Monetary Fines Under the EU AI Act

Overview of the Penalty Framework

The EU AI Act sets up a tiered penalty system to address different levels of violations and promote compliance with its strict regulations. The fines are scaled based on the seriousness of the offense, ensuring AI system operators and developers are held accountable. There are three main categories:

• Severe violations
• High-risk violations
• Other non-compliance issues

Each category aligns specific obligations with corresponding penalties, using the proportionality principle to avoid excessive burdens on Small and Medium Enterprises (SMEs).

Severe Violations: Up to €35 Million or 7% of Global Turnover

The harshest penalties apply to prohibited practices defined in the EU AI Act. These include:

• Deploying AI systems that exploit user vulnerabilities
• Use of subliminal techniques to manipulate behavior
• Implementing real-time biometric identification in public spaces against the rules

Organizations involved in these actions can face fines of up to €35 million or 7% of their global annual turnover, whichever is greater.

Example: Use of AI for social scoring by public authorities, which can lead to unfair discrimination and harm fundamental rights, qualifies as a severe violation. These penalties enforce the ethical principles that underpin AI development and usage.

High-Risk Violations: Up to €20 Million or 4% of Global Turnover

High-risk AI systems must meet strict requirements, including:

• Conformity assessments
• Transparency measures
• Risk management protocols

Failing to meet these requirements can result in fines of up to €20 million or 4% of global turnover.

Example: High-risk systems are often used in critical fields like healthcare, law enforcement, and education, where errors can have significant impacts. An AI recruitment tool that demonstrates algorithmic bias and leads to discriminatory hiring decisions would fall into this category.

Other Non-Compliance: Up to €10 Million or 2% of Global Turnover

The lowest tier of fines applies to less serious violations, such as:

• Administrative errors
• Incomplete documentation
• Failure to meet transparency requirements for limited-risk AI systems

Organizations found guilty of these infractions may face fines of up to €10 million or 2% of their global turnover.

Example: If an organization fails to inform users that they are interacting with an AI system, as required for limited-risk applications like chatbots, it could face penalties under this category.

Proportionality for SMEs

To maintain fairness, the EU AI Act adjusts penalties for SMEs using the proportionality principle. Fines for smaller organizations are calculated on the lower end of the scale to prevent overwhelming financial strain. This ensures that businesses of varying sizes can operate within the AI ecosystem while meeting regulatory standards.

Prohibited Practices and Criteria for Violations

Understanding the prohibited practices under the EU AI Act is essential for ensuring your organization’s AI systems follow strict ethical and legal guidelines. Article 5 of the Act clearly defines practices that are unacceptable because they can harm individuals or society, promoting trustworthy AI while protecting democratic values and human rights.

Subliminal Manipulation Techniques

The EU AI Act bans the use of AI systems that manipulate people below the level of their conscious awareness. These techniques are designed to influence behavior in ways that stop individuals from making informed decisions. AI systems like these are prohibited if they cause or could cause physical or psychological harm.

Example: AI-driven advertisements that exploit psychological weaknesses to pressure people into buying things they didn’t plan to. By outlawing such methods, the EU AI Act focuses on protecting individual autonomy and well-being.

Exploitation of Vulnerabilities

AI systems that exploit vulnerabilities related to age, disability, or socio-economic conditions are not allowed. These systems exploit specific weaknesses, leading to harm or distorted decision-making.

Example: An AI-based loan application system that targets financially vulnerable individuals with predatory lending options violates this rule.

Social Scoring Systems by Public Authorities

The Act forbids public authorities from using AI to create social scoring systems. These systems assess individuals based on their behavior or predicted traits, often leading to unfair or discriminatory treatment.

Example: A social scoring system denying someone access to public services based on their perceived behavior.

Unauthorized Use of Real-Time Biometric Identification Systems

The EU AI Act imposes strict limits on the use of real-time biometric identification systems in public spaces. These systems can only be used in exceptional cases (e.g., finding missing persons, addressing immediate threats like terrorist activities). Using these technologies without proper authorization is a breach of the law.

