The U.S. Department of Justice (DOJ) announced on Tuesday that two Chinese nationals have been arrested for their alleged involvement in illegally shipping tens of millions of dollars’ worth of high-performance AI chips to China.
Chuan Geng and Shiwei Yang were arrested in California on August 2 and charged with violating the Export Control Reform Act, a felony that carries a maximum penalty of 20 years in prison. According to the DOJ, the pair knowingly and willfully shipped sensitive technologies, including GPUs, to China through their California-based company, ALX Solutions.
While the DOJ did not name the company whose chips were allegedly smuggled, it described the chips as “the most powerful on the market” and “designed specifically for AI applications.” This description strongly suggests the chips were made by Nvidia, and a Reuters report specifically identified them as Nvidia’s H100 GPUs.
An investigation of export documents revealed that ALX Solutions sent chips and other technology to shipping and freight-forwarding companies in Singapore and Malaysia, while receiving payments from entities in Hong Kong and China. The DOJ also found evidence of communications discussing the use of Malaysia as a way to circumvent U.S. export restrictions.
In response to the case, an Nvidia spokesperson stated that smuggling is ineffective, emphasizing that the company primarily sells its products to well-known partners who ensure compliance with export control rules. The spokesperson added that diverted products would receive no service, support, or updates.
This case emerges as the U.S. grapples with balancing global AI innovation and export restrictions to China, which many Western nations view as a significant competitor in the AI race. The Trump administration’s recently announced AI Action Plan stressed the importance of strong export controls but provided few specifics.
One proposed solution to curb chip smuggling involves embedding tracking technology into chips. However, chipmakers, including Nvidia, have strongly opposed this idea. In a blog post, Nvidia argued that adding backdoors or kill switches would compromise security, benefit hackers, and undermine trust in U.S. technology. The company stated that such measures would harm America’s economic and national security interests.
Nvidia did not immediately respond to requests for further comment.
The semiconductor industry has faced significant challenges this year, with ongoing developments shaping the market landscape.