From Frontier to Shadow AI: A Simmering Threat to Assurance and Security in Critical Infrastructure
For critical infrastructure operators and regulators, this work identifies a systemic socio-technical threat from shadow AI that undermines data protection, decision reliability, and regulatory compliance.
This paper presents the first empirical study of shadow AI in critical infrastructure, revealing that unsanctioned use of frontier AI systems erodes assurance and security through three mechanisms: boundary bypass, unassessed capability expansion, and loss of observability. Based on interviews with 27 Australian CI organizations, the study demonstrates that shadow AI introduces unmanaged risks that challenge existing security and compliance frameworks.
Frontier AI systems, including large language models and emerging agentic AI tools, offer significant operational benefits but present unique challenges to critical infrastructure (CI) environments due to their non-deterministic and emergent properties. While formal adoption is inherently cautious and tightly controlled due to strict regulatory oversight, widespread accessibility has catalysed shadow AI: the unsanctioned use of frontier AI outside established organisational controls. In CI settings, shadow AI bypasses established assurance and oversight mechanisms, amplifying risks to data protection, decision reliability, and regulatory compliance, with potential consequences for essential service delivery. We present the first empirical study of shadow AI in CI environments, characterising it as a systemic socio-technical condition of assurance erosion. Drawing on semi-structured interviews with senior executives and functional leaders across 27 Australian CI organisations (Communications, Energy, and Water and Sewerage sectors), we analyse how shadow AI manifests in practice, how it interacts with existing technical and governance controls, and the resulting security, assurance, and compliance risks. We develop an empirically derived threat model identifying three primary mechanisms of security degradation: (i) boundary bypass, where data flows circumvent established perimeters; (ii) unassessed capability expansion, where embedded AI features introduce latent risks; and (iii) loss of observability via governance circumvention, undermining forensic auditability and least-privilege enforcement. Our findings demonstrate that shadow AI introduces unmanaged risks that fundamentally challenge existing security and compliance frameworks, necessitating tailored, pathway-aligned governance and control strategies.