US Treasury Threatens Sanctions After White House Accuses Moonshot of Distilling Anthropic's Fable

U.S. Treasury Secretary Scott Bessent doubled down on his warnings to Chinese AI companies on Wednesday, stating that sanctions are still on the table after a White House official accused China-based Moonshot of conducting large-scale distillation against U.S. models.

Model distillation is a common AI training technique where a smaller model learns from the outputs of a larger one. While it can infringe on intellectual property rights, it is also widely used as a legitimate optimization method. Bessent posted on X: "Open source is not open season on American IP. 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."

Earlier this week, White House science and technology policy chief Michael Kratsios alleged that Moonshot had acquired Nvidia's "GB300-equipped servers" and accessed GB300s in Thailand, likely to train its AI models, raising questions about export control violations. The GB300 servers are part of Nvidia's Blackwell generation, which are banned from sale to Chinese companies.

Some experts dispute the idea that Moonshot's Kimi K3 model 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, and its advanced capabilities have called into question the business models of leading U.S. AI labs.

The episode has 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 ban the use of Chinese open-weight models to preserve America's technological advantage.