For companies and their general counsel – as with the rest of the world, generally – 2020 presented unique challenges. As we move through 2021, organisations of all sizes and across all industries face unprecedented forms of scrutiny, liability, and potential “bet-the-company” penalties for misconduct by US and other international regulators.
In response to the COVID-19 pandemic, governments worldwide have distributed significant amounts of emergency relief funds to help manage the pandemic and mitigate its impact on individuals and businesses. Over the course of the last year, the United States, for example, has passed the largest spending measures ever enacted, providing more than five trillion dollars in aid through multiple stimulus bills and more is being proposed. Those relief funds include oversight mechanisms based upon TARP that seek to combat potential fraud, waste, and abuse on behalf of fund recipients, paving new avenues for regulatory scrutiny.
In June 2020, the US Department of Justice (DOJ) issued updates to its Evaluation of Corporate Compliance Programs as part of its overall framework that prosecutors should consider in conducting corporate investigations. That framework will apply to COVID-related investigations. It also provides insight for GCs of corporations seeking to develop and implement a best-in-class compliance program. Among its recommendations, the guidance encourages companies to leverage technology and engage with compliance data real-time – a clear signal to businesses of the importance of data management and security in building a robust compliance program.
Additionally, although robust white collar enforcement has continued in a number of areas over the past four years, the 2020 US Presidential election will usher in a new administration that will likely adjust its regulatory and enforcement priorities on several fronts. With new leadership, financial regulators – including the DOJ and US Securities and Exchange Commission – are poised to take more aggressive stances to combat alleged corporate wrongdoing.
It is no surprise, therefore, that global general counsel are expressing heightened concern over these new and emerging challenges. To gain more direct insight into these issues, Latham & Watkins is delighted to partner with GC Magazine and The Legal 500 in their inaugural “Under Investigation: A GC Guide to White Collar and Sanctions Trends in 2021” to ask GCs about their top regulatory challenges. The following responses offer a snapshot into the concerns and risks GCs around the world have identified as top-of-mind in this evolving regulatory climate.
Douglas Greenburg Benjamin Naftalis Nathan Seltzer
Global Chairs, White Collar Defense & Investigations, Latham & Watkins LLP
Virtually all respondents to our survey had an opinion on whether ethics and compliance were treated as two different topics within their organisation. There was no overwhelming consensus, however 61% of survey participants said that they are not treated as distinct concepts within their organisations; 35% said that they were.
‘Many companies think that these should be separated, where one should focus on the law and the other on the company culture as a whole,’ explains Armando Cruz, director at KPMG in Mexico.
Regardless of the relationship between the two, some consensus has emerged from the results suggesting that the question of ethics does and should touch all areas of the business – not least of all in avoiding the ire of regulators and investigatory bodies.
90% of in-house counsel consider corporate ethics highly important in avoiding white-collar investigations. Similarly, 87% considered the legal team as ‘highly important’ to the promotion of an ethical business culture within an organisation – 12% consider it ‘moderately important’ – and just 1% of respondents thought that the legal team was less important than that.
The results show a near-universal appreciation for ethics within a business by in-house counsel. This is unsurprising. However, what is surprising is the extent to which that feeling from general counsel does – or doesn’t – manifest within the wider business.
Despite near-universal agreement among in-house counsel that their teams are important to an organisation’s ethical makeup, just 63% felt that they and their teams are appropriately placed to promote an ethical business culture within their organisation.
‘Even though they are managed by same team, they are materially different,’ says Miguel Oyonarte, VP legal and corporate affairs at VTR Comunicaciones SA.
‘Ethics is much bigger in terms of scope and impact on culture. For its successful management, it requires the lead of the CEO and all their direct reports. It is also much more difficult to change – it requires full cultural change.’
Indeed, those who didn’t feel that their team is appropriately placed overwhelmingly pointed to factors external to the legal team as being the biggest reason. 61% cited institutional structure as making legal’s involvement impractical. The next most cited reason was that culture and conduct were the domain of another department (17%).
Cryptocurrencies and the blockchain technology underpinning them have seen exponential adoption over the past ten years. Perceived failures of the status quo and a desire from innovators for improvement has meant that today, cryptocurrencies are now widely accepted in many corners, from retailers to charities to governments. The underlying technology is finding wide application, being used to reinforce supply chains and preserve evidence.
The explosion of digital assets has been enabled by blockchain technology. A blockchain is a series of mathematical structures, inside which individual transactions are recorded. The record of each transaction – each ‘block’ – is dependent on the block that came before it, and becomes a permanent part of the history of the blockchain. This means that the record cannot be tampered with: once it is added to the blockchain, all subsequent transactions are recorded in relation to that block and all of the blocks that came before it. Following each transaction, the updated blockchain is distributed to each participant. Any attempt to change a record in the blockchain will put it at odds with the version held by every other participant in the blockchain, as well as all of the subsequent transactions that have been recorded.
‘Blockchains are basically networks – a series of computers – that rely on a process system of interconnected computers who validate transactions,’ explains John Roth, chief compliance and ethics officer at Bittrex.com. Bittrex is a US-based cryptocurrency exchange with a large clientele of institutional investors. He is also a former US Department of Homeland Security Inspector General and Department of Justice prosecutor.
‘In plain English, there are computer operators who are ensuring that the networks are healthy and that as you engage in transactions, these are actually valid transactions. Most folks aren’t doing it for free, they’re doing it because they’re incentivised by crypto currency. So, blockchain is more than just value transfer.’
‘Crypto is getting less and less risky because there are more and more providers of services which have been in the business for multiple years which educate the people,’ describes Lars Hodel, Head of Legal and Compliance Bitcoin Suisse AG, which was established in 2013 and is the first Swiss-regulated financial intermediary specialising in crypto-financial services.
‘If you want to buy Bitcoin or get crypto asset exposure today, you don’t need to log into some shady-looking site, you can just Google and find your providers to see that it’s real people. Access to crypto assets is getting easier.’
Dangerous money
Some sceptics of the digital asset revolution point to the difficulty of protecting against criminal misuse: after all, regular currency has financial institutions mediating each transaction and leaves a supposedly identifiable paper trail. The anti-money laundering battle is big enough with traditional forms of currency, so how can digital currencies avoid criminal misuse?
The United Nations Office on Drugs and Crime estimates that US$800bn to $2tn is laundered every year – most of this being in cash. According to the Chainalysis 2019 Crypto Crime Report, US$2.8bn in Bitcoin was laundered by criminal entities in crypto exchanges.
The explosion of digital assets has been enabled by blockchain technology.
‘One of the key benefits from blockchain is user autonomy in that users are able to control how they spend their money without dealing with an intermediary authority like a bank or government,’ says Swadesh Gupta, Director of Legal and Strategy at Wallet Circle, a hyper-local customer engagement platform.
Roth expands: ‘There’s a fallacy out there that somehow these digital currency transactions are secret – actually, nothing could be further from the truth. These are very transparent transactions, you can identify transactions by date, time, amount and blockchain location.’
‘It resolves the trust issues in a transaction, and the transactions on blockchain are totally transparent,’ adds Gilbert Ng, legal counsel at Huobi Group. Huobi Group is a world-leading company in blockchain and digital asset industry with a mission to making breakthroughs in core blockchain technology and the integration of blockchain with other industries. It has over US $1bn trades occurring daily on their cryptocurrency exchange.
Washing dirty cash
Criminals are able to use crypto money laundering to disguise the criminal source of their cash assets employing a combination of different approaches. The most simple method of money laundering banks on the fact that undertakings made with cryptocurrencies are pseudonymous.
‘The reason that criminal activities increasingly involve digital assets is because of the anonymity features of these digital assets,’ says Ng. ‘But, looking at the recent trends, there are actually fewer criminal activities using digital assets for laundering.’
The usual approaches that apply to conventional cash money laundering also apply to crypto-laundering. There are three key phases of (crypto) money laundering: placement, hiding and integration.
Placement is moving the dirty cash from its original source into a legitimate cryptocurrency system.
‘The first crypto placement stage is super important to focus on,’ explains Roth. ‘Any time that there is a bridge between fiat currency and digital currency, you really want to pay attention to it.’
