Earlier quoted context omitted.
> This will also allow them to, instead of blocking the distillation agents, respond with a poorer result/model, i.e. this will allow them to literally commit fraud against paying customers
1st, this technique is not fraud, and fraud is a separate accusation. 2nd, paying customers can legally and legitimately be banned and monitored for breaking terms of service, which probably includes things like using the model against U.S. export restrictions.
Yes, I said that. If a user is breaking your terms of service, ban them. Continuing to charge them while not providing the service they're paying for is, in fact, literal textbook fraud.