Insidious Escrow

 

A spectre is haunting Russia, a spectre of trust. Soon, Russian law may begin recognizing trust - or something that looks like one.

The principal feature of legal systems based on Roman law is that we can always find a point in time when ownership passes from one person to another. Here in Russia, we don’t like the Anglo-Saxon idea that a property right can be smeared over several entities. We don’t care about how the legal estate differs from the equitable estate.

Yet, never fear. We can detach ourselves from this curious but unnecessary peculiarity of the English mind and build a trust-like structure of our own. The President’s Council for Codification and Enhancement of Civil Legislation has prepared a new chapter to the Civil Code about escrow agreements.

In a typical escrow, A gives something to B, so that when certain conditions are met, B passes this thing to C. Assets in escrow are in a kind of a sandbox: they become immune to the personal debts of the depositor, of the escrow agent and of the beneficiary.

There is nothing new in that the agent’s creditors can’t get hold of the property. The novelty is that the creditors of the depositor – who, we should believe, remains the owner of the asset - or of the beneficiary can’t obtain it either. All they can get is the personal right of the debtor in relation to this property.

Escrow, therefore, is a perfect means for making payments for real estate, stocks or Internet sites. It can also be useful for keeping things safe and private.

We are curious to see how so demonstratively alien instrument is going to entrench in the Russian law. We find fascinating the apparent contrast between the design and the product.

According to the draft law, anything can be put in escrow: money (banknotes, cheques or cashless deposits), stocks, bonds, gold bullions or trade commodity. There is just one reservation: the object must be segregated. Anyone can become an escrow agent.

This means, at least in theory, that trusts - in the form of escrow - can spread widely and uncontrollably from relatively simple family matters to sophisticated asset protection arrangements.

No doubt Russian law needs a reliable, flexible, transparent means of payment like escrow. And the authors of this law wanted to give exactly that, a payment instrument. Yet, they are going to open the door to a whole world of possibilities, to a myriad of new things they, most probably, have never intended to provide.

Why is that? We believe the answer lies in the nature of trust. It is not a function we can identify, emulate and keep narrowly applied.

‘One cannot identify the function of the trust because there is no such function,’ wrote Professor Gretton from the University of Edinburgh, ‘The trust is functionally protean. Trusts are quasi-entails, quasi-usufructs, quasi-wills, quasi-corporations, quasi-securities over assets, schemes for collective investment, vehicles for the administration of bankruptcy, vehicles for bond issues, and so on and so forth'.

In a way, trust is a backdoor to law. It is our defence against the letter of law.

The ultimate question that remains is whether the authors should proceed with the bill. Our answer is a loud ‘yes’. Despite what some comparativists think, the difference between a common law and a civil law is hugely overrated. Escrow is our road to trust. Trust can, and will, be misused. And so what? Shit happens. Russian law must, one day, leave behind its somewhat paternalistic stance to people and let them arrange their affairs the way they like. This will not cripple Russia.

 

photo: © Igor Zakowski - Fotolia.com

 

We may get more than we were promised
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