in Construction. Civilist Journal, 2025, No. 5.

[7] Ibid.

[8] Gushchina T.V. Problems of the Shared-Equity Construction Participation Agreement at the Stage of its Conclusion. Current Problems of Law, State, and Economy: Collection of Scientific Articles. Orel, 2023.

[9] Resolution of the Fifteenth Arbitration Appeal Court dated October 23, 2025, No. A32-9450/2025.

[10] Ruling of the First Cassation Court of General Jurisdiction dated October 9, 2025, No. 88-26863/2025 (UID 50RS0029-01-2024-005443-26).

[11] Russian Government Decree No. 642 dated April 22, 2023, On Approving the Rules for Placing in Escrow Accounts and Using Funds of the Reserve Fund Created in Accordance with Subparagraph 3 of Paragraph 1 of Article 56.3 of the Federal Law On Environmental Protection.