Chip Smuggling Explained: Transshipment, Shell Companies and How Restricted GPUs Reach China
Since October 2022 the United States has required a licence to ship top-end AI accelerators to China. Nvidia’s A100, H100 and later chips, and the servers built around them, can’t legally go to Chinese buyers without one, and for most of that period licences were rarely granted. Demand didn’t go away. A grey market grew to fill it, and since 2025 US prosecutors have brought a run of cases showing how servers worth hundreds of millions of dollars, and in one case billions, were rerouted. This page explains the main diversion patterns as they appear in court filings and government statements, lists the notable cases, and covers the policy fixes on the table. It reflects the state of play as of October 2026.
For the rules being evaded, see the US chip export controls timeline. For the vocabulary (EAR, ECCN, Entity List), see export control terms every chip investor confuses.
Why smuggling happens at all
Three things make AI chips worth the risk. First, the price gap: a server with eight H100s sells for hundreds of thousands of dollars, and Chinese buyers have paid premiums for hardware they can’t get legally. Second, the hardware is small and generic. A GPU server looks like any other server in a shipping crate, and the chips inside carry no built-in record of where they are. Third, enforcement capacity is thin. The Bureau of Industry and Security (BIS), the Commerce Department office that runs export controls, has a budget of roughly $200 million and, at the time the Chip Security Act was introduced in 2025, reportedly one export control officer covering all of Southeast Asia.
Nobody knows the true volume. A June 2025 report by the Center for a New American Security estimated that between 10,000 and several hundred thousand AI chips were smuggled into China in 2024, with a central estimate of about 140,000. The same report counted 132 listings for controlled chips on Chinese online marketplaces in December 2024.
The main diversion methods
The cases below share a small set of patterns. None of them is technically sophisticated. They rely on paperwork, intermediaries and the fact that most trade in servers is legal.
Third-country transshipment. The most common route sends servers from a US distributor or manufacturer to a country that needs no licence for them, then onward to China or Hong Kong. Malaysia, Singapore and Thailand appear again and again in indictments, alongside Hong Kong as a final hop. Southeast Asia is a natural cover story because it really is building large data centres, so a big order bound for Kuala Lumpur or Johor doesn’t look odd on its own. Malaysia responded in July 2025 by requiring a strategic trade permit for exports and transshipments of US-origin high-performance AI chips.
Front and shell companies. Buyers set up companies with no visible link to China, sometimes in the United States, to place orders and sign end-user statements. In the Janford Realtor case the company carried a real estate name while allegedly arranging GPU exports. In other cases the stated end user was a data centre operator in Malaysia or Thailand that, prosecutors say, never received the equipment.
False documents and relabelling. Indictments describe falsified end-user certificates, invoices that understate value or misdescribe goods, and shipping records with the wrong destination. In the Texas case known as Operation Gatekeeper, prosecutors said manufacturer labels were removed and units relabelled with a made-up brand name.
Straw purchasers and layered payments. Money tends to move from China or Hong Kong through accounts in a third country, so the US seller sees payment from what looks like a legitimate Asian customer. The Earthmade case lists $176 million received from two Malaysian shipping companies in 2024.
Insiders. The Supermicro case is the starkest example. Prosecutors charged a company co-founder and its Taiwan general manager, alleging they used their positions to steer orders to a Southeast Asian buyer whose servers were then diverted.
The cloud access gap
Smuggling moves the hardware. A second channel skips that step. A Chinese company that rents GPU time from a data centre in Malaysia, the Gulf or the United States gets the computing power without any chip crossing a border. Under the Export Administration Regulations, providing remote access to a computer is generally not an “export” of that computer, so most of this activity sits outside the licensing system.
Washington has tried to close the gap in pieces. In May 2025, when BIS rescinded the AI Diffusion Rule, it also warned companies that letting US chips be used to train Chinese AI models could expose them to enforcement. Guidance issued on 31 May 2026 confirmed that licence requirements for advanced AI chips cover any company headquartered in China or with a Chinese parent, wherever it is located, so a Chinese-owned subsidiary in Malaysia buying Blackwell servers needs a licence. Legislation to bring remote access explicitly under export controls, the Remote Access Security Act, has been introduced in Congress. Pure rental of capacity by an unrelated foreign cloud provider remains the hardest case to police.
