Your company's owner was promoting the feature and joking about it, and called enforcement against it "fascism". CSAM generation kept up for weeks after the initial news articles, and as far as I can tell deepfake generation is still a feature. It's hard to take your AUP seriously here when you've seemingly done nothing technical to actually prevent the action.
CSAM is by definition limited to real imageries and cannot be generated. "Generative CSAM" is like "false true information".
The thing about criticisms that Grok generates "CSAM" images, as well as many similar claims using that acronym, are actually more likely to be intentional mislabeling intending to refer to anime images. Advocates groups with British links love to do it, supposedly to avoid having to name states and/or ethnicity associated with it. which is frustrating because this is how BS like in GP is allowed to exist.
As for deepfakes... 100% they allow it, with weak plausible suggestion feature to decline it. They know that nobody will allow it if given an option. Same deal as Middle Eastern bot spams on Twitter: taking actual measures is against whatever their goals.
People have been prosecuted and convicted here in Sweden for Japanese hand drawn CSAM.
I think it comes down to different ideas of why the law exists. If you believe removing access to pornographic material for this category means people will have a harder time becoming pedophiles, then that's how the Swedish law makes sense. If you believe pedophilia is a tragic disease that we can't treat and that synthetic pornography can help these people lead somewhat dignified lives without hurting children, then the Swedish law is actively damaging. Ultimately I don't think we have a strong scientific basis for any of those two view points currently. I'm leaning towards the second, but weakly.
The usual Japanese talking point is that CSAM laws exist for rights and wellbeing of kids, which are real human being. If it's used/defined for cases that are not plausibly harmful to kids, such as some adults doing some things nowhere near kids using none of real materials, then it's often argued that the law is abusively defined/used, and/or plain broken. That talking point, incidentally, should logically validate against texts of laws, though sometimes it may not with the intents between the lines like you've brought up.
But that logic usually align perfectly with the texts of laws. Those laws aren't supposed to be adult pedos beating and correction laws. They're not pedo soft landing laws either, they are supposed to be parts of younglings protection laws, globally. Technically that should be all that matters. So there's that.
