Scott Bessent Says Open Source AI Not ‘Open Season’ on American Intellectual Property, Warns Chinese AI Firms of Sanctions

Treasury Secretary Scott Bessent on Wednesday warned that Chinese artificial intelligence companies could face sanctions and Entity List designations if they use “industrial-scale distillation attacks” that cross into intellectual property theft.

Bessent Escalates Warning

In a post on X, Bessent said President Donald Trump‘s administration supports open-source AI and the innovation it unlocks but added that “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,” Bessent added.

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

Meanwhile, Rep. Ted Lieu (D-Calif.) questioned the administration’s decision to threaten sanctions over alleged AI IP theft while allowing the sale of high-performance AI chips to China.

Dear @SecScottBessent: Why is trump Administration green lighting the sale of high performance AI chips to the PRC? https://t.co/wv3XyoZ8pq

— Ted Lieu (@tedlieu) July 22, 2026

US Alleges Moonshot AI Used Anthropic Models

White House science chief Michael Kratsios on X said that the U.S. has information indicating Moonshot AI used Anthropic‘s Fable models to develop Kimi K3 through large-scale distillation and acquired or accessed NVIDIA Corp (NASDAQ:NVDA) GB300-equipped servers to train its AI 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

Separately, NVIDIA Corp (NASDAQ:NVDA) CEO Jensen Huang said U.S. companies should “absolutely” use Chinese AI models, calling AI distillation “fundamental to intelligence.”

On Tuesday, Bessent said the administration would examine allegations that Chinese AI developers had used “distillation” to extract capabilities from leading U.S. models, adding that officials had found watermarks from U.S. large language models in several Chinese AI systems.

Anthropic’s Allegations Against Alibaba

Anthropic in June accused Alibaba Group Holding Ltd.‘s (NYSE:BABA) Qwen AI unit of conducting a large-scale “distillation” campaign to extract capabilities from its Claude models.

The company alleged the effort relied on nearly 25,000 fraudulent accounts that generated more than 28.8 million interactions with Claude to help improve Chinese AI systems.

Benzinga edge rankings indicate NVDA has a Momentum score in the 71st percentile and a Growth score in the 98th percentile.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock/ Maxim Elramsisy