This is done through often loosely regulated crypto exchange platforms and initial coin offerings, right through to the use of cryptocurrency ATMs which have already proliferated throughout bars and grocery stores around the world. The complicity of crypto ATMs in the process highlights one of the reasons these novel digital assets are being used to launder criminal funds. What might initially be thought of as a necessary lowering of the barrier for widespread crypto adoption now represents an easy access point for moving dirty money into the digital financial system.
‘We know that in the placement stage, people transact with crypto ATMs,’ explains Rory Gordon, legal and compliance officer at Coinfloor, the UK’s longest established Bitcoin exchange.
‘We’ve had concerns from the police before because [crypto] ATMs have been particularly popular with drug dealers, seeking to convert large quantities of cash. A popular way to get rid of that cash is through [crypto] ATMs because you can deposit the cash, get the Bitcoin, and from there it’s much easier to make up a backstory as to where you got it all from.’
There are also the more conventional concerns at the placement stage, as Hodel explains:
‘It’s very easy to ask your friends to deposit money for you or ask a stranger if you can use his ID to open an account. These are the things that we see which are the most used cases in money laundering. These are very traditional, non-blockchain, non-crypto attack factors that you’ve had in the traditional banking world for years.’
The ‘layering’ phase
The second stage, hiding or ‘layering,’ conceals the origin of the dirty cash through a sequence of transactions and financial tricks, moving the cash through different accounts, currencies and exchanges to obscure its true origin. Just how effective a would-be launderer can be using digital assets will depend on the asset itself and the infrastructure used to deal with it. Some cryptocurrencies have specific focus on privacy, such as Monero. Others do not.
As Roth describes, all transactions are recorded on the blockchain, which provides a level of transparency which ultimately makes complete privacy difficult. Monero circumvents this. Monero transactions hide the sender by ‘signing’ each transaction with multiple signatures, only one of which is that of the actual sender. The amount being sent and the receiver are similarly private.
‘It depends largely on whether they’re using regulated exchanges. In the EU, US, Canada and Australia, the exchange networks are very heavily regulated and require verification procedures that make customer identification and law enforcement considerably easier. So, if a criminal uses one of those exchanges it’s almost a trivial exercise to be able to expose them. And because digital currency transactions are publicly indelible, all they need to do is cross-exchange once and it can be traced all the way back,’ explains Roth.
Hodel expands further, adding that: ‘Even if you use privacy coins where you can’t trace transactions, you need to explain why you used that coin. Any provider who sees a client using privacy coins on a large scale needs to question their client about why they’re using them. If a provider sees an unusual fund and analyses this on a professional level, then this will be flagged.’
‘When you look at currencies such as Monero, they use ring signature encryption which makes it incredibly difficult for any company to track the source of that asset,’ says Gordon.
‘However, some privacy coins do have keys to reveal the true owner of the assets which must be given over if there’s subpoenas or relevant court orders, but generally privacy coins allow virtual anonymity.’
‘Technically, criminals can stay anonymous under blockchain,’ says Ng.
‘But, practically, no. Most criminals will use crypto exchange platforms or over-the-counter (OTC) agents to convert digital assets into fiat currencies. In such cases, their identities would probably be revealed if proper KYC (know your client) procedures are in place.
‘It’s a fairly easy exercise to see through what’s really happening,’ says Roth.
Some cryptocurrencies have specific focus on privacy, such as Monero.
‘With decentralised exchanges, it depends on what the exchange looks like and how it operates. It may make it more challenging, but no more challenging than tracing traditional money laundering through traditional banks.’
‘But, the risk that exists in cryptocurrency that doesn’t exist in typical currencies, is the idea that you can do a peer to peer transfer of value: I’m a bad person, you’re a bad person and we want to do some sort of financial exchange. We can do so with cryptocurrency without involving a bank or a credit card company because peer-to-peer transfers are with cash. This is a new paradigm for criminals to exchange value without somebody looking over their shoulder.’
The final stage, integration, involves the newly laundered money being returned to the launderer with an apparently legitimate – or at least, unknowable – legacy. If money reaches the integration stage, it becomes much more difficult to trace back to its criminal origins from that point.
Anti-moneylaundering solutions
Considering that blockchain technology administers a public log of each and every transaction – leaving behind a permanent trail – susceptibility to money laundering through cryptocurrencies is somewhat manageable.
‘Even if you are a weak provider or intermediary in the placement phase, who doesn’t take anti-money laundering (AML) seriously, I can still check that in the integration phase at a later stage on the blockchain, which is great because you can’t do that in the traditional banking world,’ says Hodel.
‘It’s wrong to say that cryptocurrencies can facilitate money laundering. Cryptocurrencies can be used for money laundering like any other asset, be that fiat, art or even physical precious metals. In the beginning, technology is usually used by people who want to take advantage of the fact that some technologies are not used very broadly.’
‘It was exactly the same with the internet, people used it to hack things and then today you still have online banking, despite the hacks. With crypto, it’s the same – it was used by people who wanted to try to find a new way across the banking system, to money launder.’
But while cryptocurrency is not the ultimate enabler of laundering that it is sometimes accused of being, stamping out money launderers requires supervision and a commitment to compliance on the part of companies within the ecosystem.
‘What helps is installing an in-house legal and compliance department and then training people – not only on the technicalities, but, also on what AML exactly is. Technical understanding is crucial. You need to know what you’re dealing with. If you take a retail compliance officer, you probably wouldn’t get the compliance challenges that you would expect from a tri finance bank and vice versa,’ adds Hodel.
Gordon echoes this sentiment: ‘Having a compliance and legal department and having the right policies and procedures in place, actually gives you the tools to tackle this. Of course, you need to obtain the necessary documentation on your customers. You need to know who they are but you also need to monitor their activity and have intelligent checkpoints in place.’
Though bad actors will continue endeavours to bypass and manipulate blockchain, money laundering can be prevented with devices that pair consumer data with their respective crypto transaction records. These tools can make it relatively easier for businesses to clamp down on crypto-laundering, stay AML compliant and isolate high-risk clients.
‘With crypto, there’s nothing new under the sun, this is simply a different sort of take on typical value transfer, but the measures for AML are largely the same,’ says Roth.
‘You have to KYC and understand your customer’s business, so you can understand what typical business transactions look like and have alerts generated for transactions or a series of transactions which deviate from the expectation of what that customer is doing. You must have good AML hygiene. It really isn’t all much different than what traditional financial institution programmes look like.’
Clean regulation
Globally, when it comes to cryptocurrency transactions and AML enforcement, the law drastically differs from jurisdiction to jurisdiction: from relatively strict regulations in the likes of UK, the US, and much of Europe to practically non-existent enforcement in many other countries.
‘Money laundering is an international crime and money launderers, just like other criminals, don’t respect international boundaries,’ argues Roth.
‘The ability to coordinate, harmonise and correlate these individuals to laws in a way that levels the playing field, among many different countries, with a uniform set of standards of laws that every country follows is super important. Otherwise, you get a regulatory arbitrage where money launderers will gravitate towards to weakest regulatory scheme.’
‘Like any nascent industry, one needs to be very aware of the risks that surround the crypto industry, especially when dealing with non-regulated entities,’ notes Jonathan Galea, CEO of BCA Solutions and a long-standing crypto-focused lawyer who wrote his 2015 Doctorate of Laws thesis on crypto and AML.
‘In fact, most companies would treat crypto as a high-risk industry. However, one needs to differentiate between the various service providers and stakeholders involved in the industry, versus the actual technology powering crypto as we know it. The latter, namely blockchain technology, has proven to be a far better tool for tracking and tracing movements of money than traditional technologies. This is precisely the reason why one shouldn’t go overboard, or essentially over-regulate, before a sufficient understanding of a new technology and its repercussions is obtained, and then proceed to assess the various stakeholders in a particular industry in order to regulate them properly.’
Arguably, the general lack of consistent global regulation is creating considerable risks in increasing the scope of potential manipulation of cryptocurrencies by criminals – therefore, the effectiveness of such protections against money-laundering is somewhat questionable and perhaps even discourages the broad scale adoption of cryptocurrencies.
