- The US law market is largely closed to Big Four firms due to legal independence rules.
- KPMG is close to changing that by securing a unique license in Arizona to practice law.
- A legal expert told BI that traditional law firms should not feel threatened by the move.
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, or 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 illegal ownership of law firms.
The rule, set by the American Bar Association, 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 of professional services – 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 said, but “does not interpret and apply legal standards to legal matters.”
Athanasoulas said advances in technology and growing demand for alternative legal services made the time right to create KPMG Law US, adding that the firm was “excited by the opportunity” presented by Arizona’s regulatory change.
“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 would position itself as complementary to the services of traditional law firms rather than competing with them. Athanasoulas told BI that it would not work in complex commercial transactions, trademark disputes and other areas that are “core competencies of traditional law firms”.
What it would have over competitors is the ability to leverage KPMG’s 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.
Its work may extend to the national level, depending on the rules of individual states.
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 almost 10%.
The Big 4 and the US Legal Landscape
The pending approval of KPMG Law’s US ABS status raises questions about whether other firms will follow suit and whether it would change the US legal market.
The Arizona Supreme Court said in 2020 that the ABS program “could transform the public’s access to legal services.”
“If the rules prevent these services from being made available, the rules must be changed,” the court said.
More than 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 not followed 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, an industry legal consultancy, told BI.
KPMG said that any new firm will be governed by the same high ethical standards that apply to other law firms and that there will be no crossover between legal services clients and audit clients.
Blickstein said legal experts had predicted for several years that the Big Four would move into the U.S. law market. He argued that while they may get some work over time, traditional law firms should not feel threatened.
“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 haven’t put many law firms out of business,” he said.
“I continue to believe that the Big Four will eventually have a significant—but not existential—impact on U.S. law firms and legal departments,” Blickstein added. “This is a step in that direction, but only a step.”