Escrow is frequently proposed as the solution to counterparty risk in commodity trades, and just as frequently structured in a way that provides almost none of the protection the word implies. The difference comes down to three things: who holds the funds, what triggers their release, and how those triggers are verified.
Who holds the funds is the first and most consequential question. Regulated bank escrow — held by a licensed financial institution under a documented escrow agreement, with both parties as signatories to its terms — is a fundamentally different arrangement from funds held by a law firm, an intermediary, or a platform with no banking licence and no regulatory oversight. The word "escrow" is used loosely across this market, and a buyer relying on it for protection needs to confirm, specifically, which of these two categories they are actually dealing with, and what recourse exists if the arrangement is not honoured.
Milestone structure is the second question. Escrow only provides protection if release is conditioned on events that are objectively verifiable by someone other than the party benefiting from release. Milestones tied to a seller's own confirmation — "goods shipped," attested only by the seller — provide no protection at all; they simply relocate the point of trust rather than removing it. Milestones tied to independently issued documentary triggers — an inspection certificate from a recognised third party, a bill of lading issued by a carrier, an assay report from an accredited laboratory — are a different structure entirely, because the party confirming the milestone has no stake in whether the funds are released.
This is where documentary triggers and the earlier verification steps connect directly: an escrow structure is only as strong as the documents it releases against, which means the same scrutiny applied to licences, permits, and assay certificates elsewhere in a transaction has to be applied to whatever document triggers payment.
The clearest warning sign in this category is any structure requiring funds to be released, in whole or in part, before independently verifiable delivery or performance — commonly framed as an advance fee, a processing fee, or an unlock payment. Legitimate regulated escrow does not require this. Its entire function is to remove the need for either party to extend that kind of trust in the first place, and a proposed structure that reintroduces it, under any label, is not functioning as escrow.
A properly structured escrow arrangement — regulated custodian, milestones tied to independently issued documents, no advance-fee component — is one of the more effective tools available in this market. A loosely structured one carrying the same name provides the appearance of protection without its substance, which is in some ways worse than no escrow at all, because it lowers a buyer's guard precisely where it should stay highest.
Engage Samitac
Facing a transaction that needs independent verification?
Every engagement begins with a confidential conversation. Tell us what you are being offered, and we will tell you what evidence should exist before capital moves.