US prosecutors just charged a man with smuggling NVIDIA chips into China, and government officials say the company isn’t doing everything it could to stop the illegal activities. Bloomberg reported.
Earlier this year, officials released a surveillance video showing someone using a red hair dryer to peel serial number stickers off NVIDIA server boxes in an effort to sneak AI chips into China. And yesterday, federal authorities arrested a man named Greg Lui for smuggling servers containing $300 million worth of AI chips into China, in violation of US export laws.
These efforts have reportedly seen an expanding network of criminals try to smuggle NVIDIA’s AI chips into China, taking advantage of Washington’s export controls that make contraband silicon valuable. NVIDIA says it abided by the rules and the company has never been accused of supporting smuggling. However, government officials and industry critics highlighted gaps in the company’s due diligence and questioned how it failed to notice red flags.
One of the red flags is around the countries next to China, such as Thailand and Singapore, and receive more shipments of chips than they can use. “I never felt like we got a straight answer on how it’s possible for so many chips to go to the Southeast Asia region if they’re not serving customers in China,” said former State Department AI policy chief Daniel Remler. At the same time, Bloomberg reported that operators in western China are building dozens of data centers that could hold 115,000 limited NVIDIA processors. US officials now believe China has already smuggled as many chips and more, reportedly Bloombergits sources.
An example of such an operation involves Super Micro and the famous red hair dryer. Alleged collaborators of that wholesaler (including Super Micro co-founder Yih-Shyan “Wally” Liaw) allegedly found buyers in China eager to buy NVIDIA’s latest AI tech. To get around export controls, the company sold about $2.5 billion worth of AI servers to a Bangkok-based company called OBON, which it apparently used to create AI infrastructure in Thailand. However, the servers were instead shipped directly to end users in China. To fool compliance officers, the conspirators removed stickers from genuine NVIDIA products with a hair dryer and placed them on dummy servers.
Officials say that NVIDIA should note that OBON does not have the physical capacity (100 megawatts of data center space) to host the number of servers it has purchased. Since Thailand only has a few hundred megawatts of AI data centers up and running, such an enterprise would certainly have been news.
NVIDIA has disputed this notion, however. “The growth plan of a startup in a friendly nation is an opportunity for America, not a ‘red flag’ to be afraid of,” a spokesperson said. “NVIDIA-powered servers are bankable assets that help startups secure capital and infrastructure, including data center space. When the law is clear, American companies respect US laws as they are, not as America’s critics want them to be.” The company added that progress in Huawei’s AI chip development means Chinese buyers don’t need to smuggle NVIDIA hardware.
NVIDIA’s CEO Jensen Huang has lobbied US officials to relax export restrictions to China and other Asian nations, and persuaded the Trump administration last year to allow the sale of its previous generation Hopper H200 accelerators in China.
Support in the US Congress and Senate for stricter export rules has been lukewarm, unlike some hawks like Senator Elizabeth Warren. NVIDIA Huang recently declined an invitation from Warren to testify on Capitol Hill, prompting a sharp response. “If Mr. Huang has time to attend a $1 million 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 at the time.