U.S.Treasury Secretary Scott Bessent has warned Chinese AI firm Moonshot of potential sanctions after the White House accused it of improperly distilling Anthropic’s Fable model.

Model distillation, a common AI training technique where a smaller model learns from a larger one, is both a legitimate optimization method and a potential intellectual property infringement.

Bessent emphasized that open source does not equate to open season on American IP, stating sanctions and Entity List designations could follow if Chinese firms engage in covert, industrial-scale distillation attacks that cross into IP theft.

This follows allegations by White House science chief Michael Kratsios that Moonshot accessed Nvidia’s banned GB300 servers in Thailand to train its AI models.

Experts debate whether Moonshot’s K3 model, released as an open-weight model, was primarily developed through distillation from Fable, which became publicly available in July.The controversy has intensified debates over Chinese open models, with some advocating for U.S.restrictions to protect technological advantage and national security.TechCrunch has sought comments from Moonshot and the Treasury.