On 27 July, Moonshot AI is scheduled to release Kimi K3 as a fully open-source model — free to download, free to customise, and, according to the White House, built in part on capabilities that were never Moonshot's to take. Michael Kratsios, President Donald Trump's science and technology adviser, posted on X on Wednesday that the US government holds information suggesting Moonshot conducted a large-scale campaign to extract the intelligence baked into Anthropic's Fable AI model through a technique called distillation, in which a less powerful model is trained by repeatedly querying a stronger one until it absorbs its reasoning patterns. Kimi K3 had already attracted global attention when it was unveiled last week, with benchmark results that many analysts interpreted as evidence that the gap between Chinese and Western frontier AI had narrowed sharply. Kratsios went further, alleging that Moonshot also gained access to Nvidia's GB300 Grace Blackwell servers — hardware whose export to China has been restricted by Washington since 2022, on the grounds that the chips could enhance Chinese military capabilities.

Governments across Asia, Europe, and the Middle East have since tightened enforcement against chip smuggling, yet the allegation implies the embargo was circumvented nonetheless. The accusations arrive at a moment of unusual diplomatic sensitivity. Treasury Secretary Scott Bessent warned on Wednesday that sanctions would be "on the table" for any Chinese company found to have conducted what he called "industrial-scale distillation attacks," drawing a careful line between open-source cooperation, which the US says it supports, and systematic intellectual-property theft. Beijing has not yet issued a formal response, though it has previously attributed China's AI progress to domestic effort and legitimate international collaboration.