One of the co-founders of American server giant Super Micro has been arrested and charged with smuggling AI chips to China in violation of U.S. export laws. The deals, said to be worth upwards of $2.5 billion, saw Super Micro co-founder Yih-Shyan 'Wally' Liaw, work with several other managers and contractors who have also been charged. While a second man has been arrested, a third remains a fugitive at the time of writing.
The trio reportedly sent hardware to an unnamed Southeast Asian company before they were shipped on to their true destination, in China. Despite its size, this represents just one of many smuggling initiatives that have been discovered over the past few years. What's behind the increase in smugglers -- and what are authorities doing about it?
It's in the computer
Where other smuggling operations have hidden the restricted components inside mundane items, or disguised them as something else entirely, the Super Micro scheme was a little more brazen, even if it was still buried within layers of subterfuge.
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Prosecutors claim the co-conspirators simply shipped Super Micro servers containing the banned AI chips — likely Nvidia GPUs — to China. These servers slipped through the net because workers took the labels from them and put them on "dummy" servers, which were non-functioning replicas of the real servers.
Over time, the shipments grew larger, in one instance resulting in over half-a-billion dollars worth of servers being shipped to China between April and May 2025.
Although Super Micro has now ousted Liaw from the board and appointed new executives in compliance, this isn't the first time the company has been embroiled in a smuggling scheme with unfavorable nation states. Fortune reports that in 2006, Super Micro pleaded guilty in federal court for illegally exporting computing hardware to Iran, resulting in extensive fines.
Super Micro was found to have exported servers and various computing components from the United States to the United Arab Emirates, before shipping them on to Iran, circumventing export controls at the time.
It wasn't me
Many of the entities linked with, or adjacent to Super Micro and its actions, have made pointed moves to distance themselves from Liaw, his fellow co-conspirators, and the smuggling scheme in general.
"The conduct by these individuals alleged in the indictment is a contravention of the company's policies and compliance controls, including efforts to circumvent applicable export control laws and regulations," Super Micro said in a statement.
It also announced on Friday last week that it had appointed DeAnna Luna as acting chief compliance officer.
After Nvidia CEO Jensen Huang met executives from Super Micro at the Nvidia Graphics Technology Conference last week, Nvidia also released a statement making its position on the smuggling scheme clear.
"We continue to work closely with our customers and the government on compliance programs as export regulations have expanded," an Nvidia spokesperson said. "Unlawful diversion of controlled U.S. computers to China is a losing proposition across the board—NVIDIA does not provide any service or support for such systems, and the enforcement mechanisms are rigorous and effective."
This comes at a poor time for Nvidia, which recently announced that preliminary orders for its last-generation Hopper H200 GPUs had finally started to come in from Chinese entities and companies. This follows months of back-and-forth negotiations between the United States, China, and related companies. Following the Trump Administration's approval of export licenses for Nvidia's GPUs, Nvidia then had to petition the Chinese authorities to accept the transfers.
Now that it has, Nvidia will be keen to fulfil those orders. It previously shut down the H200 production line over fears it could be stuck with tens of thousands of older GPUs that it couldn't sell to China, and has now had to restart it to fulfill new orders.
Not the first, not the last
This smuggling scheme might be larger than most, but it joins a growing list of discovered smuggling endeavours that have sought to circumvent the United States' trade embargoes and the Chinese authorities' attempts to foment a domestic AI chip industry.
Last November, a seizure of shipments of hundreds of smuggled Nvidia GPUs saw four Americans face up to 200 years in prison. In December, Chinese AI darling Deepseek was accused of aiding and abetting a Chinese GPU smuggling ring for the latest Blackwell graphics cards using phony data centers. Meanwhile, in the U.S., a Houston-based company and its executives were targeted by authorities in an operation that shut down a scheme that used falsified shipping documents to smuggle over $160 million worth of Nvidia GPUs to China.
A Singaporean company was accused late last year of smuggling over $2 billion of Nvidia AI-accelerating chips to China between 2023 and 2024, while other Americans have been found using fake shipping labels to get Nvidia GPUs into China.
Even in 2022 and 2023, where the AI hardware scene was no way near as competitive or lucrative, smugglers hid CPUs and GPUs inside fake baby bumps and alongside live lobsters.
Enforcement and Legislation vs. Shortages
Although the stories of component and chip smuggling have continued over the past few years, there's been a real glut in recent months. That's because more smugglers are being caught out by the relevant authorities, following increased scrutiny due to how lucrative the economics of running AI data centers has become. The United States is taking Chinese access to high-end AI hardware extremely seriously.
A number of the recent seizures and arrests came as part of the Department of Justice's Operation Gatekeeper, an initiative that was specifically designed to disrupt smuggling networks aiding China, and avoiding U.S. trade embargoes.
On the other side, the U.S. government has recently helped push through approvals for legitimate sales of H200 GPUs to Chinese companies, having previously approved them in December, in exchange for a 25% cut of sales. Although that is contingent on the Chinese authorities approving purchases for its domestic companies, these officials appear to be willing to allow it in certain cases, and that may expand as trade relations continue to develop.
China still doesn't have a clear legal route for the most powerful Nvidia graphics chips, however: Blackwell-based GB200 and GB300 systems. These are orders of magnitude faster than even the H200 designs that Super Micro managers were smuggling, making them even more of a prized commodity.
There is no substitute for these kinds of GPUs, either. Nvidia is king of the hill for AI training workloads, even as China grows its own ecosystem for inference chips, such as Huawei's Ascend series of AI accelerators. For Chinese AI developers like Deepseek, falling behind due to a lack of hardware to compete is unlikely to be something they'd agree to willingly.
With ongoing global shortages of raw materials, shipping containers, and everything else besides because of the American-Iranian war and the closure of the Strait of Hormuz, smuggling is likely to be more prevalent in the near term, rather than less so, even with positive and negative encouragement.
If even large, multi-billion-dollar companies like Super Micro can have links with smuggling initiatives, it's hard not to see how smaller, less high-profile companies and individuals will see the risk-reward calculation as clear-cut.
