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Artificial Intelligence In Legal Fields: Streamlining Compliance And Due Diligence
ARTIFICIAL INTELLIGENCE IN LEGAL FIELDS: STREAMLINING COMPLIANCE AND DUE DILIGENCE
Setyawati Fitrianggraeni, Sri Purnama, Orima Melati Davey
INTRODUCTION
Legal compliance is when a company adheres to the complex rules, policies and procedures that regulate business practices in a particular jurisdiction.[1] Legal due diligence is a thorough examination carried out by a legal consultant on a company or object to obtain information or material facts to determine the condition of a company or transaction object.[2] The growing complexity of legal compliance and due diligence stems from increasingly intricate regulations and a globalised business environment. As regulations evolve and the consequences of non-compliance become more severe, organisations face heightened scrutiny and potential legal risks.
Artificial Intelligence (AI) is revolutionising how businesses conduct legal compliance and due diligence. By leveraging advanced algorithms and machine learning, organisations can automate data analysis, identify potential compliance issues, and assess risks more efficiently.[3] AI tools can quickly sift through vast amounts of information, flagging anomalies and providing insights that would take human teams much longer to uncover. AI due diligence involves using advanced algorithms and machine learning techniques to streamline the assessment process, enhance decision-making, and mitigate risks associated with business transactions.[4] This improves accuracy and allows legal and compliance professionals to focus on strategic decision-making, leading to more effective risk management and regulation adherence. Therefore, this article will discuss how AI can streamline and improve compliance and due diligence tasks.
BENEFITS OF AI IN LEGAL COMPLIANCE AND DUE DILIGENCE
AI is transforming legal compliance and due diligence processes through critical applications that enhance efficiency and accuracy.[5] In that scope, AI will work at least to do automated document review, risk assessment, regulatory monitoring, etc. The magic of AI within the realm of legal compliance unfolds a plethora of advantages. For starters, AI has the potential to increase efficiency significantly. Traditional compliance tasks that used to take teams of legal professionals days or weeks can now be accomplished in a fraction of the time.[6]
One of AI’s key benefits in due diligence is its ability to handle complex datasets and perform predictive analytics, which can help legal professionals anticipate potential issues before they arise. For instance, AI can analyse historical data to predict the likelihood of future legal disputes or regulatory challenges, allowing companies to make more informed decisions during mergers, acquisitions, and other transactions.[7]
AI’s ability to leverage predictive analytics enables organisations to foresee potential risks and implement proactive measures, thereby safeguarding against legal pitfalls. Overall, adopting AI streamlines workflows and empowers legal professionals to make more informed decisions, ultimately leading to a more robust compliance framework.
CHALLENGES OF AI IN LEGAL COMPLIANCE AND DUE DILIGENCE
The use of AI in legal practice raises various legal and ethical issues. The foundational principles of the law governing lawyers and professional responsibility are implicated in the changes brought on by AI tools, including accuracy and accountability, confidentiality, transparency and trust competence supervision, communication, and liability for errors.[8]
Integrating AI technologies with current regulatory compliance systems can be complex and challenging. Many organisations rely on legacy systems and processes that may not easily align with contemporary AI solutions. This integration necessitates substantial investments in technology and infrastructure and adjustments to business processes and workflows.[9]
Furthermore, using AI in legal compliance and due diligence will meet sensitive data, such as confidential data of clients or companies. In this context, sensitive data can encompass names, addresses, and other personal data, as well as performance and disciplinary records when evaluating workforce details. Given this sensitivity, data security emerges as a significant concern when utilising AI systems for operations involving such information. Additionally, there are considerable risks related to hacking incidents, unauthorised access, and the potential misuse of sensitive data.[10]
INDONESIA’S POSITION ON REGULATING AI
The elaboration on Indonesia’s position on AI is significantly related to liability and/or responsibility more than their unique characteristics of AI itself. This is due to the term “AI” not explicitly pronounces as a legal subject in Indonesia’s legislation. Indonesia Interpretation is required to assess whether artificial intelligence (AI) qualifies as a legal entity in Indonesia, as there are currently no specific regulations addressing this issue.[11] To see the relevancy, we must illustrate their influence is sectors. This article will describe Indonesia’s stance on regulation AI according to the Electronic Transaction, Intellectual Property Rights, Financial, and Personal Data Sectors.
