Last year, Nvidia CEO Jensen Huang repeatedly denied that China was obtaining America’s most advanced chips. ‘There’s no evidence of any AI chip diversion,’ he said, dismissing such reports on another occasion as ‘tall tales.’

Federal prosecutors would beg to differ. They’ve charged six men over the past three weeks with smuggling billions of dollars’ worth of AI chips to China. The indictments, while a tactical victory, are a warning of how pervasive the problem has become, thanks both to loopholes in federal law and a failure to support existing laws with serious enforcement.

Both Washington and Beijing have tried to reshape AI chip supply chains to bolster their respective national security agendas ahead of an expected trade-focused summit in May. While the United States has imposed export controls on advanced chips to cut off China’s military modernization efforts, China has pushed its firms to adopt domestically produced components to secure its self-reliance.

But neither side can fully avoid the Willie Sutton rule. Why smuggle chips? Because that’s where the profit is — particularly without enough resources dedicated to enforcement. 

A closed Chinese market grasping for more powerful alternatives to their own products offers a prime incentive for American firms to provide components to Beijing. Smuggling has also transformed an emerging network of data center infrastructure across Southeast Asia into a source of illicit computing power for U.S. adversaries.

The recent cases highlight these features in detail. In March, prosecutors charged three people connected to Super Micro Computer, an American computing firm, with smuggling an estimated $2.5 billion in chips to Chinese customers by shipping servers to the company’s offices in Taiwan and elsewhere in the region. In the meantime, the trio designed warehouses full of fake products to fool U.S. authorities. A week later, prosecutors unveiled charges against another three individuals accused of conspiring to ship advanced chips to China via business contacts in Thailand.

This string of prosecutions suggests that despite some high-profile successes, smuggling remains a pervasive issue across the industry. While this is partially a problem of professed ignorance, it can also be solved with a combination of policy, personnel, and policing. 

The United States must strengthen controls over emerging technologies at the factory floor rather than the airport gate. While Washington has strong export control laws, these regulations are intended to prevent components from leaving the country. They do not, however, block Chinese firms from purchasing these technologies inside the country.

This divergence in intentions produces difficulties for prosecution, as smugglers are often solely indicted for evading customs enforcement rather than charged with illicitly obtaining the components while still on American soil. However, Congress can close this loophole via stronger due diligence laws that require greater scrutiny of potential customers ahead of the customs enforcement process.

Washington is also in an arms race with AI firms to properly fund enforcement mechanisms, a race it is currently losing. While one smuggling case alone involved $2.5 billion, federal spending on policing export controls amounted to $122 million in all of 2025.

Moreover, this surge of investment in computer hardware is increasingly global in scope, magnifying the current shortage of federal agents responsible for enforcing export controls at the exact moment both allies and adversaries are seeking to purchase ever larger batches of advanced chips.

Even with stronger policies and more personnel, prosecuting AI chip smuggling must also remain a policing priority for federal law enforcement. While these cases are often complex due to a range of technical and jurisdiction challenges, as well as an array of shifting export control regimes, the FBI and the Commerce Department should remain committed to tracking and disrupting these smuggling networks.

It will be key for the administration to separate enforcement actions from its ongoing diplomatic exchanges with Beijing — dropping domestic prosecutions should not be used as a bargaining chip to deliver trade concessions during the President Donald Trump’s upcoming travels to Beijing.

We need stronger enforcement so that the next billion-dollar smuggling case marks real progress, rather than exposing just how much slipped through.

Jack Burnham is a senior research analyst at the Foundation for Defense of Democracies’ China Program, focusing on China’s military, emerging technologies, and science and technology policy. Follow Jack on X @JackBurnham802.

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The Department of Commerce is putting together a catalog of AI tools that will be given special export status by the federal government to be sold abroad.

The department issued a call for proposals to participating companies in the Federal Register, looking to create a “menu of priority AI export packages that the U.S. Government will promote to allies and partners around the world.”

The companies and technologies included “will be presented by U.S. Government representatives as a standing, full-stack American AI export package and may receive priority government advocacy, export licensing review and processing, interagency coordination, and financing referrals, subject to applicable law,” the department said in a Federal Register notice Friday.

The export package was mandated through President Donald Trump’s AI executive order last year, which described the export packages as part of a larger effort to “ensure that American AI technologies, standards, and governance models are adopted worldwide” and “secure our continued technological dominance.”

