Canadian accused of illegal US$30M plot to export Nvidia's high-tech AI chips from U.S. to China
A Chinese-born Canadian citizen who lives in Mississauga, Ont., was arrested in Virginia by the FBI and charged with trying to smuggle restricted high-tech Nvidia computer chips used in AI processing to China
U.S. authorities seized export-controlled technology worth about $30 million that was addressed to an air freight facility in Mississauga, close to Toronto Pearson International Airport, according to allegations filed in court.
Nvidia labels on the components had been removed and replaced with labels for a fake company, authorities said.
The arrest of Benlin Yuan, of Mississauga, immediately west of Toronto, and the large shipment destined for Toronto are part of Operation Gatekeeper, described by U.S. authorities as targeting “a sophisticated illicit procurement conspiracy and smuggling network that orchestrates buying and exporting controlled high-tech computer chips to China.”
Yuan is described in U.S. prosecution documents as president of an information technology company based in Virginia that provides data centre services and IT support and consulting in Canada and the United States. The documents say it is a subsidiary of a Chinese company based in Beijing.
He was arrested in Sterling, Virginia, on Nov. 28 and charged with conspiring to violate export control acts.
The network is accused of purchasing at least US$50 million worth of GPUs from a large U.S. technology company.
The computer products Yuan is alleged to be involved in exporting are Nvidia A100, H100, and H200 Tensor Core graphic processing units, known as GPUs, and HGX baseboards. The equipment is used in artificial intelligence (AI) applications and in high-performance computing. The chips can handle huge amounts of data that is needed in AI applications, an exploding field that is revolutionizing technology.
The GPUs can perform calculations at higher speeds than most previous computers.
Since about November 2023, a Chinese company has worked to import these chips from the United States, prosecutors allege. The entire plot is alleged to have involved US$160 million in tech goods.
Yuan is accused of joining the conspiracy this spring.
In a criminal complaint sworn by a special agent in the U.S. Department of Commerce, Yuan helped buy the technology using straw purchasers and intermediaries, meaning in the name of a person or company that is not the real end buyer.
The buyers allegedly declared the goods were for use by customers within the United States or in countries that do not require an export licence, including Taiwan and Thailand.
At various U.S. warehouses, Nvidia labels were allegedly removed from the computer circuits and relabeled with a fake manufacturing brand of SANDKYAN, according to the criminal complaint against Yuan.
When preparing the items for export, the shipping paperwork misclassified the products as harmless and unrestricted pieces of tech: “adapters,” “adapter modules,” and “computer controllers,” authorities claim.
They were then shipped, directly or indirectly, to China.
Investigators received a tip about pallets of suspicious GPUs at a New Jersey warehouse that were addressed to companies in China.
An undercover agent was sent inside, where he spent an hour.
The agent allegedly saw two engineers who appeared to be of Chinese origin unboxing Nvidia components. One of the engineers spoke to the undercover agent in Mandarin, documents say. The engineers said they had to cover up all of the Nvidia branding on the equipment for “export purposes,” court filings allege.
The agent watched Nvidia labels being pulled off and new ones for the fake firm put in their place. The next day the agent returned and found the boxes had been resealed. The products were now labeled as having been “Made in Taiwan.”
Not only were those packages addressed for shipping to Toronto, but warehouse employees told agents they recently had several similar tech exports to Canada.
The packages were removed and secured in a government warehouse. That sparked a flow of complaint calls and demand letters about the missing GPUs. The people expecting the goods believed the undercover officer had stolen the products and started negotiating to have them returned, authorities allege.
They offered $1 million to get their packages back, but insisted the equipment be inspected before payment was made.
Yuan is accused of organizing the “inspection.”
He is accused of recruiting and arranging the group of inspectors and of being one of the six who arrived to examine the packages, about two weeks after the seizure, court filings allege.
The inspection arrangements were allegedly planned in a group chat using an encrypted communication app and confirmed later over a video conferencing app.
Yuan was told by a high-level representative of the buyer in China to make sure no one said the items were destined for China, according to the criminal complaint. He is accused of helping them develop an elaborate “compliance backstory” to justify the products based on false information.
They also allegedly discussed how to make the million-dollar payment and Yuan was told to send copies of the driver’s licences of everyone on the inspection team. Three trucks were arranged for the pick up.
He is also accused of handling the storage of a different shipment of Nvidia products destined for China. A cooperating witness for U.S. prosecutors alleged that Yuan told him not to put fake labels on this one as he thought they looked suspicious; he would rather the Nvidia labels just be removed.
Alexander Blanchard, a Virginia-based lawyer for Yuan, declined to comment about Yuan or the case when asked by National Post.
“Operation Gatekeeper has exposed a sophisticated smuggling network that threatens our nation’s security by funneling cutting-edge AI technology to those who would use it against American interests,” said Nicholas Ganjei, U.S. Attorney for the Southern District of Texas.
“These chips are the building blocks of AI superiority and are integral to modern military applications. The country that controls these chips will control AI technology; the country that controls AI technology will control the future.”
U.S. regulation restricts the export of items that could make a significant contribution to the military potential of other nations or could be detrimental to the foreign policy or national security of the United States.
Advanced computing integrated circuits, including certain Nvidia-manufactured GPUs were added to the export restriction list in 2022. Some of the latest Nvidia chips have been classed by the U.S. as “critical technologies” that China could use to “modernize its military capabilities in ways that threaten the national security interests of the United States and its allies,” according to export regulations.
The chips require a special licence to export to China.
On Monday, the same day Operation Gatekeeper was announced, U.S. President Donald Trump said the United States will allow Nvidia’s H200 processors to be exported to China with a 25 per cent fee.
Alan Hao Hsu, also known as Haochun Hsu, 43, of Missouri City, Texas, and his company both pleaded guilty to smuggling and unlawful export activities in October as part of Operation Gatekeeper.
Newly unsealed court documents say Hsu received more than US$50 million in wire transfers from China to help fund the scheme. He is scheduled for sentencing in February.
Fanyue Gong, also known as Tom Gong, 43, a citizen of China who lives in Brooklyn, New York, was also charged in the probe. He is described as the owner of a New York technology company. He was arrested in New York on Dec. 3, and charged with conspiring to smuggle goods out of the United States.
Five unnamed co-conspirators are linked to IT companies based in Hong Kong or Shenzhen, a city on the Pearl River that acts as a bridge between Hong Kong and mainland China.
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