Two businessmen are in custody for allegedly "violating U.S. export control laws" in a scheme that attempted to smuggle Nvidia H100 and H200 chips to China, the Department of Justice said Monday.
The big picture: The announcement came as President Trump said that his administration would lift a blockade on exports of Nvidia's H200 chips to China and that the U.S. government will get a 25% cut from future sales.
- The alleged smuggling network "threatens our Nation's security by funneling cutting-edge AI technology to those who would use it against American interests," U.S. Attorney Nicholas Ganjei said in a Monday statement.
- "The country that controls these chips will control AI technology; the country that controls AI technology will control the future. The Southern District of Texas will aggressively prosecute anyone who attempts to compromise America's technological edge."
Driving the news: Fanyue Gong, aka Tom Gong, 43, a Chinese citizen who lives in Brooklyn, New York City, and Benlin Yuan, 58, a Chinese-born Canadian citizen who lives in Mississauga, Ontario, are accused of being part of a "sophisticated smuggling network" that the DOJ said U.S. authorities had "shut down," per a Monday statement from U.S. Attorney Nicholas Ganjei.
- They were detained in a DOJ investigation dubbed "Operation Gatekeeper," which the Justice Department said seized more than $50 million in advanced graphic processing units (GPUs) "destined for China and other restricted locations."
- Gong and Yuan are accused of conspiring with employees of a Hong Kong-based logistics company and a China-based AI technology firm to "circumvent U.S. export controls," according to a DOJ statement.
Zoom out: The pair was charged after Houston man Alan Hao Hsu aka Haochun Hsu, 43, and his company, Hao Global LLC, both pleaded guilty in October to smuggling and unlawful export activities, per the DOJ.
- "Hsu and others knowingly exported and attempted to export at least $160 million worth of export-controlled Nvidia H100 and H200 Tensor" GPUs, according to the DOJ.
What they're saying: "The Chinese government requires Chinese citizens abroad to strictly abide by local laws and regulations, while also legally protecting the legitimate rights and interests of Chinese citizens overseas," a spokesperson for the Chinese Embassy in Washington said, per Reuters.
- A Nvidia spokesperson noted to Reuters that security and reviews are "strict" in regards to selling "older generation" items on the secondary market.
- "While millions of controlled GPUs are in service at businesses, homes, and schools, we will continue to work with the government and our customers to ensure that second-hand smuggling does not occur," the spokesperson said.
- Representatives for Yuan and Gong could not be immediately reached for comment.
What we're watching: "Hsu faces up to 10 years in federal prison at sentencing Feb. 18, while Hao Global LLC could be fined up to twice the gross gain from the offense and given a term of probation," per the DOJ.
- Yuan was charged with conspiracy to violate the Export Control Reform Act and faces up to 20 years in prison if convicted.
- Gong faces up to 10 years in prison if he's convicted of his charge of conspiracy to smuggle goods from the U.S.
Go deeper: Trump to allow certain Nvidia chip sales to China for 25% U.S. cut