‘One of the biggest challenges is that we’re not all speaking a common language across jurisdictions in terms of enforcement,’ adds Liat Shetret, Senior Advisor for Crypto Policy and Regulation at Elliptic, a blockchain analysis provider which specialises in crypto compliance and risk monitoring technology.
‘Without standardisation, the regulatory nuances between nations can be exploited. If there is a loophole, it will be found by bad actors, especially if there’s an assumption they won’t be caught because they assume their activity on the blockchain is anonymous. What many don’t realise is that all cryptocurrency transactions on the blockchain are immutable.’
‘There’s a vast disparity between the EU and the US on the one hand, and what I would call the under regulated countries, on the other hand,’ says Roth.
‘There needs to be more global coordination, and less tolerance for countries that prevent core regulation, so we have the cryptocurrency exchange market which is not completely dominated by these large exchanges who are purportedly registered in the Seychelles, Malta, Hong Kong or Singapore, but are in fact, not regulated at all.’
‘Without standardisation, the regulatory nuances between nations can be exploited.’
However, Gordon argues that the possibility of exploitation by criminals is being eroded:
‘It’s definitely an issue, but it’s being mitigated this year by the 5th EU Anti-Money Laundering Directive – so that’s the reason for the Financial Conduct Authority taking crypto under its wing. We’re seeing a lot more global co-operation with crypto compliance now.’
‘Global regulations are developing and on the right track, but it takes time for regulators to acquire sufficient knowledge of this industry,’ adds Gilbert Ng.
One of the biggest challenges facing in-house legal teams is one of compliance with everchanging AML and crypto regulation through differing jurisdictions.
‘This is one of the risks that we face. We need to vet every country – literally – for what is allowed and what isn’t. It differs even if you’re EU member states. That we do not have a unified approach towards this is something that makes it extremely difficult,’ adds Hodel.
Roth agrees. ‘There’s a variety of legislation that we deal with. One issue we have here in the US, you probably don’t have as an issue in the UK or the EU is here, is that we’re also governed by state law. So, because we’re operating in all 50 States, we are required to be compliant with state law as well as federal law. So the biggest challenge that we have is scanning a variety of different laws that apply to us and ensuring that we are in compliance with that.’
However, Hodel argues that ‘if you’re working in the financial industry, you’re used to having different legal and regulatory frameworks apply to your product. It would be nice to have one law that is applicable to any situation worldwide but this is not how law works. Just because crypto is not part of the financial market regulation yet, we still have the very basic civil and penal codes which, for example, provide punishment for fraud. We have a common understanding of what should be okay and what is not okay, and this doesn’t change when we’re dealing with crypto.’
Crypto disruption
Despite the fact that cryptocurrencies can indeed be used to conduct illicit criminal activity, the principle impact of such currencies on illicit crimes, such as money laundering, when juxtaposed to cash transactions, is little to none. According to The Foundation for Defense of Democracies and Elliptic’s 2019 report, US$829m Bitcoin was spent on the dark web. To put these figures into context, that’s only 0.5% of all Bitcoin transactions, with 2 to 5% of global GDP, or up to US$2tn through the traditional financial institutions.
‘Money laundering is not as big of an issue in the crypto space as it is often reported to be or often perceived. It’s a misconception and it’s actually very easy to counter,’ maintains Gordon.
‘We’re still in the early adopter phase of cryptocurrency,’ says Roth.
‘In the grand scheme of things, it’s just a tiny fraction of the global financial world. But, I think cryptocurrencies will reach a tipping point where it’ll be common for you to have a Visa, Mastercard and a cryptocurrency backed debit card in your wallet to engage in transactions. We think that the next two to five years will be a mainstream adoption of cryptocurrencies in a way that will fundamentally change the volumes of crypto involved, as well as the risks.’
Gordon agrees: ‘In the coming years, we’re going to see mass adoption, with big traditional financial players eventually entering the crypto industry once the regulation comes in. Crypto will be used as a store of value for a lot of unbanked individuals. Last year around 1.7 billion people were without banking globally. The great thing about crypto is that you can easily set up a wallet by yourself on the phone or computer. I think it has enormous potential to transform economies and provide opportunities to people the world over.’
At a time of increasing regulatory scrutiny in virtually all corners of business, and with the stakes having never been higher, now is the time for companies to get their house in order in terms of their compliance and investigatory response regimes. Our survey of top in-house counsel from across the globe revealed great disparities between organisations, not just in terms of how they plan for a potential investigation or prosecution, but also in terms of how high a priority such an endeavour is, and who within the business is best placed to take ownership of it.
But while most businesses – and certainly nearly every lawyer – would recognise the risk of inadequate preparation in this area, whether this recognition had translated into action is another story. Just 57% of respondents in our White Collar Investigations Survey reported that their organisation had implemented a response plan for regulatory investigations or white collar prosecutions. 39% reported that their organisation has no such plan.
49% of respondents felt that their company had robust and effective investigative protocols in the event of an external investigation; 29% said that they did not believe that they had such protocols and 22% were unsure.
While it might first seem reasonable to assume larger companies are more well-resourced and thus more likely to be in a position to create an investigatory response plan, this does not appear to be the case. In looking at whether respondents’ organisations had implemented a response plan, those from larger companies (with over 100 employees) were less likely to report their organisations as having implemented a response plan, at a rate of just 57%, compared to almost 80% of those from smaller (less than 100 employees) companies.
‘There can often be too many distinct business units that would be involved in an organisation-wide plan. What you end up finding is in those cases, it’s much harder to get a far-reaching plan together as in-house counsel,’ says one legal director in the Australian telecommunications sector.
‘It is very important in our view to avoid a culture where the operating commercial organisation believe that no written guidelines from the top of the organisation means “green light”,’ says Kjell Clement Ludvigsen, general counsel at Norway’s Nortura.
‘It should be very clear to all that they are responsible themselves for what they do, but they should ask for assistance from legal or compliance if they are in doubt.’
Preparedness
Another problem with trying to get a clear view of where businesses are in their white collar investigations risk is that areas of concern will differ from company to company, and sector to sector. Our survey asked respondents to rate their level of preparedness in a variety of key areas on a scale of 1 to 5, with one meaning ‘not prepared at all’ and five ‘very prepared’. On average, respondents reported that their business was most prepared in terms of their financial compliance policies, scoring an average of 3.9. Companies were least prepared in terms of their modern slavery policies, which came in at an average of 3.0.
Those who said that their organisation had implemented a response plan for regulatory investigations or white collar prosecutions reported being more prepared almost across the board than those who did not. In particular, respondents whose organisations had such a plan rated their preparedness, on average, up to a full point higher than those who did not. In particular, both bribery/corruption policy and modern slavery policy preparedness increased by almost a point (0.97 and 0.92, respectively) from companies without a plan compared to those with one.
‘Aramco has zero tolerance in relation to any anti-bribery and corruption activities,’ says Ahmad Ismail, general legal counsel at Saudi Aramco Shell Refinery Company.
‘Therefore, I align my plan backwards from there. At each board meeting, I will align this with my president – I will check if there are changes, or any fine tuning for the plan. We need to be agile yet able to optimise.
‘Particularly now, as we have seen Saudi Aramco has been listed on the stock exchange, that represents a higher level of responsibility, citizenship and corporate compliance for the organisation, including at the subsidiary level.’
Whose problem?
One reason why organisations appear to be behind the curve on investigatory planning is that it isn’t an area that uniquely lends itself to the legal team. Efforts in this area are likely to require active input from all corners of the business, as well as an ambient level of support from the leadership team.
Indeed, when asked who within their organisation was responsible for designing and maintaining the response plan, answers were split. While the legal team was the most commonly cited department, it ultimately accounted for just 35% of the responses – and just as many reported not having a response plan at all. 13% – the second most common response – said it was currently a multi-departmental effort, and 10% said it was the domain of a dedicated crisis management team.
‘Day by day, the executive team is more conscious of the importance and necessity of the identification, mitigation and follow-up of risks,’ explains Diana Daza, legal director at SGS in Colombia.
‘As a legal team, we are highly involved in daily risk management operations in order to prevent these sort of risks.’
Despite a current lack of ubiquity around which departments are given investigation planning responsibilities, there is a sentiment that this is changing. From interviews with participants in this survey, it seemed a common view that over time, the pre-investigatory planning job is landing more and more with the in-house team.
