Bracewell’s David Shargel recently told CIO that IT leaders should think twice before exaggerating AI capabilities to lure investors and customers.
He warned that US regulatory agencies are watching for “AI washing.” In March alone, the US Securities and Exchange Commission announced a combined $400,000 settlement with two investment advisors for misleading statements about their use of AI for investment advice.
Shargel, who co-authored an article in January about AI washing, explained that some companies may overstate their AI use because they do not understand what AI encompasses. But he added that there appears to be some intentional exaggeration happening as well.
“AI washing is a new phenomenon, but it’s really just a different kind of fraud,” Shargel said. “Companies always commit fraud, and they’ll find new ways to do it, based on new technology.”
Shargel also said that beyond regulatory problems, companies overstating their AI use could expose themselves to shareholder lawsuits and a loss in customer trust.
He advises companies to be careful about making broad claims about their AI capabilities. To avoid regulatory scrutiny, companies should create a definition of AI for use internally and in regulatory filings. CIOs and other executives should also consider reviewing their AI capabilities before making claims.
“What companies really need to do is think about AI in the same way they think about any other type of disclosure,” Shargel said. “Companies don’t make disclosures about their financial condition without a review or compliance audit. Companies need to treat disclosures about technology and AI in the same way, and they need have the ability to assess the accuracy.”