Notable enforcement cases
All defendants below are presumed innocent unless convicted. Dates are when charges or arrests were announced.
| Date | Case | What prosecutors allege | Status as of Oct 2026 |
|---|---|---|---|
| Feb 2025 | Singapore server fraud (Singapore) | Three men charged with deceiving Dell and Supermicro about the end user of servers that may have held Nvidia chips; servers went from Singapore to Malaysia. A fourth person was charged in April 2026 | Prosecutions ongoing |
| Aug 2025 | ALX Solutions (C.D. California) | Chuan Geng and Shiwei Yang shipped Nvidia GPUs via freight forwarders in Singapore and Malaysia, paid by entities in Hong Kong and China | Charged |
| Oct to Dec 2025 | Operation Gatekeeper (S.D. Texas) | About $160 million of H100 and H200 GPUs exported or attempted, with labels removed and units relabelled; more than $50 million in chips and cash seized | Alan Hao Hsu and Hao Global LLC pleaded guilty on 10 Oct 2025; two others arrested in Nov and Dec 2025 |
| Nov 2025 | Janford Realtor (Florida) | Four people used a Tampa front company to route 400 A100s to China via Malaysia and Thailand; H100 systems and 50 H200s were intercepted | Charged |
| Mar 2026 | Supermicro insiders (S.D. New York) | Co-founder Yih-Shyan “Wally” Liaw, Taiwan GM Ruei-Tsang Chang and contractor Ting-Wei Sun helped divert about $2.5 billion of Nvidia-based servers ordered through a Southeast Asian company | Liaw pleaded not guilty, released on $5 million bond, left the board; Chang a fugitive; Supermicro not charged |
| Oct 2026 | Earthmade Computer (C.D. California) | Greg Lui shipped more than $300 million of A100 and H100 servers to China via Malaysia and Singapore using false paperwork | Arrested 1 Oct 2026 after a 29 Sep indictment |
A few things stand out. The amounts have grown, from tens of millions in several 2025 cases to billions in the Supermicro case. The routes barely change: Malaysia, Singapore and Thailand, with Hong Kong at the end. And the defendants are mostly small resellers, logistics firms and individual brokers. The Supermicro case is the first to reach into a major server maker’s own staff, though the company says an independent review found no misconduct by the company or its current senior executives.
The typical charges are conspiracy to violate the Export Control Reform Act (up to 20 years), smuggling (up to 10 years), and often money laundering. BIS can also impose civil penalties and add companies to the Entity List, and it has leaned on large settlements in 2026. The broader pattern of Entity List designations is tracked in our Entity List additions tracker.
Singapore’s case adds a wrinkle about billing. In 2024 Singapore accounted for 18% of Nvidia’s revenue, but that figure follows customers’ billing addresses, and Singapore’s government said only about 1% of those chips physically came to the country. Billing location and physical destination are two different things, and smugglers exploit the gap.
Location verification and the Chip Security Act
The policy idea getting the most attention is to make chips report, roughly, where they are. The Chip Security Act (H.R. 3447 in the House, S. 1705 in the Senate) was introduced in May 2025 by Representative Bill Huizenga and Senator Tom Cotton. Its main provisions:
- Within 180 days of enactment, exporters of covered advanced chips would have to fit them with location verification. The bill points to network delay measurement (timing how long a signal takes to reach trusted servers), not GPS.
- Exporters would have to report to BIS if a chip turns up somewhere it shouldn’t be, or shows signs of tampering.
- Commerce and Defense would assess, within a year, whether further safeguards are needed, then report annually for three years.
- The bill rules out kill switches, geofencing that disables chips, and monitoring of what a chip is computing.
The House Foreign Affairs Committee approved it 42 to 0 in March 2026. As of October 2026 it has not become law, and the Senate version sits with the Banking Committee. The Semiconductor Industry Association formally opposed it in February 2026. Nvidia has argued that kill switches and backdoors would be “a gift to hackers and hostile actors,” while the bill’s backers say location checks are neither.
Two related ideas have also been tabled. The Stop Stealing Our Chips Act would pay whistleblowers a share of fines collected from export control violations. The CNAS report recommended notification requirements for transfers of controlled chips, more intelligence sharing with BIS, and a larger BIS budget.
What to watch
The cases now in court will test how far liability reaches up the supply chain. If the Supermicro prosecution produces convictions, server makers and distributors will face pressure to do on-site checks of customers in transit hubs rather than rely on paperwork. The Earthmade case, filed only days ago, alleges activity running into August 2026, a sign that the transshipment routes are still in use despite three years of prosecutions.
On the policy side, the open questions are whether location verification ends up in a must-pass bill such as the annual defence authorisation, and how BIS treats remote access once it replaces the rescinded diffusion rule. Licensed sales matter too. Since January 2026, H200-class chips can be sold to approved Chinese buyers under case-by-case review, which narrows the price gap for that generation while Blackwell parts remain outside that opening. How this fits the longer arc of controls is laid out in the complete timeline of US-China technology decoupling, and the domestic side of the same policy, subsidies for US fabs, is covered in the CHIPS Act awards tracker.