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The Era Of e-Discovery

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The Era Of e-Discovery

By Pathay Singh on 05/17/17

E-discovery is big business across the globe. According to research firm Global Industry Analysts, the worldwide e-discovery market is expected to be worth $11.6 billion by 2020, with much of the growth coming from Asia Pacific. Between 2015 and 2020, the region is expected to have a compound annual growth rate of 22.5 percent, making it the fastest in the world.

The rise of technology in the workplace is one obvious reason for the e-discovery boom. More and more data are now being stored electronically, including on networks and servers, and companies need special tools and expert advice on how to transfer, process and analyse terabytes of information without losing data integrity.

For many e-discovery software and service providers in Asia, the main growth drivers have been investigations and other compliance-related concerns. And according to FTI Consulting, it is seeing a corresponding increase of e-discovery projects stemming from those issues.

“Anti-corruption investigations, including those driven by the U.S. Foreign Corrupt Practices Act (FCPA), other regulatory inquiries and internal compliance or corruption reviews are common issues our clients are dealing with,” says Akiko Miyake, senior director in FTI Consulting’s technology practice.

Armed with heavy penalties, regulators have been extra vigilant, and companies under scrutiny, particularly financial institutions, have turned to e-discovery to assist investigations. “For example, it could be the aftermath of an internal investigation of an alleged compliance breach where there is a need for voluntary self-disclosure made to the regulatory authority. The company would need to go the extra mile to ensure appropriate remedial actions have been taken to address the problems identified,” explains Fred Chan, director of global legal technology solutions at Navigant.

“This has been the key driver for the demand of related professional services in the past decade. We all witnessed those high profile investigations with substantial fines imposed by the regulatory bodies in overseas.”

CASE STUDIES: ZTE AND JPMORGAN

One such high-profile investigation was of Chinese telecoms equipment group ZTE. In March last year, ZTE was hit with some of the toughest-ever U.S. export restrictions for allegedly breaking sanctions against Iran by selling products with U.S. technology in the Middle Eastern country.

In November, ZTE announced it has appointed a new chief export compliance officer and legal counsel based in the U.S. Then last month, the company pleaded guilty to violating sanctions on Iran and agreed to pay nearly $900 million. It also agreed to an additional penalty of $300 million that will be suspended during the seven-year term, on the condition that ZTE complies with requirements in the agreement.

ZTE said it slid to a preliminary net loss of 2.36 billion yuan ($342 million) in 2016, its first loss in four years, due to the settlement. But without the fine, it would have logged 3.8 billion yuan in profit, 18 percent higher than a year earlier.

“The penalty was extraordinary, and ZTE is not a financial institution, but a technology company selling products globally,” observes Chan. “I think there are growth drivers for both ways. One is the investigations initiated by the regulatory bodies, while on the other side is the need for companies to resolve issues identified from its internal review process and going the extra mile to gather enough information for investigations and self-reporting purpose.”

That said, financial institutions are usually more prone to be a target of investigations and have made headlines in the past few years. A well-known example is JPMorgan’s infamous “Sons and Daughters” programme in 2013.

U.S. authorities said JPMorgan’s Asia unit created an elaborate programme that allowed clients and influential government officials to recommend potential hires. Those candidates received preferential treatment, bypassing JPMorgan’s normal recruitment practices, according to the U.S. Securities and Exchange Commission (SEC).

Between 2006 and 2013, JPMorgan hired around 200 interns and full-term employees at the request of its Asia clients, as well as Chinese officials at state-owned companies, reported Reuters.

Those state-owned companies brought JPMorgan more than $100 million in revenue, the SEC said. “We’ve seen a lot of projects over the years that are cross-border driven, where international banks have been involved in an investigation into local business practice,” says Tanya Gross, director of global legal technology solutions at Navigant.

“We worked on a matter for a financial services company that was similar to the investigation into JPMorgan’s ‘Sons and Daughters’ programme, where three were custodians involved in Singapore, Hong Kong and South Korea,” she shares. “It was centred around compliance and we have seen other instances happening in Asia – this can be attributed to the nature and the culture of how business deals are made.”

TRENDS AND CHALLENGES

Asia’s financial hub Hong Kong is a lightning rod for investigations by securities regulators. In September last year, HSBC was fined HK$2.5 million ($322,294) by Hong Kong’s securities regulator for regulatory breaches and internal control failings related to its position in the futures and options contract market. Just last month, Bank of Communications’ Hong Kong investment banking unit was fined HK$15 million ($1.93 million) by the city’s securities regulator for due diligence failures related to China Huinong Capital Group.