“The American AI Exports Program delivers on President Trump’s directive to ensure that American AI systems – built on trusted hardware, secure data, and world-leading innovation – are deployed at scale around the world,” Secretary of Commerce Howard Lutnick said in a statement earlier this month. “By promoting full-stack American solutions, we are strengthening our economic and national security, deepening ties with allies and partners, and ensuring that the future of AI is led by the United States.”

The executive order called for certain technologies to be included in the package, including AI models and systems but also computer chips, data center storage, cloud services and networking services, along with unspecified “measures” to ensure security and cybersecurity of AI systems.

The Commerce notice envisions offering multiple packages of AI technology from “standing teams of AI companies organized to offer a complete American AI technology stack to foreign markets on an ongoing basis.” There is no limit on the number of companies that participate in a consortium, and Commerce said there isn’t “any particular legal structure” required.

While the proposal at several points refers to these packages as “American AI,” the notice does specify that foreign companies can participate.

In fact, for certain categories like hardware, the total level of U.S.-made content only needs to be 51% or greater. Member companies providing data, software, cybersecurity or application layer services can’t be incorporated or primarily based in countries like China or Russia, where national security laws may compel them to work with foreign governments or hand over sensitive data.

The potential business would be broad, covering foreign public and private sector buyers in global, regional, and country-specific markets. It also includes the potential formation of separate, “on demand” packages of companies and products meant for “specific foreign opportunities.”

But the notice also states that final decisions will be made on the basis of “national interest” by principals at the Departments of Commerce, State, Defense and Energy, as well as the White House Office of Science, Technology and Policy.

Commerce does not intend to formally rank proposals or use fixed scoring formulas to approve packages of technology for the export program, and the language in the notice appears to give wide latitude to federal decisionmakers to determine whether a particular proposal meets the “national interest” threshold.

“A proposal that undertakes reasonable efforts to satisfy the 51 percent hardware U.S.-content presumption is not automatically entitled to designation, and a proposal that does not satisfy that presumption is not automatically disqualified,” the notice said. 

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Anthropic on Monday accused three Chinese artificial intelligence laboratories of stealthily trying to siphon Claude’s capabilities for their own models, potentially in a way that could fuel offensive cyber operations.

The U.S. AI startup said the three labs, DeepSeek, Moonshot and MiniMax, ran “industrial-scale campaigns” with a tactic known as “distillation.” It involves sending bulk requests to its Claude model in a bid to boost their own — in this case, 16 million in all. Distillation can be a legitimate training method practice, the company said in a blog post, but not when used as a shortcut to take capabilities from competitors.

“Illicitly distilled models lack necessary safeguards, creating significant national security risks,” Anthropic argued. “Foreign labs that distill American models can then feed these unprotected capabilities into military, intelligence, and surveillance systems — enabling authoritarian governments to deploy frontier AI for offensive cyber operations, disinformation campaigns, and mass surveillance.”

It’s not the first time Anthropic has warned about Chinese threats stemming from the nation’s use of Claude. And Anthropic paired its revelations about the distillation campaign with repeating its call for stronger export controls. 

OpenAI also has accused DeepSeek of using distillation techniques. CyberScoop could not immediately reach the three Chinese labs for comment on Anthropic’s claims.

“The three distillation campaigns … followed a similar playbook, using fraudulent accounts and proxy services to access Claude at scale while evading detection,” Anthropic said. “The volume, structure, and focus of the prompts were distinct from normal usage patterns, reflecting deliberate capability extraction rather than legitimate use.”

In all, the labs used 24,000 fraudulent accounts, Anthropic said. DeepSeek was responsible for 150,000 of the exchanges, compared to 3.4 million from Moonshot and 13 million from MiniMax, according to the startup. The activity violated terms of service and regional access restrictions, it said.

What makes the tactic illegitimate is that it essentially steals Anthropic’s intellectual property, computing power and effort, said Gal Elbaz, co-founder and chief technology officer of Oligo Security, which bills itself as an AI runtime security company.

“The scary part is, you can take all of the power and unleash it, because you don’t have anyone that actually enforces those guardrails on the other side,” Elbaz told CyberScoop about the fears Anthropic raised about the labs fueling cyberattacks. 

AI companies themselves have faced claims that they are stealing data and IP from others to power their models.

