U.S. Threatens Sanctions Over AI Model Distillation

Treasury Secretary Bessent warned July 22, 2026, that "open source is not open season on American IP," threatening Entity List designations against Chinese firms doing large-scale model distillation — extracting knowledge from a trained AI by querying its API. The approach merges IP and export-control enforcement, shifting evidence from hardware seizures to software-level activity visible in API logs.