- Bar legal ethics committees and deciding on cryptocurrency payments
- Fairness is cautioned when charging clients
- Cryptocurrency payments require competence in technology
- Virtual currencies offer client convenience
Accepting cryptocurrencies as payment has some benefits because of the instantaneous transactions. Thanks to blockchain technology, which is a public digital ledger operating like the stock exchange, they are less open to fraud but face cybersecurity risks. Cryptocurrency exchanges may have a small transaction fee, but these are much smaller than banking, conversion, and credit card fees.
Even though most lawyers are aware of cryptocurrencies, especially Bitcoin and Ethereum, many feel reluctant to accept them as payment. However, they face growing demand from clients wanting to pay legal fees with virtual currencies. This leads to the question: Can legal firms in the U.S. be paid in cryptocurrencies?
Practical and ethical considerations for law firms
The possibility of transacting with cryptocurrencies has caused some ethical and practical considerations for law firms across the U.S. This is not the first time that an innovative payment method has caused concerns. Credit card payments were first introduced in 1974. Lawyers at the time were warned they could not increase the client’s fees to accommodate processing charges, and they had to warn their clients about potential interest charges.
For tax purposes, cryptocurrencies are treated as property by the IRS. Therefore, getting paid digitally by a client is the same as receiving property rather than currency. Cryptocurrencies are also very volatile which makes them risky, but law firms are not daunted and are keen to accept them as a form of payment.
The legal bars of Nebraska, New York City, and North Carolina are in favor of accepting cryptocurrency as payments and have already issued advisory opinions. A few months back, they were joined by the District of Columbia Bar.
In their opinion, the Washington D.C. Bar allows payment in any of the potentially volatile assets, including property, cryptocurrency, and corporate stock.
They also issued a few guidelines and lawyers requesting a retainer in cryptocurrency are subject to 1.8(a) of the ethics rules. The terms of the agreement must be fair and reasonable, billing must be explained and given in writing. Other points that must be agreed on for the retainer include the obligations of either party caused by any increases or decreases of the cryptocurrency. Additionally, who will be responsible for the transfer fees.
Clients can confer with outside counsel before accepting the deal, and written consent is required from the client once the deal is agreed on. Fees already earned are not affected by these rules because of the volatility of these assets. It can happen that in the future a fee paid now may seem unreasonable.
Safeguarding of client interests
When money is held in trust or as a retainer, it is up to the legal firm to safeguard it just like they do with monetary advance fees. Legal firms need to understand how the technology works because digital currencies are stored in digital wallets on online platforms. The risks include theft via hacking or the loss of the password needed to access the cryptocurrency account.
Virtual currencies are not regulated by any central bank or government agencies and therefore their loss is not insured in any way.
Tech companies, especially those working in the cryptocurrency space, want to pay in cryptocurrencies, and legal firms are finding it essential to accept payment in this way. Client convenience is foremost in their minds and as cryptocurrency use becomes more widespread, accepting payment in virtual currencies allows their law firms to be at a competitive advantage.
Therefore, it is not illegal for legal firms to accept payment in this form. Lawyers are encouraged to perform due diligence to ensure the source of the funds is not a result of money laundering.