The Growing Number of Tech Companies Getting Cancelled for AI Washing

In 2024, 15 AI technology companies were hit by regulators for exaggerating their products’ capabilities, and that number has more than doubled from 2023. AI-related filings are on the rise and tech companies could be caught in the crossfire if they don’t understand emerging regulations and how to avoid them.

What’s Wrong with AI Marketing Today?

While many are familiar with the phrase “greenwashing,” it’s only in the last year that a new form has emerged from the hype around artificial intelligence, and it’s called “AI washing.” According to BBC the phenomenon of AI washing can be defined as claiming to use AI when in reality a less-sophisticated method of computing is being used. They explain that AI washing can also occur when companies overstate how operational their AI is or when a company combines products or capabilities together. For example, when “firms are simply bolting an AI chatbot onto their existing non-AI operating software.”

Over-exaggerated AI claims are dangerous for users and other stakeholders. Three obvious concerns about AI washing come to mind:

• The user paying for something they’re not getting
• Users expecting an outcome that isn’t achievable
• Company stakeholders not knowing if they’re investing in a business that is truly innovating with AI

AI washing is a growing issue as tech companies compete for greater market share. As many as 40% of companies who described themselves as an AI start-up in 2019 had zero artificial intelligence technology. The pressure to offer advanced technology is even greater now than it was five years ago.

What’s Driving AI Washing?

Experts have a few theories about what’s behind this growing phenomenon. Douglas Dick, the head of emerging technology risk at KPMG in the UK, told BBC that it is the lack of AI definition and the ambiguity that makes AI washing possible.

Experts at Berkely believe that the discourse of organizational culture is responsible for AI washing, and the core reasons for this phenomenon include:

• Lack of technical AI knowledge in senior leadership
• Pressure for continuous innovation
• Short-termism and hype
• Fear of missing out (FOMO)

AI washing can also be driven by funding. Investors want to see consistent innovation and outpacing of competitors. Even if brands haven’t fully developed an AI capability, they can attract the attention of investors with half-baked automation tools to earn additional capital.

With the global AI market set to reach approximately $250B by the end of 2025, it’s easy to understand why the bandwagon is in full effect, and startups eager for funding are quick to slap the AI label onto anything. Unfortunately, regulators have taken note.

AI Tech Companies Charged with AI Washing

Companies that claim to use artificial intelligence are often just using advanced computing and automation techniques. Unless true AI data science infrastructure is in place with machine learning algorithms, neural networks, natural language processing, image recognition, or some form of Gen AI is in play, the company may just be putting up smoke and mirrors with their AI claims.

One AI HR tech company called Joonko was shut down by the SEC for fraudulent practices.

Learning from Joonko

Joonko claimed that it could help employers identify near-hires so employers could tap into these pools. The idea was that this would create more diverse candidates to be put in front of recruiters and have a greater chance of getting hired. Joonko was so successful at marketing its AI that Eubanks wrote about Joonko in his first book, and the company raised $27 million in VC funding between 2021 and 2022.

When the SEC charged Joonko’s former CEO with AI washing securities fraud, it was because he had falsely represented the number and names of their customers. He claimed that Joonka sold to global credit cards, travel, and luxury brands, and forged bank statements and purchase orders for investors. The CEO received criminal charges in addition to the SEC charges against the company.

Learning from Codeway

In 2023, the Codeway app was charged for a misleading ad on Instagram that claimed their AI could fix blurry photos. The ad read “Enhance your image with AI” and when challenged by a complainant, the company failed to demonstrate how their app could fix a blurry image on its own without the help of other digital photo enhancement processes. The Advertising Standards Authority (ASA) upheld the complaint and banned the company from running that ad or any others like it.

Other Examples

In the US, the FTC and SEC recently carried out the following enforcement actions:

• Multiple business schemes were halted after claiming people could use AI to make money with online storefronts
• A claim for over 190k was actioned for ineffective robot lawyer services
• A company called Rytr LLC falsely claimed that it could create AI-generated content
• A settlement action against IntelliVision Technologies for misleading claims about its AI facial recognition
• Delphia Inc. and Global Predictions Inc. were charged for making false claims about AI on their website and social media accounts

Emerging Regulations

The growth of AI technology, and AI washing, have caught the attention of regulators around the world. In the UK, the ASA is already setting a precedent by litigating against unsubstantiated AI-related ads.

In Canada, regulators are targeting unsubstantiated claims about AI as well and also marketing material that is misleading or overly promotes AI technology. The Canadian Securities Administrators released a staff notice on November 7th, 2024 that shared some examples of what it considers to be AI washing:

• An AI company making the claim that their issuer is disrupting their industry with the most advanced and modern AI technology available
• An AI company making the claim that they are the global leader in their AI category
• An AI company over-exaggerating its usage or importance to the industry

In the US, there are state-specific regulations, like New York City’s mandatory AI bias audits that every AI tech company operating there is required to have. However, there are no comprehensive federal regulations that restrict the development or use of AI. In December 2024, the US Congress was considering more than 120 different AI bills. These regulations would cover everything from AI’s access to nuclear weapons to copyright, but they would rely on voluntary measures rather than strict protocols that could slow technological progress. While these bills are debated, there is a patchwork of US federal laws within specific departments, such as the Federal Aviation Administration that says AI in aviation must be reviewed. Similarly, there have been executive orders on AI within the White House. These orders put in place to mitigate the risk of AI use and ensure public safety, label AI-generated content, protect data privacy, ensure mandatory safety testing and other AI guidance have all just been removed by the Trump administration as recently as January 2025. The US-based AI companies that serve international markets will still have to adhere to their regulations.

Don’t Be an AI Poser

As regulators continue to enforce various types of actions against culprits of AI-washing, tech companies should take note. Any company that does claim to make real AI technology should be able to back up their claims. Their marketing teams should avoid overexaggerating the capability of their company’s AI products, as well as the outcomes, the customers, and the revenue. Any company that is unsure of its own technology or marketing should review emerging legislation locally and within the markets they sell to. Consumers or companies thinking of purchasing AI technology should look very closely at the product before buying it. With the 2024 cases of AI washing still in the early stages of litigation, the story is still unfolding, but one thing is sure, you don’t want your company to be a part of it.

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