It wasn't worded in the clearest way but I believe the author is talking about AA in the context of Ivy leagues specifically, and that AA at those institutions has done nothing to offset the % of (mostly white) elites who gain access through athletics/legacy admissions, etc. How this benefits those same elites is that by having universities push AA as a part of their public image (i.e., we're doing our part in fixing the damage done by our slave-owning founder) it draws attention away from the privileged forms of admission that actually impact who attends Ivy Leagues. Basically AA at those schools is a smokescreen that does very little while allowing those schools to pretend like they're helping fight for anti-racism, social equity, and so on.

So AA is bad due to malicious compliance? Isn't that throwing the baby out with the bathwater?

It's that AA affects a different pool than the ADLC (athletes, legacies, rich people, faculty/staff people). The ADLC pool remains.