The US Justice Department has confirmed the successful shutdown of a China-linked smuggling ring responsible for moving or attempting to move over $160 million worth of Nvidia AI chips out of the United States and into prohibited markets. This announcement was made by the US Attorney’s Office for the Southern District of Texas.
Two businessmen have been arrested in connection with the operation, while a Houston-based company and its owner have already pleaded guilty as the broader investigation continues to develop.
This crackdown occurs as Washington intensifies its efforts to tighten export controls, specifically aimed at preventing China from acquiring advanced AI computing power derived from Nvidia GPUs.
The investigation, codenamed Operation Gatekeeper, specifically targeted chips with potential civil and military applications. Prosecutors assert that the unauthorized transfer of these chips into the wrong hands could pose a significant risk to US national security.
Hsu Admits to Smuggling $160 Million in Nvidia GPUs via Fraudulent Documentation
Newly unsealed court documents reveal that Alan Hao Hsu, aged 43, residing in Missouri City, Texas, along with his company Hao Global LLC, entered guilty pleas on October 10 to charges of smuggling and illegal exports.
Prosecutors stated that Alan and his network were involved in the export or attempted export of at least $160 million in Nvidia H100 and H200 GPUs between October 2024 and May 2025.
While the H100 and H200 are not Nvidia's most cutting-edge chips, they remain on the restricted list and cannot be shipped to China without obtaining a special federal license.
Authorities detailed that Alan facilitated his smuggling operation by falsifying shipping records, mislabeling the GPUs, and concealing their true destinations, which included locations in China, Hong Kong, and other banned regions.
Investigators traced over $50 million in funds originating from China that were channeled into the operation to finance the chip purchases. Alan Hsu is currently free on bond and faces a potential prison sentence of up to 10 years at his sentencing scheduled for February 18. Hao Global LLC could be liable for fines up to twice its illegal profits and may be placed on probation.
A spokesperson for Nvidia, in comments to CNBC, emphasized that the company's export regulations remain stringent, even concerning sales in secondary markets. The spokesperson added that "even sales of older generation products on the secondary market are subject to strict scrutiny and review."
The spokesperson further stated, "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 Allegedly Operated Parallel Smuggling Routes Through Hong Kong and New York
US prosecutors have also brought charges against Fanyue Gong, a 43-year-old Chinese citizen residing in New York, and Benlin Yuan, a 58-year-old Canadian citizen living in Ontario. They are accused of orchestrating separate but connected smuggling schemes.
Benlin Yuan reportedly serves as the CEO of a US subsidiary of a Beijing-based IT company, while Fanyue Gong owns a technology firm based in New York. Authorities allege that both men collaborated with a Hong Kong logistics company and a China-based AI company to circumvent US chip export controls.
Prosecutors claim that Fanyue Gong utilized straw buyers and intermediaries to procure GPUs, while falsely declaring the final destinations and claiming the end users were located within the United States or in permitted third countries. Employees at US warehouses then allegedly relabeled the shipments under fictitious names, classified them as generic parts, and exported them to China and Hong Kong.
Benlin Yuan is accused of recruiting inspectors, instructing them to obscure Chinese destinations, devising cover stories to facilitate the release of seized cargo, and providing misleading information to US authorities.
Furthermore, prosecutors stated that Benlin Yuan managed storage facilities for additional GPU shipments. If convicted, Benlin Yuan faces a maximum sentence of 20 years for conspiracy to violate the Export Control Reform Act, while Fanyue Gong faces up to 10 years for conspiracy to smuggle.
The investigation was spearheaded by the Commerce Department’s Bureau of Industry and Security, the federal agency responsible for enforcing US export rules pertaining to Nvidia and other chip manufacturers. This bust follows a series of recent cases involving illegal Nvidia shipments, as lawmakers continue to advocate for stronger chip enforcement measures.
Concurrently, President Donald Trump has indicated that Nvidia may be permitted to ship H200 chips to approved buyers in China and other countries, provided the US receives a 25% share of the profits from these sales.
Although the H200 is not Nvidia's most advanced chip, it would represent the most powerful model legally available in China and could potentially alleviate the local demand for AI computing power.
Companies such as Alibaba, Baidu, and several Chinese startups are actively pursuing the development of alternatives to Nvidia's offerings. Meanwhile, Huawei is reportedly accelerating the development of its Ascend AI chip line and constructing extensive clusters to achieve comparable performance levels.
Jensen Huang, Nvidia's CEO, commented in June that Huawei would be capable of meeting China's chip requirements if Nvidia were completely barred from the market.
For the time being, Alibaba, Tencent, and Baidu are continuing to train their models using stockpiled Nvidia chips acquired before the export bans, supplemented by domestically produced Chinese semiconductors. As China increasingly focuses on self-sufficiency, a key question remains whether Beijing will ultimately opt to purchase American Nvidia chips for its companies.