U.S. Authorities Dismantle China-Linked Nvidia GPU Smuggling Ring
Advanced AI chips critical to national security are vanishing from American warehouses, only to resurface in restricted nations fueling adversarial tech races. A sophisticated network exploited secondary markets and false labels to bypass export controls, channeling over $160 million in hardware to China. Federal investigators have now severed the operation, seizing assets and securing convictions in a move that underscores escalating U.S. enforcement.
Operation Gatekeeper, led by the Justice Department’s National Security Division, targeted a multi-node smuggling scheme involving U.S. subsidiaries, Hong Kong logistics firms, and China-based AI entities. Between October 2024 and May 2025, the group acquired Nvidia H100 and H200 Tensor Core GPUs through straw purchasers and intermediaries. These 80GB-capable processors, optimized for training large language models and generative AI, were rerouted despite requiring special licenses for export to the People’s Republic of China.
At U.S. warehouses, operatives stripped Nvidia branding and affixed labels from the fictitious ‘SANDKYAN’ company, misclassifying the GPUs as generic components. Shipments then proceeded via falsified documents declaring domestic or non-restricted destinations. Wire transfers exceeding $50 million from China funded the purchases, with over $50 million in GPUs and cash ultimately seized by authorities.
Alan Hao Hsu, 43, of Missouri City, Texas, and his firm Hao Global LLC spearheaded initial exports, pleading guilty on October 10, 2025, to smuggling and Export Control Reform Act violations. Hsu faces up to 10 years in prison at his February 18, 2026, sentencing, while his company risks fines up to twice the gross gains plus probation. The plea unsealed details of at least $160 million in attempted shipments to China, Hong Kong, and other embargoed sites.
Fanyue Gong, 43, a Chinese national and owner of a Brooklyn-based tech firm, was arrested December 3, 2025, on conspiracy to smuggle charges carrying a potential 10-year sentence. Gong allegedly directed label swaps and coordinated with Hong Kong partners to evade scrutiny. Benlin Yuan, 58, a Canadian citizen and CEO of a U.S. subsidiary of a Beijing IT company, was detained November 28, 2025, for Export Control Reform Act conspiracy, facing up to 20 years and $1 million in fines if convicted.
The network’s tactics mirrored broader proliferation risks, where second-hand AI hardware evades primary sales bans. Nvidia’s H100 and H200, though predating the 2025 Blackwell series, deliver 4 petaflops of AI performance per unit, enabling military simulations alongside civilian applications. Authorities noted the GPUs’ dual-use potential, stating they “threaten our Nation’s security by funneling cutting-edge AI technology to those who would use it against American interests,” per U.S. Attorney Nicholas J. Ganjei.
Interagency efforts, including the FBI’s Counterintelligence Division, traced transactions across 10 states and international borders. Gong and Yuan remain in custody, with trials pending in the Southern District of Texas. Assistant Attorney General John A. Eisenberg emphasized, “The National Security Division will vigorously enforce our export-control laws to protect U.S. innovation advantages.”
This shutdown aligns with intensified Biden-era restrictions, amended in 2025 to cap H100/H200 exports at 50,000 units annually to non-allied nations. Yet, secondary market vulnerabilities persist, as millions of units circulate in data centers and resellers. Nvidia stated it collaborates with officials to curb resale diversions, implementing serial tracking in newer models.
The case exposes fractures in global supply chains, where demand for AI compute—projected to consume 8% of U.S. electricity by 2030—drives illicit flows. Prosecutors recovered 1,200 GPUs mid-transit, equivalent to powering a mid-sized supercomputer cluster. Legal experts anticipate stricter secondary-market audits, potentially mandating blockchain provenance for high-end silicon.
As AI hardware becomes a strategic asset, akin to nuclear materials in the Cold War, such operations risk tipping computational balances. Yuan’s role, bridging Canadian and Chinese entities, highlights transnational vectors. Sentencing outcomes will calibrate deterrence, with fines potentially exceeding $100 million based on traced profits.
Federal filings reveal co-conspirators discussed bribing inspectors and fabricating end-user certificates. Gong’s firm handled 40% of processed volume, per logs. This enforcement wave, dubbed Gatekeeper, signals zero tolerance, as Assistant FBI Director Roman Rozhavsky affirmed: “We will continue to aggressively investigate these violations.”
The fallout extends to allies, with Canada probing Yuan’s operations. U.S. seizures fund victim restitution, prioritizing domestic AI research grants. Industry analysts forecast 15% tighter compliance costs for GPU vendors by 2026, slowing but securing innovation pipelines.
In a landscape where AI models scale exponentially—doubling parameters yearly—chip access dictates dominance. This bust reaffirms U.S. resolve, transforming export rules from barriers to battlements.
