Can an Ohio lawyer accept and hold a client's cryptocurrency in escrow, and how must it be safeguarded?

Plain-English summary

A lawyer with an international transactional practice frequently holds funds in escrow, and some clients wanted the lawyer to hold cryptocurrency rather than fiat currency. Because financial institutions do not accept cryptocurrency, it cannot go into the lawyer's trust account. The Board addressed whether a lawyer may hold it in escrow at all, and what duties attach. The opinion is limited to cryptocurrency held in escrow, not cryptocurrency used to pay the lawyer's fees.

The Board started from Prof.Cond.R. 1.15(a), which requires a lawyer to hold client and third-party property separate from the lawyer's own, with monetary funds in an interest-bearing client trust account. Because only monetary funds may go in such an account (R.C. 4705.09) and the IRS treats cryptocurrency as property rather than currency (IRS Notice 2014-21), cryptocurrency cannot be deposited in a client trust account unless first converted to U.S. funds. The Board concluded that, as property, cryptocurrency may instead be held for clients or third persons in connection with a representation or a law-related business, so long as the lawyer segregates and identifies it and keeps records of receipt, the person for whom it is held, and any distributions, and renders a full accounting on request (Prof.Cond.R. 1.15(a), (d)). Records must be kept seven years and may be electronic.

On competence, the Board applied Prof.Cond.R. 1.1, cmt. [8], the duty to keep abreast of the risks of relevant technology, and Prof.Cond.R. 1.15(a)'s duty to safeguard property in a suitable place, noting methods such as cold-storage wallets, encryption and backup of private keys, and multi-signature accounts, and the duty to inform the client of risks under Prof.Cond.R. 1.4(a). Because cryptocurrency transactions are relatively anonymous, the Board pointed to Prof.Cond.R. 1.2(d)(1) and the value of a detailed written escrow agreement with identity verification to avoid assisting illegal activity. Finally, under Prof.Cond.R. 5.7, when a lawyer provides escrow or paymaster services as a law-related business distinct from legal services, the lawyer must make clear that those services are not legal services and that the protections of the client-lawyer relationship do not apply.

In practice

Under this opinion, a lawyer may accept and hold cryptocurrency in escrow for clients or third parties, but may not place it in a client trust account unless it is first converted to U.S. funds, because Ohio law limits those accounts to monetary funds. Per the opinion, the lawyer must segregate and identify the cryptocurrency, keep records of receipt and distribution for seven years, render an accounting on request, maintain the technological competence to safeguard it, and inform the client of the risks. The opinion holds that when the lawyer provides escrow services through a law-related business, Prof.Cond.R. 5.7 requires the lawyer to make clear the services are not legal services.

Common questions

Q: Can an Ohio lawyer hold a client's cryptocurrency in escrow?

A: The opinion concludes yes. Because cryptocurrency is treated as property, a lawyer may hold it for clients or third persons in connection with a representation or a law-related business, subject to the safekeeping duties of Prof.Cond.R. 1.15.

Q: Can cryptocurrency go into the client trust account?

A: No, not as cryptocurrency. The opinion concludes that only monetary funds may be placed in a client trust account (R.C. 4705.09), and because the IRS treats cryptocurrency as property, it cannot be deposited unless converted to U.S. funds on receipt.

Q: What safeguards does the opinion identify for holding cryptocurrency?

A: Per the opinion, the lawyer must keep abreast of the technology (Prof.Cond.R. 1.1, cmt. [8]) and safeguard the property (Prof.Cond.R. 1.15(a)); the Board references cold-storage wallets, encryption and backup of private keys, and multi-signature accounts, and informing the client of the risks.

Q: Does holding cryptocurrency raise anti-fraud concerns?

A: The opinion notes that because such transactions are relatively anonymous, a lawyer should use a detailed written escrow agreement that identifies the parties, possibly with know-your-customer verification, to avoid unknowingly assisting illegal activity (Prof.Cond.R. 1.2(d)(1)).

Background and rules framework

The opinion applies Prof.Cond.R. 1.15 (safekeeping property; Model Rule 1.15) as the core rule, with Prof.Cond.R. 1.1 (competence; Model Rule 1.1) and its technology comment, Prof.Cond.R. 1.4 (communication), Prof.Cond.R. 1.2(d) (counseling crime or fraud), and Prof.Cond.R. 5.7 (responsibilities regarding law-related services). It relies on R.C. 4705.09 and IRS Notice 2014-21 to classify cryptocurrency as property rather than monetary funds.

