U.S. Charges Man in $300 Million Nvidia Chip Smuggling Case as Officials Fault Company's Safeguards
U.S. prosecutors have charged a man with smuggling $300 million worth of Nvidia AI chips to China, and officials say the company has not done enough to stop the illegal diversion of its hardware.
Greg Lui was arrested this week on charges of smuggling servers containing $300 million worth of AI chips to China in violation of U.S. export laws. The case follows the release earlier this year of surveillance video showing someone using a red hair dryer to peel serial number stickers off Nvidia server boxes, a step authorities say was meant to disguise where the AI chips were headed.
According to Bloomberg, the arrests reflect an expanding criminal network that reroutes Nvidia's AI chips to China, profiting from Washington's export controls that make the restricted silicon valuable. Nvidia says it has abided by the rules and has never been accused of abetting smuggling. Government officials and industry critics point instead to gaps in the company's due diligence and question how it failed to notice red flags.
One of those red flags is shipments to countries adjacent to China, such as Thailand and Singapore, that exceed what those markets could use. "I've never felt like we got a straight answer as to how it's possible for so many chips to be going to the Southeast Asia region if they were not serving customers in China," said Daniel Remler, former head of AI policy at the State Department.
Bloomberg also reported that operators in western China are building dozens of data centers capable of housing 115,000 restricted Nvidia processors. U.S. officials now believe China has already smuggled that many chips and more, according to people Bloomberg cited.
One alleged operation involved Super Micro and the hair dryer. Accused collaborators from the wholesaler, including Super Micro co-founder Yih-Shyan "Wally" Liaw, allegedly found buyers in China eager to purchase Nvidia's latest AI technology. To get around export controls, the company sold about $2.5 billion worth of AI servers to a Bangkok-based firm called OBON, which was ostensibly using them to build AI infrastructure in Thailand. The servers were shipped instead directly to end users in China, and to fool compliance officers, the conspirators used a hair dryer to remove stickers from genuine Nvidia products and stick them onto dummy servers.
Officials say Nvidia should have noticed that OBON lacked the physical capacity, 100 megawatts of data center space, to host the number of servers it bought. Thailand has only a few hundred megawatts of AI data centers up and running, so such an enterprise would have been newsworthy.
Nvidia disputed that notion. "A startup's growth plan in a friendly nation is an opportunity for America, not a 'red flag' to be feared," a spokesperson said. "Nvidia-powered servers are financeable assets that help startups secure capital and infrastructure, including data center space. When the law is clear, American companies honor U.S. laws as they are, not as America's critics wish they were." The company added that advances in AI chips from Huawei mean Chinese buyers do not need to smuggle Nvidia hardware.
Nvidia CEO Jensen Huang has lobbied U.S. officials to relax export curbs on China and other Asian nations, and last year persuaded the Trump administration to allow sales of the previous-generation Hopper H200 accelerators to China. Support in Congress and the Senate for tighter export rules has been tepid aside from a few hawks such as Senator Elizabeth Warren. Huang recently declined Warren's invitation to testify on Capitol Hill. "If Mr. Huang has time to attend a $1 million-a-head dinner at Mar-a-Lago and fly across the world to meet with President Xi Jinping of China, he should be able to find time to answer questions from Congress," she said.