‘Based on conversations that I have had with peers, it has become quite common that legal teams, in particular the leadership team, are involved in assessing the risk of investigations and prosecutions,’ shares Oliver Jarberg, deputy chief legal and compliance officer and director of integrity & anti-doping at FIFA.
‘I personally believe that it is one of the key aspects – in particular at management level – for the legal and compliance function to be involved with. In particular, in-house legal teams should already be involved at an early stage by the business so as to flag critical operations, transactions, and provide advice and support on measures to be implemented to mitigate legal and compliance risks – including the risk of investigation and prosecution.’
Annual reviews
Another reason that uptake and confidence in organisations’ planning for white collar investigations is subdued might be because there needs to be an ongoing commitment to reviewing and modifying the plan in order for it to stay effective: external risks are changing constantly, while the risk profile of a business will likely change as it expands or contracts into or away from new business units.
When it comes to reviewing their planning and preparation processes in the context of investigation and white collar prosecution risks, 38% said that they review their process annually, while another 38% reported only conducting such a review on an as-needed basis – another 19% said that they never review their plans in this area.
‘In-house legal teams should already be involved at an early stage by the business.’
‘We undertake an annual review and it is critical to understand both the changes in the legal landscape as well as regulators’ approach,’ explains Kwong Wen Wan, group chief corporate officer and group general counsel for Mapletree in Singapore.
Ahmad Ismail is both a proactive participant in his organisation’s investigation preparation, and an avid proponent of conducting regular reviews of any plans or policies.
‘The way I align my plan – especially in relation to anti-bribery and corruption and also in relation to legal and compliance – is that I first understand the company legal risk appetite and then align that to the business cycle of the organisation,’ he says.
‘Clearly, all organisations have their own business planning cycles, and within that business plan cycle you decide on the capital expenditure of the organisation, in other words, what type of investments they are making for the year.’
‘That is normally also mapped against the company’s risk map. So based on that, I will determine what the plan would be for the year in relation to legal compliance. I would analyse that risk map, and get clarification from the auditor and the Chief Financial Officer and the controller. I’d then identify what would be the risk appetite for the organisation, and then I’d map the plan for legal compliance for the year.’
For Jaberg, ‘at FIFA, we have a working group composed of representatives of different professional functions within the organisation, including internal audits, finance, legal and compliance, and different business units.
‘They meet on a regular basis to map FIFA’s main risks and devise strategies and plans so as to mitigate the risks identified within this working group.’
‘I think it is important to establish a formalised risk management process to identify the different risks – including that of investigations and prosecutions – as well as ensuring the processes and measures designed to mitigate such risks are defined, evaluated and implemented. As risks evolve over time, I think it is important that they are reassessed and the processes to address such risks are then amended as required, based on the learnings related to each risk identified. So, in fact, this is a very dynamic task which also requires the legal and compliance function to thoroughly understand the business, the processes and operations of the company.’
‘It’s important to be agile and on top of things, and adapt to the changing circumstances as required to protect the interests at stake.’
Renewed interest from regulators
Give the importance of preparedness for regulatory investigations and white collar prosecutions, why do companies of all sizes and sectors report such vastly different levels of planning in this area?
‘It takes time – lots of time – to see real cultural change take hold in a company.’
While the subject may have been on in-house counsel’s radar for many years, many counsel interviewed for this report mentioned a ‘sea change’ in the wake of the global financial crisis, which saw a redoubling of efforts on the part of regulators to rein in inappropriate and illegal conduct, particularly in the financial sector. While a decade is a long time in some respects, in terms of cultural shifts within massive organisations it isn’t very at all, and businesses are still coming to terms with heightened sensitivity on the part of regulators and similar investigatory bodies.
‘It takes time – lots of time – to see real cultural change take hold in a company, or industry,’ says one long-time banking general counsel based in the United Kingdom.
‘There is an increased level of consciousness around white-collar crime which I would say began post-GFC and has continued since then. But unless an organisation has already been stung, it can be difficult to enact change quickly – something I suspect every in-house lawyer will be familiar with. It is on the in-house lawyer to keep their foot on the gas and make sure the company keeps momentum towards compliance.’
The use of external counsel, once an investigation or prosecution has been made official, received across-the-board support from participants in this survey. 77% of respondents considered it at least moderately important for external counsel to be involved at that point, with almost half of those considering it highly important. 14% reported feeling that external counsel would not be involved.
‘Especially in smaller departments I have been a part of, having a good lawyer outside your business who knows your business is critical,’ explains one senior legal director in the European aviation industry.
‘Departments are strapped for resources as it is; the overhead of responding to a regulator – or worse, a formal prosecution – is beyond the capabilities of most departments.’
Those counsel who were a part of smaller departments were more likely to expect external counsel to be involved. Respondents in teams of 50 or larger were less likely than any other group to involve external counsel, with 31% reporting no involvement of external counsel at that stage.
When it comes to involving external counsel in anticipation of an investigation (as opposed to when one has formally been announced), approaches differ. Just 8% or respondents reported always involving external counsel at this stage; 33% reported occasionally involved external counsel and 38% reported involving counsel ‘often’. Almost 20% rarely involve external counsel at any point before the formal launching of an investigation or prosecution.
‘We are in almost constant contact with at least one outside lawyer to consult with on any real or potential investigations,’ says one veteran in-house counsel in the North American energy sector.
‘We can’t afford not to. If the first time you are meeting with a lawyer is when the regulator is at your door, a lot of (avoidable) damage has been done.’
While the in-house community has been vocal in pushing for diversity in their partner law firms, a company instructing external counsel on an investigatory or other white collar matter is typically more likely to involve a single practitioner for representation than other types of legal work. Therefore, survey participants were asked how important of a factor diversity and inclusion is when selecting counsel in these situations. The overwhelming majority felt it important, with 40% considering it a ‘highly important’ factor and another 40% considering it ‘moderately important’. Just 5% felt it unimportant.
In choosing external counsel, respondents reported choosing from a variety of sources. On average, in-house counsel were most likely to have found their chosen counsel by direct outreach to single firms – 20% of counsel reported choosing their representation this way. The next most popular source was the use of a company-curated preferred provider panel at 15%.
For quite some time now the legal profession has acknowledged that more needs to be done to develop female talent, and there has been much discussion about women in the law. Having those conversations is a great start, but the practical piece is often missing. We wanted to develop a programme that would have a real impact on the lives and careers of female attorneys. What we have started with Finnegan FORWARD, and what we will continue to develop over the coming months, is a set of tools and resources that will help women advance their careers.
As science and engineering professionals, we are aware that women in STEM-related areas of law face a number of obstacles to career progression. Therefore, we were interested in finding ways to move the needle when it comes to our diversity and inclusion initiatives.
When we sat down to plan the Finnegan FORWARD initiatives, we wanted to make sure our female attorneys were given a clear path to partnership. The first step was to identify the practical barriers women face in the legal profession. One consistent challenge female attorneys face, both within their firms and when developing relationships with clients, is how to best market themselves. As a generalisation, women tend to downplay their experience. If a female attorney is not, for example, comfortable listing her relevant experiences or is not certain that her experiences are relevant to a particular matter, it can result in her being missed in a pool of candidates. It takes conscious effort to routinely think about everything you’ve done and been exposed to, but that is a helpful practice if you want to be more visible within a firm.
No one in this firm is ever going to overlook a qualified female attorney, but they may not see that there is a suitably qualified attorney available. We are encouraging women to put their hands up for a role on the team so that they are best positioned to get more opportunities within the firm.
Junior lawyers may sometimes assume that because they haven’t worked on a particular type of matter for 20 years they don’t have the necessary experience for a particular matter; and not every lawyer knows how to best present their experience and expertise in a particular area and how it may be beneficial to a team. Often, clients want lawyers who have approached problems from a variety of angles and who bring new and creative solutions to the table. At Finnegan FORWARD, we run programmes that help lawyers better understand how to interpret the experience they have and what qualifies as experience for a particular matter.
