The putty knife can be found only in the Eastport Mechanist Seminary in the T2 mission "Eavesdropping". It can be used to cut pieces from the Wax Press in the basement workshop. This is necessary in order to take an imprint of the safety deposit box key for use in the next mission (OM T2 First City Bank and Trust). After finding the correct key and pressing it into the wax block, the putty knife is used to remove the Bank Key Impression.
The wax can be cut out before pressing in the key to produce a piece of Junk Wax or imprinted with a different key to produce an ordinary Wax Impression, both of which are useless.