U.S. Treasury Secretary Scott Bessent warned Chinese AI firms that sanctions remain possible after a White House official accused Moonshot of distilling Anthropic‘s Fable model.
Model distillation involves training a smaller system on the outputs of a larger one. The method is common, though it can infringe intellectual property rights.
“Open source is not open season on American IP,” Bessent posted on X. “When [Chinese] firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table.”
Bessent stated earlier this week that the U.S. government would examine open source models from China for signs of intellectual property theft and impose sanctions if found.
Bessent’s latest remarks come hours after the White House’s science and technology policy chief Michael Kratsios accused the China-based Moonshot of conducting large scale distillation against U.S. models. He alleged that Moonshot had acquired Nvidia’s GB300-equipped servers and has accessed GB300s in Thailand, likely to train its AI models. This raises questions about whether the firm violated U.S. export control rules.
The GB300 servers are part of Nvidia’s Blackwell generation, which are banned from being sold to Chinese companies.
Some experts dispute the idea that Kimi K3 could have been developed primarily through distillation from Fable, which has only been publicly available since July 1. Moonshot released K3 last week as an open-weight model. Its advanced capabilities have called into question the underlying business models of leading U.S. AI labs, casting doubt on whether they can continue to justify the enormous capital requirements underpinning the frontier AI race.
The episode has also intensified a broader debate in Washington over the influx of Chinese open models. Some, including former White House AI advisor and current OpenAI Head of Strategic Futures, Dean Ball, have argued that the U.S. should restrict or effectively ban the use of Chinese open-weight models to preserve America’s technological advantage and mitigate potential national security risks.
TechCrunch has reached out to Moonshot and the Treasury for comment.
What it means
Developers building on open weights face a new risk. If a model is suspected of distilling American IP, the associated company could face sanctions or an Entity List designation. For teams using Chinese open-weight models, the pressure is to verify their training data sources, as the U.S. government may scrutinise these systems for theft.
