Legal client intake: How AI is helping firms do better

_{Nick Morgan, Head of Legal Professionals • April 18 2024}

A recent investigation by the Solicitors Regulation Authority (SRA) found a shocking number of law firms weren’t compliant with AML rules. In 2022, the SRA increased its fine limit from £2,000 to £25,000, and it’s actively applying it. 

In the first quarter of 2024 alone, the SRA made over ten decisions on AML breaches, resulting in fines of up to £170,000.

These cases are connected by a common thread: the law firms being fined didn’t conduct thorough due diligence on clients and third parties. Some didn’t check funds from other jurisdictions or conduct Enhanced Due Diligence despite red flags being present. Others accepted funds without due diligence being completed first.

These examples highlight the tension that compliance teams are under. They face increased regulatory expectations while already stretched thin, and pressure mounts as other firms are fined for inadequate due diligence.

Managing risks has also become more complex, particularly in the client intake process, where firms must consider not only AML and financial crime risks but also reputational risks. This decision-making process requires a deep understanding of clients, knowing that accepting one client while potentially rejecting others could impact future relationships.

Infinite information, finite time

In many firms today, due diligence remains a manual process, causing client onboarding and communication delays. Alternatively, it’s rushed, leading to inconsistency and missed red flags. The abundance of online information has made the manual approach even more complex, especially for research analysts in compliance teams already at capacity. With limited time, they often rely on basic database checks and cursory web searches for client backgrounds. However, this isn’t sufficient. With the right tools, firms can improve their due diligence practices.

Client intake raises legal and ethical questions

In this climate, law firms need to gather as much information as possible about potential clients to ensure a legal and ethical fit. They must determine not only if clients have been sanctioned or are politically exposed but also if they could potentially face sanctions or have close ties to other entities that are. 

Lawyers dealing with global clients must consider that various countries are subject to different sanction lists, and many businesses with global supply chains operate internationally to some extent. Identifying the lists law firms must comply with is a challenge. Identifying those they should be aware of is even more difficult. 

Our Natural Language Processing identifies key networks and affiliations that enable lawyers to to stay ahead, and detect who is likely to be added to the sanctions lists in advance of it happening. For example, someone might not be directly sanctioned but could be mentioned in media articles as a ‘close friend’ of a sanctioned figure. Traditional sanctions checks would not flag these risks.

Automated upfront due diligence

Automating the due diligence process is crucial for compliance teams to meet demand from the business intake team while demonstrating to the SRA the depth of their due diligence. Fundamentally, the firm should understand their clients’ backgrounds well enough to detect any potential abnormalities in the future.

Firms are starting to recognise the importance of Initial Due Diligence (IDD) in shaping client analysis. In cases where clients have an ambiguous profile, analysts can determine where they need a more thorough investigation. Conversely, analysts can identify low-risk clients and expedite them through the firm to quickly start matter work.

Xapien is an automated research tool that generates a research report on individuals and companies by screening compliance databases and cross-referencing that information with context from news and media articles, corporate records, and various internet sources like LinkedIn, Wikileaks, offshore leaks, and others. 

It then produces a summarised due diligence report in under 10 minutes, providing a comprehensive upfront risk assessment for every potential client.

Balancing compliance with depth of research

Introducing AI to the client intake process equips lawyers with the full picture of their client, so they can make fully-informed decisions. Research teams, even when equipped with database and search engine tools, simply cannot match the power of AI.

When Xapien is used for client intake, speed increases, manual inaccuracies are removed, and lawyers gain a deep understanding of potential clients’ reputations, backgrounds and objectives. This helps them build better relationships with those clients. AI is fast becoming essential for any law firms looking to maintain effective compliance and new business intake processes.

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