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As the Trump administration considers loosening restrictions on the sale of high-performance computer chips that power modern artificial intelligence systems to China, his Department of Justice continues to prosecute businesses and individuals who sell or divert these same technologies to companies based in China. 

On Monday, federal prosecutors announced that it had secured a guilty plea from a Chinese-American citizen Alan Hao Hsu and his company Hao Global for a multi-million-dollar scheme to funnel advanced AI computer chips to Chinese businesses.

In affidavits, investigators at the Department of Commerce’s Bureau of Industry and Security described the smuggled H100 and H200 chips as some of the most sensitive and controlled technologies under U.S. export laws. According to the plea agreement, his company sold NVIDIA chips totaling $160 million to Chinese businesses.

According to court documents obtained by CyberScoop, since at least Oct. 2024 through May 2025, Hsu and others used Hao Global to export, or attempt to export, more than 7,000 NVIDIA H100 and H200 Tensor Core GPUs that are used in many AI and high-performance computing systems. Prosecutors said these chips were designed “to process massive amounts of data, advancing generative AI and large language models and scientific computing.”

Hsu would receive business leads from companies in China looking to buy GPUs, and funding through shell companies and other transactions to purchase the chips under the auspice of legally reselling them to customers in the United States, Malaysia and Thailand. Instead, DOJ said those shipments were diverted to China and Hong Kong, and Hsu and his company allegedly falsified bills of lading – essentially a receipt of what goods were being transported – and loaded them up on boats bound for other countries.

In February 2025, BIS investigators seized one shipment of GPU baseboards in Atlanta that had “incorrect and misclassified shipping information.” The criminal complaint also names two other defendants: Fanyue Gong, a New York resident and owner of a Brooklyn-based technology company and Benlin Yuan, president of a Virginia IT firm, as a part of the conspiracy.

When federal agents visited a New Jersey warehouse managed by Gong’s company, an undercover agent observed employees relabeling Nvidia GPUs with labels for a fake company named SANDKYAN, and one employee told investigators they received instructions from Gong to relabel the boxes in an encrypted messaging app group chat and were paid in cash.

Hsu reportedly received payment for the chips from Chinese sources through bank accounts in Thailand, Malaysia and Singapore.

The plea agreement for Hsu, a naturalized U.S. citizen who lives in Fort Bend, Texas, notes that he has been informed his guilty plea could result in consequences for his immigration status, including potential denaturalization and deportation.  

It’s the second such case brought forward in the last month by the Department of Justice alleging that individuals and businesses selling high performance GPUs to China were violating export controls and threatening national security.

Last month, DOJ announced similar charges against four U.S. and Chinese nationals in Florida, Alabama and California for conspiracy, smuggling and money laundering. The group allegedly evaded export restrictions by sending NVIDIA GPUs to Malaysia and Thailand before routing them to China between 2023 and 2025.

Prosecutors in the case said that preventing these chips from reaching China was a matter of “safeguarding our country’s national security.” The individuals charged face lengthy jail sentences: the conspiracy and money laundering charges come with a maximum 20-year prison sentence, while smuggling carries a maximum of 10 years.

As Caleb Withers, a research associate at the Center for a New American Security, noted in a report on AI export controls, “smuggling of cutting-edge chips is widespread, and Huawei and Semiconductor Manufacturing International Corporation (SMIC) have in some cases still been able to get their hands on advanced equipment integral to helping them advance their chip production capabilities.”

Withers also argues that the Bureau of Industry and Security suffers from “chronic underresourcing” and notes that a single shipment of the high-end chips the agency is charged with protecting cost more than their annual enforcement budget.

But arguments by federal prosecutors that China’s access to these chips would fundamentally undermine U.S. national security contrasted with President Trump’s announcement the same day that he had personally informed Chinese President Xi Jinping that he would allow NVIDIA to sell the very same H200 chips to China and other countries. In doing so, he promised unspecified “conditions” that would protect U.S. national security.

“The Department of Commerce is finalizing the details, and the same approach will apply to AMD, Intel and other GREAT American companies, Trump wrote on Truth Social Monday.

Democrats were quick to pounce on the decision, arguing that the move would harm U.S. companies that benefit from chip restrictions while simultaneously boosting industry for a geopolitical adversary in China. Eight Senate Democrats said in a statement that the H200 chips approved for sale by the Trump administration are “vastly more capable than anything China can make” and warned that “gifting them to Beijing would squander America’s primary advantage in the AI race.”

