Ohio Issues Ethics Ruling on Holding Cryptocurrency Funds for Clients

Read the Ohio opinion and an ABA whitepaper on cryptocurrency.

Cryptocurrency is not just a hot topic in banking and commerce – it’s also creating ethical headaches for lawyers.

And because cryptocurrency and digital assets are constantly evolving, lawyers need to be on high alert to avoid trouble.

A case in point: lawyers in Ohio were recently advised they can hold cryptocurrency in escrow for their clients, provided they meet certain conditions to protect against losses.

“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,” says Ohio Board of Professional Conduct Opinion 2022-07. “A lawyer must maintain the requisite technological competence and employ appropriate safeguards against property loss when holding cryptocurrency in escrow.”

The opinion, issued on August 5, notes that the Internal Revenue Service treats cryptocurrency as property instead of monetary funds. Accordingly, it may be held by a lawyer in connection with a client representation, the opinion says.

Read more on Ohio Opinion 2022-07 in this article in the ABA Journal.

In January 2021, the American Bar Association issued a whitepaper on cryptocurrencies and digital assets. Below are highlights from that whitepaper.

In August 2022, the American Banking Association issued a public plea to the U.S. Treasury Department for “regulatory clarity and parity for banks and nonbanks … to ensure consumer protections and support responsible innovation in the digital asset market.” Read an article in the American Banking Association Journal here.

Running a law office can be a roller-coaster. While some of the ups and downs are outside your control, others can be managed, contained and prepared for. Join us on September 28 at 12 noon CT for the free, one-hour CLE webinar “Managing a Law Office in Uncertain Times: Practical Tips for Building a Solid Foundation for Your Law Practice.” See how a one-page business plan may be all you need. Learn safe and effective “scripts” for initial consultations. Receive a crash course in Law Office Budgeting 101 and Best Practices for client screening. Discover the “Dirty Dozen” list of clients to avoid. The webinar is presented by Gary Poole, a 40-year practitioner and mentor for new lawyers, and Hannah Chapman, a business and financial consultant for small businesses. Attend “Managing a Law Office in Uncertain Times” for a master class on how to maintain law office excellence through good times and bad. Register here.

Ohio Board of Professional Conduct Opinion 2022-07

Here are some highlights from the Ohio ethics opinion, as reported in the ABA Journal:

  • Lawyers must segregate cryptocurrency from their own property.
  • Lawyers must maintain records showing the date the cryptocurrency was received, for whom it is being held, and when it was distributed.
  • Records related to the cryptocurrency must be held for seven years.
  • Lawyers must keep records on all exchanges or dispositions of the cryptocurrency and the value of the crypto each time.
  • Lawyers should require a detailed written escrow agreement identifying the parties and reason for the transaction, in order to avoid participating in money laundering.
  • Lawyers should inform clients of the risks of holding and transferring cryptocurrency and the steps that will be taken to safeguard the property.

American Bar Association Whitepaper

Here are some of the issues addressed in the January 2021 whitepaper from the American Bar Association:

  • rapid development of Stablecoins;
  • growth of the decentralized finance movement and the increasing number of state central banks exploring the creation of virtual currencies;
  • 2020 guidance from the CFTC concerning “actual delivery” of digital assets and related litigation;
  • The SEC’s Digital Asset Framework, its first issuance of digital asset-related no-action letters, and further developments in its key enforcement actions targeting significant digital asset projects;
  • SEC staff guidance on the custody of digital asset securities under the rules applicable to broker-dealers;
  • Recent case law developments in certain CFTC enforcement actions involving digital assets;
  • New developments regarding the Travel Rule’s application to virtual asset service providers;
  • FinCEN’s first assessment of civil money penalties against a peer-to-peer virtual currency exchanger; and
  • International developments, including the EU’s recent approval of the Sixth Anti-Money-Laundering Directive.

Sources:
American Banking Association: ABA urges regulatory clarity, parity for developing digital assets  | ABA Banking Journal

– American Bar Association Journal: Lawyers can hold cryptocurrency in escrow for clients, with safeguards, state ethics opinion says (abajournal.com)

– American Bar Association whitepaper: ABA Releases Updated White Paper Regarding Cryptocurrencies and Digital Assets (americanbar.org)

– Ohio Board of Professional Conduct: Adv.-Op.-2022-07-Final.pdf (ohioadvop.org)

Do you practice in Wisconsin, Texas, Minnesota, Ohio, Illinois, Indiana or Michigan? Is your professional liability coverage managed through Alta Pro? If so, you’re automatically a member of the Alta Pro Risk Purchasing Group (RPG), which offers a wealth of benefits for your practice: free, cutting-edge CLE webinars featuring top experts tackling timely topics; the Pro Practice Playbook; the Pro Practice Blog; Reminger’s ProLink risk management assistance; Reminger’s Claim Repair Hotline; discounts on CLIO practice management software; tax savings on health insurance; and access to the Risk Pro, who can help keep your firm safe and successful. Register here and start enjoying your Alta Pro RPG benefits.

Share

Share on facebook
Share on twitter
Share on linkedin

Let Alta Pro RPG Help You Get Insured

Quick turn around times. Hassle free insurance.

Join Our Mailing List

Subscribe to our exclusive mailing list and get the freshest stories from the Alta Pro RPG team.

Continue Reading