Export-controlled Nvidia GPUs worth $160 million allegedly smuggled into China

On December 8, federal prosecutors in Texas released documents revealing an investigation into a vast smuggling network that spanned the United States and the world.

Dubbed “Operation Gatekeeper” by the federal government, the investigation focused not on drug trafficking or stolen property, but rather on an alleged secret and clandestine network of drug suppliers. NvidiaGraphics processing units, or GPUs. These chips form the backbone of the AI ​​race and can be used for military or civilian purposes.

The government said a hidden smuggling ring was sending chips to China in defiance of U.S. national security export control laws. The smuggling syndicate allegedly involved agents entering the United States illegally, fake shell companies and a secret shipping warehouse in New Jersey that was infiltrated by at least one undercover agent working on behalf of the U.S. government.

The findings of this federal investigation illustrate the desperate struggle between the United States and China for access to the cutting-edge chips that many believe will control the fate of the global economy. The smuggling ring, they said, attempted to export at least $160 million worth of Nvidia H100 and H200 GPUs to China between October 2024 and May 2025.

The demand for these chips from China is huge, and the best supply is still in the United States. Although China is creating its own local AI chip market, the country remains heavily dependent on Nvidia’s technology.

“I think more than 60% of the major AI models in China currently use Nvidia hardware,” said Ray Wang, an analyst at SemiAnalysis. “Nvidia has [a] systematic advantage from hardware to software. And I think for now, if you combine [those] “It’s two factors coming together, it’s still something that China is trying to catch up with.”

While they were gathering the facts, the government sent an undercover agent to a warehouse in Secaucus, New Jersey. There, the person allegedly saw suspects relabeling Nvidia GPUs with the branding of a fake company they called “Sandkayan.” According to the government, shipping and export documents incorrectly classified the goods as “adapters,” “adaptor modules” and “contactor controllers.”

Operation Gatekeeper culminated in a dramatic scene at the New Jersey warehouse on May 28 when three trucks rented by the conspirators arrived to collect the contraband chips.

Almost in real time, a user of a text message chain allegedly used by the conspirators reported that one of the drivers of the truck transporting the goods to the New Jersey warehouse had reported that police officers had appeared on the scene and were asking questions about the destination of the cargo.

According to the texts, the conspirators asked the drivers to “simply say that they know nothing”.

Five minutes later, prosecutors say, one of the conspirators sent another message to the entire thread: “Disband this group chat. Delete everyone.” Shortly afterward, prosecutors said federal agents intervened and secured the high-tech equipment, preventing goods there from being shipped to China.

The case comes amid a wave of similar bankruptcies involving Unauthorized Nvidia exports in recent months. The think tank Center for a New American Security estimates that between 10,000 and several hundred thousand AI chips will be smuggled into China in 2024 alone.

“In today’s world, I feel like there are many illegal ways to get your hands on Nvidia chips,” Wang said. “You can set up your data center globally, you can have shell companies to buy Nvidia chips. And it’s very difficult for Nvidia to keep up and do due diligence.”

An Nvidia spokesperson told CNBC that U.S. government exports are rigorous and complete.

“Even aftermarket sales of older generation products are subject to careful and rigorous review,” the Nvidia spokesperson said. “As millions of controlled GPUs are in use in businesses, homes and schools, we will continue to work with the government and our customers to ensure there is no second-hand contraband.”

But on the same day that federal prosecutors announced their investigation, President Donald Trump made a social media post that could undermine the entire operation.

Trump said Social truth that the United States would now allow the export to China of Nvidia’s H200 GPUs – the most powerful GPUs seized by authorities as part of Operation Gatekeeper. Trump said these exports would be allowed provided the United States received a 25% cut of sales. Trump added that Nvidia’s most advanced AI chips, the Blackwell and Rubin GPUs, are still not allowed for export.

Operation Gatekeeper resulted in the arrests of two businessmen and guilty plea of ​​a Houston man and his company for smuggling cutting-edge AI technology. But the president’s announcement muddled the arguments of U.S. prosecutors who are trying to argue that smuggling those same chips poses a danger to the country’s national security. Defense lawyers for the accused men were quick to seize the opportunity.

In a court filing the next day, defense attorneys wrote that “the President denied this claim when he announced that the United States would now allow the export to China of Nvidia’s H200 GPUs – the most powerful GPUs seized by authorities in this case.”

Some experts said they believe the smuggling of Nvidia’s most high-end AI chips to China will continue.

“I don’t believe smuggling is going to stop,” Wang said. “I’m not sure that the new opening of the H200 chips will be enough to meet China’s demand for AI. The demand for computing that we are seeing globally has accelerated, and I think that should be the case in China as well.”