LegalWeek 2020: Leveraging AI to Combat Financial Crimes

Originally published in the Legal Executive Institute.

By Joseph Raczynski

NEW YORK — With increasing data flow among global financial institutions expanding, compounded by newly minted hybrid financial organizations in FinTech, managing these highly regulated transactions is progressively more complicated.

A panel at last week’s LegalWeek 2020 explored the anti-money laundering (AML) trends in 2020, discussed the state of legal artificial intelligence (AI) solutions in AML compliance and screening, and described a case study where AI has been successfully deployed in combating financial crimes.

Panelist Cassie Lentchner, Senior Counsel at Pillsbury Winthrop Shaw Pittman, kick-started the discussion by bringing up the topic of regulatory expectations. The premise she offered stated that those institutions which contemplate or currently use AI for compliance functions must employ a risk management fundamentals model. “Scoping is critical to assess the regulatory requirements and expectations,” she said.

Currently, AI can be used to automate repetitive tasks, aggregate information, cluster information into groups, and confirm or monitor information. Clearly, we are not at the point where this technology can surplant institutional judgement and decision making, just yet, Lentchner added.

Now, more regulators are wading in on how compliance departments use AI. In fact, we are at a point where some of these algorithmic applications require financial institutions to get prior written approval from regulators, said Tim Mueller, Partner in Global Investigations & Compliance at Guidehouse. During exams, Bank Secrecy Act (BSA) and AML programs are being examined, and financial institutions are expected to demonstrate the AI functions being use, explain how they work, and even defend the work product to the regulator. Some defenses have withered from the regulator’s findings and from AI bias.

Using Intelligent Segmentation

The panel further discussed an Intelligent Segmentation case study, diving into the pitfalls of current approaches to AML compliance and how AI solves for it. Frequently, normal banking behavior is identified as suspicious, and this includes large bank deposits and rapid money movement from one bank to another. Despite billions of dollars spent on traditional monitoring (which often ends with a human internal investigator), 95% of system-generated alerts are “false positives,” said Mueller.

The AI approach involves three phases: machine intelligence, subject matter expertise, and increased efficiency & effectiveness. In this new model, Intelligent Segmentation leverages AI and identifies segments using a collection of related datapoints beyond additional identifiers. This allows the machine to better identify groups that should be monitored together and those that should be split. Ultimately when parsing the data, the machine can see patterns or white space, thus eliminating false positives like rapid bank-to-bank transfers by trusted organizations which would have been triggered in pre-AI models and have been difficult to identify previously by human investigators.

Another AI-enabled AML compliance case study that Mueller cited is Behavioral Network Analysis. With most compliance departments, the typical approach is to monitor suspicious activity by deploying rule-based detection scenarios, for example, collecting if-then-else logical statements. These new AI-generated systems make it possible to create a “contextual monitoring” approach that leverages Behavior Network Analysis and allows it to review entities and their interconnected relationships and transactions. This has proven to be very effective, especially in trade and financial market businesses, explained Mueller.


Now, more regulators are wading in on how compliance departments use AI. In fact, we are at a point where some of these algorithmic applications require financial institutions to get prior written approval from regulators.


Another panelist, Dr. Sam Small, Chief Security Officer of ZeroFOX, said that based on his background in academic security research, he had uncovered the ease in which social media can be co-opted through impersonation, account takeover, piracy, threats of violence, fraud, and misinformation. Fortunately, he added, there are ways to counter it. Small’s AI approach dissects social media accounts by parsing the information within these accounts at large scale. In this way, the model can break down and characterize social media accounts into the following components: media content, avatars, name and username, text content, hashtags, dates, actions, and URLs.

Then, the model delves into each component: Are URLs safe? Are hashtags benign or seemingly suspicious? Each piece can be poured over, using highly tailored algorithms to uncover dubious activity and allowing the account users a way to fight back, Small explained.

The thrust of the panel’s conversation proved that AI will be omnipresent for compliance with AML and fraud amid the explosion of global financial data. The universal agreement among the panelists was that the guiding principles to need to gain acceptance from regulators, internal audit, and compliance department leadership include using proven, defendable technology, being transparent, and augmenting processes that you have in place.

The rapidly changing landscape of financial data compels compliance organizations to adopt these tenants or be willing to incur real risks for their company if they do not.

Podcast: The Hearing – Meredith Williams-Range – Chief Knowledge and Client Value Officer at Shearman & Sterling

In this week’s episode, I am joined by the preeminent thought leader in legal tech, and Chief Knowledge and Client Value Officer at Shearman & Sterling, Meredith Williams-Range.

Taking us on a journey from her small-town, rural upbringing just outside of Memphis (where you’ll find the absolute best BBQ) to the bright lights of New York, Meredith tells how family tragedy and a decade-long lawsuit led to a career in law.

Meredith talks about her career at Baker Donelson, where she worked with colleagues steeped in American history, including President Reagan’s Chief of Staff, and eventually became involved with legal tech. The hustle led to a fascinating new position at Shearman & Sterling, a position that Meredith notes was designed on a napkin! The firm’s great vision and wonderful people meant that Meredith knew from the start that she could do great work there… and have the best geeky conversations.

In a fascinating discussion about the growth – and the daunting pace of growth – of legal tech and big data analytics, Meredith and Joe consider the biggest legal tech changes of recent years, and talk about the exceptional new tools that serve a true need, with the added bonus of giving the enormous power of data to lawyers.

‎The Hearing – A Legal Podcast: EP. 45 – Meredith Williams-Range (Shearman & Sterling) on Apple Podcasts

Justice for all? The impact of AI & blockchain on legal accessibility

Originally published on AnswersOn

By Joseph Raczynski

I have been incredibly fortunate to have traveled extensively, which has impacted my global vision. Visiting almost 40 countries, I have witnessed firsthand the enormous discrepancies in wealth, opportunities, and lifestyles that exist around the world today.

