AI Washing Erodes Consumer and Investor Trust, Raises Legal Risk

AI washing, or the use of false and misleading statements about artificial intelligence, has risen to a level that has prompted the government to act. Businesses interested in AI must balance their enthusiasm with careful attention to their public claims.

Securities and Exchange Commission Chair Gary Gensler first warned against AI washing in December 2023, likening it to greenwashing—an accusation levied against companies suspected of exaggerating their sustainability efforts. He affirmed that AI claims are subject to the same laws governing all public disclosures: They must be accurate.

The SEC backed those words with action. The commission in March fined two investment advisers $400,000 for AI washing, the first instance of regulatory consequences against the practice in the US.

Other regulators are getting on board. The Federal Trade Commission in September announced “Operation AI Comply,” beginning with five settlements involving deceptive AI claims, and warned it would continue combatting AI-related fraud. And the EU’s AI Act includes strict transparency requirements to protect consumers and markets from deceptive AI usage.

Because the latest AI capabilities are so new, consumers and investors may lack the experience and knowledge necessary to scrutinize the marketing and messaging around it, so inflated claims about a company’s capabilities or products often can go unchecked.

AI washing can take many forms, from promoting basic software as “artificial intelligence” to hiding the human involvement necessary in various processes. This kind of uninformed or disingenuous promotion of AI-related products or services has the potential to misrepresent a company’s true capabilities. Lying about AI is unethical and can wrongly pump the value of a company.

With progress in AI accelerating, some companies may seek to exploit the lag between progress and regulation, presenting challenges for businesses and investors. The potential reputational, technological, and regulatory consequences should further encourage integrity.

Misrepresenting AI erodes consumer and investor trust by prioritizing short-term hype over long-term reputation building. Once lost, trust is hard to rebuild. Companies risk their credibility, and the veracity of other disclosures may be questioned. This damages relationships with partners, decreases consumer loyalty, and tarnishes brand image—and in a worst-case scenario, it could lead to class-action litigation.

The focus on AI’s hype can slow genuinely meaningful development by leading to inflated expectations about tech capabilities and unrealistic goals industrywide. If too many companies misrepresent their technology, it could dissuade investment in AI products. Such resulting skepticism about AI makes it more difficult for truly pioneering projects to gain the recognition and support they need and deserve.

Though the AI boom shows no signs of slowing, historical accounts of overzealous adopters of new technologies highlight the importance of prioritizing innovation and strategic growth over hopping on the latest trend.

Companies can be vigilant about their AI promotional practices and those of firms they acquire by heeding several steps.

Avoid hype. Vague descriptions, overstated claims, or a lack of clear understanding about AI’s functionalities can indicate AI washing. When using AI-powered technology, don’t race to promote it to investors or consumers and instead focus on the technology’s substance. This means providing detailed, accurate descriptions of AI systems, including their specific functions, benefits, and limitations.

Develop and enforce robust AI governance. Establish a comprehensive AI governance program, involving collaboration across departments, including legal, technology, investor relations, and marketing. Each plays a role in ensuring AI-related claims are accurate and align with a company’s business strategy.

Ensure accurate public disclosures. Consider what information companies disclose to the public, investors, and competitors about their AI capabilities. Be clear about what their technology can and can’t do, paying special attention to the phrasing used in public disclosures.

Engage AI experts. Experts can play a key role in assessing and validating AI capabilities. It’s worth turning to an internal team of data scientists or engaging an external partner with deep AI expertise. Assessing third-party AI systems requires advanced technical capabilities, but taking adequate time and resources to properly evaluate can help protect businesses from financial losses and other risks.

Eagerness to adopt AI is understandable, but AI washing undermines its integrity, threatens consumer trust, and exposes companies to regulatory risk. Many organizations are performing revolutionary work with AI, including deep learning, neural networks, and generative AI. Those that demonstrate substance and clear strategy will be able to champion their innovation.

By prioritizing transparency, responsible communication, and genuine innovation, companies can ensure integrity and contribute to a more trustworthy AI landscape. True innovation will be rewarded, helping the entire industry by further advancing technology, encouraging investment, and promoting confidence in various products.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Kelly Miller is managing director in FTI Consulting’s cybersecurity and data privacy communications practice.

Meredith Brown is senior managing director in FTI Consulting’s technology segment.

Claudio Calvino is global head of data science and senior managing director in the forensic and litigation consulting segment of FTI Consulting.

Joe Knight, senior managing director in FTI Consulting’s data and analytics practice, contributed to this article.

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