In-House Counsel Alert: Navigating the Risks of AI Washing in 2025

The past year was filled with exciting breakthroughs of products built with new generative artificial intelligence (Gen AI) technology, but it also ushered in a peculiar new regulatory skirmish that in-house counsel would be wise to monitor in 2025.

The first warning shots were fired back in March, when the Securities and Exchange Commission announced settled charges against two investment advisory companies for making false and misleading statements about their purported use of AI. SEC Chair Gary Gensler introduced a new battleground of regulatory interest in his remarks: “Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

In-house counsel need to sit up and take notice of this potential new area of regulatory inquiry so they are prepared to help protect their organizations from ambitious government enforcement actions.

“Understanding how the SEC may be approaching its existing regulatory authority can help firms that develop and use AI stay ahead of regulatory developments,” writes a trio of lawyers from Skadden Arps, in a Practical Guidance article published by LexisNexis®.

And this new regulatory agenda is not limited to federal agencies. The LexisNexis® State Net® Capitol Journal™ reports that AI Washing is a topic that is expected to be an issue for state lawmakers next year.

Understanding AI Washing: Misleading Claims in the AI Industry

AI Washing is a term borrowed from the idea of “greenwashing” and refers to the practice of falsely claiming to use AI technology to enhance a company’s products or services. Companies may exaggerate or misrepresent their AI capabilities to gain a competitive edge or boost their brand image.

The driver behind the surge in AI-related claims is no surprise: there is a lot of money to be made in this lightning-hot space right now. In fact, startups that mention “AI” attract 15% to 50% more investment than those that do not, according to research by MMC, a London-based venture capital firm.

The problem is that there isn’t a standard agreed-upon definition of AI, so one company’s marketing claim may be a regulator’s AI washing scheme.

“It’s important to be able to tell the difference between what’s real and what is being concocted by marketing departments simply interested in what they can sell us,” writes Forbes columnist Bernard Marriott.

For example, BBC reports that some companies may claim to use AI when they’re actually using less-sophisticated computing, while others overstate the efficacy of their AI over existing techniques or perhaps suggest that their AI solutions are fully operational when they are not.

Strategies for In-House Counsel to Mitigate AI Washing Risks

In-house legal departments play a crucial role in ensuring a company’s compliance with regulations and ethical standards. When a company engages in AI Washing, it exposes itself to several risks, such as legal liability for false or misleading marketing claims, reputational damage that can erode customers’ trust—and investor risk such as that pursued this year by the SEC.

The Practical Guidance team for LexisNexis has published a breadth of resources to help in-house counsel navigate the complex legal issues associated with AI-enabled products and services. Here are a few things that legal experts recommend for in-house counsel to help protect their company from AI Washing claims:

• Understand AI Claims—Carefully review all public statements and marketing materials that reference AI to ensure the claims are accurate, verifiable and supported by concrete evidence.
• Collaborate with Technical Teams—Work closely with data scientists, engineers and other technical experts to understand the actual AI capabilities and limitations.
• Develop AI Guidelines—Create internal guidelines that outline the principles and standards for AI development and deployment, addressing issues such as data privacy, bias and transparency.
• Conduct Regular Audits—Implement regular audits to assess the accuracy of AI claims and ensure compliance with internal guidelines and external regulations.
• Monitor Industry Standards and Regulations—Stay informed about emerging AI regulations and industry best practices by making sure you have access to reliable legal news and information that is updated in real-time.
• Train Employees—Educate employees about AI ethics and the potential risks of AI Washing.

By taking pro-active steps to address potential AI Washing considerations, in-house counsel can help safeguard their company’s reputation, mitigate legal risks and ensure ethical AI practices.

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