NVIDIA Faces Growing Smuggling Allegations as US Charges Man in $300M Chip Scheme

Federal authorities in the United States have charged a man with conspiring to smuggle NVIDIA AI processors into China, marking the latest escalation in efforts to circumvent American export restrictions. According to a Bloomberg report, government officials argue that NVIDIA is not doing enough to prevent its technology from being rerouted to the Chinese market.

The charges against Greg Lui allege he helped transport servers containing $300 million worth of restricted AI chips to China in violation of US law. This follows an earlier incident this year in which surveillance footage revealed individuals using a red hair dryer to remove serial number stickers from NVIDIA server boxes, a tactic employed to disguise the origin of the hardware.

NVIDIA maintains that it has strictly adhered to all regulations and has never been accused of aiding and abetting such smuggling activities. However, critics and officials point to significant gaps in the company’s due diligence, questioning how it failed to identify obvious warning signs regarding the flow of its products.

One prominent concern involves the high volume of chip shipments to countries bordering China, such as Thailand and Singapore, which reportedly receive more hardware than their domestic markets can utilize. Daniel Remler, the former head of AI policy at the State Department, stated that he has never received a satisfactory explanation for why so many chips are ending up in Southeast Asia if they are intended solely for customers in that region.

Reports also indicate that operators in western China are constructing dozens of data centers capable of housing 115,000 restricted NVIDIA processors. US officials believe that China has already smuggled in at least that quantity of chips, based on intelligence cited by Bloomberg.

The scheme gained notoriety through its connection to Super Micro and the now-famous red hair dryer. Accused collaborators, including Super Micro co-founder Yih-Shyan “Wally” Liaw, allegedly facilitated the sale of approximately $2.5 billion in AI servers to OBON, a Bangkok-based firm. While OBON claimed the equipment was for building AI infrastructure in Thailand, the servers were instead shipped directly to end-users in China. To evade detection, conspirators removed original NVIDIA stickers using hair dryers and affixed them to dummy servers.

Officials noted that NVIDIA should have recognized OBON lacked the physical capacity, specifically 100 megawatts of data center space, to host such a massive number of servers, particularly given that Thailand’s operational AI data center capacity was only a few hundred megawatts at the time. A company spokesperson dismissed this criticism, arguing that startup growth plans in allied nations are opportunities for America rather than red flags. The spokesperson emphasized that NVIDIA honors US laws and noted that advancements by Huawei reduce the necessity for Chinese buyers to smuggle NVIDIA hardware.

In recent years, NVIDIA CEO Jensen Huang has actively lobbied US officials to ease export curbs, succeeding last year in securing permission for sales of previous-generation Hopper H200 accelerators to China under the Trump administration.

While support for tightening export rules in Congress remains limited, Senator Elizabeth Warren has been a vocal advocate for stricter measures. When Warren invited Huang to testify before Congress, he declined, prompting her to criticize his absence. She pointed out that if Huang had time to attend high-profile events such as a $1 million-a-head dinner at Mar-a-Lago or to meet with Chinese President Xi Jinping, he should be able to find time to answer questions from lawmakers.