I’ve seen the lavish gilded rooms, complete with Picassos on the wall, in the homes of 35-year-old billionaires in Dubai; and just a five-hour flight away, I’ve seen families hover around an open fire to stay warm alongside their metal sheet home on the outskirts of Kathmandu, Nepal, in the foothills of the Himalaya Mountains. And I’ve observed the steep mountain face of the drug-scared city of Medellin, Colombia — a concrete jungle with the activity of an ant hill. I’ve walked the rural farmlands of Cambodia, which are still littered with signs for landmines, and seen some children showing the stark evidence of their life-changing encounters with these mines; and I have wandered the extremely remote rain forest of Panama with its indigenous people.

The one element that buoys my spirits besides the genuine kindness of people, the promise of technology and our future.

One unexpected item that is omnipresent for both the wealthy and the less fortunate — a mobile phone. This is likely the most significant key to empowering people; and with a mobile phone, people around the world can connect, share ideas, and exchange money.


Joseph Raczynski will be speaking at the World Bank’s Law, Justice and Development Week 2019: Rights, Technology & Development in Washington, D.C., on Nov. 4-7.


Now, I am also seeing that connectivity energizing people’s legal liberties and human rights. We are evolving to a point where each person around the world has a computer in their pocket. Through this technological leapfrogging, a high school student in a remote village of Cambodia can be almost technologically on par with her counterpart in Amsterdam.

Exponential growth globally

Way back in 2015 I wrote about how we are entering a phase of Exponential Growth, and how that will impact the legal industry. What is evident now, however, is that this growth is not solely for the global law firms in the Western world, but is cascading to individuals in the most remote parts of the globe. Most importantly, we see how they will be able to take advantage of legal services which previously were nearly impossible.

Increasingly available chatbots empowered with Artificial Intelligence can now offer improved access to justice, helping people make decisions or even seek asylum. These applications, which are essentially legal workflow tools, can generate questions and answers via a mobile phone from anywhere in the world.

Further, blockchain is already impacting trust with small businesses. A family-run business in Argentina that enters into an agreement with a distributor can do so via a legally binding contract supported by smart contract technology securely saved to a blockchain. If a problem arises, for a small amount of money, arbitrators around the world can weigh in and help resolve the issue, all enabled through a mobile device.

The power of blockchain and AI is at work in Africa, where a farmer can opt into an insurance program on their phone. With as little as a dollar placed toward insurance, if the farmers crops don’t survive a drought, AI-powered satellite imagery can automatically pay those affected. Combing smart contracts on a blockchain with the AI-image recognition technology, people previously without legally binding contracts to support their business can sustain themselves. These types of significant changes will impact people positively.

I am extremely optimistic and passionate about our future, as technology-infused legal processes filter into all communities around the world. This new age will lift people out of poverty, reduce domestic violence and hunger, and improve the lives of people globally. With the technological power of a mobile phone and legal solutions infused by AI and blockchain emerging, there is a bright spot for all of us on the horizon.


For more on the World Bank’s upcoming event, listen to a podcast with Sandie Okoro, Senior Vice President and General Counsel at the World Bank, conducted by Thomson Reuters’ Joseph Raczynski.

 

 

The 4th Annual Government Day: The Reality and Skepticism of Innovation and Blockchain

Originally published on the Legal Executive Institute

By Joseph Raczynski

WASHINGTON, D.C. — The Government sector strives to ramp up its efforts to more widely integrate cutting edge technologies like blockchain, artificial intelligence, and the Internet of Things (IoT), it is running into a myriad of challenges.

Not the least among them, is separating the reality from the hype of these miracle tech solutions.

At Thomson Reuters 4th Annual Government Day, panel attempted this separation by focusing on blockchain, working to uncover the reality of this technology today for governments and cut out the hype of this innovative technology.

Government supply chain management

One area the panel focused on with blockchain is the tech’s potential to change supply chain management, offering a scenario in which a state or federal agency needs to identify the ground zero genesis of a fruit or vegetable foodborne illnesses. The newest proof of concepts utilizes a blockchain-enabled IoT supply chain management technology ecosystem that can save lives by greatly reducing the time it takes to track contaminated tomato from the salad bar back though delivery, distributers, wholesalers, to pickers and finally to the farm.

The panel also discussed how a Massachusetts-based farmer could partner with a technologist to track his tomatoes from vine to fork. The farmer uses IoT temperature gages from the pickers to the platers. This is an example of a public and private partnership where produce with clear data on temperature, handlers, and distributers can be audited through the entire supply chain, all supported on a distributed ledger.

Harnessing this collection of technologies, any listeria outbreak can reduce seven days of research to just seven minutes, ensuring that the U.S. Food and Drug Administration (FDA) have rapid response and control.

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Sovereign identity

Another area the panel discussed included identity management solutions. Breeches to our own private information are commonplace. In fact, recently Facebook suffered yet another attack where 200 million users’ phone numbers were found in a publicly facing open database, including the number of Facebook CEO Mark Zuckerberg. (In case you are wondering, calling Mr. Zuckerberg’s phone number goes to a generic voicemail.)

Not surprisingly given the stakes, various federal agencies have been surveilling this space for some time. An emerging concept about how to prevent such breaches and other identity security mishaps in the future is taking form.

The panel also took up the “radical” idea that the U.S. Department of Homeland Security (DHS) could issue a new unique identifier to replace a citizen’s Social Security Number (SSN). In a major shift, this identifier would exist on a blockchain. This decentralize system would place the control of the identifying number into the hands of the individual, removing a central repository, which could be hacked.

Panelist Alan Cohn, a partner at Steptoe & Johnson, pointed out how this could more securely enable our current voting system, curtailing the chance of fraud and make voting easier for all.

Digital assets

Finally, the panel explored the shifting landscape of digital assets. Cohn said he expects a huge swing in the way we look at assets from a personal perspective and in how the government views it.

The panel concluded that with Facebook launching its own cryptocurrency, Libra, this process has been legitimized. The discussion amped up around what will happen next. I suggested to the panel that Libra could be dead in the water in the United States because of a heightened regulatory concern, but this blockchain-enabled asset cannot be placed back into the bottle. Indeed, with years of consternation ahead from regulators on Libra, companies around the globe will move forward, and the next organization to create what amounts to a world currency will be a messenger app which has 500 million users, Telegram. (Expect its launch before Halloween 2019.)

