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All Your Escrow is Belong To Us

...or why not to do business with escrow companies registered in China, Cuba and California. (It's a little thing that's red and sounds like communion.)

California? Surely that's the economic bedrock of a very non-communist economy! That's what I always thought till I read Sections 17000 - 17305 of the California Financial Code. Before you go judging me and all, let me state that this is not normally the type of material I'd be caught dead with: no mammary photos, no bikinis, no graphic wardrobe malfunctions. But in the interest of research I plugged on. It's gripping stuff and I fell asleep 305 times, but for any of you who use escrow services like, I've got some news:

I'm probably never going to use another escrow company based in California ever again. Not even if it's

Because what California calls Sections 17000-17305 is in reality a protection racket; a protection racket that you in Australia, me in the UK and poor old Viktor in Stalingrad are all paying for. But it's a lot more than an expensive, protection racket - it's got serious teeth, a humungous appetite and the ability to pour ketchup all over you and me and the aforesaid Viktor before settling down to a Californian sized meal.

And every escrow company in the world is expected to subscribe to Californian regulation.

Here's what Californian law says
...and I'll try to paraphrase without losing clarity or accuracy:

Any company anywhere in the world needs to be licenced to operate in California if they are ever going to take on a transaction that involves a person or company based in California. If they don't, they've breached Californian law. Note that pretty much every internet escrow company in the world accepting normal transactions is going to have one party to a transaction have a Californian address at some point. So, yes, California expects every escrow company in the world to be licenced in California.

Now, there's nothing wrong with regulation, and financial companies should be regulated till their eyes bleed. I'm all for the US authorities keeping an eagle eye on American companies - or any company operating in the US - and for the UK's FSA to similarly scrutinise such companies in the UK. After all, these companies handle our hard earned money and if nobody was keeping an eye on them they'd do a Robert Maxwell.

But, what's special about California? What if every other US state, foreign state and tin-pot dictatorship required every escrow company everywhere in the world to be licenced in each and every one of their dominions?

Now California has the right to protect its citizens just like any other government. I accept that. But California has gone way beyond protection and firmly into mafia territory. What would you say if I told you they have given themselves the power to stop anyone, anywhere in the world, saying anything critical about them, or "in reference to the licensing or escrow supervision by the State of California"? Further, it doesn't need to be a negative comment. They can tell you to stop even if they just don't like your tone. (Section 17210.2(c))

Ridiculous?! I can't be serious!?

Trust me, California considers itself very special indeed.

It's cheaper to buy China than to register an escrow company in California.

But cost isn't all.


This is what escrow companies need to do if they wish to register in California:

(in brackets are the relevant sections of the California Financial Code for the lawyers among you. I'll spell Commissioner with a capital "C" and maybe it'll deter the Present Respected Incumbent Commissioner  from ever suing me)

Companies need to:

1. Have one person with at least five years of experience in the escrow business.

2. Pay an application fee of thousands of dollars including fees for the Commissioner to investigate them and $425 per office or location ((17207(a)-(i)) and if they dare move offices more than five miles the commissioner can scrap their licence and charge them all over for a new one. (17213.1(b))

3. Provide various personal and business details including names and addresses of all directors (AND officers, managers, shareholders blah, blah) (17209(a)) and (g), proof of their qualifications and experience ((17209)(d). Don't forget the fingerprints you bloody criminals! (17209 (g)) and (17212.1). Yes, they have to submit fingerprints.

4. A deposit (bond) of at least $25,000 and could run into hundreds of thousands or "150 percent of the previous year's average annual trust fund obligations" (it doesn't matter if most of your business is done outside California, you still pay this to the Californian Commissioner) (17202(a))

5. Accept that the Californian Commissioner has ultimate approval on where this money is held. (17203.1(a))

6. Accept that the Commissioner can also decide when to increase this compulsory deposit and how much to increase it by

7. Pay A licence fee of $2,800 per office, per year (17207 (e)(1))

8. Pay Numerous fines and penalties if this annual fee is ever late (17207)

9. Meet numerous financial targets on net worth, cash on hand (minimum $25,000) etc. (17210 (a)-(c))

10. Accept that the Commissioner can tell him who he can employ and he needs to sack those who don't meet the Commissioner's approval ((17209)(g)

11. Post his Californian escrow licence wherever he's doing business. It needs to be "conspicuous" (17210.1)

12. Accept that he can't say anything bad about the Californian Commissioner. Or anything at all about him! (17210.2(a))

13. Accept that if he wants to open any new office whether in London or Sydney, he needs to submit tons of documents to the commissioner and get his prior permission first (to be fair, the word "tons" isn't mentioned) (17213.5 (a)-(f))


How are customers like you and me affected?

The Californian Commissioner can't restrict himself to Controlling Just Escrow Companies. What are the implications for buyers and sellers of websites? Particularly those of us to may at some point end up buying from or selling to someone living in California?

1. If you use your local escrow to do business with anyone resident in California and there is ever a dispute, you're in serious trouble: Your problem is not with that person anymore, it's with the Commissioner. He automatically appropriates the mantle of attorney for your (non-"licenced") escrow company and your opponent can submit papers to the Commissioner and consider them served on you. And it's not obligatory on the Commissioner to forward those papers to you. (as 99.9% of us don't qualify under the exemptions in section 17009). So there's a case running in California and you can't represent yourself because you don't even know about it. What are the chances you'll win?

2. IMHO, you have even less chance of success if the escrow company is, one of the most used, most trusted and more reliable companies, as they are licenced under the California regulations and when the Commissioner says jump, they can only ask, "How high?"

3. Dispute? All your opponent living in California needs to do is pay the Commissioner $2 to start the ball rolling; it's even tax-deductable for him (17010). And he sits back and laughs.

4. The Commissioner can tell anyone, even you or me(!), that it doesn't like anything they say in reference to the licencing or escrow supervision by the State of California and can order them to stop (don't tell them about this page!) though, admittedly, the wording is a bit vague on this one. (17210.2 (c)

5. Making any statements or comments about the Commissioner or the licencing system in California, even if they are not negative statements, can land you in trouble and have repercussions that cause you to lose your case against the Californian resident.

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