“Chinese AI giant DeepSeek said as recently as last week that the lack of access to advanced American-designed AI chips is the single biggest impediment to its ability to compete with U.S. AI companies,” the senators said. “With this decision, President Trump is poised to remove that barrier.”

Another Democrat, Sen. Mark Warner, D-Va., said he believes U.S. dominance in AI hardware will come down to whether U.S. or Chinese products influence the global supply chain and criticized the White House for its lack of strategic vision.

“Unfortunately, the Trump administration’s haphazard and transactional approach to export policy demonstrates that it does not have any sort of coherent strategy for how we will compete with China, specifically as it relates to whose chips, tools, cloud infrastructure, and ecosystem will influence the most AI developers worldwide,” said Warner in a statement.

Earlier this year, a group of experts told Congress that AI chip export controls were among the most effective tools in slowing down Chinese companies in the AI race.

Some experts reached by CyberScoop said there was a crucial distinction between the DOJ’s legal prosecution of companies who are knowingly breaking established laws and the Trump administration’s policy shift around selling AI chips.

“Those businessmen allegedly violated export control laws, evaded licensing requirements, and engaged in smuggling,” said Elly Rostoum, a senior fellow at the Center for European Policy Analysis and former National Security Council staffer. “Even if the White House later decides to loosen restrictions, the DOJ still has an obligation to prosecute violations of the laws as they existed.”

Rostoum said federal prosecutors can’t retroactively excuse criminal conduct because policy preferences shift in the White House, and that a legal market for H200 chips should still leave room for prosecuting bad actors who use illegal means to do the same thing.

“Criminal smuggling operations that create a completely unmonitored black market where chips disappear into unknown end-uses with zero accountability,” she said. “Even if you support opening up some sales to China, you still want to prosecute smugglers because the black market undermines any attempt at strategic control.”

Chinese government officials, for their part, reportedly intend to put limits on how many domestic companies will be able to buy the chips as part of the country’s goal of establishing self-sufficient technology markets. According to the Financial Times, citing anonymous sources, regulators in Beijing have been discussing ways to permit limited access to NVIDIA H200 chips, with buyers likely going through an approval process where they must justify why they can’t purchase their chips from domestic providers.

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A Commerce Department office should investigate Chinese government-connected products in more than a dozen emerging industries for security threats, a group of House GOP committee leaders said in a letter they released Wednesday.

In the missive, the lawmakers said the Office of Information and Communications Technology and Services has the power to both investigate and restrict those products in areas like artificial intelligence and energy generation.

China, they wrote, has already demonstrated that it views information technology as a battlefield with its cyberattacks on the United States.

“A compromised power grid, an infiltrated telecommunications network, or a manipulated industrial control system can pose as great a threat as a kinetic military strike,” the House members said. “The fusion of digital capabilities with critical infrastructure has whittled away geographic borders, as connected infrastructure or products can be controlled or updated by entities in another country.

“Without a concerted effort to create a secure technology ecosystem from the very beginning of each supply chain, our adversaries will continue to exploit our dependence on their technology to undermine U.S. economic and military stability,” they continued.

The lawmakers signing the letter were House Homeland Security Chairman Andrew Garbarino of New York; Committee on China Chairman John Moolenaar of Michigan; Foreign Affairs Chairman Brian Mast of Florida, Intelligence Chairman Rick Crawford of Arkansas; and Bill Huizenga of Michigan, who chairs the Foreign Affairs Subcommittee on South and Central Asia.

Some of the industries and companies on the lawmakers’ list have already drawn attention from the U.S. government, including from the Commerce Department. For instance, the departments of Commerce, Defense and Justice reportedly opened investigations last year into the router-manufacturer TP-Link of China. More than a half-dozen agencies are said to support a ban on TP-Link Systems of Irvine, Calif., spun off from the Chinese company.

TP-Link Systems disputes allegations that it poses a national security threat.

Other products mentioned in the GOP members’ letter include industrial control systems, robotics, cameras, chip design software, drones and tools necessary for semiconductor production.

The Commerce Department did not immediately respond to requests for comment on the GOP letter. The government shutdown has led some agencies to stop responding to emails.

The Trump administration is in the midst of a prolonged and wide-ranging battle over trade with Beijing, one that includes potential curbs on exports to China made with U.S. software and Nvidia’s most advanced chips. Chinese-made products and their potential impacts on cybersecurity have sparked widespread concerns.

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