Example: Facial recognition systems used for large-scale surveillance without a valid legal reason.

Criteria for Determining Violations

When assessing violations, the EU AI Act considers the potential harm and social impact. Key factors include:

• Intent and Purpose: Was the AI system created or used to manipulate, exploit, or harm individuals?
• Impact on Fundamental Rights: How much does the AI practice interfere with rights like privacy, equality, and personal autonomy?
• Severity of Harm: What is the level of physical, psychological, or societal harm caused?

For example, an AI system that causes harm unintentionally due to technical errors may face less severe penalties compared to one intentionally designed to exploit users.

Enforcement Mechanisms of the EU AI Act

The EU AI Act outlines enforcement measures to ensure adherence to its rules, protect fundamental rights, and encourage reliable AI. It relies on collaboration between national authorities, market surveillance bodies, and the European Commission.

National Authorities

National authorities play a central role in enforcing the EU AI Act within their respective Member States, including:

1. Establishing AI Governance Systems: Member States must create governance frameworks (e.g., oversight committees) to monitor compliance with the Act.
2. Conducting Compliance Assessments: Authorities check if AI systems comply with requirements, focusing on high-risk applications. This includes reviewing documentation, performing audits, and ensuring systems meet EU standards.
3. Imposing Sanctions: Authorities can impose penalties, such as the monetary fines outlined in the Act.

Member States are required to establish AI governance systems by mid-2026, in line with the Act’s full implementation.

Monitoring and Reporting Obligations

The EU AI Act requires thorough monitoring and reporting for AI systems:

1. Post-Market Surveillance: Developers and users must monitor AI system performance after deployment and address any risks or issues.
2. Incident Reporting: Serious incidents or breaches must be reported to national authorities within a defined timeframe.
3. Compliance Documentation: Organizations must keep comprehensive records (risk assessments, conformity checks) accessible for inspection.

Transparency in Documentation and Risk Assessments

Transparency is a key part of enforcement:

1. Public Disclosures: Developers of high-risk AI systems must provide information about the system’s purpose, functionality, and limitations.
2. Risk Management Frameworks: Organizations must develop frameworks to identify, assess, and address risks related to AI systems.
3. Detailed Technical Documentation: Detailed documentation is required (system design, algorithms, data sources) to prove compliance.

Real-World Implications and Examples of EU AI Act Fines

The EU AI Act enforces strict rules on AI use and introduces heavy fines for violations. These rules:

• Prevent misuse
• Ensure organizational compliance
• Apply to organizations both inside and outside the EU

Examples of Prohibited AI Practices

• Subliminal Manipulation Techniques: AI tools that subtly push people into making purchases without realizing it. A retailer using such technology could face fines up to €35 million or 7% of global annual revenue.
• Exploitation of Vulnerabilities: AI systems targeting vulnerable groups (children, elderly). For example, an educational AI tool designed to mislead children could lead to penalties.
• Unauthorized Use of Biometric Systems: Using real-time biometric systems (facial recognition in public spaces) without proper authorization, e.g., mass surveillance, can result in severe fines.
• Social Scoring by Public Authorities: Assigning individuals scores based on social behavior (like certain non-EU countries) is illegal, as it can lead to discrimination and social inequality.

Lessons for Organizations

Breaking the EU AI Act can result in more than financial penalties—it can harm reputation, erode consumer trust, and trigger legal challenges. Organizations should:

1. Conduct Risk Assessments: Routinely evaluate AI systems for compliance issues.
2. Practice Transparency: Maintain clear records and transparency in AI operations.
3. Invest in Ethical AI: Prioritize ethical AI development to meet compliance and build brand trust.

Compliance and AI Innovation

Compliance with the EU AI Act is not only a legal necessity but also supports innovation by creating safer, more reliable AI systems. Compliant organizations can:

• Access new markets
• Build stronger partnerships

For international companies, compliance is crucial, as the Act applies to non-EU organizations offering AI systems in the EU. Global businesses must align practices with EU regulations to stay competitive.