- The US law market is largely off limits to Big Four firms due to ethical rules on legal independence.
- KPMG is close to changing that by securing a unique license in Arizona to practice law.
- Traditional law firms shouldn’t feel threatened by the move, one legal expert told Business Insider.
KPMG is one step closer to becoming the first Big Four firm to establish a legal division in the US.
On Tuesday, an Arizona judicial committee unanimously recommended that the state Supreme Court approve KPMG US’s application for a unique state license that would allow it to practice law.
If approved, the firm will establish KPMG Law US as an alternative business structure (ABS). The Arizona Supreme Court told BI it would weigh in on the decision on January 28.
Arizona began its ABS program in 2021, removing a rule preventing non-legal ownership of law firms.
The rule was established by the American Bar Association and allows only licensed attorneys to own or invest in law firms in an effort to prevent conflicts of interest.
It has prevented the Big Four professional services firms – KPMG, Deloitte, EY and PwC – from setting up legal divisions in the US, as they have done in other key markets.
Practicing law in the US “is something that no Big Four network firm can currently do.” Christian Athanasoulas, a partner in KPMG’s Tax Division and head of US tax services, told BI.
The firm provides business advice to legal clients in the US, he explained, but “does not interpret and apply legal standards to legal matters.”
Athanasoulas said advances in technology and the growing demand for alternative legal services made the time right to create KPMG US Law, and they were “excited by the opportunity” that Arizona’s regulatory reform presented.
“Pending approval, this innovation would differentiate KPMG US Law in both the legal and consulting markets,” he said.
KPMG Law already provides legal services in more than 80 jurisdictions worldwide. Schöning/ullstein bild via Getty Images
The firm intends to focus primarily on large-scale, process-driven work such as volume contracting, remediation exercises and M&A-driven contract reconciliation.
KPMG will be positioned to complement the services of traditional law firms rather than compete with them. It won’t work in complex commercial transactions, trademark disputes and other areas that are “core capabilities of traditional law firms,” Athanasoulas told BI.
What they have over competitors is the ability to leverage KPMG’s holistic and global suite of services.
“We see opportunity in the market to deliver these demanding tasks, at scale, with better controls and more standardized results than some existing market participants currently offer,” Athanasoulas said.
Their work would not be limited to Arizona, but could extend nationally, depending on individual state rules.
KPMG is already a major player in the global legal landscape, providing legal services in more than 80 jurisdictions. In the last financial year, the tax and legal division was KPMG’s fastest growing function, expanding by nearly 10%.
The Big Four and the US Legal Landscape
The pending enactment of KPMG’s US ABS status raises questions about whether other leading firms will follow suit and whether this will change the nature of the US legal market.
The Arizona Supreme Court said it introduced the ABS program to “transform the public’s access to legal services,” according to a 2020 press release.
“If the rules prevent these services from being made available, the rules must be changed,” the Court said.
Over 100 firms have since been approved to practice law under the program. Advocates of Arizona’s ABS program say it deepens competition, lowers prices and facilitates easier access to justice.
Utah is running a similar pilot program and there are exemptions in Washington, DC, that allow non-lawyers to hold minority stakes in a law firm. But other states have yet to follow suit.
“The most frequently expressed concerns are that non-lawyer ownership or investment will create conflicts or low-quality work due to profit motivations,” Brad Blickstein, CEO of the Blickstein Group, a legal industry consultancy, told BI.
KPMG said any new firm will be governed by the same high ethical standards that apply to other law firms and there will be no crossover between legal services clients and audit clients.
Legal experts have predicted that the Big Four will move into the U.S. law market for several years, Blickstein said. While they may take on some work over time, traditional law firms shouldn’t feel threatened, he added.
“KPMG is somewhat limited in what it can do as a law firm in Arizona, and even in markets like the UK where they have free rein, the Big Four have not put many law firms out of business.
“I continue to believe that the Big Four will eventually have a significant—but not existential—impact on American law firms and legal departments,” Blickstein said. “This is a step in that direction, but only a step.”
