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The Shift:  The FTC is Busy, But Adds AI Impersonation to the List

The Federal Trade Commission is in overdrive. So much so, it is hard to keep up. 

Just last month, a divided court finalized the rule prohibiting employers from imposing noncompete agreements on their workers. 

It also Implemented a rule on how companies should not share or sell users’ sensitive information—such as geolocation or health data—without “affirmatively” receiving permission from users to do so. 

What’s more, the FTC urged Congress to reinstate the agency’s authority to seek compensation for defrauded consumers and to give the FTC independent authority to seek civil penalties rather than consulting with the Department of Justice.

And proposed a rule to crackdown on AI by imposing liability on companies with “knowledge or reason to know” that a customer will use their goods or services to perpetrate an impersonation scam. 

Let’s take a look at that last one.

The Conversation

The FTC’s rule prohibiting government and business impersonations went into effect last month, enabling the agency to seek monetary relief from scammers in an illicit billion-dollar-a-year industry that has become more difficult to combat amid improvements in AI and related technologies. 

“Fraudsters are using AI tools to impersonate individuals with eerie precision and at a much wider scale,” FTC Chair Lina Khan said in a statement. “With voice cloning and other AI-driven scams on the rise, protecting Americans from impersonator fraud is more critical than ever,” Khan added. “Our proposed expansions to the final impersonation rule would do just that, strengthening the FTC’s toolkit to address AI-enabled scams impersonating individuals.”

I don’t think there is a person out there that doesn’t see the potential harm with deepfakes, however it is the proposed provision that states “knowledge or reason to know” that Daniel Kaufman, a partner at Baker & Hostetler and former acting director of the FTC’s Bureau of Consumer Protection, finds significantly broad and vague.

“Knowledge is fairly understandable: You either know something or you don’t,” Kaufman said. “But once you’re in that universe of ‘reason to know’ it becomes a much more subjective standard like how much policing are these platforms supposed to engage in? What if they get one complaint about one bad actor that’s in a pool of other issues? Does that mean they have reason to know at that point?” 

The Significance

Between 2020 and 2023, “people reported skyrocketing losses through bank transfer and cryptocurrency,” the FTC stated. “And reports show an increasingly blurred line between business and government impersonation scams: Many scammers impersonate more than one organization in a single scam—for example, a fake Amazon employee might transfer you to a fake bank or even a fake FBI or FTC employee for fake help.”

The new rule allows the FTC to seek financial penalties from scammers that “use government seals or business logos,” “spoof government and business emails and web addresses” and “falsely imply government or business affiliation” to fool consumers.

“[T]he FTC’s goal is to shut down scam operations, get the entities under federal court order, and so that we minimize the likelihood they will scam again, and always, to the extent possible, get money back to people who’ve been harmed,” said Lois Greisman, who heads the marketing practices division of the FTC’s consumer protection bureau. And “… this regulation gives the FTC greater agility to stop impersonators and return money to consumers, which as I said, is our top priority.” 

However, Kaufman said there are also questions as to whether the FTC has the authority to put forth a rule under its means and instrumentalities theory. But if it has the authority, the agency should clarify the meaning of “reason to know.” 

“A lot of companies didn’t look at this and think they had to worry about it because it was about the impersonation of government and businesses,” he added. “And now all of a sudden, this is a rule that really a lot more companies need to pay attention to.” 

The Information

Want to know more? Here's what we've discovered in the ALM Global Newsroom: 

• Airline CEO Says DOJ Bungling Antitrust Enforcement in His Industry
• Congressional Probes Often Catch Companies Off Guard. Is Your Company Ready?
• New Global Regs Hitting Companies Already Facing Increased Compliance Challenges in US
• DOJ Announces Task Force to Tackle Health Care Monopolies
• Schumer Urges FTC to 'Pump the Breaks' on Chevron, Hess Merger
• At CLOC Global Institute, Legal Teams Share How They Started Using Generative AI

The Forecast

In the coming years, Sandra Talbott, deputy director of the DOJ’s Procurement Collusion Strike Force, sees artificial intelligence becoming more of an issue. “Fraud involving AI is still fraud,” she said. “If it’s illegal for people to do it it’s illegal for computers to do it.”

Computers aren’t sentient—at least not yet—so one can ponder whether that could result in more severe prosecutions for humans given the potential for AI to cause perhaps an outsized amount of damage through its vast learning and dissemination potential.

This comes at a time when ChatGPT and its competitors have drawn comparisons to the advent of the internet and search engines. But Suffolk University Law School Dean Andrew Perlman said this is bigger.

“I believe it is going to be the most significant technology ever created for the legal industry and many others.” 

Apparently, so does the FTC.

Heather D. Nevitt is the Editor-in-Chief of Corporate Coverage, Corporate Counsel and Global Leaders in Law at ALM. Email her at hnevit@alm.com and find her on Twitter @HeatherDNevitt