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Lexis+ AI
Harriet Holmes

AML Services Manager, Thirdfort

How law firms can leverage technology for effective due diligence

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How law firms can leverage technology for effective due diligence

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Harriet Holmes outlines seven key considerations when selecting a due diligence provider

In order to meet regulatory requirements and help prevent fraud and money laundering, it is of paramount importance for law firms to conduct thorough due diligence on their corporate clients.

Traditional methods of undertaking client due diligence predominantly rely on a manual approach. However, individuals can be misled, make mistakes, and fall victim to fraud.

If using a manual method, firms may expose themselves to several risks, such as high-quality fake documents, lack of data and sources to verify information, difficulties in evidencing controls and compliance processes, bias and inconsistency, and human error. Sophisticated criminals will take advantage of such weaknesses.

As a result, many firms are now turning to technology platforms that augment parts of the due diligence process.

There are many such technologies available. For instance, digital identity verification tools have transformed corporate due diligence, helping reduce the time spent when verifying beneficial owners. Such technology also helps draw out ownership trees and structures without being restricted by borders.

Screening technology, which helps increase the reach and quality of the data that firms can access, reduces the manual burden when understanding potential client risks.

In addition, source of funds (SoF) verification technology collects and provides crucial information about client funds. Advances in SoF technology are helping to eliminate the risk of tampering and interception, collect corroborating evidence upfront without the usual back and forth, improve user experience, and provide more accessible reports for the people reviewing them, with key risk factors highlighted.

In a landscape populated by diverse providers, each offering a myriad of services, making the right choice can seem daunting.

The goal should be to choose a provider that not only meets basic requirements but also offers a comprehensive, user-friendly service specifically tailored to a firm’s needs.

Firms should keep the following seven points in mind to help guide their decision-making process.

Accuracy of information

It’s dangerous for firms to use a tool where they cannot rely on the accuracy of the information provided. With corporate entities, this can be particularly difficult because commercial registers can become out of date quite quickly.

So, when selecting a provider, firms should look for one that uses a range of sources to build a complete picture of their client’s organisation and its activities.

Global reach

Having a provider that can only provide information for certain jurisdictions may be suitable if a firm has few international business clients.

However, there are two further points to consider.

Firstly, firms dealing with domestic and international businesses should consider the impact of a provider who cannot support the necessary geographical touchpoints. This may create the need for multiple suppliers and separate processes, which can lead to oversights and errors.

Secondly, while a corporate entity may be registered in the UK or the EU, other entities in the ownership structure may be based in less accessible jurisdictions. So, firms may need access to global data.

As a result, firms may not get the information they need when assessing ownership structures if they use a provider that only deals with a limited number of jurisdictions.

It can be incredibly frustrating if the technology provider only goes so far before leaving firms needing to visit multiple jurisdictions commercial registers, along with all the challenges that brings.

Depth of information?

Next, firms should look for a provider that offers a depth of information.

Lawyers should consider making a list of the questions they need to answer as part of their client and matter risk assessment. With this, they should assess each technology provider for which pieces of information can be provided by them to help answer those questions.

For instance, does the provider screen the corporate entity for sanctions and adverse media? Will they provide information on owners and directors? How about information that might help firms understand the nature of their client’s business, such as SIC numbers, business activities and company website?

The greater the depth of information, the fewer delays lawyers will face when onboarding corporate clients.

Ongoing monitoring?

Monitoring corporate clients for changes is imperative to maintain compliance. This is an area where a technology provider should be able to help firms, by sending an automated notification based on trigger events that are being continually monitored.

Such ongoing monitoring is vital to ensure the integrity and validity of the information. Part of this process involves regularly checking and updating records to make certain that the data held is not only current but also accurate.

This is critical because outdated or inaccurate information can have a significant impact on decision-making processes and the overall effectiveness of a law firm’s compliance operations.

Usability?

Given the often-complicated nature of this process, an effective provider should offer a user-friendly platform that demystifies the process.

The platform should be intuitive and easy to navigate, with information presented in a clear, easily digestible format that can be understood by whoever is viewing the file.

Firms should test any platform they are considering. For instance, the compliance team could share demo reports with a few stakeholders within the firm who will be tasked with regularly analysing them.

Their feedback can help compliance teams decide how easily the reports can be interpreted.

Outstanding customer service?

Customer service is as important as the depth and breadth of service the provider offers.

How quickly will the provider respond to questions or requests for support? Are they available to help train staff on how to use the tool?

It is great if technology can save lawyers time, enabling teams and firms to become more efficient, but if they spend days waiting for a response from the providers’ support team, they are unlikely to realise most of these efficiency gains.

Poor or slow customer service will leave teams sceptical about how much the technology is really helping. Ask questions about response times to support queries. It may be worth asking to speak to another client to get an unfiltered view.

Choose a supplier who values firms and the Individual business, is open to feedback, listens carefully, and is willing to make improvements.

Individual identification and verification

Technology can undoubtedly save time. But using multiple systems can present its own challenges.

Once a firm has identified its corporate clients’ owners and directors, they will need to identify and verify these individuals.

So, firms should look for a provider who can combine the checks needed for corporations with those that will be needed to verify individuals who are in ownership or control.

This will make the process smoother and reduce the number of platforms firms need. Overall, it helps create a robust system that ensures all clients, individuals and corporate entities, are verified before lawyers undertake any transactional work, thereby enhancing risk mitigation.

Conclusion

With these seven steps in mind, firms should be better equipped to decide which due diligence provider is the best fit for them.

However, it is worth remembering that due diligence on corporate or individual clients can never be fully automated

The process should also involve more than merely automating data collection. It is about facilitating legal teams to focus on more high-risk and potentially complex cases, setting them up to succeed, thus enhancing efficiency and job satisfaction.

Even with the right provider in place, firms should not become overly reliant on the technology and fail to have enough human oversight in the process. Lawyers must also read and review the results, while firms must ensure their people are given the training they need to interpret those results correctly.

An exceptional provider is not merely about fulfilling the basic requirements, but one that offers comprehensive, intuitive service that sets lawyers up for success by meeting the firm’s needs.

This enables firms to spend less time on data gathering and more space to focus on the risk-based approach that combines the best technology and human involvement.

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