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Need for speed: Escrow arrangements for high-demand products from domestic and foreign companies

Recently, we’ve been receiving calls from various parties working on deals to buy high-demand products, such as medical supplies and equipment, from domestic and foreign vendors with which their firms haven’t previously done business. Companies and their legal counsel may face a need to move quickly when a deal comes into focus. Following is a quick overview of a typical buy/sell escrow arrangement, including how to be prepared in advance.

Escrow arrangements protect all parties from misrepresentation

Avoiding fraud is a paramount concern in any context, but the stakes are even higher when the market environment is strained and the needed products are mission-critical. An escrow arrangement helps protect your organization against sending a deposit only to find that the product never arrives, or the product that does arrive was misrepresented or outright wrong.

Of course, companies selling to a new buyer face similar risks. In either direction — buying or selling —, unless or until a letter of credit or other financial arrangement is established, an escrow is a well-established and well-accepted way to protect all parties executing the escrow agreement.

Escrow account setup can happen in as little as a day—but it pays to be ready

Like other bank services, escrow arrangements are subject to “know your customer” standards and other rules under the Patriot Act and Bank Secrecy Act. When foreign parties are involved, the documents required can be slightly more extensive than domestic entities. This isn’t a surprise to most reputable overseas sellers.

The first step is to create an escrow agreement, usually working from an existing template. For example, we have templates for several common escrow types, including buy/sell involving domestic and foreign parties. Then, the escrow agent will carry out its responsibility to know the parties involved. Have a current W-9 form at hand, as well as a business description and copy of your formation documents (or current state-issued certificate of good standing). As with other banking arrangements, you’ll also need to provide information about beneficial owners for privately held companies.

Similar information is needed for the foreign entity, though it may be possible to initiate the agreement while receipt of a W-8 form is still pending. (However, a W-8 is required before funds can be disbursed to the foreign party, including any foreign beneficiaries.). Foreign entities also need to disclose any business with senior political figures and say whether they offer any financial-transfer services such as check-cashing or currency exchanges. A short list of requirements also applies to beneficial owners and any foreign individual serving as representative to the agreement.

To protect your interest, the process should be expedited quickly, including thorough review by legal counsel. We’ve seen escrow agreements finalized in a single business day. Once that’s complete, your escrow agent can accept and hold funds in safekeeping in accordance with the agreement. Often the next step is timely disbursements of escrow funds to the seller, typically via wire or SWIFT payments for international transactions, after products are received in good order by the buyer.

As you work to fulfill your critical business needs during this time, it’s important to have a clear understanding of the benefits of escrow arrangements for your foreign and domestic transactions.

UMB is a nationally recognized provider of corporate trust and escrow services. For more than 75 years, UMB has been a dependable provider of corporate trust and escrow services, administering over $91 billion and 8,100 transactions. To learn more about our offerings or get in touch with our team, visit umb.com/corporatetrust.

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When you click links marked with the “‡” symbol, you will leave UMB’s Web site and go to Web sites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other Web sites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.