Lawyers are allowed to hold crypto in escrow in Ohio
Get those cold storage crypto wallets ready, Ohio lawyers! The Ohio Board of Ethics has issued an advisory allowing attorneys to accept and hold cryptocurrency in escrow when it relates to representing a client or third party through a legal business. The advisory opinion is notable for a number of reasons in addition to being one of the first advisory opinions from a state legal ethics board regarding an attorney’s ability to hold digital assets in escrow for his clients. See Neb Ethics Council. Op. 17-03 (2017), DC Bar Ethics Op. 378 (2020).
First, the advisory acknowledges that many “international clients prefer to use cryptocurrency for business transactions and want the attorney to hold the cryptocurrency in escrow.” For crypto enthusiasts, the advisory reflects what they’ve been saying for some time: there are real uses for cryptocurrencies, especially in cross-border transactions. While the Ohio Advisory Opinion is obviously not an endorsement of cryptocurrencies as the future of money, it is yet another example of mainstream recognition and acceptance of cryptocurrencies. dominant.
One issue that should be obvious to any attorney considering holding cryptocurrency for a client is storage and security issues. “Like other client property, an attorney storing cryptocurrency in escrow must exercise due diligence to minimize the risk of loss to client or third-party property.” But unlike other forms of customer ownership, sending, receiving, and storing cryptocurrency can be difficult and, quite frankly, terrifying. For those who have never sent or received cryptocurrency, passing on the correct wallet address, hitting “send”, and then waiting for the transaction to validate on the blockchain can make anyone anxious. Just one wrong number or letter in the recipient’s address and that crypto could be lost forever.
How are Ohio attorneys new to cryptocurrency transactions supposed to store their clients’ cryptocurrency? The Ohio advisory recommends a few methods to protect crypto held in escrow, including keeping the crypto in a cold storage hardware wallet. Cold storage hardware wallets often resemble USB drives and provide more secure storage because the cryptography associated with these wallets can only be sent when that wallet is connected to the internet. This means that a hacker usually cannot access the crypto in this cold storage wallet without being connected to the internet.
Beyond securely storing the client’s crypto, attorneys should also educate their clients about the risks of holding and transferring the crypto and explain the steps the attorney will take to protect the client’s crypto. This means that lawyers who want to provide this service to their clients will not only need to learn how to transact and store crypto securely, but also create a policy explaining these security protocols. The notice does not provide guidance on how an attorney should store the actual cold storage hardware wallet or how passwords to access this cold storage hardware wallet should be maintained or on whom. must keep them.
Finally, the advisory cautions attorneys against the potential that crypto escrow services could be used by people seeking to engage in money laundering or fraud. “In order to avoid unknowingly aiding in illegal activities, an attorney should require a detailed written escrow agreement that identifies the parties to the transaction (possibly using methods to verify the identity of knowledge of your client) as well as the underlying transaction for which the escrow account will be used. See Prof.Cond.R. 1.2(d)(1).”
While it’s unclear how many lawyers will be holding their clients’ crypto in escrow over the next few years, as anyone who has ever misplaced a password or wallet seed phrase and lost crypto in this portfolio, a lawyer must be well trained. in crypto transactions and their policies and procedures for holding client crypto will need to be well thought out and absolutely airtight before holding client crypto in escrow.
In Ohio “An attorney may accept and hold cryptocurrency in escrow when related to representing a client or for a third party through a law-related business.”
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