One of the most controversial topics on AI is how far does AI intervenes to intellectual property rights especially copyrights. Law No. 28 of 2014 on copyrights regulates on limitation and expectations to copy rights including there are both economic and moral rights that can only be possessed by aween human. Moral rights translate as the right to object actions against the work, while economic rights refer to the benefits obtained from it.[12] The challenge in is how to determine who is responsible when the plagiarism is by an AI. In the future, there must be clear boundaries on AI creators, users, and developers’ responsibilities. Also, there is still a huge debate weather if there is an actual “author” in AI-generated works.
Since AI is a machine-generated work, then it makes sense that most legal occurrence relating to AI is in the electronic transaction field. In this field, Law No. 19 of 2016 on Information and Electronic regulates on privacy and personal data protection on digital technologies user, previously recognized as Law No. 11 on 2008. This law generally regulates on the protection of activities that uses the internet, either to garner information or transaction. In relevance to AI, the Information and Electronic Law does not explicitly use the exact terms of AI however it elaborates the enforcement on certain crime as an impact of AI for example malware. In 2017, two hospitals in Jakarta, Rumah Sakit Harapan Kita and Rumah Sakit Dharmais, experienced an incident of malware infection involving patients’ data encryption and locking computer system, cause the hospital to stop operating.[13] From this case alone we can see that AI without preventive measures in technology could impact negatively.
AI is also spreading in Indonesia’s financial sector seen through various cashless payment and online loans. The rapid digitalization of Indonesia’s financial system has been greatly accelerated by the expanding digital opportunities, fuelled by the swift rise of financial technology (fintech) innovations since 2016. Strongly funded players outside the banking sector, ranging from startups to global tech giants, have developed and replicated various banking-like business models, products, and services. In response, banks have also undergone extensive end-to-end digital transformations.[14] Despite these efforts, consumer and merchant preferences for financial technology services, particularly payment solutions, have continued to grow. This shift is evident in the increasing use of e-money, which has gradually reduced reliance on digital banking for payment transactions. Therefore, In the financial sector, Bank Indonesia Regulation or Peraturan Bank Indonesia (PBI) No. 19/12/PBI/2017 on Digital Finance Innovation regulates on the uses of digital technology in the financial sector. Another regulation that interacts with AI is the Financial Services Authority Regulation or Peraturan Otoritas Jasa Keuangan (POJK) No. 1/POJK. 07/2013 on Consumers Protection on the Financial Service Sector. This regulation emphasizes on consumer rights, data privacy and security, also dispute resolution. Thus POJK 1/2013 foster a secure environment for consumers while at the same time promoting financial institution to be responsible based on the ethical standard.[15] The term AI is not stated in this instrument, but the principles are a foundation for AI in financial services technology to be utilized safely. Below is a matrix on Indonesia’s positive laws regarding AI:
Table Indonesia’s Positive Laws Relating to AI
| No. | Instruments | Provisions | Relevance to AI |
| 1. | Law No. 28/2014 | Article 2 and 5 state that author has economic and moral rights, especially for moral rights they are crucial connection between creators and their work | In relevance to AI, these rights are non-transferable and highlight the distinction between human authorship and machine-generated creations |
| 2. | Law No. 19/2016 | Article 26. states that personal data through electronic media must be transferred by the owner’s consent. In relevance with AI, | There is no significant relevance to AI besides the legal subject’s negligence or intentions to perpetrate this crime |
| 2. | PBI No. 19/12/2017 | Article 1 regulates on the definition of financial technology
Article 3 regulate on financial technology including loan, funding, capital provision, and many more |
The relevance of AI in financial technology is the intense use of Big Data and Internet of Things. |
| 4. | POJK No. 1/POJK.07/2013 | Article 2 regulates on the principles of transparency, fairness, reliability, data security and confidentiality, | Relevancy to AI is that in the use of AI driven financial product, transparency in how algorithms determine credit scores or loan approval must be clear towards customers. |
The table above shows that Indonesia’s position on AI regulation is still far from comprehensive. As mentioned before, there is no legal interpretation on the term “artificial intelligence” itself. This void causes legal uncertainty which is why we see numerous gaps on the instruments above. For example, how to consider AI as an author in the copyright field, how to identify who is reliable in malware crime, who guarantees the data security in financial services technology. Therefore, an urgent law on the usage of AI in Indonesia must immediately be a priority.
