Chinese Moonshot Distilled Anthropic's Fable to Develop Its K3 Model; the White House Promises Sanctions

IBL News | New York

The Trump Administration accused the Chinese company Moonshot AI of stealing proprietary U.S. technology through a large-scale covert industrial operation, undermining American research, and it promised sanctions.

Specifically, the Director of the White House Office of Science and Technology Policy (OSTP), Michael Kratsios [in the picture above], said, “We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model.” 

“To do this, they developed a sophisticated internal platform to conduct large-scale distillation against U.S. models, allowing them to quickly switch between multiple methods of access to avoid detection. Moonshot AI has also acquired GB300-equipped servers and has accessed GB300s in Thailand, likely to train its AI models.”

The Trump Administration supports open-source frameworks and open-weight models, along with “legitimate AI distillation used to create smaller, more efficient models,” but Moonshot AI’s operation is “unacceptable.”

The Treasury Secretary Scott Bessent stated, “Open source is not open season on American IP. When PRC firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table.”

OpenAI President Greg Brockman disagreed, noting that it is “too early” to tell whether Moonshot used distillation on OpenAI’s models.

 

We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model.

To do this they developed a sophisticated internal platform to conduct large scale distillation against U.S. models, allowing them to quickly switch between multiple methods of…

— Director Michael Kratsios (@mkratsios47) July 22, 2026

We support open-source AI and the innovation it unlocks. But open source is not open season on American IP. When PRC firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table.

— Treasury Secretary Scott Bessent (@SecScottBessent) July 22, 2026