U.S. Authorities Shut Down China-Linked AI Chip Smuggling Network
U.S. federal agents have dismantled a sophisticated smuggling operation that funneled over $160 million in advanced Nvidia AI processors to China, evading export controls designed to limit military applications. The network, dubbed Operation Gatekeeper, involved falsified shipping documents, mislabeled cargo, and straw buyers to reroute H100 and H200 Tensor Core GPUs through Canada and Hong Kong. Authorities seized more than $50 million in hardware and cash, marking a significant blow to illicit transfers of dual-use technology critical for generative AI and high-performance computing.
The scheme operated from October 2024 to May 2025, targeting Nvidia’s high-end chips capable of 4 petaflops of FP8 tensor performance per unit, essential for training large language models with up to 1.8 trillion parameters. Participants relabeled shipments as products from a fictitious entity called SANDKYAN and classified them as generic computer components to bypass Bureau of Industry and Security scrutiny. Over 1,000 GPUs moved undetected initially, supporting unauthorized AI infrastructure builds in restricted regions.
Alan Hao Hsu, 43, of Missouri City, Texas, and his firm Hao Global LLC pleaded guilty on October 10, 2025, to smuggling and export violations under the Export Control Reform Act. Hsu faces up to 10 years in prison and remains on bond pending sentencing in February 2026, while Hao Global risks fines up to twice its gross gains plus probation. The plea revealed wire transfers exceeding $50 million from People’s Republic of China entities, funding the purchases through U.S. intermediaries.
Benlin Yuan, 58, a Chinese national and Canadian citizen from Sterling, Virginia, was arrested November 28, 2025, on conspiracy charges carrying a maximum 20-year sentence and $1 million fine; he remains in custody. Fanyue Gong, 43, a PRC citizen from Brooklyn, New York, faced arrest December 3, 2025, for leading the procurement ring and now contends with up to 10 years for smuggling goods. Both face forfeiture of all involved assets under federal statutes.
Assistant Attorney General John A. Eisenberg stated, “The United States has long emphasized the importance of innovation and is responsible for an incredible amount of cutting-edge technology, such as the advanced computer chips that make modern AI possible.” U.S. Attorney Nicholas J. Ganjei added, “The country that controls these chips will control AI technology; the country that controls AI technology will control the future.” The investigation, led by FBI, ICE Homeland Security Investigations, and Commerce’s BIS, highlights ongoing efforts to curb technology diversion amid escalating U.S.-China tensions.
This operation underscores vulnerabilities in global supply chains for AI hardware, where single shipments can enable exascale computing clusters. Prosecutors noted the GPUs’ potential for military simulations, including hypersonic modeling and autonomous systems, violating EAR Part 744 restrictions. Future cases may incorporate blockchain tracing for provenance, as recommended in BIS’s 2025 advisory on semiconductor exports.
The shutdown prevents an estimated 500 additional GPUs from reaching end-users, preserving a U.S. edge in AI development where domestic data centers hold 70% of global capacity. Sentencing outcomes could set precedents for stricter penalties, including lifetime export bans for recidivists. As AI proliferation accelerates, such enforcement actions aim to align technological advancement with national security priorities.