In all likelihood, governments around the world will be spooked by the immense power an app founded in 2013 will create. They will have a scalable, frictionless asset with features that could bypass anti-money laundering (AML) rules and Know Your Customer (KYC) regulations.

Panel moderator Jason Thomas, Manager of Innovation at Thomson Reuters, and panelist Gail Gottehrer, of the Law Office of Gail Gottehrer, noted that there is significant promise ahead with the intermixing of multiple technologies in combination with blockchain. Indeed, governments are beginning to adopt and adapt in this environment; and with a push from the private sector, state and federal agencies will continue to adjust.

The synthesis of technologies like IoT, AI, and blockchain will create processes which should stamp out farm- and distribution-based foodborne illnesses. New initiatives around the security of personally identifiable information through blockchain will place the control of information into an individual’s hands, removing central points of failure and reducing costly and damaging data breaches.

Lastly, one of the most significant changes ahead is the look and feel of our ownership of assets when everything becomes digital. The opportunity is immense, but so are the concerns around our government’s ability to counter AML as assets become increasingly liquid and frictionless across the globe.

What is the current state of legal technology around the world?

Originally published on Legal Insights Europe

by Joseph Raczynski

Technology discussions once reserved solely for select Chief Information Officers (CIO), Chief Technology Officers (CTO), and technologists—are now commonplace for executive committees, partners, and associates at law firms. This transformative shift over the last four years is remarkable to witness. With wider audiences leaning into the conversation, the reality has surfaced that technology is becoming a differentiator with the business and practice of law.

Having met with just shy of 500 law firms, corporations, government agencies, and startups in the legal space during the last thirteen years in the US, I have always wondered what is happening abroad, beyond what I read. Late last year a unique opportunity to travel to multiple international locations for work surfaced. This presented the chance to consider that as the technological revolution takes hold around us, is the legal technology world shifting at the same pace globally?

Traveling 37,000 miles, I started in Washington DC, and then went to New York, Grand Cayman, London, Dubai, Auckland, and finally Sydney. Before this trip, I visited with legal associations and legal industry personnel in Canada, Costa Rica, and Poland. These discussions included intimate gatherings of global law firm leaders, heads of startups, medium sized regional law firms, and leaders in the US and UAE government sectors.

The differences, similarities, and nuances of legal technology around the world

The legal industry around the world is pivoting and many are passionate about legal technology. Transitioning away from a niche world of a select few inside law firms caring—to a current world where the doors are being blown open to everyone tilting their head to listen. Partners, associates, internal support group, and the executive committees are all immersed in the conversation. Prompted by their clients inquiring about use of technology, and quite frankly, lawyers are also worried about their own jobs and the viability of their business as technology, such as document automation, is now able to handle some of the more repetitive legal tasks.

UK: My discussions and experiences have led me to believe that the UK legal market is on average ahead of the curve when it comes to the use and implementation of legal technology. I witnessed medium sized firms rapidly testing and using many of the latest artificial intelligence (AI) infused applications to seek efficiency. While they acknowledged no solution was perfect, they felt compelled to test these solutions to see where they could find competitive gains. Law firms in London, and the greater UK, endeavor to take more chances than any other part of the world. The business structure of how law firms are run is certainly a motivating factor. Another significant pressure for UK based firms are the Big Four accounting firms taking business away, due to the legislative change from the Legal Services Act 2007 which added the model of ‘alternative business structure’ and permits non-lawyers to own a legal practice. In this scenario UK, law firms are first to truly experience this competitive pressure, but significant changes in market practices is increasingly becoming global, clearly edging into the US.

In addition, before the latest trend for law firms to link up with universities was in vogue, partnerships with universities was particularly robust in the UK. Upon meeting with the University College London, they echoed these same sentiments of active participation from law firms and corporations.

Supporting these firsthand accounts, is evidence from Acritas’ Global Elite Law Firm Brand Index 2018. The firms producing the largest leap forward in brand recognition are clearly global, recently merged with a significant presence in the UK: including Clifford Chance, Linklaters, Allen & Overy, and Herbert Smith Freehills. Based on my conversations with these firms and the statistics, I believe their innovative strategic plans are pushing them further, faster.

The courts in the UK are also making advances through technology. In 2014, the Rolls Building, which is part of the Royal Courts of Justice (RCJ), began deploying an electronic filing solution—C-Track from Thomson Reuters. The system enables the UK legal profession to adopt more efficient and cost savings work practices by using digital technology for case management and e-filing. To date, the RCJ continues to expand the use of this digital technology into other courts in the system.

US: The US market is rather bifurcated. There are firms pushing the envelope along the same lines as what the progressives are doing in the UK, but still many firms stay on their traditional course. By firsthand account, a typical strategic plan remains similar to years past, if not decades ago with incremental change for many in the medium law firm space. Investment in new tools and workflows come at a cost to the partners, who must commit to that investment for the future, and many are not inclined. I was asked to present to a US based firm with 200 attorneys recently by their Executive Director. He pleaded with me to describe to his committee about the impact of AI on the firm in the next five years, so they could prepare as he was near retirement. The committee dismissed the notion that AI would have any impact on the firm. This view is not an outlier. The recent statistics in Peer Monitor’s 2019 State of the Legal Market, supports this account of those who adopt legal technology or deny it. We see the Global 100, more specifically the top 50 firms, growing while the rest stay below market averages. There are exceptions in niche markets who buck this trend and have seen upticks in their profitability. However, on the whole, those firms that have not evolved are stagnating.

Another statistic from Acritas surrounds the support for innovation in this space. They draw a direct correlation between those firms that have established plans around innovation and growth. Their report cites, “Innovation can spark increased client advocacy and budget spend, so that when clients view firms as innovative, client advocacy almost doubled and share of spend was 50 percent higher than non-innovative firms.” While this exists across jurisdictional lines, medium sized law firms in the US could have the most to gain from these learnings.

UAE: What stood out the most for me in Dubai was the commitment from the government to advance the ease of legal access to the people. If you were to turn the US government on its head, you might get some of the innovation that the Emirati are advocating. All forms, requests, and even initial court filings will be completed online. The response times are slated to be rapid. By 2022 the Dubai government will have most of their public information moved onto a blockchain, for redundancy and security. Likely in this upgrade will be company records and public records—think deeds, corporate filings, as well as birth or death certificates.

