Three men charged with illegally smuggling advanced AI chips into China

Three people affiliated with server maker Supermicro were indicted Thursday for conspiring to smuggle advanced Nvidia chips into China, in violation of U.S. export controls prohibiting their sale to China without a license.

The indictment from the U.S. Attorney for the Southern District of New York alleges that Wally Liaw, Steven Chang and Willy Sun conspired to sell servers worth $2.5 billion to a company based in Southeast Asia, which then repackaged the boxes to send servers with banned chips worth $510 million to final destinations in China.

The Justice Department said Liaw, a U.S. citizen who co-founded Supermicro, and Sun, a Taiwanese citizen, were arrested today while Chang, also a Taiwanese citizen, remains a fugitive.

The three men are each charged with conspiring to violate the Export Control Reform Act, carrying a maximum prison sentence of 20 years if convicted. The three also face one count of conspiracy to smuggle goods and one count of conspiracy to defraud the United States, with each count carrying a maximum prison sentence of five years.

In 2022, the United States strengthened its export controls on the sale of advanced artificial intelligence chips to China, citing national security concerns. The bans covered Nvidia’s B200 and H200 graphics processing units, among the company’s most advanced AI chips, and only allowed sales in China through a government-granted license.

The three men are accused of selling unlicensed servers to China, including B200 and H200 GPUs.

“They did this through a web of lies, obfuscations and cover-ups – all to boost sales and generate revenue in violation of U.S. law,” said U.S. Attorney Jay Clayton. “Diversion projects like those disrupted today generate billions of dollars in ill-gotten gains and pose a direct threat to U.S. national security. »

Chang and Liaw did not immediately respond to an emailed request for comment. Sun’s contact details could not be found. It was not immediately clear whether the men had lawyers who could speak on their behalf.

Liaw, 71, co-founded Supermicro in 1993 and is senior vice president of business development and a member of the company’s board of directors. Chang, 53, is a sales manager based in the company’s Taiwan office, and Sun, 44, is described in the indictment as a “third-party broker and ‘fixer'” who worked with the other two.

Supermicro was not named in the indictment, but the company confirmed the roles of the three individuals. In a statement, the company said both employees were on administrative leave and the relationship with the contractor had ended, effective immediately.

“The conduct of these individuals alleged in the indictment constitutes a violation of the Company’s policies and compliance controls, including efforts to circumvent applicable export control laws and regulations. Supermicro maintains a robust compliance program and is committed to fully complying with all applicable U.S. export and re-export control laws and regulations,” the company said in a statement to NBC News.

Supermicro added that it was “fully cooperating” with the government’s investigation.

In a statement, Nvidia said strict compliance was a “top priority,” adding that it was working with its customers and the government on compliance programs.

“Illegal diversion of controlled U.S. computers to China is a losing proposition across the board: NVIDIA provides no service or support for such systems, and enforcement mechanisms are rigorous and effective,” an Nvidia spokesperson said.

The alleged plan comes amid fears that banned chips are slipping into China, often “transshipped” to China via neighboring countries such as those in Southeast Asia. A Financial Times report last July estimated that China had managed to acquire about $1 billion worth of advanced AI processors in the three months since President Donald Trump tightened export controls.

Chris McGuire, senior fellow for China and emerging technologies at the Council on Foreign Relations, said the indictment shows the government should take a closer look at “glaring flaws” in exports through Southeast Asia.

“This operation is further evidence that China is aggressively stealing American technology to help fuel its AI industry – which is not surprising, given that American AI chips are far superior to any chips the Chinese can make,” Mcguire said.

Most recently, the Trump administration decided to allow limited sales of chips to China.

In August, the White House agreed to allow Nvidia to sell its more limited H20 chips to China, provided it shares 15% of chip sales with the U.S. government. Earlier this year, Nvidia CEO Jensen Huang said sales of small quantities of H200 products for China-based customers had been approved by the US government.