How to survive when subject to authorities' investigation　

[FRONTEO "AI Business Innovation Forum 2019" Lecture Report]

FRONTEO, which develops “Natural Language Processing x AI” solutions in many fields, led by Legal Tech AI, held a private event in Tokyo on November 11nd. In a legal session, Baker & McKenzie's Akira Inoue spoke to an audience of more than 22 people. AI solves major audit challenges as global companies prepare for investigations by U.S. government agencies. I would like to introduce a lecture in which he talked about how it is being done with examples.

What are surveys that pose a great risk to corporate activities?

Akira Inoue (Baker & Mackenzie, Partner / Attorney General of the State of New York/Doctor of Laws), who has over 20 years of experience in dealing with antitrust and competition law cases of global companies and has been involved in judicial transactions with the U.S. Department of Justice on behalf of Japanese companies, opened by saying,"AI has tremendous significance comparable to the invention of steam engines and the development of the Internet" .

"I have been active in fields such as an unsophisticated research and investigation for 21 years, and AI has been introduced and penetrated into these artisanal fields. The field of research that seems to be dominated by analog, I would like to introduce that AI is beginning to show its power. "

The "investigation" here is an investigation conducted by the U.S. Department of Justice, the European Commission, and the Fair Trade Commission on suspicion of violating the Antimonopoly Act on corporate activities, but attorney Inoue proceeded to focus specifically on the U.S. Department of Justice investigation.

"Businesspeople may not think they will be the target of an investigation when they are about to increase their sales, but they could be at some point. What will happen then? Unfortunately, when a company is subjected to an investigation or investigation in the United States, it generally begins with two courses of action. One is a federal grand jury investigation and the other is an FBI investigation."

In both cases, 98% of companies will cooperate in investigations and investigations, go through judicial proceedings, conclude the story well, and attempt a "soft landing" to reduce damage as much as possible. If you want to fight thoroughly, you can proceed to a jury trial and a stormy deliberation begins. In both cases, however, the risks incurred in responding to the investigation are very high, according to attorney Inoue.

"Typical risks are fines and imprisonment, as well as supervision and probation. Fines are very high, with a precedent of a $4 million fine for an auto parts cartel, plus approximately ¥7,000 billion paid in civil litigation. Imprisonment means that the individual is confined in a U.S. prison and is subject to restraint, and probation runs the risk of interfering with personnel matters and messing up personnel policies. "

What should companies that are the subject of investigation or detection do?

Next, Attorney Inoue talked about what to do when he is the subject of an investigation / detection.

"As a business, of course, we think about cost-effectiveness. If you lose in a thorough fight, there is a tremendous risk waiting for you, so in order to conclude the story well considering the magnitude of the risk, a strategy in the direction of soft landing. In any case, it is essential to do “discovery” work to investigate and analyze what kind of evidence is in the company. ”

If you go through the stage of evidence analysis and adopt a strategy in the direction of soft landing, you must meet two conditions. In particular, the recurrence prevention measures call for the creation of a strong compliance and governance structure. In this system construction, manuals and training are used to instill standards in the company, and self-checks are imposed. However, in creating the check function, "There was a big problem that not only Japanese companies but also global companies could not introduce it well."

Traditional auditing processes are very expensive

The major challenges are that the audits are very time-consuming and expensive to conduct, and difficult to obtain the understanding of upper management. In the case of some Japanese listed companies that are expanding globally, when they were surveyed, they introduced audits with the goal of making a soft landing and reducing fines and imprisonment. It was limited to two areas: antitrust and bribery, and it targeted only sales staff and kept checking their e-mails, chats, and other electronic files.

"Although the survey covered 175 sales staff and lasted one month, the number of documents analyzed was huge (1) and was conducted in three languages: Japanese, English, and Chinese. The cost is 27 yen per lawyer's hour, and assuming the analysis is completed in one month, it would cost 7,300 million yen per month even if 3 lawyers check each document in 3 minutes per document. Even if we were to introduce this as a measure to reduce the risk of a multi-million yen fine that might cost you or your bosses prison time, 1 million yen in one month is a very large financial burden and a very high hurdle to convince the upper management of the company. There is also the problem that when as many as 15 attorneys are checking in eight hours a day, there is a variation in quality."

AI turns constant auditing into a realistic option

Although the need for constant audits was recognized in the legal community, and it was understood that without audits it would be difficult to discuss a soft landing, it has nevertheless been difficult to introduce constant audits for reasons of man-hours and cost. The introduction of FRONTEO's AI technology is changing this, Inoue said.

"In FRONTEO's AI-based auditing method, the target documents are sent to the audit system server, where they are analyzed and scored (scored) by an AI trained on teacher data created by myself and seasoned attorneys. Then, the lawyer checks only the documents with high scores again, conducts interviews based on the results, and confirms the facts. The monthly cost of this AI-based auditing method is dramatically reduced by less than one-tenth compared to the 1 million yen mentioned earlier. "

In order to measure soft landings in response to surveys, it is becoming indispensable to build a compliance and governance system. It has been a trend in the last 10 years that auditing is indispensable for building such a system. Attorney Inoue concluded the lecture by suggesting that the use of AI will significantly change the situation surrounding auditing in companies.

"Traditional audits were difficult to implement because they required more man-hours than could be overcome by human labor, but the use of AI has made it possible to replace the work of attorneys. Moreover, in my most recent case, I negotiated with the federal Department of Justice and got them to agree that AI audits are not a problem. A change of mindset may be necessary in the future, in which AI is actively used as a substitute for human tactics by lawyers. AI, a very useful tool that could be called the fourth industrial revolution, is becoming very important in the field of investigation and litigation."