As for law firms, one of the biggest in the UAE that I met with is pushing what they can do with all currently available technology tools on the market. Law firms in the UAE seem to reflect a lighter version of what is happening with legal technology in the UK, typically with a direct connect into those firms for direction and strategy.

New Zealand: Outside of the top eight firms in the region, several other firms I spoke with were crafting their portfolio of technology tools to assist their practitioners be more efficient. One firm was building a workflow automation tool on the transactional side with a bevy of coders onsite as well as in India to support the development. They were embracing an Agile method, in which they frequently discussed these tools with their clients. This collaboration further solidified the relationship and were an integral part of increasing the efficiency for work completed on the client’s behalf. Of the advancements in operational practice, one area that surprised me was the slow acceptance of alternative fee arrangements by firms as each firm awaiting the results of early adopters.

Australia: What most impressed me in Sydney was both an adventurous spirit when it came to legal technology, but surprising a generally cautious nature toward adopting new ways of doing things. After spending time with numerous managing partners and innovation officers, it seems that Australian firms have the potential to lead the way into newer technologies. That said they sat similarly to their neighbors in New Zealand. Fixed fee arrangements have been around for years, but are not used frequently yet. One managing partner told me that Australian firms have leaders that can make bold decisions, but are testing the waters with newer forms of legal technology in their marketplace and looking for someone to jump first on the boldly visions.

Legal Tech startups are thriving in Australia. This is certainly supported by the most recent Tech and the Law 2018 Wrap Up guide by Thomson Reuters. “In 2018 more than $1 billion was invested in legal technology, three times more than the previous year”, globally. In Australia alone, there are currently 93 legal startups with legs in the country. The Australian Legal Technology Association continues to thrive with interactions from both the startup community as well as traditional lawyers with curiosity.

In a recent conversation with Stevie Ghiassi of Legaler based in Sydney, who specializes in blockchain enabled legal solutions and scheduling, he described this community with gusto. What he is trying to do is bring the latest tools available to the legal industry. In doing so, it is likely that they will disrupt many of the current law firm functions and he is happy with that philosophy—as are many of his peers.

Technology journeys

After hitting 98,000 miles for the year in total travel, I am witness to a significant shift in the way that law firms look at technology. Changes evolving from the back-office support centric views of yesteryear, to the front and center underpinnings of how new tools can alter business and practice legal workflows. The shift is here, though each country seems to have various degrees of acceptance of this new reality and more importantly the practice of it. What creates the distinction are outside factors which either push or pull a firm to accept this new norm. The progressive state of the legal system in the UAE and UK has legal technology at the forefront, and it will be interesting to see what adjustments will occur around the world as a result. I do believe that while our legal technology community is large and expanding, the collective will continue to converge, eventually reaching the point of an e pluribus unum around the world.

Kleros.io (a Thomson Reuters Incubatee) Publishes Handbook of Decentralized Justice

Kleros.io is a blockchain startup which Thomson Reuters incubates in the Legal Technology space.  They recently published a book about dispute resolution using blockchain technology.  I had the good fortune to work with Federico Ast, Founder & CEO on a chapter for the book.

Please feel free to download a digital copy here:

Kleros’ Handbook of Decentralized Justice available for download NOW!

PDF: https://lnkd.in/ehA-5VF 

ePUB: https://lnkd.in/epCFpu2 

MOBI: https://lnkd.in/e26PxQc

Here is a section from my conversation with Federico:

***

One of the cores of our work at Kleros is researching the prospects of legal tech and the impact it will have on the legal business in the coming years. Joseph Raczynski, Thomson Reuters’ resident legal futurist is one of the select few we always love discussing.

Joe has a wide view of the legal industry and the business and technology that will affect it in years to come. Let’s dive into the conversation!

What’s a legal futurist, what’s the job description of that?

There is none. I think they’re still working on that in some dimly lit back room. It comes down to this – I’ve spent a lot of time on the core pieces of technology, either building computers, working on networks, white hat hacking systems and delving into how businesses processes work by studying sociology and believe it or not, nature, which inevitably impacts how we interact and develop.

I have an undergrad in economics and sociology, so I hope I understand the business world, but also believe I have some thoughts on how humans think, how we work as groups. The grad school education formalized and enhanced some of my thoughts with an MBA, and a Masters of Science in e-commerce.

I tried to spend my time on what people are doing in other businesses, in the financial world, in the medical world, and then pull that into what is happening in the legal industry.

Sometimes the legal profession might be a tad further behind the curve with what we see in other industries, so what I can do is peer into how others are working and parlay that into what may happen for legal.

As a practical example, I was mining Bitcoin in 2011 trying to understand how it works. Most of my friends and colleagues asked ‘what is this, what are you doing?’ They thought it was pointless, and the jury was out in my head about it, but I found it very intriguing, so I continued to explore it.

If you play around with these technologies before most know about them, at very early stages, you can get a better picture of what is going to happen in the future with different industries, the legal industry being one of them.

The next thing to take a gander at is memory on organic materials – imagine saving all of your firm information to a tree? Seems bizarre, but at some point these things will happen.

You don’t have a background as a lawyer, but in business and social science. How did you become interested in the legal industry?

I see the legal industry as one of the spaces with the greatest opportunities. You know this is growing because of all of the startups that have infiltrated the industry. There are so many startups that are looking at the legal space right now, because there are two parts to it – the business of law and the practice of law. Both of these are ripe for great efficiency across the board.

These startups are looking at different aspects of these two facets, thinking of how to make it more efficient, to make it a bit easier for the clients to better serve themselves, or to work with law firms and have law firms better service their clients.
I see AI and blockchain leading the way – the AI algorithms making things faster and more efficient and blockchain saving this information and hopefully making it so that the trusted third party is now a computer network.

The perfect example of this is what you guys are doing with Kleros. I honestly think this is one of the best examples out there in terms of how we can create better efficiency in a “trustless” environment, working with blockchain to be able to save information, secure it, but also have people leveraging this tech to create a better environment for all parties involved in a dispute.

 

Since you mention Kleros, what caught your attention about our project?