The other big issue we wanted to address is how female lawyers can improve their visibility with clients. Successful lawyers have inevitably developed a book of business – they have clients who have worked with them before and who trust them. These relationships of trust are foundational to a partner’s practice, and helping lawyers form those reputations is an important to their career development. We are working hard to make sure our more junior female attorneys have opportunities to network, or to spend time with mentors who can help them along that path. We are also helping female attorneys carve out a niche practice, whether by helping them publish and gain a reputation as subject matter experts, or by nominating them for awards that highlight their strengths and offer them the same exposure and recognition as our male attorneys receive.
The reason we are committed to this is to help women, but as with all D&I initiatives, the positive outcomes go far beyond that. Clients want to see diverse teams because they know those teams deliver better results. We have a large talent pool to draw on, which is great for our partners, and we are putting together more diverse, stronger teams.
As a firm, Finnegan tends to be very collaborative when it comes to business development. We also like to keep an open dialogue with our clients or potential clients about how we can do things better together. This is particularly true when it comes to D&I; GCs and legal teams have been on this journey far longer than law firms so we welcome their ideas and perspectives.
The eight minute and forty-six second murder of George Floyd that we all witnessed in 2020 opened America’s eyes to acknowledge systemic racism. The aftermath reignited conversations around racism, discrimination, and implicit bias in the workplace. The legal profession has used this time as an opportunity to train staff and attorneys, reaffirm policies against workplace discrimination, and increase diversity initiatives. These acts are indeed necessary. But behind the cloak of formal policies remains the deep-rooted implicit bias and microaggressions directed toward black attorneys every day, especially when it comes to staffing cases and providing opportunities to take on lead roles in important matters.
There is no doubt that systemic racism and implicit bias exist in the legal profession. Several years ago, for example, a study conducted by the consulting firm, Nextions, provided empirical evidence of implicit bias against black attorneys. Two versions of a legal memo containing the same number of errors were circulated to law firm partners participating in the study. The only difference between the memos was that the participants were told that one was drafted by a white associate and the other a black associate. The exact same memo averaged a 4.1/5.0 rating for the white associate’s memo accompanied with encouraging comments such as “generally good writer but needs to work on …,” “has potential,” and “good analytical skills.” The black associate’s score? He averaged only a 3.2/5.0 rating accompanied by more negative feedback: “needs lots of work,” “can’t believe he went to NYU,” and “average at best.”
Aaron Gleaton Clay | Associate | Finnegan
Is this same implicit bias diminishing black attorneys’ role on cases? Opportunities to lead and try cases or argue motions before courts are critical for any attorney’s professional development and advancement. And while these opportunities are hard to come by for younger associates, in large part because senior and more experienced partners are slated, or because such decisions are largely driven by client demands, these opportunities seem even rarer for black attorneys, especially young, black associates. As a law clerk at both the federal district and appellate court levels, I witnessed how black attorneys were rarely given a speaking role in motions hearings, trials, or oral arguments. Some of this I attributed to the alarmingly low numbers of black attorneys in major U.S. law firms. Indeed, in 2020, the National Association for Law Placement (“NALP”) reported that only 5.1% of associates and only 2.1% of partners in U.S. law firms are black. These numbers were worse for black women who made up only 3.04% of associates and 0.8% of partners! But even with these low numbers, I wondered if there was more to the story. Why is it that black counsel has a “seat at the table” but not a lead, speaking role? Is it not important to provide these opportunities to black attorneys who not only need the experience but can add value to the case? Does the court or the jury take notice of this disparity? If so, what can we do to fix it?
To answer some of these questions, I interviewed the Honorable Gerald Bruce Lee, retired U.S. District Judge of the United States District Court for the Eastern District of Virginia, for his view from the court’s perspective. Over the course of his more than 25 years on the federal and state benches, as well as his prior experience as a trial lawyer, Judge Lee has encountered more than his fair share of attorneys and firms and has seen first-hand how younger, and arguably more knowledgeable, attorneys are “benched,” particularly black attorneys. In his view, “systemic racism is the answer; it remains a problem.”
We must “be very conscious of systemic racism that exists,” Judge Lee said, and “we have to end the ‘mirrortocracy.’” In other words, we must stop choosing to only work with someone who looks like us. Judge Lee suggests that firms and partners “pick a black associate that you want to work with and put that person to work. Give them the same coaching and mentorship that you would give someone that looks like you,” he said. Not just on one case either, he said, “work with them on 10 cases and see what happens.”
And “it’s not just for social justice reasons,” Judge Lee added. “We are creators, we are innovators, and we can think outside the box, and you need to give us a chance to do that and improve the quality of work that is being done and to create the results that are being attained.” Judge Lee said that judges “think young, black associates have ideas” because “young, black associates have had to improvise and have had to learn how to think creatively on their feet.” To him, “it seems that to have someone as gifted and talented as some of these young, black associates are, who have overcome many obstacles and have many good insights, and not to use them is like wasting resources that you’ve acquired.” He asked, “Why would you waste resources? Put your resources to work.”
Judge Lee “enjoys seeing young, black lawyers come into court who are doing more than carrying a briefcase” because he knows that “if the black attorney’s name is on the brief, then there has been some opportunity for the lawyer to communicate to the partner about the brief.” But many black lawyers are not being given a chance to argue cases, which contributes to a lack of preparedness and the professional development they need to become partners. Judge Lee is not alone in his eagerness, noting that “black and white judges want to see young, black associates at the podium, questioning witnesses, and arguing motions.” “It is time to get your black attorneys off the bench and in the field. What better time than now to acknowledge that you are going to fully use your black associates and partners?,” he asked.
Giving black attorneys more leading roles in the courtroom can also have a positive impact on the case. Judge Lee emphasized that “the days of all white judges and juries are over.” When asked what effect black attorneys have on the jury or the court, Judge Lee said, “the first thing it adds is talent and resources,” but he added that “it could also make a difference in how the jury reacts to the trial.” For example, he said, “if a jury sees a black lawyer sitting there and there are minorities in the jury and they only see that person pass paper, then they know that person is ‘window dressing.’” And from the court’s perspective, he said, having black attorneys in lead roles can also “make a difference in how I view the case from the standpoint of how it was managed and the case was being presented.”
I asked Judge Lee for any final advice for black attorneys looking for opportunities to improve and expand their skill set. He suggested that we continually seek out the work we want and “be persistent.” As a young lawyer, Judge Lee always told himself that the answer “no” was just “the beginning of the conversation, not the end of the conversation.” If partners or clients turn you down the first time, he said, use that as an opportunity to follow up again until they say “yes.” Eventually, he said, “they’ll get tired of you and give you the work.” Use that opportunity to thrive.
What have we learned since March 2020? For Amar Sundram, head of legal at RBS in India, it is that talk of lawyers being an uncreative species was greatly exaggerated.
‘We are now seven months into the pandemic and the main myths about lawyers have been broken. The myths that we are not adaptive, that we do not take risks, that we are averse to technology – they have all disappeared. Lawyers have found that, when faced with necessity, they can take to new tasks as well as any other professional group.’
Our survey of over 100 of the leading counsel across the Asia Pacific region showed that less than a fifth of legal teams (18%) felt their output was significantly affected by the pandemic, though the bulk of respondents (73%) had experienced some level of disruption.
For many legal teams, the pandemic was an unexpected experiment in working remotely. While over half of legal teams (59%) had a prescribed remote-working policy in place before the pandemic hit, and almost all (95%) felt such a policy was necessary, this was scant preparation for having the entire team work remotely for weeks at a time.
Marcus Clayton, general counsel and company secretary at leading Australian integrated construction materials producer Adelaide Brighton Cement (Adbri), reflects on the early days of lockdown:
‘With a very lean team to start with, working from home through COVID-19 and splitting the legal team into Team A and Team B made it much harder to produce the expected outcomes, [particularly as] demands increased. We were all to work longer and harder in difficult circumstances to achieve a lesser product than before.’
Many survey respondents pointed to a similar problem, noting that in the early days of lockdown they had been expected to meet more challenges with fewer resources. As one respondent, a legal director working at a large industrials company in Singapore, commented:
‘While demand for regular commercial advice has tailed off somewhat, we have had to contend with an increased number of requests for regulatory advice. At the same time, there has been a huge increase in the number of online meetings, with some of these taking up the entire day. Managing this challenge of growing demand under such unusual circumstances has been particularly difficult.’
