US Warns Chinese AI Firms Could Face Sanctions Over Model Distillation

Chinese open-source AI developers are narrowing the performance gap with US leaders, increasing competitive pressure on OpenAI, Anthropic and other American companies. Washington increasingly views advanced AI models as both valuable commercial assets and national-security technology, amid concern that intellectual property created through substantial private investment could be copied or misappropriated. The dispute could expand US-China technology controls beyond advanced chips and computing infrastructure to the models themselves.

US Treasury Secretary Scott Bessent said the government would examine whether Chinese open-source AI models were developed using stolen intellectual property and impose sanctions if the allegations are substantiated. The Trump administration is also considering a sweeping ban on Chinese open-source models, according to reports. As of July 22, 2026, officials had not publicly identified targeted companies or disclosed an investigative deadline, sanctions list or effective date for any ban.

Model distillation, a common technique, uses the outputs of powerful models to train smaller ones. The controversy arises when competitors use fake accounts to extract capabilities from closed models at scale, potentially violating terms of service. On February 23, 2026, Anthropic accused DeepSeek, Moonshot AI and MiniMax of using about 24,000 fake accounts to interact with Claude more than 16 million times, making model capabilities a new front in the US-China technology and national security rivalry.

Bill Huizenga and John Moolenaar introduced H.R. 8283 on April 15, 2026. The US House Foreign Affairs Committee approved the bill on April 22 and sent it to the full House. The legislation would establish a public list and could place companies including DeepSeek, MiniMax and Alibaba on the Commerce Department's Entity List. It would also authorize asset freezes under the International Emergency Economic Powers Act of 1977. The Congressional Budget Office estimates that the measure would require $35 million in appropriations from 2026 through 2031.

Model distillation is intended to let smaller models learn from larger “teacher models,” reducing training costs. The controversy arises when third parties harvest outputs at scale without authorization, potentially replicating proprietary capabilities and removing safety guardrails. OpenAI, Anthropic, Google and Microsoft established the Frontier Model Forum on July 26, 2023. Their cooperation is important to protecting the results of hundreds of billions of dollars invested in data centers and research and development.

On April 6, 2026, OpenAI, Anthropic and Google shared intelligence through the Frontier Model Forum to identify adversarial distillation that violated their terms of service. In February, Anthropic accused DeepSeek, Moonshot and MiniMax of using 24,000 fake accounts to conduct 16 million interactions. U.S. estimates indicate that such activity costs the industry billions of dollars in lost profits each year.