Just last month, Ohio issued Opinion 2022-07, which allows lawyers to hold cryptocurrency in escrow, under certain conditions. It is no secret that technology tends to outpace the law, so the clarity is certainly welcomed. While this opinion sheds light on murky territory, lawyers still must proceed carefully as many ethical concerns remain.
Property vs. monetary funds
Lawyers must keep client and third party property separate from their own, per Ohio Rule 1.15 (also see Model Rule 1.15). When that type of property is in the form of monetary funds, the rules require it be kept in a separate interest-bearing account, designated with a fiduciary title (such as IOLTA), and must be in an Ohio financial institution. Only monetary funds can be placed into an interest-bearing fund, and therefore, unless cryptocurrency is converted to funds upon receipt by the lawyer, it cannot be put into an IOLTA. Cryptocurrency is not considered a monetary fund but is treated as property. The Board concluded that since cryptocurrency is “property,” lawyers are permitted to hold it for clients or third persons in connection with a representation or law related business.
This Opinion reminds us that in order to maintain the knowledge and skill required by Ohio Rule 1.1, a lawyer should keep abreast of the changes in the law and its practice, including the benefits and risks associated with relevant technology. Cryptocurrency is now part of the mainstream lexicon. What seemed like a far-off concept to many appears to be here to stay. If you plan to hold cryptocurrency in escrow, you must become knowledgeable about how to appropriately safeguard it in a suitable place. Recommendations on methods to safeguard cryptocurrency held in escrow are found in the opinion and include cold storage wallets, encryption and back up of private keys, and multi-signature accounts.
Because of the anonymity of cryptocurrency transactions, lawyer escrow services may be a potential target of persons seeking to engage in money laundering or other fraud. Counseling a client to engage in illegal conduct or assisting a client in conduct that the lawyer knows is illegal or fraudulent is a violation of Ohio Rule 1.2(d)(1) . To avoid unknowingly assisting in illegal activity, the opinion instructs lawyers to have a detailed escrow agreement identifying the parties to the transaction and the underlying transaction for which the escrow account will be used.
What others are saying
Several other states have issued opinions on the use of cryptocurrency. Nebraska allows lawyers to hold bitcoins and other digital currencies in escrow or trust for clients or third parties. DC allows lawyers to accept cryptocurrency instead of more traditional forms of payment if the fee is reasonable and does not violate Rule 1.8(a). North Carolina also allows lawyers to accept virtual currency from clients as a flat fee in exchange for legal services so long as the fee is not clearly excessive and the lawyer complies with the requirements in Rule 1.8(a). Yet, that opinion also concluded that methods in which virtual currency are held are not yet suitable places of safekeeping for the purpose of protecting entrusted client property under Rule 1.15-2(d). As for other states, we will have to see what the future holds.