What I find the most fascinating about Kleros is the idea that you are going to leverage blockchain as a space in the ether that allows people to file a complaint, process that complaint, and eventually resolve it, using a system based on blockchain, and wisdom of the crowds.

Crowdsourcing enables the expansion of the pool of people making the decision. This makes a lot of sense, as it can greatly enable efficiency and reduce costs in a large number of dispute resolution processes.

The economic model that aligns individual incentives with honest decision making is a great innovation within the legal industry.

 

How do you see a new technology like blockchain interacting with traditional government courts and regulation? Are legacy legal systems going to adapt to blockchain or are they going to be disrupted?

That is a great question and I think the answer depends on where you are in the world.

In time, I think blockchain will absolutely disrupt the way the government interacts with information and the way they verify it. I was in Dubai some weeks ago and met with government officials working on a full-on blockchain enabled verification system that, when decisions are made, puts everything on the blockchain.

Anyone will be able to look up that decision with ease and they want to have this up and running within the next 18 months without having to go through a proprietary company. In Dubai, it is the government who is pushing law firms in this direction. The government is leading there.

In the United States, on the contrary, you find that traditionally it is the corporations that lead change. Law firms tend to follow, then eventually, a little bit further down the road, you may see the government starting to get involved in the space.

Depends on where you are and how this works, but clearly some changes are afoot in the next five years.

 

What about AI? How is it likely to impact the legal industry?

It’s a funny one. All we see in the news is the AI and how it’s going to disrupt law firms or the legal industry in general. There is so much talk about this every single day, how the robot attorney is coming…

I had the good fortune to meet the pre-eminent legal technologist, Richard Susskind last year in London. One thing he says is that, in the short term, we are probably overestimating the power of AI, but in the long run we are probably underestimating it. We’re at a stage that AI is in the news and most of the attorneys, partners, and managing partners of law firms that I meet ask – is this really happening?

It’s clearly cresting atop Gartner Hype Cycle, similar to what is happening with blockchain, there is a lot that may happen with both of them. On the AI front, you are seeing companies that come along and have very smart ideas about how they can change a section of how the practice or business of law works.

For example, let’s say there is a merger between two massive organizations, both have 50,000 employees. One of the core things they want to look at are the employees they have for both organizations to see if they mesh well. In order to do this, they need to review all 100,000 employment contracts identifying golden parachute language… For example, if anyone got a $50 million bonus if the merger took place.

Currently, many global law firms do this due diligence. They put 100-200 attorneys on it by having them read every single contract and making sure that those documents are standardized – not containing that golden parachute.

Increasingly there are algorithms and associated programs on the market that go through all the contracts, looking for all the standard language, kicking out those contracts that don’t have the common phrases or terminology. Those kick-outs are then reviewed by a human, resulting in a massive increase in efficiency and less people hours.

These startups who are creating these applications, are pushing the bar in legal. They are devising better ways to get the job done using AI – in an incremental way. Will we see a robot attorney in the next few years? No. But these types of tools leveraging some AI will ramp up quite considerably across the board.

 

What is the result of all this? In the world of AI and blockchain, in fifteen years, say, what’s the place of lawyers in all this? What does the legal system look like?

Ten years out, and these are just guess, all of the lower tier work that we traditionally see law firms doing, be it the e-discovery, some of the contract work, all of that will probably go away.

E-discovery now still has a lot of human eyes looking at a lot of these documents, after a first pass that maybe a computer completes. In time, that will probably be all computer. The documents that are out there right now, the normal contracts, that will all go away.

It’s that very top level where you need human imagination, human thought, collaboration that will be the furthest out to be disrupted. But there are a lot of attorneys that are doing just day-to-day work, canned phrases that you use to build up that document, a lot of that stuff will be impacted in the next, say, five years. In ten ten years, I’d say it’ll definitely be impacted. That’s the direction that I personally see it going in.

Law firms that don’t change the way in which they work will probably go away.
Lastly, what we are starting to see in Europe, as well as Australia and New Zealand, is that the Big Four of auditing and accounting are starting to take away some of the business from law firms.

Not only can they now handle law firm work, they can handle everything else – they have full-on accounting, the business processes, all of that is going to be fulfilled by these massive organizations. That will absolutely impact law firms.  This will come to the US soon, it is inevitable.

 

What advice would you give to a law student preparing for this new world?

Don’t practice law. (Laughs) I’m kidding.

I think it’s still a fantastic profession which requires a great deal of talent and unique thought processes. The advice that I actually gave to a few people who were interning here this summer, who were looking at law school: spend as much time on understanding the basics around law.

If your passion is around helping people and the love of law, go to law school. In preparation for your studies look at some of the startups like Kleros and try to work there to see what a lawyer will be doing in the future. Understand the growing relationship between technology and the law.

Clearly law rules the roost, but technology will continue to play a role in how it is practiced, and frankly what will be done by the future attorney.

I think companies should bring in a few aspiring attorneys to help them understand where we are going as a society, as a business. The future student should work with startups, work with bigger companies that are involved with e-discovery or anything in the legal technology world to help them get an understanding of how the technology works, how the vendors work and how this stuff may impact the way they practice law. Getting a full-rounded perspective of where the world is heading is essential – especially if you are dropping 300K USD on education.

One last thing I’ll mention about this is – I don’t know who originally thought of this concept, but there is a phrase called a T-shaped attorney. It’s literally like the letter T. Across the top of the letter T, those aspiring attorneys are learning everything they can about the business and the practice of law. They are learning a bit about project management, maybe they’re learning a bit about how to code or how vendors work.

More and more we are hearing about attorneys learning to code in different languages, so they have a better understanding of how that works. Understanding how vendors work, how startups work in the legal tech space. That’s the top of the letter, and the deep part, the extension of the letter T is the practice area they’re in, litigation, automotive practice or any else which they know almost as an expert. We are really talking about a well rounded attorney.

What books or other resources can you recommend to people to read and start learning about the future of law?

Some of the best books out there about legal technology and what impact its’ going to have are by Richard Susskind, most are aware of him, but if you haven’t seen or heard this gentleman from Scotland, he is on tour frequently, he talks about amazing things which should be happening in the legal industry.

