Artificial Intelligence ("AI") is no longer a futuristic concept – it is already reshaping how businesses manage legal and compliance responsibilities. From faster contract reviews to real-time risk monitoring, AI appears to offer remarkable advantages.
But AI also introduces complex legal, regulatory, and ethical challenges. Companies must now navigate a rapidly changing environment where AI use can increase business hazards; legal and compliance violations; litigation exposure; and reputational harm.
As trusted advisors to general counsel, compliance officers, and business leaders, we help clients anticipate these risks – and leverage AI responsibly.
In Part 1, we:
- Outline strategies to employ AI in Legal and Compliance Departments.
- Review risks involved with AI use.
- Consider the evolving legal and regulatory framework around AI.
In Part 2, we'll show how companies can develop practical AI governance frameworks to strengthen their legal risk management and build trust with regulators, customers, and employees in an AI-driven world.
Here's what your organization needs to know:
AI in Legal Functions: Speed and Strategy
Legal departments are leveraging AI in ways that would have been unthinkable a few years ago. Some key applications include:
- Contract Analysis and Management
AI-driven tools can analyze, draft, and negotiate contracts faster and more consistently. They can highlight risk clauses, suggest alternative language, and reduce negotiation time, improving efficiency, consistency, and risk mitigation. - Legal Research and Case Predictions
AI tools now scan millions of documents and cases in seconds, helping in-house counsel and law firms more accurately predict legal outcomes and craft stronger strategies. - E-Discovery Automation
In litigation, AI accelerates the discovery process by categorizing vast document sets and flagging key evidence early, reducing costs and human error.
AI in Compliance Programs: From Reactive to Proactive
Compliance functions are also evolving with AI's help:
- Third-Party Screening and Due Diligence
AI enables faster, broader screening of vendors, partners, and customers, helping companies detect sanctions risks, reputational issues, and legal red flags early in the onboarding process. - Real-Time Monitoring and Alerts
Instead of relying solely on audits and after-the-fact investigations, companies can use AI to monitor transactions and employee behavior in real time, identifying potential misconduct or compliance breaches before they escalate. - Keeping Pace with Regulatory Change
AI tools track regulatory developments across jurisdictions, helping compliance teams adjust policies and controls promptly in response to new laws and enforcement trends.
Top Legal, Ethical, and Operational Risks
AI also brings legal and ethical risks to companies:
- Bias and Discrimination
If trained on biased historical data, an AI model can perpetuate discrimination in hiring, promotions, customer service, service delivery, and even regulatory enforcement. Regulatory agencies worldwide are increasingly scrutinizing algorithmic fairness. - Data Privacy, Security, and Legal
Privilege
AI systems require significant volumes of data, raising serious data protection concerns. Improper use can lead to violations of GDPR, U.S. state privacy laws, and industry-specific regulations. Perhaps more importantly, AI systems generally do not qualify for attorney-client privilege; use of a public AI model could result in unintentionally waiving privilege. - Transparency and Accountability
Many AI models operate as "black boxes," making it difficult to explain or defend outputs. This lack of transparency can complicate regulatory compliance, internal investigations, and litigation defense. - Vendor Risks
AI vendors may use opaque algorithms or store data insecurely. It is essential to vet third-party AI tools for transparency, fairness, and security.
What's Coming Next?
As with many "new" technologies, AI is advancing faster than the legal and regulatory framework that governs it. However, this is beginning to change:
In 2024 and 2025 alone, we've seen:
- The U.S. Executive Order on AI, emphasizing safety, fairness, and privacy standards for AI systems.
- The European Union's AI Act, creating new compliance obligations for companies using AI across industries.
- A wave of new ethics opinions, enforcement actions, and lawsuits challenging AI use in employment, advertising, financial services, and other sectors.
Companies should expect greater scrutiny, more regulation, and heightened litigation risk related to AI in the coming years.
What to Expect in Part 2
Part 1 is about getting your attention. We dove briefly into the risks and benefits of AI.
What is undeniable is that AI is here to stay. In Part 2, we show how to react proactively: how to design policies and frameworks, reduce and manage risk, and align innovation with integrity.
Stay tuned.
To read part 2, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
