Artificial intelligence companies OpenAI and Google have been supplying advanced AI technology to subsidiaries of Chinese tech giants that appear on a Pentagon blacklist, revealing a significant loophole in America’s efforts to restrict Beijing’s AI development.
The Financial Times reports that OpenAI and Google confirmed that they have been providing AI services to Singapore-based subsidiaries of Alibaba, Baidu and Tencent, which the U.S. government has accused of working with China’s military. While these sales are technically legal under current regulations, the revelations have intensified demands for stricter U.S. oversight of AI model exports, similar to existing restrictions on semiconductor chips used to train powerful AI systems.
After being contacted by the Times this week, OpenAI announced it had suspended access to its API for Alibaba-affiliated users last month due to concerns about illicit use. The API is a software interface that allows developers to remotely access AI models. The suspension followed suspected distillation activity, a process in which developers use outputs from AI models to improve competing systems. OpenAI reported this activity to the U.S. government.
Breitbart News previously reported that AI giant Anthropic has accused Alibaba of a massive “distillation” attack designed to steal its AI model:
According to the letter, Alibaba carried out what Anthropic described as the largest known distillation attack on the company to date. Distillation is an AI training method where a smaller, less capable model is built using outputs from an existing, stronger model. Anthropic stated that operators affiliated with Alibaba and its AI lab conducted 28.8 million exchanges with Anthropic’s models using approximately 25,000 fraudulent accounts between April 22 and June 5.
An Anthropic spokesperson said in a statement, “We believe combating the threat of illicit distillation requires coordinated action between government and industry, and we will continue working with Congress and the Administration to maintain American AI leadership.” A representative for Alibaba did not immediately respond to CNBC’s request for comment.
The three Chinese companies appear on the congressionally mandated 1260H list, a blacklist that identifies Chinese firms with alleged ties to the People’s Liberation Army. Despite this designation, the U.S. government has not implemented a comprehensive ban preventing Chinese-headquartered entities from accessing cutting-edge AI software more broadly. While the government has moved to control access to specific advanced AI models such as Anthropic’s Mythos and Fable and OpenAI’s GPT-5.6, a broader prohibition remains absent.
OpenAI stated that while it does not allow its models to be accessed in China, it permits some companies with Chinese ownership or headquarters to use its tools for operations in countries where the company can enforce safeguards and monitor for distillation. The company explained its position by saying “we would rather see more of the world using AI shaped by democratic values than AI controlled by autocratic governments,” adding that “we don’t think nationality alone should decide access.”
Google similarly confirmed that its AI services are available in Hong Kong and Singapore, subject to usage policies including prohibitions on distillation. However, the company noted that geographic sales restrictions alone were insufficient to mitigate distillation risks, as sophisticated attackers could easily circumvent such measures.
Alibaba has not immediately responded to requests for comment, though last month the company sued the Pentagon to remove it from the 1260H blacklist, describing the designation as arbitrary and capricious. Baidu declined to comment, and Tencent did not respond to requests for comment regarding how it was using US AI models.
Anthropic has taken a stricter stance, banning Chinese companies and foreign entities owned by them from using its advanced models. The position has proven difficult to enforce, and last week the company moved to close loopholes that allowed some Chinese companies to circumvent its restrictions on unauthorized use in the country.
The war to control AI between America and China becomes even more complex as the deep ties between U.S. tech giants and the Communist country become clearer. Breitbart News social media director Wynton Hall has written his instant bestseller Code Red: The Left, the Right, China, and the Race to Control AI to serve as the definitive guide on how the MAGA movement can create positions on AI that benefit humanity without handing control of our nation to the leftists of Silicon Valley or allowing the Chinese to take over the world.
Read more at the Financial Times here.
Lucas Nolan is a reporter for Breitbart News covering issues of AI, free speech, and online censorship.
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