1) The situation you described would be covered under the contract between Anthropic and xAI, and that any violation of that would be subject to financial penalties and legal proceedings. The US has a robust corporate legal system, and disputes do get resolved through the court system, although in a slow and costly manner.

The contract can stipulate a penalty at a high enough amount to discourage this behavior.

2) Output from models & intra-datacenter communications can be encrypted if customers truly cared.

3) There is no reason do this, because there are far better ways to exfiltrate data from Anthropic models. Chinese companies are already doing this at an industrial scale where they are reselling Claude tokens for 10-20% of the cost while retaining the data to train their own models. https://www.chinatalk.media/p/how-to-buy-cheap-claude-tokens...

If we look at Deepseek V4-pro, created by Deepseek who Anthropic formally accused of harvesting Claude tokens at scale, it performs the same as Claude did 6 months prior.

I guess there's a reason why those Chinese companies are in china