U.S. Treasury signals sanctions threat over Moonshot’s alleged Anthropic model distillation

U.S. Treasury Secretary Scott Bessent escalated warnings against Chinese AI companies on Wednesday, placing sanctions on the table after White House officials alleged that Moonshot improperly distilled Anthropic's Fable model.

The accusation centers on model distillation—a technique where a smaller AI model learns from a larger one's outputs. While distillation is a standard, legitimate optimization method in AI development, the U.S. government contends that large-scale, covert distillation can constitute intellectual property theft.

"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."

Michael Kratsios, the White House's science and technology policy chief, made the specific claim against Moonshot, alleging the firm had acquired Nvidia GB300-equipped servers and accessed GB300s in Thailand to train its models. The GB300 processors are part of Nvidia's Blackwell generation and are banned from sale to Chinese companies under U.S. export controls.

Moonshot released its K3 model last week as an open-weight offering. The timing of Kratsios's allegations raises questions about whether the company violated U.S. export-control rules, though some experts dispute whether K3 could have been developed primarily through distillation from Fable, which became publicly available only on July 1.

The dispute has intensified a broader Washington debate over the proliferation of Chinese open-weight models. Dean Ball, former White House AI adviser and current OpenAI Head of Strategic Futures, has argued the U.S. should restrict or ban Chinese open-weight models to protect American technological advantage and address national security concerns.

Bessent's remarks on Wednesday built on statements earlier in the week, when he said the U.S. government would scrutinize Chinese open-source models for signs of IP theft and impose sanctions if violations are found. TechCrunch reached out to Moonshot and the Treasury for additional comment.