Citations and references

Rules of Professional Conduct:

• Ohio Prof.Cond.R. 1.15(a), 1.15(d) and cmt. [1] (Model Rule 1.15)
• Ohio Prof.Cond.R. 1.1, cmt. [8] (Model Rule 1.1; technology competence)
• Ohio Prof.Cond.R. 1.2(d)(1); 1.4(a); 5.7(a) (Model Rules 1.2, 1.4, 5.7)

Statutes:

• R.C. 4705.09 (client trust accounts limited to monetary funds)
• IRS Notice 2014-21 (cryptocurrency treated as property)

Other opinions cited:

• Neb. Ethics Adv. Op. 17-03 (2017); D.C. Bar Ethics Op. 378 (2020): lawyers and cryptocurrency

See also

• Ohio BPC Op. 1989-007: Interest-Bearing Client Retainer Trust Account
• TX Ethics Op. 705: Generative AI in the Practice of Law

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2022/08/Adv.-Op.-2022-07-Final.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

OPINION 2022-07
Issued August 5, 2022

             Lawyer Accepting and Holding Cryptocurrency in Escrow1

SYLLABUS: A lawyer may accept and hold cryptocurrency in escrow when related to
the representation of a client or for a third party through a law-related business. A lawyer
must maintain the requisite technological competence and employ appropriate
safeguards against property loss when holding cryptocurrency in escrow.

This nonbinding advisory opinion is issued by the Ohio Board of Professional Conduct
in response to a prospective or hypothetical question regarding the application of
ethics rules applicable to Ohio judges and lawyers. The Ohio Board of Professional
Conduct is solely responsible for the content of this advisory opinion, and the advice
contained in this opinion does not reflect and should not be construed as reflecting the
opinion of the Supreme Court of Ohio. Questions regarding this advisory opinion
should be directed to the staff of the Ohio Board of Professional Conduct.

1This opinion is limited to the receipt of cryptocurrency to be held in escrow by a lawyer and not for the
payment of a lawyer’s fees.
 65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
Telephone: 614.387.9370 Fax: 614.387.9379
www.bpc.ohio.gov

PATRICIA A. WISE                                                                    RICHARD A. DOVE
     CHAIR                                                                               DIRECTOR

HON. D. CHRIS COOK D. ALLAN ASBURY
VICE- CHAIR SENIOR COUNSEL
KRISTI R. MCANAUL
COUNSEL

                                       OPINION 2022-07
                                     Issued August 5, 2022

                 Lawyer Accepting and Holding Cryptocurrency in Escrow1

SYLLABUS: A lawyer may accept and hold cryptocurrency in escrow when related to
the representation of a client or for a third party through a law-related business. A lawyer
must maintain the requisite technological competence and employ appropriate
safeguards against property loss when holding cryptocurrency in escrow.

APPLICABLE RULES: Prof.Cond.R. 1.1, 1.2, 1.4, 1.15, 5.7

QUESTION PRESENTED:

      Whether a lawyer may accept and hold cryptocurrencies in escrow for clients and

third parties.

OPINION:

      A lawyer maintains an international transactional law practice and frequently

holds client or third-party funds in escrow. Many of the lawyer’s international clients
prefer to use cryptocurrency for business transactions and desire for the lawyer to hold
the cryptocurrency in escrow. Because financial institutions do not accept or exchange
cryptocurrency, the lawyer is unable to place cryptocurrency in his lawyer’s trust
account.

1This opinion is limited to the receipt of cryptocurrency to be held in escrow by a lawyer and not for the
payment of a lawyer’s fees.
Op. 2022-07 2

   Cryptocurrency is a digital, encrypted, and decentralized medium of exchange

with an equivalent value in fiat currency. Cryptocurrency relies on blockchain
technology, a type of shared peer-to-peer network that stores data in blocks and tracks of
all transactions. Cryptocurrency is stored in an electronic format commonly known as a
“wallet.” A person receiving cryptocurrency from another person uses a “public key”
that identifies where the currency is to be sent. The sender uses a “private key” that
authorizes changes in debits and credits to each party’s wallet. Cryptocurrency
transactions are largely unregulated, relatively anonymous, and irreversible. The price of
cryptocurrency is extremely volatile and subject to market fluctuation. See generally, Neb.
Ethics Adv. Op. 17-03 (2017), D.C. Bar Ethics Op. 378 (2020).

