"600 Billion Lost to Hype: A Cautionary Tale of AIwashing That Google Search Could Have Prevented [AI Error Note]"

Advertising "Double Your Returns with AI Automation"
But in Reality, Overnight Human Labor: The Truth of "AIwashing"
No Verification Standards and High Expectations Lead to Frequent Damage

Editor's NoteExamining failures is the shortcut to success. "AI Error Note" explores cases of failure related to AI products, services, companies, and individuals.

"The world's first AI specialized in investment, 200% return!"
"Develop an app for the price of a single chicken!"

One of the side effects of the artificial intelligence (AI) boom is the overwhelming number of absurd advertisements we encounter. This phenomenon spans across investment, law, healthcare, home appliances, distribution, fashion, and more.

However, when you peel back the flashy packaging of these advertisements, you are often confronted with an astonishing reality. In some cases, humans are manually doing the work instead of AI, or the AI technology itself does not even exist. This is what is known as "AIwashing." The term is derived from "greenwashing," which refers to companies that claimed to be environmentally friendly but were not in reality.

The reasons companies resort to such deception are clear: profit and greed. According to Forbes, startups that mentioned AI when seeking investment were able to secure 15% to as much as 50% more funding compared to those that did not.

Because AI is so widely abstracted as a symbol of "innovation," consumers also tend to believe that products labeled as AI-powered are somehow more innovative and effective.

AIwashing is causing immeasurable harm to investors and consumers worldwide. But just how widespread is this phenomenon?

Hundreds of Millions in Investment, Revealed as 'AIwashing'

When the green image is peeled off, the word 'AIwashing' appears inside. DAELL-3

Builder.ai is an app development platform founded in London, UK, in 2016. The company promoted itself as allowing anyone to create an app as easily as ordering a pizza, thanks to AI. The enticing proposition was that anyone could develop an app without complex coding knowledge. Leading global companies and investors, including Microsoft and the Qatar Investment Authority, flocked to the company. The total amount of investment it attracted reached $450 million (about 600 billion KRW). There were even projections that the company's valuation would reach $1.5 billion (about 2 trillion KRW).

However, it was not AI creating the apps. Instead, more than 700 programmers in India and Ukraine were manually writing the code. Allegations of fabricated sales and accounting fraud soon followed, and in 2025, the company entered bankruptcy proceedings.

EvenUp is a US-based legal tech startup headquartered in San Francisco. The company claimed that its AI could analyze vast amounts of data, such as case records and medical records, to automate litigation tasks. It was praised for dramatically reducing repetitive work for countless law firms and lawyers. Over 1,500 law firms in the US used this platform, and the total amount of litigation handled by the platform reached $7 billion (about 9.6 trillion KRW).

At the end of last year, shocking revelations from former and current employees were reported in the media. Contrary to advertisements claiming that "AI automates almost all tasks for rapid processing," employees were actually working through the night, manually handling most of the work. The performance of the AI was also questionable. Some managers reportedly instructed internal staff "not to use AI" at all.

"No Evidence for AI-Based Investment Analysis"?First SEC Penalties

Image symbolizing AI and investment. Getty Images Bank

In March 2024, the US Securities and Exchange Commission (SEC) imposed fines of $225,000 on investment advisory firm Delphia and $175,000 on Global Predictions.

Delphia advertised that it analyzed client data using AI and machine learning to make investment decisions, but in reality, such technology did not exist. Global Predictions claimed to provide "AI-verified investment advice through proprietary settings," but this was also false. This case marked the first official SEC enforcement action on the grounds of "AIwashing."

The US Federal Trade Commission (FTC) had already cracked down on AIwashing in 2023. Automators AI, a company offering an AI-based e-commerce platform, claimed that its service could generate tens of thousands of dollars per month on Amazon and Walmart online stores. However, most customers were unable to recover even their initial investment.

The FTC found that the company had no evidence to support its claimed AI technology or its effectiveness, concluding that the advertising was false and exaggerated. The total damages exceeded $22 million (about 3 billion KRW).

Perhaps the most famous case of AIwashing is Amazon's unmanned payment system, "Just Walk Out." The company advertised that customers could enter the store, select products, and simply leave, with payment processed automatically. They emphasized that hundreds of cameras, AI, and machine learning handled everything. In reality, however, more than 1,000 employees in India were manually reviewing store footage. Ultimately, in 2024, Amazon decided to discontinue this technology in most stores.

Excessive Hype and Loose Regulations Fuel AIwashing

AI placed on a trap. Getty Images Bank

Why does such astonishing AIwashing occur?

According to a study by UK venture capital fund MMC Ventures, more than 40% of European AI startups failed to demonstrate the effectiveness of their AI technology. The reason they continue to promote AI is clear: simply attaching the "AI" label attracts investment.

According to tech investment firm OpenOcean, only 10% of tech startups mentioned AI when raising funds in 2022. This rose to 25% in 2023 and surpassed 35% in 2024.

The broad and loosely defined use of the term "AI" is also problematic. The Korea Consumer Agency explains, "The AI we refer to today is a broad concept, and the scope of its definition is wide, making it easy for companies to overstate their technology as AI." In other words, even a very simple automation system can be called AI, and there is no basis to prevent this. There is also a lack of systems to verify AI technology.

Investors Must Strengthen Due Diligence, Regulators Must Set Standards

How can we avoid being deceived by the dazzling promises of AI success and fortune?

Due diligence must be strengthened. In the case of Builder.ai, some companies had already sensed something was amiss. An investor who considered investing in Builder.ai said, "Even a review of internal staff and about 15 minutes of Google searching revealed numerous oddities." It is essential to meet directly with the company's technical team to ask about the specific workings of their AI systems and to verify actual customer outcomes and case studies.

Additionally, consumers can avoid many risks with a little effort. Before being swayed by advertisements and making a paid purchase, they can test the actual performance through free trials or demos and directly compare with competing products.

Whether you are an investor or a consumer, the most fundamental safeguard against AIwashing is a critical attitude. Peel back the flashy AI packaging and check for concrete evidence and data inside?this is the simplest way to avoid falling victim to AIwashing.

Companies also need to wake up. KB Financial Group Research Institute suggested, "Companies should provide transparent information that matches the AI technology actually used, and record and document this information to prepare for audits by regulatory agencies or external scrutiny."

Finally, the role of governments and regulatory authorities is crucial. In the United States, agencies such as the SEC and FTC have issued strong warnings against AIwashing. SEC Chair Gary Gensler stated in 2024, "You must not mislead the public by claiming to use AI when you do not," emphasizing that such AIwashing harms investors.

In September 2024, the FTC announced an enforcement initiative called "Operation AI Comply." FTC Chair Lina M. Khan stressed, "Using AI tools to deceive or mislead people is clearly illegal," and emphasized the agency's commitment to cracking down on unfair practices involving AI and protecting consumers.

In Europe, the UK's Advertising Standards Authority has established rules banning false advertising related to AI, which prohibit statements and phrases that could cause substantial misunderstanding.