Escrow Account: What It Is and Why You Need One

When entering into transactions that carry financial risks (such as buying an apartment under a shared construction scheme), an escrow account is often used. It is designed to protect the interests of both parties during unforeseen circumstances, secure the funds, and reduce the chances of misconduct. Escrow accounts can be opened by individuals, legal entities, and individual entrepreneurs.

Escrow accounts have been used in international practice for decades, while in Kazakhstan this is still a relatively new tool — introduced in 2016.

How Does Escrow Work?

An escrow account is a special bank account with two key features:

• It is opened under a tripartite agreement between the buyer (payer), seller (beneficiary), and the bank.

• Funds are released only when the seller fulfills their obligations.

For example, a company buying a business deposits funds into an escrow account. The bank freezes the money until the seller meets the contract terms (e.g. resolves ownership rights). Once fulfilled, the bank transfers the funds. If obligations aren’t met, and both parties agree, the funds are returned to the payer.

In mergers and acquisitions, escrow allows both parties to conduct due diligence with peace of mind — the buyer is assured that the seller has met requirements, and the seller knows the buyer has the necessary funds.

A classic case for individuals is shared construction. The buyer opens an escrow account in the name of the developer. The developer receives the money only after completing and commissioning the building.

Escrow works similarly to a letter of credit, but with key differences:

• Escrow accounts can only be opened/closed in the presence of both parties.

• In escrow, the bank acts as a guarantor, not just a mediator. The contract may specify that the bank must verify compliance using documents from both parties.

When Is Escrow Used?

Individuals most often use escrow when buying property in shared construction. For legal entities and individual entrepreneurs, escrow is used for:

• Purchasing securities or businesses
• Buying commercial real estate
• Paying for services, intellectual property rights, patents, trademarks
• Settling court agreements

In general, escrow is suitable when:

• The parties are not fully confident in each other — e.g. new partners
• There is a long gap between payment and delivery (several months or more)

Pros and Cons of Escrow For the buyer:

• Guarantees refund if obligations are not met
• Funds are protected from seizure (unless a court orders otherwise)

For the seller:

• Guarantees that the buyer has sufficient funds
• Ensures business continuity (in case of developers)

Escrow is a flexible tool — contracts can include customized conditions.

Important to note:

• There may be a limit on refundable funds in force majeure situations
• Funds held in escrow do not accrue interest (unlike deposits)

How to Open an Escrow Account

You can open an escrow account in a second-tier bank that offers the service. Supported currencies: KZT, USD, EUR, RUB. At Bank CenterCredit, the process is available online via BCC Business platform:

1. 1. In the “Applications” section, go to “Secure Transaction (Escrow Account)”
2. 2. Read the service details and click “Start Secure Deal”
3. 3. Fill in the transaction details and upload the contract
4. 4. Click “Sign and Submit” — the payer will receive an SMS or email to confirm
5. 5. You can track the status in the “Secure Deals” section

The payer has 15 days to sign the escrow documents online.

To fund the escrow account, the buyer can open an account at Bank CenterCredit or make a transfer from another bank. Both buyer and seller receive SMS confirmation of the deposit.

Bank CenterCredit offers a transparent escrow process — both parties can track each stage. To receive the funds, the seller must upload documents (e.g. a signed completion certificate). After the transaction, the buyer should close the account to avoid further fees.

Why Use Escrow at Bank CenterCredit?

• Account opening is free
• Entire process is online
• Transparent and trackable
• Available to both new and existing clients
• Fast: under 5 minutes for current clients
• Monthly maintenance fee: 12,000 KZT (charged to the seller 1 month after deposit)

Escrow accounts are increasingly popular in Kazakhstan, especially among businesses. There's ongoing discussion to make escrow mandatory for individual buyers participating in shared construction — as a protection mechanism to encourage timely and lawful project completion.

This article has been translated from its original language using neural network-based translation technology.