KPMG closes in on setting up a US law firm — a first for the Big Four

• The US law market is largely off-bounds 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, a legal expert told Business Insider.

KPMG is one step closer to becoming the first Big Four firm to set up 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 the decision on January 28.

Arizona began its ABS program in 2021, scrapping a rule that prevents non-legal ownership of law firms.

The rule was set by the American Bar Association and only allows licensed lawyers to own or invest in law firms in an effort to prevent conflicting interests.

It has held back the Big Four professional services firms — KPMG, Deloitte, EY, and PwC — from establishing 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 US head of Tax services, told BI.

The firm does provide business advice to legal clients in the US, he explained, but does "not interpret and apply legal standards to legal questions."

Athanasoulas said advances in technology and the growing demand for alternative legal services made it the right time to establish KPMG Law US, and they were "excited by the opportunity" that Arizona's regulatory reform presented.

"Pending approval, this innovation would differentiate KPMG Law US both in the legal and the consulting markets," he said.

The firm aims to focus primarily on large-scale, process-driven work, such as volume contracting, remediation exercises, and M&A-driven harmonization of contracts.

KPMG will position itself as complementing the services of traditional law firms rather than competing with them. It won't work on complex commercial transactions, trademark disputes, and other areas that are "core capabilities of traditional law firms," Athanasoulas told BI.

What they do have over competitors is the ability to harness KPMG's holistic, global suite of services.

"We see opportunities in the market to provide these required tasks, at scale, with better controls and more standardized outcomes than some existing market participants currently provide," 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 & legal division was KPMG's fastest-growing function, expanding by almost 10%.

The Big Four and the US legal landscape

The pending approval of KPMG Law US's ABS status raises questions about whether the other leading firms will follow suit and whether that 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 stand in the way of making those services available, the rules should change," the Court said.

Over 100 firms have since been approved to practice law under the program. Advocates for the Arizona ABS program say it deepens competition, lowers prices, and facilitates easier access to justice.

Utah is running a similar pilot program, and there are exceptions in Washington, D.C., that allow non-lawyers to hold minority stakes in a law firm. But other states have not yet followed suit.

"The most frequently stated concerns are that non-lawyer ownership or investment will create conflicts or low-quality work because of profit motivations," Brad Blickstein, CEO of Blickstein Group, a legal industry consultancy, told BI.

KPMG said any new firm would be governed by the same high ethical standards that apply to other law firms, and there would be no crossover between legal services clients and audit clients.

Legal experts have been predicting that the Big Four will move into the US law market for several years, Blickstein said. While they may take some work over time, traditional law firms shouldn't feel threatened, he added.

"KPMG is somewhat limited in what it can do as an Arizona law firm, and even in markets like the UK where they have free rein, the Big Four has not put too many law firms out of business.

"I continue to believe that the Big Four will eventually have a meaningful - but not existential - impact on US law firms and legal departments," Blickstein said. "This is a step in that direction, but only a step."