Conflicts of interest are among the greatest and most wide-ranging threats law firms must grapple with today. Undeclared conflicts of interest open the door to lawsuits, disqualified court cases, and fines. If a lawyer is aware of a conflict and fails to disclose it, they can face disciplinary action or even lose their licence.
Conflicts can take many forms. A lawyer might have represented the other side in the past, or the client might have problematic connections to existing customers or their subsidiaries. Laws and regulations change and new conflicts may arise, necessitating constant research.
Historically, law firms faced a choice. They could invest significant time and resources into staying on top of potential conflicts of interest, and hopefully reduce the risk of legal or ethical fallout. Or, they could avoid the investment and remain exposed. Today, tools such as Xapien help firms stay one step ahead by helping law firms discover conflicts before they become an issue, without having to pour time and money into the task.
Why conflict management matters
The penalties for undisclosed conflicts of interest vary from jurisdiction to jurisdiction, but disqualified cases, lawsuits, fines and debarring are potential outcomes.
A law firm that is investigated for failing to observe a conflict of interest will see its reputation severely damaged, particularly if the breach is related to a high-profile client or is reported by the media.
Although it is imperative conflicts are investigated, delays while this is done can lead to tensions between partners and compliance teams. Partners want to win new business and start billing clients. Compliance teams must ensure the firm is following all relevant laws and regulations. Disagreements and further delays in the client intake process can follow.
Conflict today: A quagmire of potential breaches
Law firms have at their disposal today an array of technology that enables them to stay on top of potential conflicts of interest. However, few firms are putting that technology to use. Significant and widely reported upon conflicts within just the last few months include:
Conflict due to family associations
A former law firm colleague raised ethics concerns over Supreme Court Chief Justice John G. Roberts Jr.'s wife, Jane Sullivan Roberts. Mrs. Roberts left her legal career to become a recruiter to avoid potential conflicts, but the former colleague claimed her work pose ethics issues for the chief justice. Records were provided to the Justice Department and Congress, indicating Mrs. Roberts received millions in commissions for placing lawyers at firms, some of which have cases before the Supreme Court.
Conflict due to previous work
The law firm Sullivan & Cromwell is facing criticism for a conflict of interest in the high-profile FTX bankruptcy case. The firm has been accused by four US senators, FTX creditors, and the US trustee overseeing the case, who claim its initial disclosures were incomplete. They argue that Sullivan & Cromwell had a conflict of interest as it provided regulatory services and advised on acquisitions for FTX prior to its bankruptcy filing.
Conflict due to an employee’s interests
A Kansas City engineering firm that lost out on its bid to build a billion-dollar airport was awarded $62 million over legal misconduct by a lawyer, according to local reports. The lawyer, Charles Renner, represented the company that won the bid at the same time as he was acting for Kansas City. Renner’s law firm, Husch-Blackwell, will pay the fine.
Conflicts across borders
In a $32 million verdict, the law firm Dentons was disqualified from representing a client due to failure to disclose conflicts. The appeals court upheld the disqualification of Dentons' US arm after it failed to disclose conflicts related to Dentons Canada. Dentons argued that each office serves different markets, but the court ruled that the firm functions as a single entity, requiring it to check for conflicts across its entire network.
The conflicts surveyed here took place at large law firms with major budgets. Any savings they made in not investing in comprehensive conflict management will have been negated many times over by the fines and reputational damages caused by the emergence of these conflicts.
It didn’t have to be this way.
Automating the repetitive parts of the conflict management process enables law firms to conduct deep due diligence, make decisions quickly, and remain within budget. When Xapien’s automated online research platform is used for conflict management, speed increases, inaccuracies are removed, and lawyers gain a deep, unprecedented understanding of current and potential conflicts. Xapien is a single tool that can solve multiple challenges by transforming research from a resource-intensive task that takes days into one that takes only minutes and can be done by anyone.
Reduced risk: Law firms can see the full picture on any client, employee or partner in under 20 minutes
Increased productivity: Conflict teams no longer have to spend hours trawling through search results. Lawyers can focus on complicated tasks, rather than reviewing contracts and performing due-diligence processes
Lower costs: More work can be done in fewer hours
Better client experience: Law firms operate more quickly and efficiently
Greater accuracy: The possibility of human error or bias is reduced
In depth: Conflict challenges, and how Xapien solves them
Law firms need to quickly uncover clients’ networks and histories
A conflict of interest can be more subtle than a client being a director or major shareholder. They might have a family connection, or have made a donation that would ring alarm bells for regulators, or be seized upon by the other side in a court case. These conflicts take time to uncover when conflict teams rely on manual research.
