Justice Department shuts down $160M Nvidia AI chip smuggling route to China

The US Justice Department on Tuesday confirmed it shut down a China‑linked smuggling ring that moved or tried to move more than $160 million worth of Nvidia AI chips out of the United States and into banned markets, according to the US Attorney’s Office for the Southern District of Texas.

Two businessmen were arrested, while a Houston‑based company and its owner already pleaded guilty as the wider case continues to unfold.

The crackdown lands as Washington tightens the screws on export controls meant to block China from getting advanced AI computing power built on Nvidia GPUs.

The probe, named Operation Gatekeeper, focused on chips with civil and military uses, which prosecutors say could damage US national security if they fall into the wrong hands.

Hsu moves $160M in Nvidia GPUs through fake paperwork

Newly unsealed court filings show Alan Hao Hsu, 43, of Missouri City, Texas, and his company Hao Global LLC admitted guilt on October 10 to smuggling and illegal exports.

Prosecutors said Alan and his network exported or attempted to export at least $160 million in Nvidia H100 and H200 GPUs between October 2024 and May 2025.

The H100 and H200 are not Nvidia’s most advanced chips, but they still sit on the restricted list and cannot be shipped to China without a special federal license.

Authorities said Alan ran his pipeline by falsifying shipping records, mislabeling the GPUs, and hiding their real destinations across China, Hong Kong, and other banned locations.

Investigators tracked more than $50 million in money tied to China that flowed into the operation to fund the purchases. Alan remains free on bond and faces up to 10 years in prison at sentencing on February 18. Hao Global LLC could face fines up to twice its illegal profits and be placed on probation.

A Nvidia spokesperson, speaking to CNBC, said the rules stay tight even in resale markets, adding that “even sales of older generation products on the secondary market are subject to strict scrutiny and review.”

The spokesperson added, “while millions of controlled GPUs are in service at businesses, homes, and schools, we will continue to work with the government and our customers to ensure that second‑hand smuggling does not occur.”

Gong and Yuan run parallel routes through Hong Kong and New York

US prosecutors also charged Fanyue Gong, 43, a Chinese citizen living in New York, and Benlin Yuan, 58, a Canadian citizen living in Ontario, for running separate but related schemes.

Benlin serves as CEO of a US unit of a Beijing‑based IT company, while Fanyue owns a New York technology firm. Authorities said both men worked with a Hong Kong logistics company and a China‑based AI company to bypass US chip controls.

Prosecutors said Fanyue used straw buyers and middlemen to purchase GPUs while lying about the final destination by claiming the end users were in the US or permitted third countries. Workers at US warehouses then relabeled the shipments under fake names, marked them as generic parts, and exported them to China and Hong Kong.

Benlin is accused of recruiting inspectors, ordering them to hide Chinese destinations, building cover stories to free seized cargo, and feeding false information to US authorities.

Prosecutors also said Benlin managed storage for additional GPU shipments. If convicted, Benlin faces up to 20 years for conspiracy to violate the Export Control Reform Act, while Fanyue faces up to 10 years for conspiracy to smuggle.

The investigation was led by the Commerce Department’s Bureau of Industry and Security, the agency that polices US export rules tied to Nvidia and other chipmakers. The bust follows a string of recent cases tied to illegal Nvidia shipments, as lawmakers push to close gaps in chip enforcement.

At the same time, President Donald Trump said that Nvidia will be allowed to ship H200 chips to approved buyers in China and other countries, but only if the US takes a 25% cut of the profits.

Even though the H200 is not Nvidia’s most advanced chip, it would become the top model legally available in China and could ease local pressure for AI computing power.

Alibaba, Baidu, and several Chinese startups continue racing to build alternatives to Nvidia, while Huawei is ramping up its Ascend AI chip line and stacking massive clusters to chase similar performance.

Jensen Huang, Nvidia’s CEO, said in June that Huawei would be able to cover China’s chip needs if Nvidia were locked out entirely.

For now, Alibaba, Tencent, and Baidu keep training models using stockpiled Nvidia chips from before the bans, mixed with local Chinese semiconductors. As China pushes deeper into self‑sufficiency, the open question remains whether Beijing will even want its companies buying American Nvidia chips at all.

Join a premium crypto trading community free for 30 days - normally $100/mo.