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Make no mistake: artificial intelligence (AI) is currently in full swing.
THE The global AI market is valued at over $196 billionand it is expected to increase by more than 13 times in the next seven years. Reports claim that Startups Mentioning “AI” Attract 15-50% More Investment Than Other Competitors.
Unsurprisingly, the lure of participating in the AI gold rush is irresistible, and businesses are rushing to adopt AI to stay ahead of the curve.
But all that glitters is not gold. To attract investors and customers, many companies capitalize on the hype around AI and make dubious claims about their capabilities. This type of deception is not only unethical, it is harmful: it misleads consumers, distorts the market, and erodes trust in AI technology and true AI innovations.
What is AI-washing?
AI-washing is a marketing strategy involving misleading and deceptive conduct, typically in the form of false or exaggerated claims about the use of AI or algorithmic systems in the company or its products or services.
Affirmations can be made using words, visuals, omissions, and symbolic actions.
Unlike greenwashing, AI-washing is harder to detect because the exact functionality of the AI remains largely opaque and unknown to most people, including experts.
Additionally, the nature of the underlying algorithms and programs is fluid, making it difficult to track deceptive behavior.
AI washing can take different forms:
- Misleading product descriptions. For example, calling traditional algorithms “AI-driven” is a form of AI whitewashing. Amazon’s Just Walk Out program is a perfect example. Touted as a revolutionary AI-driven system, it turned out to be run in real time by workers in India.
- Exaggerating the extent of AI capabilities. This trend seems to be spreading in the market as many companies claim to provide AI-based or AI-powered products or services.
For example, the U.S. Securities and Exchange Commission (SEC) recently found that Global Predictions, a San Francisco-based fintech company, made false and misleading statements in 2023 on its website and social networks about its alleged use of AI. The company falsely claimed to be the “first AI-regulated financial advisor” and falsely stated that its platform provided “AI-powered expert forecasts.”
Both the SEC and the Department of Justice (DOJ) have stressed the need for honesty and transparency in AI marketing.
- Claiming to use AI without any substantial implementation. Given the excitement around AI, companies are unsurprisingly claiming to integrate AI into their processes and models to secure funding, even if their use of AI is negligible or in the early stages of development.
Why is AI washing dangerous?
AI-washing has various consequences:
- Customer deception. The most immediate and obvious risk of AI money laundering is deception, particularly due to the complexity and opacity of AI systems. If companies misrepresent their use of AI, buyers may make purchasing decisions based on false and misleading information.
- Market distortion. AI-washing negatively impacts companies that are genuinely investing in and developing AI technologies. These companies may struggle to compete with those that falsely claim to have AI capabilities if customers and investments are diverted to companies that engage in AI-washing.
- Regulatory and legal challenges. As AI whitewashing grows, regulators are becoming more vigilant. False claims about AI can lead to legal repercussions, including fines and penalties. Companies must navigate a complex regulatory landscape, ensuring their claims about AI are accurate and well-founded to avoid legal pitfalls.
- Loss of trustworthy. Trust is critical to the successful adoption of new technology. AI has yet to garner mass trust. AI whitewashing risks eroding the trust in AI among consumers, investors, and other stakeholders. If stakeholders consistently encounter overhyped and underperforming AI products, skepticism about true AI advances will grow, potentially slowing the adoption of beneficial AI technologies.
How to fight AI-washing
AI-powered money laundering is still in its infancy and we must act quickly before it becomes commonplace and undermines stakeholder trust and market integrity.
While regulation and enforcement are essential to combating AI washing, they alone will not solve the problem. The following steps can help combat AI washing.
Transparency and honesty when using AI keywords
Companies should prioritize transparency and honesty in their marketing strategies.
Clearly defining what constitutes AI in their products, providing evidence of AI implementation, and setting realistic expectations can help build trust and credibility. As many as 62% of consumers would trust a company more if it were transparent about its use of AI, A Deloitte study revealed.
Clearly, companies that adopt honest marketing practices and invest in true AI innovation will not only build trust, but also contribute to the sustainable growth of the AI ecosystem.
Education and awareness
More than half of Australians (57%) have little or no knowledge about AI, while almost two-thirds (63%) have little or no knowledge about when AI is used, according to a survey conducted by the Australian Public Service (APS)It is crucial to increase these numbers.
Educating consumers and stakeholders about AI technologies can help them make informed decisions. Understanding the differences between true AI solutions and AI whitewashing tactics would enable consumers to critically evaluate product claims.
Consumers of AI products need to ask tough questions, including how the AI works, what it does, what datasets were used for training, and what automated decision-making process is used, if any.
Regulatory oversight
By cracking down on misleading AI claims in the US, the SEC and DOJ have sent a clear message: play fair or face the consequences. There is talk in the Australian industry that the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) will also begin to take a tougher stance against AI laundering, including through fines.
We need clear guidelines and standards for AI reporting. Implementing rigorous verification processes and penalties for false reporting can deter companies from engaging in AI laundering. Collaboration between international regulators is also important to ensure consistent standards across borders.
Industry Standards and Certifications
Developing industry standards and certifications for AI technologies can serve as a benchmark for evaluating AI claims. Certification bodies can assess and verify the AI capabilities of products, providing consumers and stakeholders with a trusted assurance of authenticity.
AI whitewashing is a legitimate problem
AI washing poses a serious risk to consumers, market dynamics, and the future of AI development. To combat AI washing, we need a comprehensive strategy that promotes transparency, education, regulatory oversight, and industry standards.
If you are a company looking to commercialize your AI capabilities, be clear and specific about the form, scope, and functionality of AI in your products or services.
If you have any questions or concerns, seek legal advice today.
Additional Resources on Ethical Marketing Practices
Why Honesty and Integrity Pay Off: The Benefits of Truth-Based Marketing
Ethical Marketing Practices for Businesses of All Sizes
Guide to Business Ethics and Social Responsibility (Infographic)
