Cryptocurrencies have emerged as a popular payment system with many businesses now accepting cryptocurrencies as a form of payment. Cryptocurrencies are also increasingly being used in real estate transactions, asset purchases, and smart contracts. The Maryland State Bar Association's Committee on Ethics recently wrote an opinion regarding the ethical propriety of attorneys accepting cryptocurrency as payment for fees. See Ethics Docket No. 2022-01. The question presented was whether an attorney may accept a cryptocurrency retainer in advanced payment of fees, and what are the ethical considerations raised by doing so?
Essentially, the MSBA Committee on Ethics (Committee) reached the conclusion that cryptocurrency may be accepted as payment of fees so long as the fee is reasonable and otherwise complies with the Maryland Attorneys’ Rules of Professional Conduct (MARPC). The challenge is in the compliance with trust accounting and the inability to deposit cryptocurrency into an Attorney Trust Account. The trust account issue is said to "raise a host of potential ethical considerations."
The attorney requesting the opinion proposed a possible solution by establishing multiple "digital wallet(s)" under the attorney's exclusive control. These would be treated, essentially, as individual trust wallets for the storage of crypto-currency "retainer fee" balances on behalf of clients.
Nature of Cryptocurrency
In order to understand the opinion, one must understand the nature of cryptocurrencies. The Committee discussed the classification dilemma of cryptocurrencies, debating whether they should be regarded as traditional currency or as property. Cryptocurrencies are unique in that they exist only in digital form and are stored either online in digital wallets or offline in cold digital wallets such as a hard drive or paper. The danger in holding cryptocurrencies is that, provided one has an attorney’s digital wallet internet address, all contents and transactions are publicly visible on the blockchain, offering full transparency. This is in contrast to physical commodities (gold) or fiat currencies (U.S. dollar), which have a tangible presence and different methods of storage and transfer with their concomitant security measures. For more on cryptocurrencies please see “A Lawyer’s Primer on Cryptocurrency,” MSBA Blog (April 16, 2024).
Analysis
The MARPC rules require that any unearned funds are to be deposited in a Trust Account, MD R Attorneys, Rule 19-404. Additionally, any funds belonging to others, held by an attorney, must be "in a separate account," and "separate from the attorney's own property. MD R Attorneys, 19-301.15(a). There is a distinction between non-owned "funds" and "property," which the rules recognize "are incapable of deposit into client trust accounts." Property must nonetheless be "safeguarded" and both its receipt and distribution are subject to both safeguarding and documentation. MD R Attorneys, 19-301.15(a).
Because the IRS treats "virtual currency" as "property, rather than currency," and because of the nature of "virtual currency," the Committee concluded that it "should be treated as 'property' rather than 'funds.'" An attorney may "Accept property in payment," unless it is "a proprietary interest in the cause of action or the subject matter of the litigation." MD R Attorneys, 19-301.5. Therefore, because cryptocurrency is property, there is no requirement for deposit into a trust account. However, Rule 301.15 does require an attorney to “appropriately safeguard” the property (cryptocurrency). Id. Despite the cryptocurrency not being in a trust account, an attorney must nonetheless “identify” the property “as trust property and maintain the required records.”
All of the Committee’s conclusions are dependent on the attorney "obtain(ing) the informed consent of a client." There is an admonition in the opinion that being "truly informed" may be a challenge with cryptocurrency. Therefore, the attorney should be careful to "exhaustively address contingencies or issues that may arise" as a result of the challenge of cryptocurrency, and attorneys are forewarned that in cryptocurrency, "informed consent...may require substantially more effort on the part of attorneys."
Summary
An attorney may accept cryptocurrency as a retainer fee, as long as the fee is reasonable and the fee arrangement complies with the MARPC. Cryptocurrency should be treated as "property" rather than "funds" for ethical analysis purposes, as it is a digital-only commodity stored in digital wallets. Unlike traditional fiat currency, cryptocurrency cannot be deposited into an Attorney Trust Account. Instead, attorneys must appropriately safeguard the cryptocurrency and keep records of its receipt and distribution. Attorneys and clients can agree to alternative fee arrangements, including accepting advanced payment of fees in cryptocurrency, as long as clients give informed consent confirmed in writing. Any unearned portion of the advanced payment must be returned at the conclusion of representation. Attorneys accepting cryptocurrency as a retainer fee must be competent in utilizing the technology and safeguarding against risks such as theft, loss, or mishandling. The attorney's obligations and the parameters of the agreement should be thoroughly documented.