He has a plethora of works out there. I spend a lot of time on YouTube in my off hours, looking at what people are thinking, what they’re talking about in many different industries, clearly within the legal tech industry as well, so that’s a great resource. Twitter has a plethora of great discussions that are happening as well.

Shameless plug, you can always check out my blog at https://JoeTechnologist.com, there’s always one or two hopefully decent ideas there that could be something worthwhile.

A presentation of Kleros with some extra flavor given by Joe Raczynski

Modern Law Magazine: Embarking on an Era of Abundance in the Legal Industry

Here is my latest post from Modern Law Magazine.

By Joseph Raczynski

Over the course of the next five years, the legal industry will be flush with opportunity. While much of the rote legal work will be done by automation, producing a period of interstitial angst at law firms, burgeoning areas of technology necessitating legal counsel will flourish.

As a brief preface, I will bypass the normal discussion surrounding how tools are making lawyers more productive and law firms more profitable. That is a given. These tools are plentiful; including research services that coalesce information intuitively tools that comb through millions of documents seeking relevant words; or, artificial intelligence (AI) enabled applications reviewing 10,000 contracts in hours compared to months required when done manually. While these applications constantly improve, they are becoming commonplace for law firms. This article’s focus is preparing for the next legal transformation for law firms—prompted by technological advances.

A near trite concept at this juncture, technology is advancing at an exponential pace which is creating incredible possibilities in many industries—especially within the legal industry. One example which typifies this acceleration is a recent creation at MIT Labs with ‘AlterEgo’.

The white device below wraps around the ear, hugs the lower jawline, and rests below the lips. It contains four sensors that can hear your internal thoughts. Yes, AlterEgo can read your mind. Practically, without verbalizing a word one can communicate with Internet connected devices, like a TV, a computer, or a car. A conversation with another person wearing AlterEgo could occur without verbalising a word. This is a single example, of a possible myriad, which exemplifies our current era of swift technological change.

alterego

AlterEgo, MIT Labs http://news.mit.edu/2018/computer-system-transcribes-words-users-speak-silently-0404

With this sort of mind boggling technology available, it raises the question, what will the legal landscape look like in the future and how can lawyers and law firms adjust to this sort of rapid change?

Algorithms

Specific instructional processes (if/then statements), known as algorithms, have existed in computer language for decades. Over the last five years algorithms have matured, but perhaps more importantly so has the flood of data—widely considered the new oil. The synthesis of the advanced algorithms and the ability to process that data has ushered in new industries.

One such industry is driverless cars. These vehicles are already being used around the world, and algorithms are a main operational feature in the car’s computer driving programme. This area of technology, alone, will be a significant boon to the legal industry. The implications of rules, regulations, laws, and ethics in this space are immense. Lawyers will need to be trained, or at the very least be far more familiar with how various algorithms work. Who decides culpability when driverless cars go awry? How do we navigate the legal ethical dilemmas of onboard computers deciding between hitting a child or an elderly person crossing the street?

autocar

Politico Europe https://www.politico.eu/article/should-a-driverless-car-kill-the-kid-or-the-retiree-future-of-driving/

 

Algorithms are a platform and will permeate most applications, propagating throughout most of our lives. Lawyers will likely need to understand their uses and implications, in the near future, in order to provide adequate representation to their clients.

Biotech

Over the last decade, engineers have deciphered how to modify the immune systems of bacteria to edit genes in other living organisms, like algae, small mammals—and now humans too. Over the last month, Chinese doctors claimed to have created the first designer baby by enabling one to be born which is resistant to HIV, by genetically alerting the embryo. CRISPR, pronounced “crisper”, allows scientists to easily manipulate genes far faster and cheaper than ever before. Soon there will be significant work for law firms in this space. The implications are vast beyond how an IP lawyer would practice. A multitude of various specialised practice areas will now join the IP lawyer. When new genetically modified humans arrive, smarter or with greater athletic ability, opportunities will bloom for many other practice areas. This will also impact the insurance industry, as two classes of humans will evolve creating different playing fields. Will genetically modified humans receive better insurance rates, because they are less susceptible to disease? There are countless other legal impacts with CRISPR and gene alteration impacting multiple areas of law and business.

Internet of Things (IoT)

With as many as 50 billion devices connected to the internet over the next ten years, we need lawyers able to understand the legal ramifications of this rapidly expanding technological reach. The depth and breadth of these interconnected gadgets cannot be underestimated, including devices connected to our brain, such as AlterEgo, to every appliance in a kitchen, car, phone—which will soon be a MR (Mixed Reality) headset. Within this scope, countless questions of data ownership, privacy, regulation, and intellectual property will arise. Education of how these devices work and what information is being gathered, perhaps surreptitiously, will all need to be understood by lawyers.

Deep Fakes

One of the more distressing developments of the last few years has been the creation of videos known as the Deep Fakes. The Deep Fakes are very realistic videos of someone famous, but are made by superimposing a computer-generated face on the real video and swapping out the audio with something nefarious. (Example: https://www.youtube.com/watch?v=gLoI9hAX9dw ) Lawyers will need education and access to tools to help verify what is real and what is not for litigation purposes as well as transactional, as people increasingly make claims using video attestation. We will soon get to a point where we cannot trust video documentation and lawyers will have to contend with these issues.

Blockchain

The ’trustless’ nature of a distributed ledger will undoubtedly have an impact on the legal industry, since transactions will be put on a blockchain. Increasingly there are whispers of a legal blockchain controlled by law firms in a consortium. This will impact most areas of legal practice.

In the transactional practice, self-executing ‘Smart Contracts’ will be something everyone working in the legal profession will need to understand. Ethereum, the first blockchain platform to popularize the idea of the Smart Contract allows for people to code ‘if/then’ statements onto the blockchain or database with ease. Here is a scenario that uses a smart contract on the blockchain in the legal transactions.

A lawyer writes a will for their client. The will stipulates that upon the parent’s death—their two kids must be married, respectively, in order for them to receive a share of the estate. If one kid is married and the other kid is not, the kid that is married receives all assets. For simplicity the assets are all liquid in this example.