Xapien generates a broad and nuanced picture of any person or company in minutes. It reveals the companies a person has resigned from and mentions of that person in the media with any risky associates. It searches PEPs and sanctions databases, news and media articles, corporate records and wider internet data from sites such as LinkedIn, Wikileaks, offshore leaks, and more. NLP and machine learning algorithms tie together oblique references to the prospect and the topics related to them, saving conflict teams hours of wading through search results and websites.
Natural Language Processing algorithms connect facts to people and companies, identifying how they participate in events, where those events took place and the other people or companies who were involved. From job roles, to investments, takeovers or marriages, Xapien sets everything in context, providing the richest understanding.
It can uncover niche information on low-profile clients, as well as useful, hard-to-find information, about clients with a large profile.
Xapien doesn't just present articles for conflict teams to read, but reads and processes them itself. Assets, associates, wealth, business roles, descriptions, quotes and affiliations are identified, summarised, categorised, and presented in a digestible report. When it is clear no conflicts need to be investigated further, the client can be quickly onboarded. Or, the conflict team has the evidence they need to explain that there is a conflict, and suggest solutions to resolve it.
Case study 1:
Investigating Michael Doyle
Michael James Doyle asks a law firm to represent him as he sets up a new company. Running his name through a search engine brings up results about a footballer.
When his company is added, his profile on Companies House comes up.
A search on ComplyAdvantage brings up 143 results.
A Xapien search takes 12 minutes and shows he has resigned from 167 companies, 31 of which have risks associated with them. One is a confirmed watchlist. He also appears on a list of disqualified directors in Guernsey.
Michael Doyle is in fact a known fraudster and currently in jail, but search engines failed to reveal this without the extra ‘broadstairs’, ‘guernsey’ inputs.
Uncovering this information could take a compliance team days. Xapien found it in minutes.
The discovery of potential conflicts of interest necessitates further research.
Traditional research methods, such as politically exposed persons (PEPs) and sanctions checks, tell you whether a prospect is a risk. However, the results still need to be analysed and checked, leaving the door open to missed connections and conflicts.
A conflict team might discover that their law firm has previously represented an opposing party in a previous case, or that existing clients are in conflict. Or, information might surface suggesting that a client would be unsuitable. When this happens, thorough investigation is needed to learn more. This situation can happen after a substantial amount of time has already been invested in the client. The firm has two options: invest further resources into investigating the conflict, or reject the client in order to minimise potential losses.
Xapien processes and delivers insights on all the information available in the public domain on an individual or a business in under 10 minutes. These searches can be carried out as soon as a client approaches a firm.
Xapien is capable of searching millions of publicly available online data sources, disambiguating between false positives and presenting only the relevant information. Laws firms can be confident they know as much about a client as is possible. Xapien can take just a few pieces of information, such as the name of a person and their organisation, to extract key events, sentiments and personas related to them. It then builds a ‘knowledge graph’ connecting individual pieces of information together. This creates a rich view of the subject and their network of connections, in the same way a human researcher would, but far more quickly.
The level of detail packed into the concise, summarised reports all but eliminates the risk of someone else uncovering information that puts the firm or a case at risk. If Xapien can’t find it, it is unlikely anyone else will.
Case study 2:
Griffin: Manual research is slow, delaying client onboarding and creating internal tensions
Manual research is a slow process that can lead to delays in client onboarding and client communication. Clients who encounter lengthy delays might turn to another firm who can give them an answer more quickly. This can provoke tensions between partners and the conflict team. Or, research is rushed, resulting in missed conflicts of interest. This can lead to reputational damage, media scrutiny and serious financial consequences.
At fintech start up Griffin, background checks used to take a day per subject.
Xapien enables users to swiftly generate comprehensive and easily understandable reports on individuals or companies within a matter of minutes. Conflict teams or partners can quickly access the information they need, without subjecting clients to excessive inquiries. With access to all relevant information, including potential risks that may not have been considered, they can make informed decisions about client acceptance. This streamlines the onboarding process, allowing clients to become billable in as little as 30 minutes.
Now, at Griffin, a prospect or supplier is run through Xapien as soon as their name is mentioned. Inputting the search terms takes 30 seconds. Compliance can leave the software to run while they get on with other tasks. The results are available in 12 minutes or less. Compliance takes half an hour to read the results. Direct risks are highlighted, so compliance can skip the irrelevant information. Xapien provides clear evidence of a due diligence process.