What is Escrow and Why I Do Not Recommend It in Panama

About Escrow in Panama

In international real estate and commercial transactions, the term escrow is frequently used. Many foreign clients assume that escrow works the same way in every country—but in Panama, that is not the case.

In this article, I explain what escrow is, how it should work, and why, in my professional opinion, it is not advisable to use it in Panama without proper legal structure.

What is escrow?

An escrow is an arrangement where a neutral third party holds funds or assets until certain agreed conditions are met.

For example:

• The buyer deposits funds into an escrow account

• The escrow agent holds the funds

• Once conditions are fulfilled, the funds are released to the seller

In theory, this protects both parties.

How does escrow work in other countries?

In jurisdictions such as the United States, escrow services are highly regulated. Providers:

• Are licensed

• Are supervised by financial authorities

• Must comply with strict rules regarding third-party funds

This creates trust and minimizes risk.

What happens in Panama?

This is where issues arise. In Panama, escrow is not regulated or structured in the same way. Many individuals or companies offer “escrow” services without complying with legal requirements.

Panamanian law establishes that anyone handling third-party funds must have the appropriate license.

This may involve:

• Fiduciary licensing

• Financial regulation

• Compliance obligations

However, in practice:

• Personal or corporate accounts are often used

• There is little to no supervision

• There are no real guarantees for the parties

Risks of using escrow in Panama without proper regulation

1.       Lack of legal protection

2.       Risk of mismanagement of funds

3.       Difficulty in enforcement

4.       Potential legal exposure

My professional recommendation

In my practice, I do not recommend using escrow in Panama unless it is properly structured and handled by a licensed entity.

If the client has—or is able to open—a bank account in Panama, the most secure and recommended option is: Bank-Issued Promise of Payment Letter .

This mechanism:

• Provides assurance of payment to the seller

• Involves a regulated financial institution

• Significantly reduces risk

• Is widely used in Panamanian real estate transactions

Additionally, other safer alternatives include:

1.       Licensed fiduciary structures

2.       Well-drafted agreements with clear payment conditions

3.       Full legal guidance throughout the transaction

Conclusion

Escrow can be a useful tool in regulated markets, but in Panama it can pose significant risks if not handled properly.

Before agreeing to any escrow structure, always verify:

1.       Who is holding the funds

2.       Whether they are licensed

3.       Under what legal framework they operate

 When it comes to your investment, legality and proper structure should always come first.

Need legal assistance contact us: roxana@roxanarangel.com.