US Treasury Secretary Scott Bessent doubled down on his warnings to Chinese AI companies on Wednesday, saying sanctions remain on the table after a White House official accused Moonshot of improperly distilling Anthropic’s Fable model.

Model distillation is a common AI training technique in which a smaller model learns from the results of a larger one. While this process may infringe intellectual property rights, it is also widely used as a legitimate optimization method.

“Open source is not open season on American intellectual property,” Bessent posted on [Chinese] “Companies conduct industrial-scale covert distillation attacks that cross the line into intellectual property theft, sanctions and Entity List designations will be on the table.”

Earlier this week, Bessent stated that the US government would examine China’s open source models for signs of intellectual property theft and impose sanctions if found.

Bessent’s latest comments come hours after White House science and technology policy chief Michael Kratsios accused China-based Moonshot of conducting large-scale distillations against American models. It alleged that Moonshot had acquired “GB300-equipped servers from Nvidia and accessed GB300 in Thailand, likely to train its artificial intelligence models,” raising questions about whether the company violated U.S. export control rules.

The GB300 servers are part of Nvidia’s Blackwell generation, the sale of which is prohibited to Chinese companies.

Some experts dispute the idea that Kimi K3 could have been developed primarily through the distillation of Fable, which has only been publicly available since July 1. Moonshot launched K3 last week as an open-weight model, and its advanced capabilities have called into question the underlying business models of major US AI labs, raising questions about whether they can continue to justify the huge capital requirements underpinning the AI ​​frontier race.

The episode has also intensified a broader debate in Washington about the influx of Chinese open models. Some, including former White House AI advisor and current director of strategic futures at OpenAI, Dean Ball, have argued that the United States should restrict or effectively ban the use of Chinese openweight models to preserve the United States’ technological advantage and mitigate potential national security risks.

TechCrunch has contacted Moonshot and the Treasury for comment.