Asides from positive laws there are also ethical guidelines on AI usage by numerous institution and organizations in Indonesia, amongst them are National Commission on Human Rights or Komisi Nasional Hak Asasi Manusia (Komnas HAM), Indonesian Association on Retail Entrepreneur or Asosiasi Pengusaha Ritel Indonesia (Aprindo), and Financial and Development Supervisory Agency or Badan Pengawasan Keuangan dan Pembangunan (BPKP). OJK also released an ethical code called “Kecerdasan Buatan Artificial Intelligence/AI) yang bertanggung jawab dan terpercaya di Industri Teknologi Finansial. This guidelines desccribes on key principles of responsible and trustworthy AI which are based on Pancasile, beneficial, fair and accountable, transparent and explicable, and robustness and security.
CONCLUSIONS
In conclusion, integrating of AI in legal compliance and due diligence represents a significant advancement in how organisations navigate the complexities of regulatory frameworks. AI enhances efficiency, accuracy, and decision-making capabilities, allowing legal professionals to automate time-consuming tasks and focus on strategic initiatives. However, this transformation is not without its challenges. Organisations must address issues related to data security, integration with legacy systems, and ethical considerations surrounding the use of AI. As the legal landscape continues to evolve, embracing AI technologies will be essential for organisations seeking to mitigate risks and ensure compliance in an increasingly complex environment. Businesses can leverage AI to enhance compliance and achieve a more robust and resilient legal framework by carefully balancing the benefits and challenges. Moreover, Indonesia lacks comprehensive AI regulations, leading to legal uncertainties in key areas like copyright, cybersecurity, and data protection. There is no clear definition of AI in law, making it unclear who is responsible for AI-generated content or crimes, and how data security is handled in financial technology. Urgent legal reforms are needed to define AI’s role across sectors, including electronic transactions, intellectual property, finance, and personal data.
REFERENCES
Journals
Anum Shahid, “Transforming Legal Practice: The Role of AI in Modern Law”, Journal of Strategic Policy and Global Affairs, 4(1): December 2023.
Ebube Victor Emeihe, “The impact of artificial intelligence on regulatory compliance in the oil and gas industry”, International Journal of Life Science Research Archive, 07 (1): 2024.
Mochammad Tanzil Multazam, et.al., “Standards for conducting legal due diligence: Current developments”, Indonesian Journal of Law and Economics Review, 15: May 2022.
Orima Melati Davey, Levin Sauerwein, “Deepfake in Online Cases: The Haze of Artificial Intelligence’s Accountability Based on the International Law”, Sriwijaya Crimen and Legal Studies, (01)2:2023.
Koko Srimulyo, Yula Anggtiani, Faizal Kurniawan, “The Utilization of Access Management to Digital Collections: Requirements and Challenges by Law”, Jurnal Hukum UNISSULA, 40(1):2024.
Donovan Typhano Rachmadie, Supanto, “Regulasi Penyimpangan Artificial Intelligence pada Tindak Pidana Malware Berdasarkan Undang-Undang Republik Indonesia Nomor 19 tahun 2016”, Recidive, 09(2):2020.
Yustisiana Susila Atmaja, Darminto Hartono Paulus, “Partisipasi Bank Indonesia dalam Pengaturan Digitalisasi Sistem Pembayaran Indonesia”, Jurnal Masalah-Masalah Hukum, 51(3):2022.
Alexander Salim, Hono Sejati, Tri Susilowati, “Legal Protection for Consumers for Personal Data in the Use of Financial Technology”, UNES LAW Review, 06(4):2024.
Others
British Institute of International and Comparative Law, “Use of Artificial Intelligence in Legal Practice”, https://www.biicl.org/documents/170_use_of_artificial_intelligence_in_legal_practice_final.pdf accessed dated 24 September 2024.
Jessica Donohue, “What is legal compliance?”, Diligent, https://www.diligent.com/resources/blog/steps-evaluating-legal-compliance accessed dated 23 September 2024.
LeewayHertz, “AI for due diligence: Applications, benefits, solution and Implementation”, https://www.leewayhertz.com/ai-in-due-diligence/ accessed 23 September 2024.
Nn, “AI’s Role in the Future of Legal Due Diligence”, AI Law – International Review of Artificial Intelligence Law, https://www.reviewofailaw.com/Tool/Evidenza/Single/view_html?id_evidenza=1020 accessed 23 September 2024.
