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📻 An old radio show used the same catchphrase every week: “The Shadow Knows…” But the problem with shadows in the IT era is that organizations don’t know what lurks there. They don’t know about certain applications or functionality that users may have added—without IT’s knowledge or consent—to help them do their jobs.
“Shadow IT” has been a plague on IT for years, and a new variant has started to emerge: shadow AI. It’s a growing problem that companies need to be aware of, as the potential damage it can do is significant.
Shadow AI can be defined as unauthorized AI use without an employer’s knowledge, approval or control. Without safeguards in place to govern AI usage, it becomes a juicy new attack vector for cyber criminals.
That’s just what’s happening: IBM’s “Cost of a Data Breach” report for 2025 reveals that 20% of organizations have been compromised due to shadow AI. Those failures added $670,000 to the typical breach price tag for companies with a lot of shadow AI, compared to those with low levels.
The damage goes well beyond just the money: IBM states that shadow AI-related incidents resulted in 65% more personable identifiable information (PII) being compromised, along with 40% more intellectual property being stolen.
“The swift rise of shadow AI has displaced security skills shortages as one of the top three costly breach factors” in 2025, the report concludes.
In other words, the stakes are incredibly high. Shadow AI is more than a looming threat—it’s an immediate threat to companies.
Shadow AI is predominantly used in the area of generative AI, such as ChatGPT. As we all know, ChatGPT is quite common in most work environments, whether on-premises or remote.
One primary danger is that employees may unknowingly upload confidential company data into third-party AI tools, such as generative AI chatbots, without understanding how that data is stored, used, or shared.
These tools may lack proper encryption, compliance measures, or control over data retention. In regulated industries like healthcare or finance, this could quickly lead to violations of data protection laws like GDPR and HIPAA. This in turn could result in fines, litigation, reputational damage, or all of the above.
This is why Apple in 2023 restricted internal use of ChatGPT, according to an article in IT Pro. Due to the issue, Apple reportedly built its own internal generative AI platform for employees.
Of course, most companies don’t have the resources to do this, and they turn to third-party tools, i.e., shadow AI. And every tool on a network expands its attack surface, because they typically rely on APIs, cloud services, or open-source libraries that may contain unpatched vulnerabilities.
The Black Hats can then exploit these shadow AI implementations to get access to systems, steal data, manipulate outputs, and more; the possibilities are legion. Without proper integration into the organization’s security infrastructure, shadow AI can become a Welcome mat for attackers.
So, what should companies do to protect against shadow AI? There are a number of steps that can be taken.
The first should be ferreting out all shadow AI. Conduct regular audits of network and cloud activity to identify unauthorized AI tool usage. Remember: IT can’t track or secure tools it doesn’t know about.
It’s also crucial to educate employees on the dangers of using unapproved tools—such as exposing sensitive data to public LLMs like ChatGPT—and provide clear guidelines on what is and isn't acceptable.
Next, establish a governance framework for AI. This should include creating policies for data access, tool vetting, and ethical use of AI.
One thing you probably shouldn’t do is forbid all use of AI tools, as this tends to lead to more shadow AI. Instead, make it easy for teams to request and adopt approved AI tools so they don’t feel the need to go rogue.
Finally, integrate technical safeguards. Use data loss prevention (DLP), endpoint detection, and identity access controls to block unauthorized data sharing with AI platforms.
And before all this starts, get buy-in from the C suite (where it’s likely some shadow AI exists as well). Align with departments like security, compliance, and HR to ensure you’re all working from the same playbook.
Shadow AI can do great harm to your organization; on the other hand, AI is also here to stay, and can also be a great help. Outlawing its use isn’t the answer for most; rather, the best way forward is to make sure you control every instance of it, and train users on how to use it safely and properly.
