Earlier this month The Ohio Board of Professional Conduct issued an opinion providing guidance to lawyers accepting and holding cryptocurrencies in escrow. In a nutshell, the Ohio Board concluded that because the IRS treats cryptocurrencies as property, a lawyer representing a client in connection with a business transaction may accept cryptocurrencies to be held in escrow for the benefit of clients or third parties, provided certain precautionary steps are taken:
- the cryptocurrency must be segregated from the lawyer’s property,
- the cryptocurrency must be properly identified,
- records must be maintained of when the property was received, the entity for whom the property is held, and the date of any distributions.
Additionally, the Board recommends a lawyer accepting cryptocurrencies in escrow maintain separate records listing the value of the cryptocurrency at the time of each transfer and disposition. Moreover, the board also cautions lawyers to be vigilant of potentially illegal activity such as money laundering or other fraud and recommends that the lawyer require detailed written escrow agreements identifying all parties to the transaction including “know your customer” identity verification methods.
This opinion (Ohio Board of Professional Conduct, Opinion 2022-07, August 5, 2022) represents a step forward in recognizing the increasing acceptance and utilitarian value of cryptocurrencies, especially in facilitating international trade.