Others pointed to the lack of connectivity in the legal team, and the difficulty of ‘discussion, deliberation and evaluation of the finer points of a matter’ while working remotely. Some felt that the organisational support for remote working was still lacking, with one Hong Kong-based general counsel at a consumer electronics company commenting:
‘A documented remote working policy has worked well for us. However, it will only work if home infrastructure allows employees to work remotely. It is more than simply providing a laptop. This has not been a problem with the lawyers in the legal team but has been a problem with support staff.’
The A and B Team
While talk among GCs has turned from “business resilience” to “business resurgence”, few expect their return to normal to be synonymous with a return to the office. Staff may be returning on a team by team rotation, but a growing number of companies have started to think about how they can operate a remote working policy as their default setting.
To do this successfully they will have to deal with the issue of cyber security. As Pulin Kumar, senior legal and compliance director at adidas India, notes:
‘In today’s environment a lot of things are system driven, and once you have a system driven environment then everything has to be connected. It is almost a given that for remote working to succeed information must be highly accessible. The data will flow to far more places and people, so the security checks in place need to be robust. This is a matter for IT teams, but it is also a matter for legal and compliance teams. Employees’ understanding of compliance has to be updated to account for the mass shift we are seeing toward working from home.’
Respondents to our survey echoed this, pointing out that remote working had exposed their companies to enhanced cyber security risks. Over a third (36%) felt the biggest risk came from loss or theft of confidential business information. As one GC commented, ‘Sensitive data and applications are now being accessed through non-secure networks. Businesses need to give this some more thought, and will likely have to invest more time, effort and money to strengthen their IT infrastructure.’
Of course, when it comes to new ways of working, not all legal work is created equal. Work involving insurance claims relating to physical infrastructure, anti-bribery and fraud investigations, or due diligence in the context of an M&A where virtual data rooms are required are all exponentially more difficult to do remotely. As Nancy Wei, associate legal director of Skechers China comments: ‘Remote working is really helpful non-litigation scenarios. For litigation issues, I tend to choose face to face meeting to discuss the facts of the case and collection of evidence.’
A pandemic in numbers
But perhaps we should not dwell on the negatives. One of the most surprising things about the lockdown has been the ability of many businesses to function as normal. Likewise, legal teams have managed to weather the storm successfully. Nearly a third (27%) of respondents to our survey felt their efficiency had improved, while a similar number (24%) said their output had in fact increased. Being on call 24 hours a day does have some advantages….
Another positive has been the invigorating effect remote working has had on legal teams. As Amba Prasad, vice president and head of legal services at Indian construction and engineering conglomerate Larsen & Toubro comments:
‘COVID-19 has shown that the remote working can be efficient despite the challenges of management and the interplay of work related to teams based in different locations. Scaling up our technological infrastructure in a timely manner aided this transition.’
Aside from helping the legal team find new ways to operate efficiently, he continues, the pandemic has had other benefits. ‘It has brought the team together in a manner that was never before seen. Caring and sharing between team members has really become an embedded practice.’
This much is clear from our survey. Fully 31% of those we spoke to said employees within the legal team were happier with their current out of office setup.
While most GCs felt remote work had been a positive thing for the legal team, there are questions of whether the same established structures can endure over the longer term. Bernard Tan, Asia Pacific managing counsel at Agilent Technologies, comments:
‘I don’t think there is an immediate negative impact to productivity as we have the necessary working culture, processes and technical infrastructure that enable work to continue on a remote basis. The concern is more about long term engagement issues and whether, as a legal team, we are able to continue to exert the necessary influence and engagement with internal clients if we work on a 100% remote basis perpetually.’
The solution to this ongoing question will likely involve increased spending on technological infrastructure and enhanced cyber security protocols, but it will equally depend on the approach taken by lawyers. As Nancy Wei concludes:
‘It is going to be a case of legal teams learning new and more flexible ways of doing things. We need to communicate more efficiently and effectively, especially when facing up to balancing business opportunity and risks. Trust among team members is going to be very important in facing up to this uncertain situation.’
With nearly three quarters (73%) of respondents saying the expect remote working to increase over the coming months, pressure on GCs to find ways of dealing with uncertainty is going to be with us looks set to become the new normal.
‘If I’d lived in Roman times, I’d have lived in Rome.’
John Lennon’s famous words when asked by a journalist why he was living in New York, then the cultural and economic centre of the world. In 2020, a growing number of tech investors that have relocated to Beijing are giving a similar answer.
President Xi Jinping has outlined a plan to make China a world leader in advanced technologies, investing more than a trillion dollars into key industries. Even without this state support, the country’s tech sector is on an upward swing. Investment in its artificial intelligence (AI) sector for the first half of 2020 has already surpassed US$9bn, making China one of the leading global players in the field.
Following China’s lead, tech companies across Asia have seen a boom in investment. Many of the region’s fastest growing businesses – Hong Kong’s WeLab, Singapore’s Synagie, India’s GoBolt – are led by charismatic, tech-savvy entrepreneurs.
The region’s legal industry, often seen as a bastion of conservative values, is now waking up to the challenge of technology. Singapore now houses one of the largest legal tech accelerator programs in the world, Chinese courts have become world leaders in the use of technology, and even less mature markets have turned to technology as a way of bypassing their stretched legal systems.
To find out why the region is proving to be such a fertile ground for legal innovation, and how this is impacting in-house counsel, we spoke to general counsel who are making the most of legal tech.
State aid
States across Asia Pacific are jostling for position, with substantial sums being spent by governments aiming to achieve legal technological pre-eminence. Already, legal tech initiatives region-wide have ridden on the crest of this wave. For example, Indonesia has made amendments to laws affecting legal tech, for instance by introducing a list of certified Indonesian e-signature providers. India has huge domestic demand for legal tech as it looks to boost efficiency in what is still mostly a pen and paper legal system.
Increasingly, the more established corridors of business are looking to capitalise on this success. Stung by the rising number of high-profile tech companies looking to list outside the region, the Singapore Exchange (SGX) has started offering grants to help fast growth businesses cover the legal and regulatory costs of their listings. In a similar move, Hong Kong’s financial secretary Paul Chan Mo-po has set aside HK$50bn (US$6.5bn) in funding to support greater innovation and technology development in Hong Kong.
In April 2020, the Government of Hong Kong announced a HK$35m LAWTECH Fund to assist law firms and chambers upgrade their IT systems. As Jerrold Soh, assistant professor of computational law at Singapore Management University (SMU), explains:
Jerrold Soh, assistant professor of computational law at Singapore Management University (SMU)
‘Hong Kong’s approach is similar to Singapore’s in that it is driven by external demand, but their focus is more on the mainland China market, especially technology related to the Belt and Road Initiative (BRI). For instance, a comprehensive electronic dispute resolution, arbitration and mediation platform was constructed out of Hong Kong to assist the
BRI’.
Taken together, these initiatives suggest a regional trend, but the Asia Pafic tech market is anything but a unified field. It is, says Jerrold Soh, a market preoccupied with solving domestic rather than regional problems, and nowhere is this truer than in China.
‘Domestic demand is the key driving force for Chinese tech companies, many of which are not so much interested in attracting outside investment. They really are just building their own topologies, and the same rule applies in the
legal tech space.’ ‘There are so many new tech startups, firms and applications that are being built there. Not only are these companies becoming significant players, but they are changing the way we think about the law. You can have an entire dispute resolved on an app, powered by WeChat. That is something incredibly exciting in the legal field that is being driven by Chinese tech and innovation’.
While many of even the largest tech companies remain unknown outside the PRC, they boast user bases that would be the envy of a Silicon Valley unicorn. They are also becoming increasingly sophisticated, adds Ivy Wu, head of legal for Greater China at American business-to-business IT service provider DXC Technology.
‘In the time I have observed the development of legal tech in China, I have found that in both litigation and non-litigation products the technology has developed amazingly quickly. For non-litigation software – for example, for document management and review tools – Chinese technology is now more advanced than anything available internationally. There are suppliers focusing on contract management processes and internal process approval on legal documents which have proved to be very effective, as has software aimed at the record keeping of signed agreements.’
