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Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.
Americas+1 212 318 2000
EMEA+44 20 7330 7500
Asia Pacific+65 6212 1000
By Justin Henry
KPMG won preliminary approval Tuesday to form a legal services arm in Arizona, moving it closer to becoming the first Big Four accounting firm to practice law in the US.
The Arizona Supreme Court should grant KPMG Law US a license, the Committee on Alternative Business Structures found. The court will decide Jan. 28 whether to grant KPMG’s license, deny the application, or send it back for more information, said Aaron Nash, the court’s director of certification and licensing.
KPMG leaders have said the new venture will provide clients with post-transactional legal services such as integrating legal contracts and tech systems between merging parties. “This focused effort is a natural extension of our capabilities and will complement the services of traditional law firms,” KPMG has said in a statement.
Most US states’ professional ethics rules limit the practice of law and firm ownership to licensed lawyers. Arizona is among a handful of states experimenting with new structures to boost efficiency and expand access to services by allowing lawyers to share fees and business ownership with non-lawyers. Traditional US law firms have viewed the Big Four accounting firms as a potential competitive threat.
The Big Four firms seek to integrate legal services with other consulting divisions, including tax and accounting, said David Wilkins, director of the Center on the Legal Profession at Harvard Law School.
“This is a natural extension of what they’ve been trying to do for the past decade or more,” Wilkins said. “They went from trying to be like law firms but bigger to pushing a multidisciplinary model that is tech-enabled.”
Competition in the legal industry has driven law firms to provide more services in more places, often by merging with other firms. KPMG has the advantage of a global platform with pre-existing relationships with global corporations, said Mark Vorsatz, global chairman and CEO of accounting firm Andersen.
“You’re going to continue to see consolidation on the legal side,” Vorsatz said. “If you want to be a global player, you need to have legal services in multiple jurisdictions, and who is better positioned to do that than the Big Four.”
The Big Four’s Deloitte, where leaders are looking for avenues to expand the tax and legal business in the US, isn’t considering the same approach as KPMG, said Willem Blom, who leads the firm’s global tax and legal services.
There are more effective ways to expand Deloitte’s presence among US corporate clientele, such as cultivating relationships with multinational companies headquartered in the US that have operations elsewhere, he said.
“This is not something we will necessarily be looking at doing because there are many things to consider for doing this in a sustainable way,” Blom said.
KPMG Law US may compete with other law firms for client work, but the bulk of its services are intended to complement outside and in-house legal teams in day-to-day corporate management, said Christian Athanasoulas, global head of international and M&A tax at KPMG, who oversaw the company’s license application.
“We’re not looking to get bet-the-company matters,” Athanasoulas said.
For example, post-merger integration between large corporations could require the parties to integrate thousands of contracts, which is largely handled manually by corporate legal departments and their law firms, Athanasoulas said.
“There are places where KPMG Law US could do work that is done today with law firms, but the majority of where our lawyers will play is where in-house counsel is overburdened and don’t have access to the technology tools that we have,” he said.
KPMG received the preliminary approval to form a new law firm after Alternative Business Structures panel members questioned company representatives.
John Hay, a panelist and retired business lawyer, questioned whether KPMG’s Arizona law firm will seek to provide services to clients in other jurisdictions that lack Arizona’s regime. If so, he asked how KPMG’s lawyers will avoid violating professional ethics rules of the other states.
KPMG will use staffing agencies and co-counseling relationships with other law firms to serve clients in other jurisdictions, said David Rizzo, the compliance lawyer for KPMG Law US.
“It’s going to be my job to ensure that Arizona lawyers are not holding themselves out as lawyers in other jurisdictions,” Rizzo, who became barred in Arizona last May, told panelists. “We are aware of the kind of trouble that sloppy operations can get us in.”
Athanasoulas said in an interview that KPMG plans to staff the new law firm by hiring lawyers licensed to practice law in Arizona and transferring professionals with a law degree from the tax division. But for matters that require a bar membership in other states, Athanasoulas said the firm plans to form co-counsel or subcontract relationships.
Arizona’s code of judicial administration requires lawyers operating in an alternative business structure to maintain independence from the structure’s non-lawyer partners so that business interests don’t influence the legal advice of lawyers.
Rizzo and Tom Greenaway, who leads KPMG’s tax controversy practice, told panelists the new law firm would maintain complete independence from its parent company.
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