How do Escrow (Trust) Accounts Operate in Costa Rica?
The question often arises with expats moving to Costa Rica, as to how large sums of money may be transferred to Costa Rica from their home country bank, in order to complete a real estate purchase transaction or the acquisition of a business interest. The answer is that they will have to use the services of an escrow account, operated by an Escrow Company. Please note, “Escrow” is a U.S. term. For Canadians, it is known as a Trust Account.
Escrow (Trust) Accounts in Costa Rica are regulated by the Government Banking Regulatory Authority known as SUGEF (Superintendencia General de Entidades Financieras). This entity regulates the entire banking and financial industry and is a very powerful institution in Costa Rica, with significant power to sanction banks and financial entities for non-compliance issues.
The History
Approximately fourteen years ago, it was quite common for individual law firms to operate their own escrow (trust) accounts, particularly if they were a law firm involved with real estate purchases by their Clients.
Then, Costa Rica was cited by a number of international money laundering watchdog agencies, as being a haven for money laundering, particularly as it related to the illicit drug trade. Costa Rica was given an ultimatum, that unless certain regulatory steps were taken to increase anti-money laundering controls, the country would be “black listed”, making international financial transactions difficult.
A significant increase in escrow account administrative, reporting, and compliance requirements were introduced, which effectively made it impossible for individual law firms to comply, either on a workforce or cost basis.
Accordingly, the entire escrow account industry has largely devolved into three major Escrow Companies, registered with SUGEF, controlling the entire escrow account market in Costa Rica. There is a fourth Escrow Company based in the State of Texas, which still has to meet the rigorous requirements of foreign funds entering the Costa Rica Banking System, which is gaining in popularity, but is more user friendly when, by agreement, an exchange of the escrow funds is made between a Buyer and Seller, where bank accounts for each are located outside of Costa Rica. The bureaucratic nature of the escrowing of funds for a property transaction may be reduced significantly should this option be available.
Operation of Escrow (Trust) Accounts
In order to use the services of an escrow company in Costa Rica for the purposes of transferring funds from a foreign jurisdiction to Costa Rica for a specific purchase transaction, your Costa Rica Lawyer will likely make a recommendation as to which of the escrow companies you should use.
The escrow company will require a very detailed Application to be completed by the client, providing all of the client’s personal and source of funds information. Source of funds information will include savings from employment income supported by income tax returns, an Order of Probate if the source is an inheritance, the Closing Statement should the funds source be a property sale or such other supporting documentation as the escrow company may deem appropriate to confirm the fuds being transferred are from a legitimate source. In addition, the escrow company will require a copy of the client’s current passport, three to six months of certified current banking statements from your Home Country bank, a current Letter of Good Standing signed by a party in authority at your Home Country Bank, a current utility bill from your home address, and a signed copy of the Real Estate or Business Purchase Agreement, for which the transferred funds will be utilized.
My Opinion
Escrow companies are very strict with clients in meeting the various compliance requirements of transferring funds from a foreign jurisdiction to Costa Rica. The detail of personal and financial information requested will certainly transcend the comfort level for most applicants. However, escrow companies, in the face of significant sanctions from SUGEF for any non-compliance delinquency, will be unwavering in their requirements.
In response to this highly regulated industry and in an effort to avoid some of the onerous compliance source of funds requirements, offshore escrow companies have been set-up to service Costa Rica clients, especially in circumstances where both a Buyer and a Seller will be utilizing foreign funds for a transaction involving a sale of a Costa Rica property or business interest, where the funds are not ultimately destined for a financial entity within Costa Rica.