Nancy Wei, head of legal for Skechers China, says the rapidly maturing domestic tech scene offers legal counsel greater flexibility when it comes to resourcing legal matters.
Nancy Wei, head of legal, Skechers ChinaKenji Tagaya, general counsel executive officer and head of the legal group, JERA
‘We use a mix of both international and domestic Chinese technology in our team. For our database systems we use internationally known suppliers that have been active in the market for several years. However, for contract management we select local suppliers who may or may not have international experience, but who, in this area, tend to provide systems that are more user-friendly for the Chinese market’.
Kenji Tagaya, general counsel executive officer and head of the legal group at JERA, Japan’s largest power generation company, says it is common for large organisations to look to both domestic and international providers.
‘We introduced two [tech providers] for contractual review purposes, one English and one Japanese. I find this necessary as a Japanese solution is needed for Japanese-language documents and an international provider is needed for English-language documents.’
‘Some international companies also claim that they have Japanese language adaptability, but the quality is limited because of the nature of AI. Unless they process a huge amount of data, the AI will not grow to a level of capability that satisfies us.’
A home-grown revolution
It is not just the rise of domestic tech firms that is changing the way GCs operate. Increasingly, legal teams across the Asia Pacific region are looking to develop their own IT platforms before turning to external suppliers.
Carl Watson, general counsel for Asia at design and engineering consultancy Arcadis, underlines the value this brings to the legal team.
‘What I would say is that you don’t know what you don’t have until you look… There’s a whole volume of very helpful apps that you’re paying for anyway, but you probably don’t even know it; I’ve always been quite interested in what’s available and then optimising these sorts of technologies.’
‘Demonstrating value through use of simple technology tools to provide dashboard insight into what we’re doing [is] how I got the ball rolling in the very early days. I think it’s about building trust and identifying tools that were available without needing any great investment’.
Faz Hussen, general counsel and director of government relations at McDonald’s Singapore, has found similar benefits in harnessing existing technology within the legal team.
‘Using home-grown software has two main advantages. It is obviously much cheaper, and developing our own in-house software means that we can hedge on business costs as opposed to getting them signed off for external technology.’
‘Perhaps a bigger advantage is that internally developed technology can be customised to match systems we are already familiar with. That will ensure other business units can seamlessly work with the platform.’
Turning to the results of our survey of over 100 legal teams across Asia Pacific, it seems that this message has yet to find a mass audience. Only 9% of legal teams are currently looking internally to develop tech solutions, while 83% of teams are looking to tech vendors for readymade or bespoke solutions.
Needs-driven Innovation
Technology and the legal profession in Asia-Pacific have long had a delicate relationship; while the potential impact of technology has long been understood – albeit oftentimes fodder for debate – its implementation and execution has, until recently, remained largely an academic exercise for most.
‘The practice of law is very much dependent on everyday life,’ explains Janet Toh Yoong Sang, partner at Shearn Delamore & Co.
‘With the growing use of technology all around the world, private practice law firms have been encouraged to use legal technology to keep up with the quickly changing nature of business and industry.’
But much like their in-house counterparts featured throughout the report, private practice lawyers have had to learn and adapt quickly to these new working habits brought about by the pandemic – including the toolsets which facilitate remote legal work. For many, this marks a sharp departure from established norms – with much of the profession in Asia-Pacific notoriously reticent on technology-driven shifts to legal practice. But for most in private practice, the global pandemic has meant that integrating technology has fast become a business imperative.
‘In-house clients are expecting that we have sufficient knowledge of the various technology tools available and how best to make use of them so that the successful delivery of legal services during the pandemic can be ensured,’ explains Zhuowei (Joyce) Li, partner at Han Kun Law Offices.
‘Many expect that social distancing measures will be central to commercial thinking for years to come, making the effective use of technology a vital component for maintaining business relationships and offering the best service to our clients.’
That experience echoes the results of the empirical research which underpins this report, with technology becoming an increasingly important factor for in-house counsel when assessing their law firms, with 59% of respondents reporting that a firm’s use of technology comprised a direct part of panel reviews and 68% saying that it was either very important or crucial that law firms remained abreast of new technologies. While some of that shift may be attributable to the short-term needs-driven innovation, few anticipate the uptake in technology to be a fast-passing trend.
‘As service providers, we are naturally driven by client demand, and that demand will push law firms like ours to use more and better technologies in the coming years,’ says Vinay Ahuja, Partner – Indonesia, Lao PDR & Thailand and Head of Indonesia Practice at DFDL Tax & Legal.
‘Since March we have seen just how much technology can facilitate legal work, and I do not think I will be the only person to predict this will become an established habit among all lawyers.’
Nonetheless, homegrown legal solutions are finding champions at the largest companies. Sheldon Renkema, general legal manager at top-10 ASX listed diversified conglomerate Wesfarmers, has worked to introduce a number of self-service tools into the legal department, including a non-disclosure agreement tool that allows commercial teams to generate and execute a compliant confidentiality agreement.
Sheldon Renkema, general legal manager, Wesfarmers
‘Our objective is to identify processes that our lawyers would otherwise do that are not particularly complex and not particularly strategically significant. And where we can, making use of a tool so that can be done within the business in a user-friendly way that manages the risk’.
Creating tech solutions internally can also act as a catalyst for the creation of a culture of open-mindedness and creativity within teams, which can pay dividends in other areas. As Bernard Tan, Asia Pacific managing counsel for US-headquartered analytical instrumentation manufacturer Agilent Technologies comments, ‘It is important that we don’t just follow corporate-wide technology projects. We need to create a culture of innovation and digitalisation within the legal function itself, and that means we need a sort of skunkworks for the legal team itself to develop and pioneer new tech.’
Chek-Tsang Foo, group deputy general counsel of NTT Limited, has followed this ethos, working with legal colleagues to create a suite of proprietary legal tech solutions, including a contract risk scoring tool for contracts. The next few years, he says, will be transformational for legal teams.
‘Legal tech will not just change how fast we work, but what we work on. As technology matures, routine and repetitive work can effectively be automated. This frees up bandwidth for internal lawyers to do more complex work that requires more creativity.’
‘It will allow us to spend much more time on things like negotiations, resolving complex matters and proactive legal risk management. The in-house team may also start to provide new areas of value to the enterprise, leveraging the legal team’s skillsets and attributes. The future is also what we create, with the help of legal tech. Perhaps technology will help solve the modern in-house counsel’s struggle for sufficient bandwidth.’
Inflection point
For GCs across the world, 2020 has been a year of learning to work remotely. As DXC Technology’s Ivy Wu puts it:
‘COVID-19 has totally changed people’s lives and changed the way workplaces operate, and people have spent a long time adapting to a work from home lifestyle. This will have big implications for the uptake of legal technology.’
‘In recent years, legal innovation has mostly benefited law firms and companies, but we are now seeing a trend toward traditional legal venues embracing technology. Courts are encouraging lawsuits to be filed online, and there is a push towards virtual hearings. Legal technology has made things more efficient for all players in the legal system, and those effects will continue to grow.’
JERA’s Tagaya adds: ‘Until now, Japan has had a tendency to believe in paper, ink and physical signature or seal. But now that COVID-19 has forced companies to examine technological solutions and embrace non-traditional working practices, it may have opened up their eyes to the possibilities that technology provides, which will lead to a corresponding increase in demand and thus growth of this sector’.
Julien Bergerat, head of legal and chief compliance officer for Nghi Son Refinery and Petrochemical (NSRP), a joint venture to build and operate the largest petrochemicals refinery in Vietnam, is an old hand when it comes to working remotely.
Before moving to NSRP in 2019, he held senior positions in Kuwait, Qatar, Switzerland and France. The ability to access legal information on demand has now become an expectation, he says:
‘We are living in a world where technology cannot be avoided, and the legal profession is no exception. Contract management, document automation and storage, legal research and, more recently, client relationship management and data and contract analytics tools are used by legal professionals as a matter of course’.
Benjamin Teong, associate counsel for legal operations, Lazada
‘Over the last decade, legal technologies have given the profession opportunities to improve its overall efficiency and the tools to adapt to agile and challenging working environments. The lower cost of hardware, improved ease of use of software and increased mobility have allowed for easier means of communication but, most importantly, they have enabled lawyers to work from almost any location extremely efficiently’.
