The Pentagon has designated artificial intelligence company Anthropic as a supply chain risk, marking the first time a US company has received a label typically reserved for foreign adversaries. The unprecedented move came after Anthropic refused to remove ethical restrictions preventing its Claude AI from being used for mass domestic surveillance or fully autonomous weapons.
Defense Secretary Pete Hegseth announced the designation last Friday, stating that "effective immediately, no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic." The Pentagon followed with an official statement Thursday confirming it had "officially informed Anthropic leadership the company and its products are deemed a supply chain risk, effective immediately."
Anthropic CEO Dario Amodei responded that "we do not believe this action is legally sound, and we see no choice but to challenge it in court." The company argues that under authority 10 USC 3252, supply chain risk designations only apply directly to Department of Defense contracts with suppliers, not to how contractors use Claude software for other customers.
The conflict stems from weeks of negotiations where Anthropic sought narrow exceptions prohibiting domestic surveillance and autonomous weapons in its contracts. The Pentagon demanded unfettered access for "all lawful uses" without specific restrictions.
"The military will not allow a vendor to insert itself into the chain of command by restricting the lawful use of a critical capability," stated a Pentagon official.
Hours after Anthropic's designation last Friday, rival OpenAI announced it had secured an agreement with the Department of Defense to deploy its AI models in classified environments. OpenAI CEO Sam Altman said their contract includes prohibitions on domestic mass surveillance and human responsibility for force use, though he later acknowledged having to amend agreements and called his initial deal "opportunistic and sloppy."
Major defense contractors are already responding to the designation. Lockheed Martin said it will "follow the President's and the Department of War's direction" and look to other large language model providers.
Microsoft stated its lawyers studied the rule and determined they can continue working with Anthropic on non-defense related projects.
The decision has sent shockwaves through Silicon Valley. Former White House AI policy adviser Dean Ball called it "the most shocking, damaging, and overreaching thing I have ever seen the United States government do."
OpenAI researcher Boaz Barak added that "kneecapping one of our leading AI companies is right about the worst own goal we can do."
Despite losing defense partnerships, Anthropic has seen consumer downloads surge. More than one million people signed up for Claude each day this week according to company data, making it the top AI app in more than 20 countries' Apple App Stores. The boost follows public support for Anthropic's ethical stance against unrestricted military use.
Senator Kirsten Gillibrand criticized the designation as "shortsighted, self-destructive, and a gift to our adversaries," noting that such tools were designed to address foreign threats rather than penalize American companies over ethical disagreements.
A group of former defense officials including ex-CIA director Michael Hayden called it "a profound departure from its intended purpose" that sets a dangerous precedent.
President Donald Trump had previously directed federal agencies to stop using Anthropic technology following weeks of public criticism from administration officials. Familiar with internal discussions at Anthropic, some in the Trump administration view Amodei unfavorably because he hasn't donated large sums or publicly praised Trump like other tech leaders.