Despite this, demand for e-discovery in Asia is highest in China. As Asia’s largest economy, China would naturally have a high number of investigations. But apart from that, the country’s State Secrets Act, whereby viewing a document outside its borders is considered a breach of the law, is also a contributing factor.

“The data can’t be moved to another location due to restrictions on cross-border data transfer, so it needs to stay in the country,” says Gross. “China is a great example for the state secrecy side. Because to collect any information from China, it needs to be reviewed in a way that local counsel has to analyse the information first before it can be moved out of the country.”

E-discovery is also popular in other East Asian countries Korea and Japan because of stringent legal restrictions on cross-border  data transfer. And while similar laws in Hong Kong and Singapore are more relaxed, there is a big demand from their financial service sectors, adds Chan.

Despite these observable patterns, e-discovery trends are hard to characterise in broad strokes. “There is little consistency between countries,” points out Karen Chon, director of business development at FTI Consulting.

She continues: “We’ve seen a lot of litigation and antitrust matters in Japan and Korea, whereas internal investigations are much more common in China and Southeast Asia. Banking disputes and regulatory investigations continue to make up large portion of e-discovery work in Hong Kong and Singapore. However, government and regulatory investigations seem to make up many of the larger matters we see in Asia.”

Another trend is the necessity of reviewing documents in multiple languages, which can cause problems even for “the most sophisticated legal departments with fine-tuned e-discovery processes,” says Chon. Technological advances in the industry aside, she cites the importance of “experience with advanced and customised workflows” in handling the complexity of such reviews.

Moreover, the relative newness of e-discovery in Asia can be an obstacle in itself, notes Navigant’s Chan. “In general, Asian companies do not have the same level of understanding, education or knowledge that we’ve seen in the U.S. and UK. And from a cost perspective, they tend to be highly cost-conscious, which is part of Asian corporate culture.”

Companies in Asia also tend to use their in-house teams, assuming that they are capable of handling the data-collection process, which is often regarded as a simple task. What they don’t realise, however, is that data collection “is a forensic process that requires highly specialised skills, training and experience,” stresses Chan. “It’s a misunderstanding of the technical process involved, and the general IT personnel and in-house team may not have a good understanding of the legal implications and data integrity requirements.”

Managing data-privacy laws and confidentiality concerns is another challenge in Asia. “This is why it is so important for legal teams to keep data in-country until all the potential data-protection risks are addressed, and involve local experts that can guide this sensitive process,” says FTI’s Miyake. “We have teams of consultants across the region that have expertise in understanding the varying laws as well as fluency in the range of languages that come into play during e-discovery.”

Moreover, creating proprietary systems and software as well as encrypting data are common among companies in Asia, and such practices add further complexity to the types of data that need to be collected and reviewed for e-discovery.

“These issues often defeat traditional collection and review tools and strategies. They must be addressed through advanced software and workflows designed specifically to handle them,” Miyake says.

The continued reliance on linear reviews in Asia can also be a hurdle. This conventional approach is extremely time-consuming and expensive, and can lead to either under-collection or over-collection during e-discovery.

“We spend a lot of time working with clients to help educate them about the process and how analytic review works, as well as to reassure them that the technology is secure, accurate and more cost-effective than the alternatives.” explains Miyake. “The issue of cost in e-discovery is top of mind for companies in Asia, and it is important for them to understand the approaches that will contain their e-discovery budgets.”

CROWDED MARKET

As demand for e-discovery in Asia soars, so has the number of e-discovery software and service providers. Though many offer similar products and services, it’s the people in their roster that distinguishes them from each other.

“We are a long-established leader in e-discovery with a strong presence and data centres across Asia,” says FTI’s Chon. “Our localisation in this region ensures that we have access to the top consultants who understand the language, legal nuances and Asian culture. It also bolsters our relationships with legal review teams that are qualified for multi-language document review.”

Navigant’s Gross is particularly proud of the firm’s global consistency. “We believe we’re unique in that way. We transfer knowledge across the team, and we want our business to have consistency in all regions we’re in – that gives us seamless deliverables to our clients,” she says. “It allows us to prepare information that clients need as soon as possible, and we adopted a ‘Follow the Sun’ workflow, where resources all across different regions touching that data and getting it prepared.” 

With investigations in Asia not stopping anytime soon, companies will continue to need help from e-discovery software and service providers in analysing and processing vast volumes of data so their response to regulators is not only timely but also appropriate.

Source: ALB