AI Act Penalties

Sanctions of the AI Act

AI Act Penalties

The European Union’s AI Act represents a significant step forward in regulating artificial intelligence (AI) technologies. By establishing clear guidelines and penalties for non-compliance, the Act aims to ensure that AI systems are used safely, ethically, and transparently. In this article, we will introduce the AI Act, the situations that may incur penalties, and the cost of these penalties.



What is the AI Act?

The AI Act is a legislative proposal by the European Commission designed to create a comprehensive regulatory framework for AI within the European Union. This AI regulation sets out specific rules and guidelines to govern the development, deployment, and use of AI technologies. The primary goals of the AI Act are to ensure AI safety, promote ethical AI practices, and protect fundamental rights.


 Key Features of the AI Act


  • Risk-Based Classification: The AI Act classifies AI systems into different risk categories—minimal risk, limited risk, high risk, and unacceptable risk—based on their potential impact on individuals and society. This classification determines the level of regulatory scrutiny and compliance requirements for each type of AI system.


  • Transparency and Accountability: The Act mandates transparency measures for AI systems, ensuring that users are aware when they are interacting with AI and understand how decisions are made. Additionally, it establishes accountability mechanisms to hold developers and deployers responsible for the impacts of their AI systems.


  • Ethical Standards: The AI Act enforces ethical guidelines to prevent biases, discrimination, and other negative consequences associated with AI. It promotes the development and use of AI in ways that respect human rights and democratic values.


To know more about the AI Act you can read one of our other articles about the AI Office, or the implementation of this Artificial Intelligence Act.



Risks and Forbidden AI Act practices template



Situations that will get penalties

Under the AI Act, certain AI non-compliance scenarios can lead to significant penalties. These AI regulatory breaches are categorized based on the severity and impact of the violation. Here are some key situations that will incur penalties:



High-Risk AI Systems


Lack of Conformity Assessment: High-risk AI systems must undergo rigorous testing and conformity assessments to ensure compliance with safety and ethical standards. Breaches of AI regulations occur when these assessments are not performed, leading to potential penalties.


Failure to Implement Transparency Measures: High-risk AI systems are required to provide clear and understandable information about their operations. AI Act violations include failing to disclose that users are interacting with an AI system or not providing explanations for AI-driven decisions.


Inadequate Risk Management: High-risk AI systems must have robust risk management frameworks in place. AI law violations occur when these frameworks are insufficient or not properly implemented, potentially endangering users and society.



Data Privacy and Security


Data Misuse: AI systems must comply with data protection laws, including the General Data Protection Regulation (GDPR). AI non-compliance scenarios involving misuse of personal data or inadequate data protection measures can lead to significant fines.


Cybersecurity Breaches: AI systems must be secure and protected from cyber threats. AI regulatory breaches that result in unauthorized access or data breaches can incur penalties.



Ethical and Social Impacts


Discrimination and Bias: AI systems must be designed and used in ways that prevent discrimination and bias. Situations leading to AI fines include deploying AI systems that exhibit discriminatory behavior or outcomes.


Exploitation of Vulnerabilities: Using AI systems to exploit vulnerabilities of specific groups, such as children or vulnerable adults, constitutes a severe AI regulation violation and will attract heavy penalties.



Cost of penalties

The penalty costs under the AI Act are structured to ensure compliance and deter violations. These penalties vary depending on the severity and nature of the AI Act violations. Here is a detailed look at the cost implications:



Financial Penalties


  • High-Risk Violations: For severe violations involving high-risk AI systems, fines can be substantial. Companies may face penalties up to €20 million or 4% of their global annual turnover, whichever is higher. This aims to ensure that the fines are significant enough to act as a deterrent.


  • Moderate Violations: For less severe breaches, such as failing to implement required transparency measures or minor data protection infractions, fines can range from €10 million to 2% of the global annual turnover. These penalties are designed to enforce compliance without disproportionately impacting businesses.


  • Minor Violations: For minimal risk or administrative non-compliance, penalties are lower but still substantial enough to encourage adherence to regulations. Fines for these AI regulation penalties can range from €2 million to €4 million, depending on the specific breach.



Economic Impact of AI Penalties


On the one hand, non-compliance with the prohibition of AI practices referred to in Article 5 shall be punished by administrative fines of up to €35,000,000 or up to 7% of its total annual worldwide turnover for the previous year, if this figure is higher and if the infringer is a company.


Furthermore, failure to comply with any of the provisions relating to notified bodies, other than those laid down in Article 5, shall be punishable by administrative fines of up to EUR 15 million or up to 3% of its total annual worldwide turnover for the previous year, if this figure is higher and if the infringer is an undertaking.


Ultimately, the provision of information which is incorrect, incomplete or misleading to the competent national authorities is punishable by fines amounting to EUR 7.5 million, or up to 1% of its total annual worldwide turnover for the previous year, if this figure is higher and if the infringer is an undertaking.


In the case of SMEs, each fine referred to in the IIA shall be up to the percentages or amount referred to above, whichever is lower.


Nonetheless, despite financial costs, companies facing penalties for AI Act violations may suffer reputational damage. Negative publicity can affect customer trust and business relationships, leading to long-term economic repercussions.


In conclusion, the AI Act establishes a comprehensive framework for regulating AI technologies within the EU, with clear penalties for non-compliance. Situations leading to AI fines include high-risk AI system violations, data privacy breaches, and ethical misconduct. The cost of penalties under the AI Act is designed to enforce compliance, with substantial fines for severe violations. 



Do you need to verify whether your company is fully compliant with the AI Act?

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We will give you the necessary advice to meet the requirements of the AI Act that has been created for the safe use and development of Artificial Intelligence.

We also offer other services related to data protection, software or even security consultancy.

If you need further information, do not hesitate in contacting us, or set a meeting with us!


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