U.S.

Treasury Secretary Scott Bessent doubled down on warnings to Chinese AI companies, stating that sanctions remain on the table after White House science and technology policy chief Michael Kratsios accused China-based Moonshot of conducting large-scale distillation of Anthropic’s Fable model.

Model distillation, a common technique where a smaller model learns from a larger one, can infringe intellectual property rights but is also widely used as a legitimate optimization method.

Bessent posted on X that “open source is not open season on American IP” and that covert, industrial-scale distillation attacks crossing into IP theft could trigger sanctions and Entity List designations.

Kratsios also alleged that Moonshot acquired Nvidia’s GB300-equipped servers, which are banned from sale to Chinese companies, and accessed GB300s in Thailand, raising questions about possible violations of U.

S. export control rules.

Some experts dispute that Moonshot‘s recently released open-weight model Kimi K3 could have been developed primarily through distillation from Fable, which has only been publicly available since July 1.

The advanced capabilities of Kimi K3 have called into question the business models of leading U.S.

AI labs, casting doubt on whether they can justify the enormous capital requirements of the frontier AI race.

The episode has intensified a broader Washington debate over Chinese open models, with some, including former White House AI advisor Dean Ball, arguing that the U.S.

should restrict or ban the use of Chinese open-weight models to preserve America’s technological advantage and mitigate national security risks.