Artificial Intelligence (AI) has rapidly become integral to various sectors, offering innovative solutions and efficiencies.However, this surge in AI adoption has given rise to a concerning trend known as “AI washing,” where companies exaggerate or misrepresent the capabilities of their AI technologies to attract investors and customers. This practice not only misleads stakeholders but also poses significant legal and ethical challenges for legal professionals and compliance officers.​

AI washing involves companies overstating the functionality, sophistication, or benefits of their AI products or services.Similar to “greenwashing,” where organizations falsely claim environmentally friendly practices, AI washing aims to capitalize on the AI hype without delivering genuine AI-driven solutions. This deceptive practice can lead to regulatory scrutiny and damage to a company’s reputation.​

Regulatory bodies, particularly the U.S. Securities and Exchange Commission (SEC), have intensified their focus on AI washing. In March 2024, the SEC fined two investment firms approximately $400,000 for making misleading statements about their AI usage. The SEC has consistently warned companies to provide truthful representations of their AI capabilities, emphasizing that deceptive claims can result in penalties and legal action.​

Ethical Responsibilities of Legal Professionals

Legal professionals, especially in-house counsel, play a pivotal role in ensuring their organizations adhere to ethical standards and regulatory requirements concerning AI representations. Under Model Rule 1.13 of the Model Rules of Professional Conduct, lawyers are obligated to act in the best interest of the organization when they know that an associated person is engaged in actions that violate legal obligations or pose substantial injury to the organization. This includes reporting such actions to higher authorities within the organization, potentially up to the board of directors.​

Additionally, Model Rule 1.1 emphasizes the duty of competence, which now extends to technological competence.Lawyers must understand the AI technologies their companies develop or utilize to provide accurate legal advice and ensure compliance with applicable laws and regulations.​

Mitigating Risks

To address the challenges associated with AI washing, legal and compliance teams should:

• Ensure Accurate Marketing: Collaborate with marketing departments to verify that all promotional materials accurately reflect the AI product’s capabilities.​
• Enhance Technological Understanding: Invest in training to improve their understanding of AI technologies, enabling them to assess the accuracy of AI-related claims effectively.​
• Implement Robust Compliance Programs: Develop and enforce comprehensive compliance programs that include guidelines for ethical AI development and marketing practices.​
• Advise Transparent Disclosures: Encourage transparent communication with investors and customers regarding the actual capabilities and limitations of AI products.

By proactively addressing the risks associated with AI washing, legal professionals can uphold ethical standards, ensure regulatory compliance, and maintain public trust in their organizations’ AI initiatives.

References:

-“‘AI washing’ — what lawyers need to know to stay ethical” (https://www.reuters.com/legal/legalindustry/ai-washing-what-lawyers-need-know-stay-ethical-2025-02-10)