Anglo-American escrow and CARPA escrow: two approaches to securing funds

In a cross-border transaction — an acquisition, a fundraising or a sale of assets between French and Anglo-Saxon parties — the question of the trusted third party responsible for holding the funds almost always arises. On the Anglo-American side, people speak of 'escrow'; in France, of séquestre, often held on a CARPA account when it is entrusted to a lawyer. Both meet the same need, but rest on very different legal frameworks, players and guarantees.

A shared need: neutralising counterparty risk

Common-law escrow and French escrow start from the same observation. As soon as a payment must be made before, or conditionally upon, the performance of an obligation (transfer of shares, satisfaction of conditions precedent, warranty against liabilities), each party fears that the other will disappear with the money or with the asset. The solution consists in entrusting the funds to a neutral third party who will release them only against conditions agreed in advance.

That is the only real similarity of substance. Everything else — legal nature, the standing of the third party, the treatment of the funds — diverges depending on whether one is in common law or in French law.

Anglo-American escrow: a flexible contractual arrangement

In common-law systems (United Kingdom, United States), escrow is not a fixed legal status but a contractual arrangement. The parties sign an escrow agreement that defines the conditions for deposit and release, and appoint an escrow agent to hold the funds on a dedicated account.

What characterises Anglo-Saxon escrow:

• A wide variety of players: the escrow agent may be a bank, a specialist firm (escrow company), a title company (US real estate) or a law firm;
• A fragmented regulatory framework: no single status, licensing state by state in the United States, Solicitors Regulation Authority rules in the United Kingdom;
• Considerable freedom of drafting: the treatment of interest, the agent's liability and the release arrangements are negotiated in the escrow agreement;
• Widespread use in M&A, where a fraction of the price (the escrow amount) is held back to cover representations and warranties or price adjustments.

The flexibility is real, but so is the trade-off: the robustness of the arrangement depends entirely on the quality of the chosen third party and on the drafting of the contract.

CARPA escrow: a unified legal and ethical framework

In French law, contractual escrow is governed by the Civil Code (articles 1956 et seq.). Where it is entrusted to a lawyer, it takes a specific and closely controlled channel: CARPA, the French bar's fund-handling body, through which every lawyer must compulsorily route the funds they handle on behalf of third parties.

This has several consequences:

• A qualified and independent third party: the escrow agent is a lawyer, bound by their code of conduct (independence, integrity, professional secrecy, absence of conflicts of interest);
• Ring-fenced and traceable funds: deposited on a dedicated CARPA sub-account, separate from the lawyer's own assets, immune from seizure by their creditors, and subject to strict anti-money-laundering controls;
• A controlled release: the funds are paid out only against the conditions set out in the escrow agreement, under CARPA's control;
• A specific regime for interest: the financial income of CARPA accounts does not accrue to the parties; it funds access to justice.

Where Anglo-Saxon escrow relies on freedom of contract, CARPA escrow relies on a homogeneous institutional framework offering a very high level of security, without the need to rebuild the guarantees in every contract.

In short: escrow and CARPA escrow side by side

• Legal nature — escrow: contractual arrangement (escrow agreement); CARPA escrow: contractual escrow under the Civil Code (art. 1956 et seq.);
• Who holds the funds — escrow: bank, escrow company, title company, law firm; CARPA escrow: a lawyer, via a CARPA account;
• Regulatory framework — escrow: fragmented (state by state, SRA); CARPA escrow: unified (CARPA and the code of conduct);
• Interest earned — escrow: negotiated between the parties; CARPA escrow: earmarked for access to justice;
• Confidentiality — escrow: depends on the third party; CARPA escrow: the lawyer's professional secrecy.

Which arrangement to choose for a cross-border transaction?

The choice rarely turns on a single criterion. A few practical pointers:

• Transaction governed by French law, or a French party keen on the neutrality of the third party: CARPA escrow offers a clear, protective framework immediately recognised by practitioners;
• Transaction structured under English or American law: escrow remains the market norm, with particular attention to the choice of agent and the drafting of the escrow agreement;
• Mixed structure: it is not uncommon to use CARPA escrow for the French part of the flows, so as to benefit from institutional guarantees that contractual escrow has to reconstruct clause by clause.

In every case, the aim is the same: to ensure that the third party is genuinely independent, that the release conditions are unambiguous, and that the funds are legally protected until they are paid out.

Are you preparing an international transaction? Fidens acts as escrow agent to secure your financial flows, including where the question arises of how to articulate escrow with CARPA escrow.