Ohio Board Advisory Opinion Op. 22-07

OCR transcription; preserved printed pages are authoritative

e Ohio Board of Professional Conduct

OPINION 2022-07
Issued August 5, 2022

Lawyer Accepting and Holding Cryptocurrency in Escrow!

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.

1 This 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.

e> Ohio Board of Professional Conduct

65 SOUTH FRONT STREET, 5™ 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 Escrow!

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.

1 This 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).