The will is written and saved to a blockchain. It is in an immutable state, and the only people that have access to this document is the lawyers that drafted the will and her client. Once it is on the blockchain in a codified state, the smart contract starts checking every day through a trusted source, called an oracle (affirmed public record), to see if both parents are alive. One day the computer identifies that the parents have both died. The computer jumps to the next task to determine if both kids are married. Through another computer call to that oracle, it determines that one kid is married and the other kid is not, and subsequently sends 100 percent of the liquid assets to the kid that is married. This is a self-executing smart contract on a blockchain as shown below.

smartcontract

JoeTechnologist.com https://joetechnologist.com/2018/11/15/forum-magazine-blockchains-promise-verifying-value-one-block-at-a-time/

Drones

A drone superhighway is coming. These are roadways in the sky where drones will be able to operate, away from the likes of Gatwick airport and other important safe zones. The ’droneification’ of our delivery systems will alter city landscapes. Lawyers will be called upon to interpret zoning laws, environmental conditions, insurance issues, labour law, privacy matters, liability issues, and construction law—as more people build landing pads off their flats. The age of drones will create a beehive of activity for law firms.

Cybersecurity

By nearly all accounts Cybersecurity is the top concern for corporations and law firms outside of profitability. Data leakage and hacks are rampant the world over. Ransomware will likely continue for the next several years at least. According to one government official I recently met in the US, the world is simply waiting until the first significant cyber event which takes down a country’s infrastructure—such as the electrical grid, banks, or water systems. Law firms have rightly responded to the rapid increase of cybersecurity considerations over the last eight years. Increasingly lawyers will need to better understand the dynamics of cyber-breaches for their own operation as well as client needs. The opportunity for law firms is immense in this space from litigation to advisement of mitigation measures for cybersecurity.

How Law Firms Can Thrive

A renaissance in the legal industry is ahead, after a bit of discomfort based on some traditional legal work fading. As some of the rote work legal work dissipates in the coming years, an abundance of legal activity will commence in the emerging landscape driven by technology innovation. What I have discussed with law firms around the world is how they plan to prepare for the changes ahead.

  • Firms are beginning to create highly customizable technology education plans for their lawyers. They are inviting specialist from the newest industries: AI, blockchain, automotive, cybersecurity, IoT, and biotech. At a minimum, these required firmwide classes promote a basic understanding of each technology. The goal is for lawyers to be conversant in the technology when speaking to prospective clients. The plan creates a pathway for deeper levels of education if their practice necessitates it, which will be likely for many.
  • We are also seeing the early stages of more technical lawyers emerging. Traditionally, an IP lawyer carries this torch, but this is changing. Recently a blockchain consortium disclosed that lawyers make daily inquiries about how they can code blockchain enable technologies. Certainly not all lawyers will need to code, but those that have a proclivity for it will be better positioned for success.
  • Law schools around the world are pivoting. They still hold fast to the core curriculum, but quickly programming around emerging technologies is taking root. Law schools are connecting with startups—creating a synergy between the nascent legal minds and innovation. Universities are also partnering with some of the traditional legal sector vendors to aid students in understanding various technologies, processes, and applications for more efficient work with the business and practice of law. Advanced institutions are pushing students to understand algorithms, code, and become further enmeshed in technology.
  • Law firms are also sponsoring hackathons. The goal here to figure out better ways to improve process, which does not always have to be technical. Legal tech incubators have also started to proliferate by vendors, but also among some law firms.
  • When gaps in technology exist within a law firm, tighter partnerships with companies who can assist on the legal technical aspects surrounding the mentioned fields will start. Boutique firms will arise with a focus on these technologies to help their clients, but also serve as consultants to the larger mid-sized firms without expertise.
  • There is little question that litigation will thrive going forward in each of these disciplines. Lawyers that become more technologically savvy will have a decided advantage in obtaining business.

 

The era of abundance in the business and practice of law is on the horizon. The technological shifts that are occurring all over the world are setting up law firms, who are prepared, for bold new opportunities. One of the most important changes in the legal industry will be a need for lawyers to be educated on new technologies. As AI and blockchain become mainstream, those platform technologies will impact nearly every industry—meaning nearly every practice area lawyer will have to understand the basics of those technologies. The firms that embrace these changes afoot, will be best positioned to thrive.

 

Images from article:

How medium-sized law firms can use legal tech to compete with the big industry players

Originally published in the Legal Insights UK & Ireland

By Joseph Raczynski

The familiar trio of ‘People, Process, and Technology’ play a role in every business. However, as medium-sized law firms increasingly compete for the same pool of clients with large law, it is the ‘Process and Technology’ that are shifting, and levelling the playing field. As for ’People’ – there is still a dearth of amazing lawyers available since the recession, so while important, it is the least altering factor among the three.

Large law firms are currently flanked on two sides: the Big Four consulting companies from the left and medium-sized law firms to the right. Some of the largest clients are increasingly seeking full service houses. For example, PwC or KPMG can handle everything from tax, IT services, marketing, facilities, procurement, and now legal services, all under one roof. As this goes to press, Ernst & Young just acquired Riverview Law to expand its managed legal services business, which further emphasises this point. This shift has been expanding as the Big Four grow their legal expertise. While it is unlikely that clients utilising the consulting companies may have considered a medium-sized firm, all of the remaining clients are now fair game for both large and medium law, and here is why.

Simply put, technology tools are levelling the playing field. With a proliferation of legal technology instruments on the market, each attempting to nibble at the traditional business of law or practice of law, there is a load of opportunity for any agile firm to gain traction. The surge in legal tech start-ups is global. Led by what some consider the last bastion of massive margins in business, the legal honeypot of financial gain awaits. In a business which has traditionally been less than efficient, the startups can taste the sweetness on their fingertips and are innovating in every direction in the legal landscape. The medium-sized firms that are open to the adoption of technology will have the upper hand.

Previously, larger pools of support staff and lawyers were necessary to accomplish or finish tasks. Now, leaner numbers can be prolific producers when it comes to rote services. There are tools which can magnificently automate documents in any number of areas including; real estate, employment, M&A, trust & estates agreements. Such processes essentially allow for more scale that medium sized law firms could not handle previously, by automating exemplar documents and turning them into intuitive questionnaires. This sort of example illustrates that any firm leveraging these types of technology can compete with nearly any other firm at some level. This was one. There are many similar examples where new tools are ushering in impressive efficiencies through a myriad legal technology tools. At the beginning of this technological shift, the tools will aid in the rote, and in the years ahead more complicated bespoke work will be enabled.

