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Common Law Firm Compliance Challenges

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Giovanni Gallo
Govanni Gallo is the Co-CEO of Ethico, where his team strives to make the world a better workplace with compliance hotline services, sanction and license monitoring, and workforce eLearning software and services. Growing up as the son of a Cuban refugee in an entrepreneurial family taught Gio how servanthood and deep care for employees can make a thriving business a platform for positive change in the world. He built on that through experience with startups and multinational organizations so ComplianceLine’s solutions can empower caring leaders to build strong cultures for the betterment of every employee and their community. When he’s not working, Gio’s wrangling his four young kids, riding his motorcycle, and supporting education, families, and the homeless in the Charlotte community.

With a mountain of regulatory requirements riding on their backs, law firms have a bigger obligation to maintain compliance than any other type of business. The nature of the legal profession requires adhering to stringent standards, which can sometimes be very challenging for legal professionals. For instance, lawyers facilitate financial transactions in a variety of jurisdictions, which can leave their firms vulnerable to accusations of money laundering.

The downfall of Dewey & LeBoeuf in 2012 set a stark example of how poorly managed compliance challenges could bring even the biggest legal giants in the history to ground. Compliance risks are further intensified given the fact that regulations change at a breakneck speed, not to mention the difficulty of decoding compliance processing, especially due to the lack of robust compliance technology.

Ultimately, the consequences of noncompliance unfold in the form of financial, legal, and reputational damages, and in cases like that of Dewey & LeBoeuf, a full-blown company shut-down. Here, we navigate six common compliance challenges law firms face and the steps that can be taken to mitigate compliance risks.

Conflicts of Interest

Conflicts of interest, an issue most law firms face, can come with serious legal, financial, reputational, and ethical repercussions. Imagine a scenario where a law firm faces a dispute involving two longtime clients or where a firm represents two sides of a divorce proceeding. Untangling these situations often requires transparent communication, meticulous screening, and sometimes, even making difficult decisions.

Regulations and Compliance

The legal industry walks on an extensive framework of regulations that are subject to consistent and frequent revisions. In fact, changes in compliance laws and regulations hit law firms ten times as hard as any business in other industries. Staying abreast with these ever-evolving regulations requires law firms to implement comprehensive measures such as running regular audits, incorporating efficient compliance management systems, staying fully updated with changing regulations, and building a robust culture of compliance and ethics to tackle sensitive issues like conflicts of interest.

Technology, Data Privacy, and Cybersecurity

As technology evolves at a breakneck speed, it brings a mountain of compliance challenges linked to cybersecurity and data privacy. With oceans of sensitive client information to manage, law firms often walk on thin ice, and if a data breach unfolds, the outcome can severely damage a firm’s reputation and bottom line. Overcoming challenges linked to evolving technology requires law firms to ensure confidentiality, fully adhere to data privacy regulations, and implement robust cybersecurity measures.

Money Laundering

Money laundering is another debilitating challenge that arises when law firms provide legal services to businesses across various industries. Turning a blind eye to instances of money laundering or mishandling of such a scenario can lead to both financial and reputational losses. Mitigating this requires law firms to implement strict AML (anti-money laundering) policies and procedures and monitor every transaction to erase any discrepancies in transactions. People within the firm must also be trained to spot and report suspicious activities to minimize this risk.

Onboarding and Ongoing Training

Many law firms become vulnerable to regulatory fines simply because their teams are not trained well in matters of compliance and ethics.

As with any business, maintaining compliance requires a solid training framework. New hires must receive training during onboarding to not only understand the policies, procedures, and ethical obligations of law firms but also have an overall understanding of the compliance landscape governing the legal industry.

Training shouldn’t be a once-and-done affair. Instead, it should be offered consistently throughout an employee’s lifecycle. What’s more, the training you offer must be engaging enough for both your new hires and existing team members, so they can retain what they learn and implement their knowledge when ethical dilemmas or sensitive compliance scenarios knock at their doors.

Communication

From communicating potent conflicts of interest with clients to disclosing legal risks when managing a case – clear and transparent communication is vital to mitigate compliance risks. Law firms that don’t have a solid communication framework may even risk a lack of trust and continued misunderstandings within the workplace. Law firms must also build a culture of transparency and communication to ensure their people speak up without any fear of retaliation.

What Law Firms Can Do to Overcome Compliance Pitfalls

Overcoming compliance pitfalls is critical for law firms to stay afloat in an ever-evolving regulatory landscape. From staying on top of regulations to building a culture of ethics and compliance, here are a few compliance best practices that law firms must focus on:

  • Invest in training (both onboarding and ongoing). In most cases, ethical lapses and instances of non-compliance emerge when legal teams aren’t fully trained in matters of compliance. While you may have an existing framework for training, your people will only retain their learning if they fully engage in it. Compliance training software can help with engagement and retention. It is equally important to ensure your training is full of real-world scenarios, comprehensive case studies, gamification, videos and images, and other interesting elements. Remember, training is not a once-and-done affair. For your legal teams to stay fully in touch with your compliance policies and procedures, make sure your training remains ongoing throughout the lifecycle of your team members. 
  • Incorporate a robust compliance management solution. This ensures you have a centralized compliance system that keeps track of changing regulations in real-time, offers insights into the way your compliance program performs, and eliminates all administrative tasks prone to human error, so your teams can shift their focus to strategic decision-making instead.
  • Conduct thorough due diligence. Your law firm becomes vulnerable to AML risk each time it takes on a new client. To prevent these risks from emerging in the future, make sure you conduct proper customer due diligence with every new client. Ensure you get a complete picture of who their clients are and where their revenue comes from.

Parting Thoughts

For law firms, the journey toward compliance and ethics is fraught with challenges. From grappling with the dangers of money laundering to resolving conflicts of interest to managing data security issues – the complex and rapidly evolving regulations governing law firms require a systematic approach, robust training framework, and an efficient compliance management system.

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