Veil-Then-Reveal: Protecting PII Privacy via Reversible Pseudo-Anonymization in Zero-Trust User--LLM Interaction

LLM-based assistants transmit user queries verbatim to third-party API endpoints that lie outside the user's audit or control. When those queries contain personally identifiable information (PII), the data persists on remote infrastructure subject to breach, subpoena, or policy change. Placeholder redaction (the prevailing mitigation) suppresses PII at the cost of semantic coherence, producing structurally degraded queries and correspondingly degraded responses. We present SurrogateShield, a client-side proxy that substitutes detected PII with locally generated, type-consistent surrogate values prior to transmission and restores originals in the response. No real PII crosses the network boundary. Detection runs through a three-stage cascade (PatternScan, EntityTrace, and ContextGuard) covering 22 PII types and quasi-identifier combinations grounded in Sweeney's k-anonymity framework. Surrogate-to-original mappings are sealed in an AES-256-GCM encrypted per-conversation ShadowMap that never leaves the device. Evaluations on a 1,124-query corpus demonstrate that the cascade reliably detects PII, achieving an overall F1 score of 98.87%. Surrogate substitution substantially outperforms placeholder redaction in semantic utility, yielding a 13.26 pp improvement in BERTScore (roberta-large), from 81.59% to 94.85%. Within this corpus, the local pipeline restricted real PII transmission across all tested query types; in a 100-query adversarial trial, a prompted LLM adversary recovered no original values from surrogate-substituted messages.

Recent work on protecting privacy during user-LLM interactions often focuses on direct, explicit identifiers: the personally-identifiable information (PII) captured by standard detectors. One such approach is Privacy-Conscious Delegation (PCD), where a local LLM acts as an intermediary. However, privacy risk does not stem solely from explicit identifiers but also PII-free self-disclosures, leaving users identifiable through combinations of quasi-identifying traits. We investigate a probabilistic variant of PCD, where we augment its objectives with an LLM-driven probabilistic estimation of k-anonymity. To facilitate this, we first create the PUPA-SD dataset, which contains naturalistic user queries with self-disclosure. Our preliminary results indicate that optimizing PAPILLON on PUPA-SD improves quality on unseen conversations across a variety of local models and produces the best privacy-utility balance for Llama-3.2-3B, while smaller models struggle to jointly optimize quality and privacy. We propose k-anonymity as a useful auxiliary metric for tackling PCD.

Responsible use of AI demands that we protect sensitive information without undermining the usefulness of data, an imperative that has become acute in the age of large language models. We address this challenge with an on-premise, LLM-driven substitution pipeline that anonymizes text by replacing personally identifiable information (PII) with realistic, type-consistent surrogates. Executed entirely within organizational boundaries using local LLMs, the approach prevents data egress while preserving fluency and task-relevant semantics. We conduct a systematic, multi-metric, cross-technique evaluation on the Action-Based Conversation Dataset, benchmarking against industry standards (Microsoft Presidio and Google DLP) and a state-of-the-art approach (ZSTS, in redaction-only and redaction-plus-substitution variants). Our protocol jointly measures privacy, semantic utility, and trainability under privacy via a lifecycle-ready criterion obtained by fine-tuning a compact encoder (BERT+LoRA) on sanitized text. In addition, we assess agentic Q&A performance by inserting an on-premise anonymization layer before the answering LLM and evaluating the quality of its responses. This intermediate, type-preserving substitution stage ensures that no sensitive content is exposed to third-party APIs, enabling responsible deployment of Q&A agents without compromising confidentiality. Our method attains state-of-the-art privacy, minimal topical drift, strong factual utility, and low trainability loss, outperforming rule-based approaches and named-entity recognition (NER) baselines and ZSTS variants on the combined privacy--utility--trainability frontier. These results show that local LLM substitution yields anonymized corpora that are both responsible to use and operationally valuable: safe for agentic pipelines and suitable for downstream fine-tuning with limited degradation.