What is AI Washing And How AI Washing Can Mislead And Harm Individuals And Companies?

Shortly after OpenAI launched ChatGPT in 2022, the world witnessed a news frenzy and a dramatic rise in interest in generative AI, sparking a hype cycle that escalates with each new model or feature. Suddenly, it seems every tech company or startup is marketing an AI product that promises to transform consumer behaviour.

As per the study conducted by an investment fund specializing in new startup companies, the number of startups mentioning AI in their pitches increased from 10% in 2022 to more than 25% in 2023. Furthermore, more than half of S&P 500 companies mentioned AI in their earnings calls last year, according to an NBC News report.

But how many of these companies are genuinely incorporating AI? In November last year, a US Census Bureau survey revealed that only 4.4% of American businesses were using AI to produce goods and services. Additionally, a 2019 survey by London-based venture capital firm MMC found that 40% of European AI startups didn’t use any AI at all. This discrepancy gives rise to the phenomenon known as ‘AI washing.’

What is AI washing?

AI washing is similar to greenwashing, in which companies exaggerate their consciousness about the environment to attract clients. Companies that claim to have integrated AI into their products while using less advanced technology can be accused of AI washing. This includes advertisements that overstate the capabilities of a company’s AI tools or mislead consumers about which features are not yet operational in their AI products.

The term AI washing was popularized by the US Securities and Exchange Commission (SEC) when it fined investment advisory firms Global Predictions and Delphia $225,000 and $175,000 respectively in 2024. The SEC found that these companies made false statements to clients about providing ‘expert AI-driven forecasts’ and using machine learning to manage retail client portfolios.

Real-life examples of AI washing

The rapid advancement and potential of AI have led many companies, including some tech giants, to cut corners when launching their AI-based products. For example, in a video announcing Gemini last year, Google showed off the multimodal AI chatbot’s signature feature—the capacity to distinguish between real items and photographs. After that, it became apparent that the video was not captured in real-time. Google verified to Bloomberg that Gemini was given text indications to make the film, which involved stitching the still frames together. The video itself has no disclaimer, but the YouTube description does.

Recently, Amazon reportedly removed its cashier-less checkout systems from several grocery stores after Business Insider found that the ‘Just Walk Out’ technology, which claimed to use AI and sensors to detect items in a customer’s shopping cart, actually relied on Indian employees to review transactions.

Global companies like Coca-Cola and McDonald’s have also come under fire for their AI-related promises. McDonald’s made the decision to discontinue its AI technology at its drive-thru locations in the US in response to consumer complaints regarding inaccurate orders. Coca-Cola made an unimpressive limited-edition AI-generated drink flavour in an attempt to capitalize on the buzz around artificial intelligence.

Global companies like Coca-Cola and McDonald’s have also come under fire for their AI-related promises. McDonald’s made the decision to discontinue its AI technology at its drive-thru locations in the US in response to consumer complaints regarding inaccurate orders. Coca-Cola made an unimpressive limited-edition AI-generated drink flavour in an attempt to capitalize on the buzz around artificial intelligence.

Why is AI washing a growing concern?

AI washing may seem like harmless hype, but it could have significant consequences for consumers and the tech industry. Linda Yao, Lenovo’s vice president of AI solutions and services, told ZDNet that AI washing diverts management attention and resources away from practical AI innovation. Instead of developing meaningful AI capabilities, companies might invest in superficial enhancements, slowing real progress with the technology.

Yao also noted that AI washing complicates decision-making for businesses genuinely seeking valuable AI solutions, hindering their digital transformation efforts and stifling innovation. For consumers, subpar AI technology could pose data security and privacy risks while deterring them from using the technology.

To avoid AI washing, the US Federal Trade Commission (FTC) recommends businesses ask themselves key questions: “Are you exaggerating what your AI product can do? Are you promising that your AI product does something better than a non-AI product? Does the product actually use AI at all?” The FTC also cautions that merely using an AI tool in the development process is not the same as having a product with AI capabilities.

India’s Securities and Exchange Board (SEBI) also warned against AI washing in a 2019 circular, emphasizing the need to ensure that any advertised financial benefit from AI/ML technologies in investor-facing financial products does not constitute misrepresentation.