The risk ahead is for the firms that fail to innovate. Without the adoption of basic technology tools, they will not be able to compete with efficiency and turnaround for their clients. It will start gradually, but quickly impair the late or non-adopters.

Process isn’t proprietary ̶ it’s widely available  

Further, levelling the playing field is a process. Once upon a time, a barn full of lawyers was necessary to review documents for complex litigation. Those days are past. Now, a medium-sized firm can call upon LPO (Legal Process Outsourcing) to bring in 50 lawyers in 24 hours. Thus medium-sized firms can now use alternative legal service providers to ramp up instantaneously. The firm of 100 can now puff out their chest as they handle a far grander case than once was feasible with temps and staff lawyers. In addition, to magnify this, these LPOs are using increasingly efficient tools like TAR (Technology Assisted Review) to aid in the EDRM (Electronic Discovery Reference Model) and vastly improve speed to find relevant material.

Ceteris paribus, as legal technology tools advance rapidly and process is flattened, the distinguishing factor between large and medium firms will blur. In the end, with an even playing field, the unique creative “People” vision will likely tip a client into one camp or another. Ultimately, competition among all law firms will become progressively more spirited because of technology and process.

Artificial Intelligence and the UK vs. US Approach

Originally published on Legal Insights UK & Ireland

By Joseph Raczynski, edits, questions and preface by Ann Lundin and Joe Davis.

Artificial intelligence will threaten most jobs at some point soon—and new jobs will emerge’

The impact of innovative technology is undoubtedly going to radically reshape the delivery of legal services in the years ahead. To help consider the extent of this impact within the legal industry – and indeed, the current state of play, Legal Insights UK & Ireland spoke to Technologist and Futurist at Thomson Reuters, Joe Raczynski.

Tell us something about Joe Raczynski. You have been labelled as a ‘super geek’. How did you achieve this unique status?

It’s actually ‘Sir Super Geek of the Square Table’—as the Queen kindly bestowed recently. More seriously, I am very fortunate. My personal passions and professional career have spectacularly collided. Since I was young I would tinker with electronics, including building a home security system from spare computer parts, penetration testing networks as a white hat hacker, building websites and eventually fiddling with all things computer and technology related. For me, pure satisfaction is derived from being an early adopter of a technology, immersing myself in it, and then sharing that with others—ultimately seeing their eyes grow in amazement, interest and most importantly extrapolation. I still recall describing ‘digital cash’, e.g. Bitcoin, in 2011 to friends and seeing their awe and skepticism. On the other side, I bought Google Glass and trumpeted its potential, until the overwhelming collective societal shame forced them back into their box. The technology in a more robust form will return in a few years, I promise.

Tell us about your role at Thomson Reuters.

I oversee a wonderfully nimble team of technical client managers. Our collective goal is bifurcated. Part one is to assure that all our (80-plus) Thomson Reuters Legal products and services work well for our customers. Part two, which is ever growing, is sitting down with our customers across law firms, corporations, and government agencies to understand their technology initiatives. We are able to see the trends across the various facets of our legal customers, and serve as technology evangelists to share those insights with our customers. Historically, we have also listened to them about where ‘tool gaps’ lie, and either code those solutions ourselves, or work with the larger Thomson Reuters to build solutions.

Does the progressive development of AI and robots threaten your job or anyone else’s? If so, how soon?

AI will threaten most jobs at some point soon, mine included but a tad further out. Anything repeatable, routine, or even easy to adapt to ‘if then’ statements, will be impacted. Many of the traditional services positions will fade away first: drivers, wait staff, store clerks, and then some professional positions, such as project managers, will be next. Mentally, we all need to prepare for this eventuality. The positive is that new industries will evolve which haven’t been invented yet, which will spur new jobs.

How is AI currently disrupting the legal industry?

In the legal space, you can already see it on the eDiscovery front. Eight years ago, new lawyers might be tasked with document review spending 80 hours a week. Now law firms need far fewer eyes reviewing documents, because of AI infused tools. Document automation tools like Contract Express or Drafting Assistant make law firms much more efficient by replicating and modifying exemplar documents with ease. Those firms that adapt soonest, will be best positioned moving forward.

What do you make of law firms engaging more directly with incubators/tech start-ups?

There are several things afoot. Law firms traditionally were technology risk adverse, but that is rapidly changing. The first tug on the law firm are clients asking for them to be more agile forcing new mindsets. Another pull is that law firms tend to be a highly profitable industry, and for that reason small companies have now cast their gaze on their large margins. You have hundreds of new start-ups seizing upon niches of the legal business, be it the practice or business of law. Lastly, law firms are seeing the above and deciding to band together with start-ups to test the waters on new products and services. This has a secondary purpose, it also better positions the firm as forward thinking for new clients.

How do UK and US large law firms’ attitude differ in their receptiveness to new legal technology, and willingness to invest?

I have seen a wide variety of responses on adoption of legal technology at US law firms. Recently one firm stated, ‘we are not going to invest in AI because we are an insurance firm and it will not help us’. Conversely, I have seen several large law firm tossing millions of dollars at internal initiatives to develop new tools. My experience with UK firms demonstrates a real tilt toward innovation perhaps more universally than in the US. It seems that currently the push to be more efficient in the UK surpasses that need in the US. Despite major transformative landscape changes in the US, there are clusters of firms that will not change—until forced to do so, which will likely happen within five years. In general UK firms are thinking more like a business.

Does the growing necessity to adopt time-saving, efficiency-driven legal technology put pressure on small and medium-sized law firms to invest? What will likely happen if they don’t?

Personally, I believe the medium sized firms could be best positioned with new efficiency driven legal solutions. To that end, I am starting to see medium sized firms competing against the biggest law firms. Five years ago, this wasn’t as feasible. No matter the size of the firm, they must have a keen eye to investigate the latest legal technology trends, tools, and service models. If they don’t, they will miss opportunities—and a streak of missed opportunities will lead to significant risk of survival.