DOJ Busts $160 Million Nvidia Chip Smuggling Ring to China
The Department of Justice announced Monday the takedown of a major smuggling operation that illegally exported over $160 million worth of Nvidia's most advanced AI chips to China. The bust, dubbed "Operation Gatekeeper," resulted in two arrests and the seizure of more than $50 million in GPUs — ironically on the same day President Trump announced he would allow legal H200 chip sales to China.
The Smuggling Scheme
Federal authorities describe a sophisticated operation designed to circumvent U.S. export controls:
The Players:
- Fanyue "Tom" Gong, 43, a Chinese citizen residing in Brooklyn, New York
- Benlin Yuan, 58, a Chinese-born Canadian citizen from Mississauga, Ontario
- Alan Hao Hsu, 43, of Missouri City, Texas, and his company Hao Global LLC (already pleaded guilty)
The Method:
The network obtained Nvidia H100 and H200 Tensor Core GPUs through straw purchasers and intermediaries, falsely claiming the chips were destined for U.S. customers or buyers in non-restricted countries.
Once acquired, the chips were shipped to multiple U.S. warehouses where operatives:
- Removed all Nvidia branding and labels
- Re-labeled the GPUs with "SANDKYAN" — a completely fictional company
- Falsified shipping documentation to classify the chips as generic computer parts
- Exported the disguised hardware to China
Scale of Operations
Between October 2024 and May 2025, the network moved staggering quantities of restricted technology:
- $160 million in total chip value exported or attempted
- $50 million+ in GPUs seized by authorities
- H100 and H200 — Nvidia's most powerful AI training chips
- Multiple warehouses used as relabeling facilities
The H100 and H200 represent Nvidia's flagship data center GPUs, essential for training large language models and other advanced AI systems. A single H100 retails for approximately $30,000, meaning the operation moved thousands of individual chips.
Penalties and Charges
Benlin Yuan faces conspiracy charges under the Export Control Reform Act, carrying a maximum sentence of 20 years in prison.
Fanyue Gong is charged with conspiracy to smuggle goods from the United States, facing up to 10 years in prison.
Alan Hao Hsu and Hao Global LLC pleaded guilty on October 10, 2025, to smuggling and unlawful export activities. Sentencing is pending.
The Timing Paradox
The DOJ announcement came hours after President Trump revealed plans to allow Nvidia H200 sales to China through official channels — with a 25% revenue cut to the U.S. government.
This timing highlights the complex dynamics at play:
- Demand exists — Chinese entities clearly want these chips badly enough to fund elaborate smuggling operations
- Controls were leaking — Despite restrictions, significant quantities reached China anyway
- Revenue was lost — The U.S. government captured nothing from illegal sales
- Risks remain — Even with legal channels opening, unauthorized end-users pose security concerns
The smuggling bust demonstrates both the value China places on advanced AI hardware and the limitations of export controls when demand is high enough to justify criminal enterprise.
Broader Implications
Operation Gatekeeper is part of intensified federal efforts to protect American AI technology. The DOJ's National Security Division has prioritized technology transfer cases, particularly involving:
- Advanced semiconductors
- AI training infrastructure
- Quantum computing components
- Military-applicable technologies
The "SANDKYAN" relabeling scheme shows how smugglers adapt to evade detection — creating entirely fictional brands rather than simply removing identifying marks.
What This Means
For U.S. policymakers, the bust validates concerns about technology leakage while simultaneously arguing for the new export framework. If chips were reaching China anyway through criminal channels, the logic goes, better to control the flow and capture revenue.
For the AI industry, it underscores the geopolitical stakes around computational resources. Access to training hardware has become a strategic asset, with nations and companies competing intensely for GPU supply.
For Nvidia, it's a reminder that their products sit at the center of a global technology competition — valuable enough to justify sophisticated international smuggling networks, and strategically important enough to reshape trade policy between superpowers.
The $160 million question: with legal export channels now opening, will the smuggling incentive disappear? Or will restricted entities continue seeking chips outside the "approved customer" framework?
Operation Gatekeeper suggests the answer may depend on how strictly that approval process is enforced.