Legal Technology

Anti-Money Laundering (AML) and Terrorism Finance

These technologies are also being used to solve big global problems at a cross-border and transnational level. Today, banks worldwide spend billions of dollars a year trying to spot and stop the movement of funds by criminal organizations and corrupt politicians. The goal is to prevent these funds from entering the global financial system. Once injected into the system, there is the chance they will be used to fund crimes such as terrorism, human trafficking, bribery of public officials, and other practices that end up affecting us all. The process of identifying illicit funds is complicated. The United Nations Office on Drugs and Crime estimates that the global volume of money laundering transactions worldwide is between $1 to $2 trillion a year, or 2% to 5% of global Gross Domestic Product (GDP). Law enforcers are only able today to stop less than 1% of that amount. This means that despite all efforts, law enforcement is losing the war. One of the reasons is that the process is still very manual. It is very costly, time-consuming, and prone to mistakes.

Thankfully, many legal technology solutions in use and development can do the work done today by humans better and faster. Once plugged in, these solutions spot patterns in financial data that a human money laundering officer would never be able to spot. And the beauty of the solutions is that the more they are “trained” and fed data, the more accurate they become, allowing law enforcers to get one step closer to stopping illicit funds from entering the global financial system.

To accurately predict the future of legal technology, one must examine the history of disruptive technology more broadly and take lessons from what happened in other industries.

In the early 1990s, file-sharing technology was created, and music sales took a big hit –music companies laid-off employees. When the CD was first invented, music labels celebrated because they could sell the same product repeatedly because of a format change. But what the labels didn’t appreciate was that the unprotected CD, the Internet, and MP3 compression technology, formed a perfect storm that would decimate their business.

The music labels and the publishers fought back, and the law was on their side. File sharing music without permission was against the law. But it didn’t matter – people wanted to do it and continued to do so. The music labels sued everyone to make it stop. They were enforcing the law, but all they did was alienate their market. The labels were fighting the technology itself, and that’s not a great strategy because technology always wins. Instead, the labels should have been leveraging the technology and tapping into the new opportunity awaiting them.

Kodak is another example of a great company that failed to leverage technology despite having the first patent to a digital camera. The firm once thought it was in the business of selling camera film, but it was really in the social expression business. And, if Kodak had only realized that, it might still be as relevant today as it was years ago.

Many entrepreneurs make a lot of money by inserting themselves into markets being disrupted away from the status quo, finding an inflection point, and then providing a solution. That is what Steve Jobs of Apple did when the music industry was disrupted by launching iTunes and the iPod.

Major League Baseball (MLB) has leveraged technological change. MLB makes more money than ever from radio and television revenue. But when the radio was first invented, major League baseball was afraid that nobody would ever go to the ballpark again to watch a game. Of course, it turned out fine.

The motion picture industry has also leveraged technological change even though Jack Valenti, one-time president of the Motion Picture Association, likened the original Sony Betamax video cassette machine to the Boston Strangler (a 1960s serial killer). He was convinced that nobody would ever go to the theater again if people could tape shows and watch movies at home. But, of course, it turned out fine. People go to the theater, watch the film, watch the same movie on cable or stream it over services like Netflix. We also buy the DVD, and the Motion Picture Association makes more money than ever.

Many other industries are experiencing change because of technology. Recent examples include the newspaper and taxi industry.

Let’s now consider the future of legal services by examining two technological developments that will profoundly impact the legal profession.