The White House has accused Chinese AI startup Moonshot AI of secretly distilling proprietary technology from Anthropic's advanced large language model, Fable, to create its own Kimi K3 model. Michael Kratsios, director of the White House Office of Science and Technology Policy, said, "We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model. Large-scale, covert industrial distillation aimed at stealing proprietary US technology and undermining American research is unacceptable." The allegations were publicly detailed on July 22, 2026, alongside disclosures that Moonshot used Nvidia GB300-equipped servers in Thailand for training, potentially breaching US export controls on high-end AI chips [1, 2, 3, 4, 5, 6].

Moonshot AI reportedly developed a sophisticated internal platform enabling large-scale distillation against US models while switching rapidly between access methods to evade detection. Distillation trains a smaller AI to mimic a more powerful model’s output. While common in AI research, US officials condemn large-scale covert distillation targeting intellectual property theft [1, 2, 3, 4, 7, 5, 6].

Moonshot’s Kimi K3 model contains 2.8 trillion parameters, making it the world’s largest open-weight AI system, performing close to Anthropic’s Fable. Moonshot plans to release Kimi K3’s full weights publicly for download and customization later this month [1, 8, 9, 7, 5, 6].

US Treasury Secretary Scott Bessent warned on July 21, 2026, that sanctions against foreign companies stealing US AI technology, including Moonshot AI, were under consideration. He said, "If we see, especially that overseas models are stealing from our great companies, we have the ability to sanction them because of this theft. We’re going to be looking at that in the coming days or weeks." Earlier in April 2026, the US State Department launched a global diplomatic campaign highlighting Chinese firms attempting to steal US AI intellectual property, specifically targeting Moonshot AI [1, 2, 10, 9, 7, 5, 11, 6].

The Chinese embassy dismissed the accusations as unfounded. Spokesperson Liu Chang urged the US to "respect the facts, discard prejudice and stop smearing and discrediting China's achievements in the development of its AI industry" [11].

Some experts question whether Moonshot’s Kimi K3 was primarily developed through distillation given that Anthropic’s Fable was recently publicly available, but US officials maintain their position that Moonshot conducted industrial-scale covert distillation [1, 2, 10, 5].

Moonshot AI is scheduled to release the full weights of its Kimi K3 model soon, allowing public download and customization.