Key Point
- As the U.S. government increases its use of AI and other data analysis tools to detect fraud, it has become imperative for companies to implement similar technologies in their own companies.
- Data tools are now available from a variety of vendors to help flag high-risk business activities, monitor compliance and identify potential violations.
- AI technology can also be used to quickly assess a company’s potential risks and review documents to identify potentially relevant documents after a government investigation has been initiated.
- This technology has great potential, but companies must understand its limitations and ensure that AI is used with close human supervision.
The use of data analytics to identify potential legal violations is becoming increasingly sophisticated. Agencies such as the Securities and Exchange Commission (SEC) are taking the lead, leveraging risk-based data tools to scrutinize corporate financial reports and transactions. The advent of large-scale language models like ChatGPT will only increase the ability of regulators to sift through sprawling datasets to identify potential fraud.
With such tools now freely available to governments, businesses are encouraged to take a data-driven approach to compliance and adopt some of these advanced technologies to that end. Must be considered.
Government use of data analytics
The SEC has been using data analytics for oversight and enforcement for more than a decade. For example, the agency leverages artificial intelligence (AI) to detect trends in the thousands of tips, complaints, and referrals it receives. The SEC has also long used data analytics to uncover potential insider trading and financial reporting inaccuracies.
Notably, in 2018, the SEC launched the Earnings Per Share (EPS) Initiative. It uses risk-based data analysis to uncover potential accounting and disclosure violations caused by earnings management and other poor practices.
The EPS initiative alone has resulted in at least six enforcement actions to date, most involving fraud charges and significant penalties against the companies and individuals involved.
The Department of Justice (DOJ) also uses data analytics for investigations. For example, the Criminal Division recently touted its use of data to identify potential wrongdoing involving foreign corruption. Similarly, the Antitrust Division's Procurement Collusion Strike Force, a law enforcement agency dedicated to combating antitrust crimes, established a project three years ago to develop data tools to identify suspicious bidding patterns. (See “With the meteoric rise of generative AI, regulators are gearing up to stay competitive”)
As Assistant Attorney General Nicole Argentieri stated in November 2023, given the success of the data analysis, the Department of Justice is “doubling down on these efforts. [it] This is to identify further fraud that may not have been detected otherwise. ” The Department of Justice expects companies to “rise” as well.[] When it comes to data analysis, it’s their game,” she added.
Assistant Attorney General Argentieri's comments and the actions of the SEC and Department of Justice send a clear message to companies. The tools and techniques used by regulators should be reflected in a company's compliance program.
The importance of deploying these tools is further heightened by the Department of Justice's emphasis on the role of voluntary self-disclosure of potential corporate wrongdoing in 2022 and beyond. New technologies can help uncover potential fraud and self-disclose before the government does, while demonstrating a company's commitment to strict compliance. In both cases, companies can take credit if the Justice Department seeks to impose penalties.
Internal compliance: The rise of SupTech
Supervision technology (SupTech) is a machine learning technology that reduces the burden of complying with or overseeing compliance with regulatory requirements and is revolutionizing compliance.
The ability to manage and analyze data is the foundation of an effective compliance program. Look no further than the Department of Justice's Criminal Division's Evaluation of Corporate Compliance Programs. The report asks prosecutors to assess whether their compliance programs are “based on continued access to cross-functional operational data and information.”
In the context of settlement negotiations, governments are likely to give credit to companies that use data analytics. For example, in a recent settlement regarding potential Foreign Corrupt Practices Act (FCPA) violations, the Department of Justice took a positive view of the company's use of data analytics to monitor and measure the effectiveness of its compliance program. said Assistant Attorney General Argentieri.
Potential strategic approaches to compliance
SupTech is not just about discovering potential fraud. It will also be part of what regulators expect from a robust compliance program. There are many vendors who develop these types of tools, which can be implemented using a company's existing data sources.
Strategies that companies may consider adopting include:
- Predictive compliance analysis. Developing predictive models to predict compliance risks allows businesses to proactively address potential issues. In the event of a government investigation, these models can serve as evidence of a data-driven, diligent approach to compliance and potentially reduce penalties. These tools can continually assess and update the risk profile of a variety of company activities, from foreign transactions to procurement processes, and can help identify patterns like the ones the Department of Justice's Procurement Collusion Strike Force is looking for. Masu. Developing such tools allows for pre-emptive action.
- Real-time compliance dashboard. By adopting AI-driven dashboards for continuous compliance monitoring, businesses can quickly identify and remediate potential violations. This feature also demonstrates our ongoing real-time commitment to compliance integrity.
- AI-powered whistleblowing system. A sophisticated platform that accepts whistleblower complaints, prioritizes and anonymizes reports will not only encourage a culture of honesty, but will also enable early detection of issues and self-reporting to regulators, allowing for faster investigation. It can lead to great collaborative achievements.
- Manage regulatory change with AI. AI systems specialized in tracking and analyzing regulatory changes can help businesses stay ahead of compliance requirements. Demonstrating to regulators that your company has a dynamic and responsive compliance program can give you an advantage during an investigation.
Survive investigations with technology-driven compliance
In the event of a government investigation, companies can use AI tools to determine early on if there is a problem. Such tools can process vast amounts of data at a speed and depth not possible with human investigators. For example, the technology can sift through years of transaction data to identify anomalies that could indicate irregular payments, such as bribes or fraudulent spending.
By learning from historical data, these systems can flag transactions that deviate from established patterns within hours rather than weeks.
AI tools can also analyze vast repositories of emails, documents, and text messages to predict their relevance to an ongoing investigation. Using natural language processing (NLP) techniques, AI can also understand the context of communications, filter out irrelevant information, and highlight material that may indicate non-compliance.
This targeted approach allows companies to efficiently allocate resources, consider and analyze the most pertinent data, and obtain preliminary answers to threshold questions.
Limitations
Despite the obvious benefits, integrating new technology into existing systems presents significant challenges, including compatibility issues and the need for adequate training and change management. Businesses must also ensure that the technology they deploy complies with applicable laws, including data privacy laws.
Deputy Attorney General Lisa Monaco also commented in March 2024: Considering the heavy use of AI, “prosecutors 1711481366 Assess your company's ability to manage AI-related risks as part of your overall compliance efforts. ” The Department of Justice is still developing policy on AI and will begin holding meetings with stakeholders in an effort it calls “AI for Justice.” Additionally, Justice Department prosecutors may seek harsher penalties for misconduct related to AI technology, she said in a separate speech.
Models created by humans also have risks. For example, the underlying code may be outdated, or typos in the code may set unnecessary parameters or limits. As a result, human oversight and ownership remain important. Additionally, regulators can be expected to scrutinize compliance program algorithms and models in the event of an investigation.
Proactive attitude toward compliance
As advanced technology leverages regulatory oversight, the role of technology in compliance is moving from an auxiliary tool to a central pillar of corporate governance.
By integrating advanced technology solutions, companies can not only strengthen their ability to comply with regulations, but also be better positioned in the event of a regulatory investigation. Through early detection, self-reporting, and transparent demonstration of compliance efforts, companies can more effectively navigate complex investigations, potentially securing cooperation and influencing regulatory outcomes. You can give.
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