Saida Abbasli, “Enhancing Due Diligence While Upholding Compliance: An Analysis of AI Integration in the Context of Mergers and Acquisitions and its Compatibility with the EU AI Act”, Master Thesis Lund University, 2024, chrome https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9155896&fileOId=9155897 accessed dated 24 September 2024.
Stephen Amell, “AI in Due Diligence: Revolutionizing the Assessment Process”, Medium, https://medium.com/@iamamellstephen/ai-in-due-diligence-revolutionizing-the-assessment-process-a1c25e9fbe9c accessed dated 23 September 2024.
Swapnish Khanolkar, “Beyond The Hype: Real-World Use of AI in Legal Compliance”, GS, https://www.gitselect.com/post/beyond-the-hype-real-world-use-of-ai-in-legal-compliance accessed 23 September 2024.
[1] Jessica Donohue, “What is legal compliance?”, Diligent, https://www.diligent.com/resources/blog/steps-evaluating-legal-compliance accessed dated 23 September 2024.
[2] Mochammad Tanzil Multazam, et.al., “Standards for conducting legal due diligence: Current developments”, Indonesian Journal of Law and Economics Review, 15: May 2022, p. 7.
[3] Anum Shahid, “Transforming Legal Practice: The Role of AI in Modern Law”, Journal of Strategic Policy and Global Affairs, 4(1): December 2023, p. 37-38.
[4] Stephen Amell, “AI in Due Diligence: Revolutionizing the Assessment Process”, Medium, https://medium.com/@iamamellstephen/ai-in-due-diligence-revolutionizing-the-assessment-process-a1c25e9fbe9c accessed dated 23 September 2024.
[5] LeewayHertz, “AI for due diligence: Applications, benefits, solution and Implementation”, https://www.leewayhertz.com/ai-in-due-diligence/ accessed 23 September 2024.
[6] Swapnish Khanolkar, “Beyond The Hype: Real-World Use of AI in Legal Compliance”, GS, https://www.gitselect.com/post/beyond-the-hype-real-world-use-of-ai-in-legal-compliance accessed 23 September 2024.
[7] Nn, “AI’s Role in the Future of Legal Due Diligence”,AI Law – International Review of Artificial Intelligence Law, https://www.reviewofailaw.com/Tool/Evidenza/Single/view_html?id_evidenza=1020 accessed 23 September 2024.
[8] British Institute of International and Comparative Law, “Use of Artificial Intelligence in Legal Practice”, https://www.biicl.org/documents/170_use_of_artificial_intelligence_in_legal_practice_final.pdf accessed dated 24 September 2024.
[9] Ebube Victor Emeihe, “The impact of artificial intelligence on regulatory compliance in the oil and gas industry”, International Journal of Life Science Research Archive, 07 (1): 2024, p. 34.
[10] Saida Abbasli, “Enhancing Due Diligence While Upholding Compliance: An Analysis of AI Integration in the Context of Mergers and Acquisitions and its Compatibility with the EU AI Act”, Master Thesis Lund University, 2024, chrome https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9155896&fileOId=9155897 accessed dated 24 September 2024.
[11] Orima Melati Davey, Levin Sauerwein, “Deepfake in Online Cases: The Haze of Artificial Intelligence’s Accountability Based on the International Law”, Sriwijaya Crimen and Legal Studies, (01)2:2023:p.94.
[12] Koko Srimulyo, Yula Anggtiani, Faizal Kurniawan, “The Utilization of Access Management to Digital Collections: Requirements and Challenges by Law”, Jurnal Hukum UNISSULA, 40(1):2024, p.210.
[13] Donovan Typhano Rachmadie, Supanto, “Regulasi Penyimpangan Artificial Intelligence pada Tindak Pidana Malware Berdasarkan Undang-Undang Republik Indonesia Nomor 19 tahun 2016”, Recidive, 09(2):2020, p.130.
[14] Yustisiana Susila Atmaja, Darminto Hartono Paulus, “Partisipasi Bank Indonesia dalam Pengaturan Digitalisasi Sistem Pembayaran Indonesia”, Jurnal Masalah-Masalah Hukum, 51(3):2022, p. 276.
[15] Alexander Salim, Hono Sejati, Tri Susilowati, “Legal Protection for Consumers for Personal Data in the Use of Financial Technology”, UNES LAW Review, 06(4):2024, p. 11431.
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