The Role of AI in Due Diligence: Key Benefits and Applications

You're about to finalize a deal, and a new contract revision lands in your inbox. You must ensure that all clauses align with previous agreements and contain no hidden risks.

What if you could instantly review that contract in seconds with artificial intelligence (AI)?

AI in due diligence is becoming standard in the legal industry, as it significantly reduces the manual workload associated with legal tasks. Here’s how legal professionals like you are using AI tools to streamline their due diligence workflows.

Key Applications of AI in Due Diligence

AI is revolutionizing due diligence across legal, financial, and regulatory sectors by significantly enhancing speed, consistency, and depth. It enables professionals to efficiently and accurately process vast amounts of data, making it invaluable for high-stakes transactions like mergers, acquisitions, and major investments. AI's strengths lie in its ability to recognize patterns, understand context, and detect anomalies.

Below are some of the most impactful applications of AI in the due diligence process:

1. Automating Document Review

Traditionally, due diligence may require you to spend hours reviewing documents, contracts, and financial reports. AI algorithms can now automate document review tasks, making them faster, more accurate, and highly scalable.

For example, Spellbook, an AI-powered tool for lawyers, can:

• Quickly analyze contracts and flag potential risks.
• Ensures compliance with legal and industry standards, regulatory requirements, and corporate policies.
• Highlights missing protections that may lead to future problems.

The image above illustrates how Spellbook identifies potential risks and suggests solutions to address them.

When you leverage AI tools for due diligence, you reduce your manual workload while ensuring that you meet legal obligations and deadlines.

2. Risk Identification and Analysis

A single overlooked clause can result in significant liabilities. A company can lose millions in lawsuits over a vague indemnity clause that no one caught during due diligence.

AI tools can now identify high-risk clauses, including data privacy gaps, indemnification terms, and termination clauses. For example, Deloitte implemented AI and machine learning to power its acquisition analysis platform. They could then more easily organize and analyze massive amounts of data with greater speed and accuracy. 

“Before AI appeared, lawyers reviewed 50-100 documents per hour. But with the help of AI, it can reach 3000 copies per hour.” 

– Losey, Ralph, et al., from Combination of Artificial Intelligence with Mergers and Acquisitions by He Wang and You Zhou. BCP Business & Management. Volume 39 (2023).

Deloitte is also developing an AI-driven mergers and acquisitions (M&A) market perception platform that can help track market trends, spot transaction insights, and identify risks and opportunities much faster.

Spellbook brings this same level of AI-powered precision directly into the contract workflows of legal professionals. Integrated into Microsoft Word, Spellbook flags high-risk contract elements, such as one-sided termination clauses or missing GDPR-related language, based on built-in playbooks, templates, and benchmarks.

This is just one way AI assistance can make legal work more straightforward and efficient for everybody.

3. Compliance Checks

Complying with every regulatory requirement, including GDPR, CCPA, and SEC rules, can be challenging, especially when reviewing documents manually. 

AI tools help ensure alignment with regulatory requirements by identifying non-compliant contract clauses in seconds. In one study, researchers found that AI can review data processing agreements for GDPR compliance with accuracy rates of 86.7% and 89.7% using pre-trained language models. AI isn’t perfect, but it can accomplish most of the job and help ensure that you include the appropriate clauses in your agreements.

AI-driven compliance tools not only expedite document review but also enhance accuracy, significantly reducing the risk of human error, especially in high-stakes legal transactions. Think of it as a regulatory watchdog, continuously scanning agreements to make sure they meet legal standards. 

4. Streamlining Cross-Border Due Diligence

International transactions often involve multiple jurisdictions, each with its own regulatory requirements. AI tools simplify cross-border compliance by evaluating contracts against each jurisdiction’s local laws to ensure compliance in every region.

Using comprehensive, legally specific contract tools, such as Spellbook, optimizes AI system efficiency by enabling cross-border compliance through area-specific contract reviews. Simply add each location in the ‘Jurisdiction’ section, as shown in the image below.

After you input the jurisdiction, Spellbook automatically compares your documents based on the relevant jurisdiction standards.

Spellbook can also automatically benchmark contract terms against industry standards to keep you a step ahead in all aspects of your work.

Benefits of Automated Due Diligence with AI

Imagine you’re conducting due diligence on a high-stakes acquisition, and you’re manually reviewing hundreds of contracts one by one. You’ve been at it for weeks, but you’re still not done. This delays the deal’s execution. 

In contrast, when you conduct legal due diligence with AI, you:

• Reduce manual work to accelerate deal closings and save time.
• Minimize human error due to improved accuracy.
• Optimize decision-making with AI-driven insights.
• Reduce costs by automating time-consuming tasks.

Note: Legal professionals must validate the accuracy of AI results. Double-check the responses AI gives you. 

How Lawyers Can Use Spellbook for Due Diligence

There are many free online AI tools for lawyers. However, you should also conduct due diligence before choosing which AI software to use. Steps to do so include:

• Identify potential risks associated with an AI tool before implementing it.
• Evaluate the reliability of its AI algorithms.
• Assess the impact on data privacy, particularly when using free online tools.
• Audit the AI model's performance to determine if it can truly accelerate legal work.

But how can you check each aspect and ensure an AI tool is effective and safe? The solution is to use a reliable platform that’s secure and made specifically for lawyers.

Spellbook is a legal AI contract review and drafting software that accelerates due diligence. It can review and analyze legal documents with AI-powered risk assessment and compliance verification. 

The Spellbook team monitors AI bias and fairness to ensure you benchmark your client in the right direction. This chart compares Spellbook to basic free AI tools (e.g., ChatGPT):

Put simply, Spellbook makes legal work faster, more reliable, and less risky compared to online AI tools that may not be secure or reliable and are not trained for legal work.

Want to see how Spellbook can conduct due diligence for you? Schedule a free demo today.

Key Takeaways

• AI helps you save significant time and effort compared to manually conducting legal due diligence.
• You can enhance accuracy, ensure multi-jurisdictional regulatory compliance, and receive automated risk assessments with the help of AI.
• Premium legal tools such as Spellbook help you conduct legal due diligence without worrying about security, bias, or accuracy.

Frequently Asked Questions

Can AI Predict Risks in Due Diligence Accurately?

Yes, AI can accurately predict risks in due diligence, provided that you use tools specifically designed for lawyers and double-check their responses. While AI is a valuable aid in predicting risks and improving efficiency, human oversight remains essential for ensuring that the predictions are accurate and contextually appropriate.

What Limitations Should I Consider When Using AI for Due Diligence?

While AI for due diligence is very helpful, it may not be 100% correct at all times. There may be instances where AI tools may misinterpret complex legal language due to a lack of contextual understanding. Complement AI with human expertise to achieve optimal results. 

Are AI-Driven Due Diligence Insights Trustworthy?

Yes, legal AI tools can provide highly reliable insights when trained on accurate legal data and benchmarked against legal standards. Spellbook cross-references contracts and their attachments, identifies potential risks and opportunities, and ensures jurisdictional compliance to give you trustworthy insights.