It has never been so crucial for law firms to optimise their client intake process.
The consequences of the 2021 Pandora Papers, and before that the 2016 Panama Papers, are continuing to emerge. This July, lawmakers in Washington backed an amendment supporting an anti-money laundering law that will require a large section of ‘middlemen’ businesses, including law firms, to investigate potential clients. Under the ENABLERS Act, lawyers will face serious penalties for facilitating money or reputation laundering, be it accidental or deliberate. Across the globe, authorities have imposed similar responsibilities on law firms to ensure they are not enabling tax evasion or money laundering. Consumers and the media are also scrutinising corporate behaviour ever more closely.
In this climate, law firms need to know as much as possible about potential clients so that they can ensure they are a good fit legally and ethically. They need to know not only if they have been sanctioned or are politically exposed, but if they could be soon, or have close relationships with other entities who are.
Lawyers working with global clients have to consider that different countries are under the jurisdiction of different sanction lists - and most businesses with global supply chains work internationally on some level. Identifying the lists law firms must comply with is a challenge. Identifying those they should be aware of is even more difficult.
Infinite information, finite time
Under systems employed by many law firms today, manual research takes far too long, creating delays in client onboarding and client communication. Or, it is rushed, resulting in missed red flags. This can lead to reputational damage, media scrutiny and serious financial consequences.
An initial check of a potential client could also generate results that suggest they may be undesirable. More thorough analysis would allay these concerns. As Pamela K. Webster, Chief Risk Officer at Buchalter noted, potential clients who are entrepreneurs “are going to have failures in their past before they’re successful. Assuming they can be explained, that doesn’t necessarily need to be the end of your conversation.”
In both scenarios, equipping decision makers with a holistic, nuanced picture of the potential client’s background helps them make an informed, ethical, legal decision.
But in many law firms, insufficient Donor research tools and client intake software make this a laborious process. Vast amounts of information available in the public domain has transformed the transparency and traceability of sources of funds and fraudulent or corrupt activities, but it is an overwhelming amount of information for risk and compliance analysts to trawl through.
As Russia’s invasion of Ukraine looks increasingly less likely to draw to a swift conclusion, sanction lists are expanding and solidifying. Although law firms in the US and the UK are not banned from working with sanctioned individuals and companies, they must consider whether doing so would affect their integrity and reputation. Many law firms have decided that the ethical and reputational risks are too great.
In a further complication, the complexities of the system of legal representation make dissolving lawyer-client relationships difficult, particularly in the US. There, firms must honour their obligations to clients when a lawsuit is active unless a judge approves the withdrawal of representation.
Client intake raises legal and ethical questions
The traditional background checking process:
Step 1: PEPs and sanctions look-up tools provide yes/no answers about known risky customers. But what about those who are about to be sanctioned, or close associates of those who have? Lawyers must make sure that the tools used for PEPs and sanction checks are updated in real-time.
Step 2: Analysts must go through and analyse the results to screen out false positives by applying other contextual information known about the subject. This costs time and money, but is work that cannot be rushed. The stakes are high if an analyst makes a mistake.
Automated research confirms potential clients are a good fit
It does not have to be this way. Here at Xapien, our automated background research system runs searches on PEPs and sanctions databases, news and media articles, corporate records and wider internet data from sites such as LinkedIn, Wikileaks, offshore leaks, and more. It then generates readable, shareable reports in five to 10 minutes on any individual or company.
Introducing AI to the client intake process solves the challenges of the deep research process. It equips lawyers with the full picture of their potential client, so they can make fully-informed decisions. Manual research teams, even when equipped with database and search 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.
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.
We can not only gather valuable data but also:
Extract knowledge and insight from that data that can be used to signpost potential future enforcement actions and previously unknown red flags.
Use that data to conduct deeper and broader onward research.
Verify and disambiguate results to ensure that analysts can focus only on genuinely risky entities and individuals, and businesses can better serve valued customers.
Balancing compliance with depth of research
Compliance is a high-stakes matter for law firms: breaching legal and privacy boundaries can jeopardise a case. But this must be counterbalanced with the need to maximise research on a potential client. How far should law practices go in gathering client information without infringing privacy?
Our system and legal software platform helps with this balancing act, relieving the pressure on busy legal teams. When set up to process open-source data, it uses only data which is available in the public domain. It has in-built regulation capabilities that stop it from infringing privacy laws.
Few sectors are more conscious of their ethical responsibilities than the legal sector. As governments and consumers around the world demand businesses conduct ever greater due diligence on potential clients, we are helping legal experts make the ethical decisions that facilitate growth and repeat business. Book a demo to find out more about how we can help you.
The bottom line
Firms need to know as much as possible about potential clients so that they can ensure they are a good fit legally and ethically.
Manual background research creates delays in client onboarding and client communication.
When Xapien is used for client intake, speed increases, inaccuracies are removed, and lawyers gain a deep understanding of potential clients’ reputations, backgrounds and objectives.
Book a demo now to see how Xapien can provide you with the assurance you need in your research.