But it is not just the demands of remote working that are changing the way legal teams operate. The pressure to do more with less, never far from the minds of GCs, has suddenly become one of the main priorities of businesses fighting to cut costs in a time of crisis.
Benjamin Teong, associate counsel for legal operations at Lazada, one of South East Asia’s largest e-commerce companies, sees adapting to this change as an increasingly unavoidable part of managing a legal function.
‘For in-house counsel, the scope of the work and its complexity is increasing, but we are being forced more and more to work with leaner teams and really maximise the manpower that we do have. There is pressure to achieve more creative and innovative outcomes for the company’.
‘We have tools that are specifically geared toward ensuring that we work efficiently and avoid low-value work as much as possible. We have a workflow management tool, which tracks any work requests to the legal team, allowing us to manage it from the time that we receive the request until the request is fulfilled, and to prioritise issues that are more pressing’.
Off-the-shelf solutions
Across Asia Pacific, GCs are finding that the simplest technologies carry the most impact when it comes to changing the way their teams operate. For Dimas Nandaraditya, general counsel of Indonesia-based Traveloka Group, this relatively simple software has proved to be a quiet revolution.
‘Adopting a new technology requires time and managing multiple vendors and software for our business processes can be cumbersome, therefore we prefer out-of-the-box solutions.’
‘We adopted software that sends regular reminders on when a contract or license is due to expire, which means lawyers no longer need to go through all documents one by one to assess the relevant expiry date or manually send reminders to the relevant stakeholders. The technology itself is rather simple but its impact is very significant: it makes our lives easier’.
There is, adds Nandaraditya, a degree of skepticism toward more advanced forms of legal tech, such as machine learning. ‘Basic AI functions such as e-discovery or automated diligence are starting to get traction, but I doubt that they will be widely available in the next one to two years.’
Jeremy Ryan Chua, general counsel of JAC Liner Group, one of the largest bus companies in the Philippines, has a similar take: ‘Artificial intelligence can assist in gathering data and narrow down possible decision-making choices, it cannot replace the intuition, on the ground experience, and foresight of a seasoned lawyer’.
Made in China
As US sanctions start to bite, businesses in the PRC are becoming ever more reliant on domestic technology. GC asks what it means for the country’s lawyers.If you want to build a nuclear powerplant, a maglev train, or a quantum computer it is increasingly likely you will rely on Chinese expertise. In the space of little more than two decades China has emerged as a global economic powerhouse, transforming itself from the home of low-cost manufacturing to a leader in cutting edge technologies.
Bin Zhao, senior vice president, legal and government affairs at tech multinational Qualcomm has seen China’s technological prowess grow over two decades.
‘Since late 1900s, China has started to highly promote the tech industry. The government made a lot of direct/indirect investments and extended a significant amount of polices in all business areas to advance Chinese technological development. That is when big multi-national tech companies came into China and made business successes.’
‘At that time, there was a honeymoon period between China and multi-national companies, and American companies such as Microsoft, Intel and many others grew significantly during this period, taking advantage of both the open-door policy, and the Chinese leadership’s good intentions to merge into the international market. The situation however has changed dramatically recently, and the tensions between the US and Chinese governments are making things much less clear.’
Dealing with this uncertainty is likely to be a key theme for the coming months. DXC Technology (DXC) is just one of a plethora of American companies operating in China that has felt the repercussions of ongoing trade wars.
‘It is not something we can really prepare for,’ says Ivy Wu, head of Greater China legal at DXC. ‘Draft copies of regulations are coming out all the time, so we review to determine whether they will impact our business.’
‘As in-house counsel we have to be fast acting, agile and knowledgeable in all aspects of laws in China. When a crisis happens, you need to keep in mind what kind of risk is associated, then you need to take some action, and manage all situations in a proper way.’
Indeed, escalating tensions between the United States and China have dominated news headlines in recent years. Chengyang Xie, vice president & chief legal officer at Foxconn Industrial Internet Co Ltd (FII), believes the potential decoupling between the United States and China is one of the chief concerns for in-house counsel in the region.
‘When the trade war between the United States and China began to bite, we really saw things change. This year, the sanctions on Huawei and other entities have continued to be challenging, and there are now over 200 entities on that sanctions list. This will be a great challenge for the years to come. The one certainty is that everything is uncertain for multinational companies in China.’
Getting technical
Trade tensions aside, China’s corporate counsel are finding themselves facing the same pressure to do more for less as US counterparts. While using technology to streamline processes has been on the radar of legal teams for some time, the recent COVID-19 pandemic has accelerated the need for new ways of delivering legal advice.
Gordon Liu, vice president, legal for Dell Greater China, says he has been fortunate in his ability to draw on a comprehensive suite of workplace technologies.
‘Dell was a forerunner in workplace tech, so we have the infrastructure to work from a distance. Even before the pandemic, we were used to working in this way. However, systems that were somewhat experimental are now becoming our default way of working. For example, we use a contract management tool, which generates a lot of standard contracts, as well as handling negotiations, revisions and other changes. The pandemic has accelerated our use of these technologies, and our strong position in this field has allows us to navigate the lockdown without interruption.’
Adds Xie: ‘The lockdown has taught us that remote teams can communicate just as effectively. In my regional cluster we handle business across 12 countries, so managing a legal team without face-to-face contact is something we are accustomed to. However, the enforced reliance on tech to conduct our daily business has been an interesting lesson to us all. We have seen that many matters are more efficiently processed with software.’
‘Legal technology has become more important in the daily practice of in-house counsel. We now use tech-enabled platforms for legal drafts, intellectual property work and legal databases.’
Despite the advantages of legal tech, in-house have also experienced drawbacks, says Zhao: ‘On one hand, internet-based, cloud-based and 5G smart phone-enabled tools have significantly improved lawyers’ efficiency. At the same time, when everybody is connected, and information and data is always flowing around, you have to be aware of the most current information and recent trends, and that is not easy.’
The innovation race
As China continues to support digital innovation and investment, corporate counsel find themselves under more pressure to evolve. Despite the challenges, in-house counsel across China have embraced tech to boost efficiency, connect legal teams and manage the ever-growing pressure to do more with less.
‘The tech sector is a rapidly growing industry in China. There has emerged quite a few online, e-commerce and technology companies. With fast growth, there is a lot of energy volatility in the market,’ says Liu.
However, as the domestic tech companies continue to develop in China, the future of international tech giants remains ambiguous.
‘When talking about the future, the first word that jumps into my head is uncertainty,’ says Zhao. ‘I think that is the biggest challenge facing all multinational companies doing business in China.’
As Zhao puts it, the next few months will be decisive for multinationals in China: ‘This is a very important point in history. We will have to wait and see what is going to happen after the US presidential elections. It will determine a new era of history for high-tech companies, and their future development in China.’
Perhaps unsurprisingly then, while the potential of advanced legal tech continues to excite the region’s GCs, it has so far failed to gain any real traction in legal teams. Josh Lee Kok Thong, chair of Asia Pacific wide legal tech forum ALITA, remains optimistic.
‘The technology is really improving. One example is ROSS Intelligence, which recently rolled out a free Google Chrome extension. Users can plug in the case that they want to review, and the system will instantly pull it out. Tools like this will change how in-house counsel behave.’
‘The next generation of AI technologies will help lawyers start to write and craft opinions. This will be a game changer because it helps spark the inspiration process, it eliminates writer’s block and enhances the cognitive abilities of lawyers. Building on this, the technology is a game changer. It will allow lawyers to gain new ways of thinking and new insights they may not have seen before.’
This should come as no surprise. As Per Hoffman, vice president and head of legal affairs and sourcing for North East Asia at Ericsson, comments:
‘China is huge, so when it does something the volume it does it with and the impact that has on markets are all huge. AI will be the thing that will come into legal areas. Today you have contract databases where you can search and find various contract clauses. But the next step after that will be AI. China has one of the most advanced AI research and development environments in the world, so for lawyers that is the place we will look to for change.’
Carl Watson, general counsel for Asia at design and engineering consultancy Arcadis, underlines the value this brings to the legal team.
