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FCPA Compliance Report

Tom Fox has practiced law in Houston for 30 years and now brings you the FCPA Compliance and Ethics Report. Learn the latest in anti-corruption and anti-bribery compliance and international transaction issues, as well as business solutions to compliance problems.
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Sep 7, 2017

What will be the role of Artificial Intelligence (AI) in compliance going forward? LawTech had disrupted the legal profession and how it is reshaping many areas of private practice. I found the article had multiple implications for the compliance function. Indeed, I believe there will be a ComTech industry lurking down the road. 

Obviously, document review is one area where ComTech would be most useful. There are many companies who provide key word searches and these same concepts translate readily into the compliance world through massive database searches for key words, such as an ongoing email review through email sweeps. The concept is straightforward; at regular intervals, you sweep through your company email database for identified key words that can be flagged for further investigation, if required. Such a sweep is not limited to anti-corruption compliance but any of the risk factors identified for your company. 

The objective of this approach is to find the evidence of a compliance breakdown by sweeping systems to uncover items that may contain real issues. From here, you can assess and prioritize, by checking and verifying if an issue needs investigating and focusing on the issues you want to investigate first. Further, and if warranted, you can invoke your investigation protocol, with all the requisite protections and securities. AI can help you to perform all of this more cheaply and efficiently.

Soon compliance will be pushed more to the forefront in anti-money laundering (AML). As banking institutions continue to tighten and strengthen AML controls, criminals and other nefarious actors will move into non-financial corporations to move money for the simple reason that such robust controls required in the financial and financial services world are not generally required in the non-financial corporate world. Non-financial corporations should have robust AML controls in place and one of the requirements for any best practices AML policy is to “Know Your Customer” (KYC). AI will allow a more robust KYC approach. 

Another area where compliance is often left behind is in the arena of Mergers and Acquisitions (M&A). Since the 2012 FCPA Guidance, the focus of compliance in M&A has been more and more on the pre-acquisition phase of a deal. Often the compliance function is either brought in at the last minute and does not have the time to perform adequate compliance due diligence or there is an overwhelming amount of data to be reviewed and the resources available (or made available) to the compliance function is woefully inadequate. AI can help in this area. There are companies which have software that allows thousands of documents to be reviewed in the M&A context. 

The review could include such issues as whether third party sales representatives have the requisite background due diligence in the files, their status and commission rates paid. There could be a review of top sales and business developments folks in high-risk regions, correlated with a gift, travel and entertainment analysis. Finally, you could consider sales in high risk regions or even sales spikes from low risk areas from the compliance perspective. 

A prime example of where AI can assist the compliance function is with third parties in the Supply Chain arena. Every multi-national has literally thousands of vendors. Getting a handle on those is always a challenge simply because of the numbers involved. Using AI, a compliance practitioner can immediately identify vendors that present anti-corruption compliance or other risks to an organization. Once again, having led an effort to list out all employer’s vendors by hand to begin the risk ranking process, I can personally attest to the greater efficiencies AI can bring to the exercise. 

There is yet another set of AI tools which can review contracts to see if any specific types of clauses are non-standard. It would seem a relatively easy software coding exercise to adapt such products to compliance clauses. This type of approach could also be used for non-standard governance clauses in joint venture (JV) or other types of partnerships agreements. Having once been assigned the task of reading all my employer’s JV agreements (87) and third party sales agents contracts (211) from across the globe and recalling the amount of time it took to do so; I can personally attest again to the greater efficiencies we are considering through the use of AI. 

This example also points to one of the key disadvantages to AI and ComTech going forward. In past years, it was through document review and the detailed reading of documents and cases that many junior lawyers were trained. In my experience, reading all those JV agreements and third party sales agents’ agreements gave me a very good education in contract language and what positions were more and less favorable to each party. This is how many young associates were trained in law firms. This very practical method of training will eventually go away. 

This final example also points to one of the key limitations of ComTech. While it might have helped to have AI review the JV agreements and third party sales agents’ contracts, it only could identify non-standard contract language. Unfortunately, since most of the agreements and contracts were bespoke they were uniformly non-standard. Further, the assignment I was given required an analysis of each non-standard contract so the judgment of a human was required. Even as AI becomes more sophisticated, the judgment of a professionally trained compliance practitioner is still required to validate the areas flagged by AI as anomalies. 

Gary Kasparov recognized this after his loss to IBM’s Big Blue in a chess match. In a review of his recent book Deep Thinking-Where Artificial Intelligence Ends and Human Creativity Begins, it noted that Kasparov “recognized that computers do well what humans do badly and vice versa, suggesting a useful complementarity.” Moreover, “he argues that humans are often fallible, finding patterns in randomness and correlations where none exist. Computers can help us be more objective and amplify our intelligence. Technological progress can never be stopped even if it should be better managed.” Kasparov even formulated his own theorem, which he calls “Kasparov’s Law” and it reads, “Weak human + machine + better process is superior to strong human + machine + inferior process.” 

There have always been technological innovations which help make co mpliance disciplines run more efficiently, more smoothly and more profitably. AI is simply another step in this line of technological developments. There is certainly no reason to be afraid of using it. Given the disruption which has impacted the legal profession through LawTech; disruption is not far behind in the compliance world through ComTech. 

Three Key Takeaways

  1. Artificial intelligence has already disrupted the legal profession, the compliance profession may be next. ComTech will be the result.
  2. Document review will be the first area of significant AI use in compliance.
  3. Beware the limitations and disadvantages of ComTech. 

This month’s podcast series is sponsored by Oversight Systems, Inc. Oversight’s automated transaction monitoring solution, Insights on Demand for FCPA, operationalizes your compliance program. For more information, go to OversightSystems.com.

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