US Treasury Secretary Scott Bessent said the Trump administration is investigating if Chinese AI systems have been developed using outputs from American models, adding that officials have identified "watermarks of our U.S. large language models on many of the Chinese models." Speaking to Fox Business, Bessent stated, "We are finding watermarks of our U.S. large language models on many of the Chinese models, and that’s unacceptable. We’re going to be looking at that in the coming days or weeks." He warned that the US could impose sanctions if it determines that Chinese AI companies benefited from intellectual property theft, noting, "If we see, especially that overseas models are stealing from our great companies, we have the ability to sanction them because of this theft." Bessent's remarks follow letters from OpenAI and Anthropic to the US government complaining about Chinese AI companies allegedly using their models without authorisation. Anthropic wrote to the US Senate Committee on Banking, Housing, and Urban Affairs last month, alleging that Alibaba had carried out "the largest known distillation attack" against the company. Bessent described distillation as an AI training technique in which a smaller model is developed using the outputs of a larger model. The comments come ahead of planned AI discussions between the US and China in September, with Bessent expected to lead the US delegation before Chinese President Xi Jinping's planned visit to the US on September 24. Separately, Anthropic agreed to pay $1.5 billion to settle a class-action