AI-Washing Risk Assessment: Is Your AI Real?
The SEC has already brought enforcement actions resulting in £400K in combined penalties. But detection starts with rigour, not lawyers. Use this 7-point framework to assess whether a company's AI claims are substantiated or exaggerated.
Why This Assessment Matters
In March 2024, the SEC brought its first AI-washing enforcement actions against Delphia (an investment adviser) and Global Predictions (an AI consulting firm), resulting in combined penalties of approximately £400K. Both companies made material misstatements about AI capabilities and data assets to investors and clients. The penalties are just the opening salvo.
What makes AI-washing so rampant? Two factors collide: first, 90% of AI initiatives show zero measured productivity improvement in Year 1, creating a massive measurement gap between hype and reality. Second, AI commands valuation premiums—companies that brand themselves as 'AI-enabled' trade at 20–30% valuations uplift compared to non-AI peers. When an organisation invests in AI and sees no ROI, the temptation to exaggerate claims becomes acute.
This assessment helps you identify the seven red flags that distinguish genuine AI capabilities from performative claims. Use it to evaluate a company before investment, acquisition, or partnership. The framework is based on the compliance and technical audit standards developed by the SEC and adopted by institutional investors, venture firms, and acquirers.
7-Point AI-Washing Risk Assessment
1. Vague AI Claims Without Measurable Output
Does the company describe AI capabilities using vague phrases like "AI-powered" or "leveraging machine learning" without specific metrics, accuracy figures, or quantified outcomes?
Related Resources
AI-Washing: Detection & Risk
Comprehensive guide to the seven red flags, SEC enforcement timeline, and valuation impact of detected AI-washing.
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