Receiving and Holding Digital Currencies in Trust or in Escrow

   Lawyers are required to hold the property of clients or third persons separate from

the lawyer’s own property. Prof.Cond.R. 1.15(a). Property in the form of monetary funds
must be kept in a separate interest-bearing account in an Ohio financial institution and
designated as a “client trust account,” “IOLTA account,” or other identifiable fiduciary
title. Id. However, only monetary funds may be placed in an interest-bearing account.
R.C. 4705.09. Cryptocurrency is treated as property and not as monetary funds by the
Internal Revenue Service. IRS Notice 2014-21. Unless cryptocurrency is converted into
U.S. funds upon receipt by a lawyer, it cannot be deposited in a client trust account.

   Because cryptocurrency is treated as property, the Board concludes that it may be

held by a lawyer for clients or third persons in connection with a representation or law
related business. A lawyer accepting cryptocurrency is required to segregate client or
third-party property from their own property, properly identify the property, and
maintain a record of when the property was received, the person or entity for whom the
property is held, and the date of any distributions. Prof.Cond.R. 1.15(a). The Board
recommends that a lawyer maintain separate records that document all exchanges or
other dispositions of cryptocurrency and the value of the cryptocurrency at the time of
each transfer or disposition. In addition, a lawyer must also “promptly render a full
accounting regarding * * * [the] property,” including cryptocurrency held by the lawyer,
when requested by a client or third party. Prof.Cond.R. 1.15(d). Records related to the
holding of cryptocurrency must be held by the lawyer for seven years after disposition
and may be maintained electronically. Prof.Cond.R. 1.15(a); Prof.Cond.R. 1.15, cmt.[1].
Op. 2022-07 3

Technological Competency

   In order to maintain the requisite knowledge and skill required of a lawyer, it is

important for the lawyer to keep abreast of the risks associated with the technology used
to transfer and hold cryptocurrency in his or her practice. Prof.Cond.R. 1.1, cmt.[8]. Just
like other client property, a lawyer storing cryptocurrency in escrow must use reasonable
care to minimize the risk of loss to client’s or third parties’ property. See Prof.Cond.R.
1.15,cmt.[1]. More specifically, a lawyer is required to “appropriately safeguard
property” in a “suitable place of safekeeping.” Prof.Cond.R. 1.15(a). There are several
recommended methods to safeguard cryptocurrency held in escrow (e.g., cold storage
wallets, encryption and back up of private keys, multi-signature accounts) that should be
thoroughly researched and carefully considered by lawyers before accepting
cryptocurrency. Additionally, a lawyer should inform clients of the apparent and
inherent risks of holding and transferring cryptocurrency and explain the steps the
lawyer will undertake to safeguard the client’s property. Prof.Cond.R. 1.4(a).

Avoiding Participation in Illegal Activity

   Because of the relative anonymity of cryptocurrency transactions, the use of a

lawyer’s escrow services may be sought after by persons seeking to engage in money
laundering or other fraud. In order to prevent unknowingly assisting in illegal activity,
a lawyer should require a detailed written escrow agreement that identifies the parties to
the transaction (possibly using know-your-customer identity verification methods) as
well as the underlying transaction for which the escrow account will be used. See
Prof.Cond.R. 1.2(d)(1).

Lawyers Holding Cryptocurrency in Escrow in a Law-related Business

   Some lawyers may be retained to provide escrow services that are unrelated to the

representation of a client such as a paymaster for international transactions. When a
lawyer serves only as an escrow agent or paymaster through a business that provides a
law-related service, the service is not governed by the Rules of Professional Conduct
unless the services provided are not distinct from the lawyer’s provision of legal services
to the client. Prof.Cond.R. 5.7(a)(1). A lawyer providing a law-related service must take
reasonable steps to ensure that the business client is aware that the services provided are
Op. 2022-07 4

not legal services and that the protections of the client-lawyer relationship are
unavailable. Prof.Cond.R. 5.7(a)(2).