Treasury Secretary Bessent says the US could sanction China over AI model theft

8:37 AM · July 21, 2026

Treasury Secretary Scott Bessent said the Trump administration will look into whether Chinese AI models have been distilled from American models and warned that the government could sanction Chinese labs over the practice, according to TechCrunch and CNBC. Distillation is an AI training method in which a smaller, less capable model is built using the outputs of an existing, more powerful model, and Bessent said the administration is finding watermarks belonging to US large language models embedded in a number of Chinese models, calling the practice unacceptable and stating plainly that if overseas models are found to be stealing from American companies, the government has the ability to sanction them over that theft. Bessent said the administration would be examining the issue in the coming days or weeks, without naming specific companies or laying out what form sanctions might take. The warning arrives just days after Moonshot AI's Kimi K3 drew international attention for performance that independent researchers say appears to outpace what its publicly disclosed computing resources should theoretically be able to produce, feeding suspicion in Washington that its capabilities may rest partly on unauthorized use of US models. The comments mark an escalation beyond the export control and procurement focused measures the administration had previously been considering, introducing the more direct threat of sanctions specifically over alleged intellectual property theft.