Lawyers can hold cryptocurrency in escrow for clients, with safeguards, state ethics opinion says
Lawyers may hold cryptocurrency in escrow for clients, but they must have technical competence and safeguard against losses, according to an Ohio ethics opinion.
The Ohio Board of Professional Conduct issued the Aug. 5 opinion in response to a query by a lawyer with an international transactional law practice. Many of the lawyer’s international clients prefer to use cryptocurrency, but the lawyer can’t place it in a lawyer trust account because financial institutions don’t accept the digital currency.
The opinion noted that the Internal Revenue Service treats cryptocurrency as property, rather than monetary funds. As a result, it may be held by a lawyer in connection with a client representation, the opinion said.
Lawyers must segregate the cryptocurrency from their property and maintain records on the date that it was received, for whom it is being held, and when it was distributed, the ethics opinion said. Records related to the cryptocurrency should be held for seven years after disposition.
The opinion recommended that lawyers keep records on all exchanges or dispositions of the cryptocurrency and the value of the crypto each time.
To avoid participating in money laundering, lawyers should require a detailed written escrow agreement that identifies the parties and reason for the transaction.
Lawyers should inform clients of the risks of holding and transferring cryptocurrency and the steps that will be taken to safeguard the property. The opinion said there are several recommended methods to safeguard cryptocurrency, including “cold storage wallets, encryption and backup of private keys, multisignature accounts.”
Hat tip to Law360, which had coverage of the ethics opinion.