The Rise — and Fall — of AI Washing

From serious reputation damages to legal problems for making false and misleading statements and even criminal charges of securities fraud and wire fraud; those taking up AI washing are facing dire consequences.

AI washing, the practice of misleading the public by making inaccurate and misleading statements about a company’s use of artificial intelligence in an effort to boost its brand value due to the popularity of the new technology, is more than unethical.

As Techopedia recently reported, the Securities and Exchange Commission (SEC) has declared war against AI washing. It is coming down hard on companies to make their message clear: ‘Tone down the AI hype or face the SEC’s wrath‘.

We speak to a panel of experts to figure out if AI washing is on it’s way out, or if companies are still going to sneak AI onto billboards at all costs.

Table of Contents Table of Contents

1. Key Takeaways
2. AI Washing Is Serious Business
3. The E.U. AI Act Could 'Put a Leash on AI Washing'
4. If Companies Don't Balance Innovation Risks, 'Burdensome Compliance' Will Increase
5. What Should Be Done?
6. The Bottom Line
7. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. AI Washing Is Serious Business
3. The E.U. AI Act Could 'Put a Leash on AI Washing'
Show Full Guide
4. If Companies Don't Balance Innovation Risks, 'Burdensome Compliance' Will Increase
5. What Should Be Done?
6. The Bottom Line
7. References

AI Washing Is Serious Business

Edward Tian, CEO of GPTZero, told Techopedia that companies and leaders are engaging in AI washing because there is pressure today to be as tech-forward as possible.

“Right now, AI is a hot topic and is simply what many people are associating with futuristic technology. That is why so many companies and leaders are leaning into AI to prove that they are ahead of the curve — even if that means not being completely honest about their AI usage or its actual proven benefits.

 

“Just like with green-washing, the goal with AI washing is entirely image-focused.”

Unfortunately, companies and leaders are not just presenting to the public fake AI usage info, but some do so to reap unethical and sometimes illegal economic gains by manipulating stocks with misleading AI announcements. This trend has linked AI washing to more serious crimes such as inside trading, securities fraud, and wire fraud.

Recently, the SEC filed securities fraud charges against Ilit Raz, the founder and former CEO of now-defunct AI recruitment startup Joonko. The SEC charges were followed on the day after by an unsealed Department of Justice indictment against Raz for criminal charges of securities fraud and wire fraud.

Companies should be extremely cautious when making AI disclosures, advertisements, and other AI public statements. Whether they operate in the U.S. or other regions, such as the E.U. and the U.K., organizations must have proof to back up their AI claims. This includes all companies, big or small. Not even big tech AI claims will go unchecked. Amazon recently learned this the hard way when its ‘Just Walk Out’ AI tech was exposed.

The E.U. AI Act Could ‘Put a Leash on AI Washing’

Lars Nyman, CMO of CUDO Compute, a decentralized, sustainable cloud provider based in the U.K, told Techopedia that it’s easier to sprinkle AI on a product and ride the hype wave than to develop genuine, innovative AI solutions.

“The root cause? A toxic mix of market pressure, investor demands, and plain old FOMO (Fear of Missing Out). The allure of quick wins often trumps the commitment to genuine technological advancement.”

Nyman said that regulations like the E.U. AI Act could put a leash on AI washing by demanding transparency and accountability. “If companies are forced to substantiate their AI claims with tangible proof and adhere to strict standards, the frivolous use of ‘AI’ as a marketing gimmick will diminish.

“The EU AI Act could act as a reality check, compelling businesses to focus on authentic innovation rather than hollow buzzwords.”

AI hype statements are abundant today. Generic comments like “AI is poised to change every industry”, or companies making bold AI announcements and products are routine and the public rarely investigates whether the claims are true.

Nyman from CUDO Compute said that the dangers of normalizing AI washing include the erosion of trust.

“Consumers and partners become skeptical, and rightly so, when they realize they’ve been sold snake oil.”

Nyman added that AI washing also stifles genuine innovation. “When companies focus on flashy marketing over substance, true technological advancements take a backseat,” Nyman said. “Lastly, it creates a ‘boy who cried wolf’ scenario.”

When real AI solutions emerge, they may be met with undue skepticism, hampering their adoption and potential benefits.

“It’s like crying ‘AI’ every time a toaster gets a new setting.”

If Companies Don’t Balance Innovation Risks, ‘Burdensome Compliance’ Will Increase

SEC AI washing actions are expected to increase and these are only the tip of the iceberg. If AI innovation continues to clash with regulatory environments, compliance is expected to become more challenging.

Adnan Masood, PhD., AI business expert, academic, and Chief AI Architect at UST, a digital transformation solutions company, spoke to Techopedia about the issue.

“Companies engage in this practice to inflate their valuation, attract investors, and maintain a competitive edge in a rapidly evolving tech landscape.”

Doctor Masood explained that SEC’s recent enforcement actions — against Delphia (USA) Inc. and Global Predictions Inc. — highlight the growing recognition of AI washing’s perils.

“Beyond regulatory consequences, this practice erodes trust in the tech industry, misleads consumers, and leads to misallocation of resources. It creates a false sense of technological progress, potentially retarding genuine innovation.”

Doctor Masood explained that companies must balance “regulatory rigor with the need to foster innovation”. “This balance is crucial to avoid overly burdensome compliance requirements that could stifle progress,” Doctor Masood said.

“I see AI washing as the junk food of technological discourse — momentarily satisfying but ultimately detrimental to our collective intellectual health. It exacerbates the disconnect between public perception and AI’s true state, potentially leading to ill-informed policies and unrealistic expectations, with far-reaching consequences for investment strategies and societal preparation.”

What Should Be Done?

Doctor Masood said there are many things organizations can do to avoid AI washing.

For example, for unintentional AI washing, companies can prioritize substance over style.

“This means focusing on R&D, fostering a culture of intellectual honesty, and communicating AI capabilities with nuance and precision,” Doctor Masood said.

It is also crucial to educate marketing teams about AI’s technical realities and involve technical experts in public communications. Doctor Masood also spoke about the links between AI washing and company culture.

“I believe that the most insidious effect of AI washing is not the deception of others, but the self-deception it fosters within organizations. Companies should adopt ethical AI principles and submit to third-party audits of their AI claims to combat this self-deception.”

The Bottom Line

AI washing, once a harmless marketing ploy, has evolved into a complex issue with far-reaching implications. The pursuit of quick gains and the pressure to appear technologically advanced have led companies to engage in deceptive practices, from misleading consumers to outright fraud.

As regulatory scrutiny intensifies, organizations must prioritize transparency, authenticity, and ethical considerations. The future of AI will depend on a delicate balance between innovation and accountability. Failure to navigate this path responsibly could result in severe consequences, both for individual companies and the industry as a whole.