Three men have been arrested after they allegedly conspired to smuggle hundreds of export-controlled Nvidia artificial intelligence chips from the US to China.

On Wednesday, the US Department of Justice (DOJ) announced the alleged scheme involved two US citizens: 49-year-old Matthew Kelly and 53-year-old Tommy English.

The men allegedly began conspiring to smuggle the chips after they established contact with 56-year-old Chinese national Stanley Yi Zheng in May 2023.

According to criminal complaints cited by DOJ, the alleged scheme saw the trio attempt to “obtain computer servers with export-controlled computer chips” from a California-based computer hardware company.

The men then allegedly tried to ship the chips via pass-through companies in Thailand for the ultimate destination of China, marking a direct violation of US export controls.

“Zheng, Kelly, and English allegedly conspired to sell millions of dollars’ worth of American-made AI computer chips to buyers in China,” said Roman Rozhavsky, assistant director of the Federal Bureau of Investigation’s (FBI) Counterintelligence and Espionage Division.

Though DOJ did not explicitly name chipmaker Nvidia, a criminal complaint filed in a California court showed the three suspects had allegedly attempted to smuggle hundreds of Nvidia products, including the company’s popular H100 chips.

Big order

In one instance, English allegedly ordered 750 computer servers while purporting to act on behalf of a Thailand-based company.

According to court documents, the order (valued at approximately US$170 million) included 600 servers that contained Nvidia H100 chips.

Despite the chips requiring a license for export, English reportedly signed a certification assuring the products were not destined for China.

As reported by PCMag, a separate purchase order allegedly saw Zheng request 232 units of a ‘SYS-821GE-TNHR’ server model – a product from California-based server maker Supermicro that supports Nvidia’s H100 and H200 graphical processing units (GPUs).

The order was reportedly valued at nearly US$62 million.

“As our foreign adversaries escalate their efforts to dominate the field of artificial intelligence, we are seeing them employ increasingly brazen schemes to illegally acquire valuable US technology,” said Rozhavsky.

“The FBI will continue working with our partners to protect our nation’s innovation and hold accountable those seeking to profit by supplying hostile nation states.”

The tip-off

The scheme was reportedly brought to the attention of the FBI and the US Bureau of Industry and Security (BIS) by an anonymous tipster in late January 2024.

After discovering all parties cited in the tip were indeed real companies, the agencies attempted to contact the tipster via email.

The tipster, who appeared to reside overseas, reportedly confessed they were initially involved in the scheme but were no longer participating.

Court documents suggested Nvidia and Supermicro staff cancelled the suspicious orders in early 2024 after they noticed signs of foul play, including that one of the companies in the scheme was based in China.

Nvidia has since confirmed to PCMag that “despite several efforts, the would-be smugglers failed to clear our diligence process and did not receive GPUs from us”.

According to DOJ, an additional suspicious order in April 2024 was also “unsuccessful”.

Notably, a bank account related to the scheme was found to have made a variety of purchases in December 2023, including restaurant meals, a gym membership, and a US$5,662.80 purchase at a luxury jewellery store.

Border search yields damning text exchange

In February, Kelly was subject to a border search while returning to the US from Italy via an international flight.

After his phone and laptop were seized, authorities reportedly uncovered numerous messages which showed the trio were seeking to obtain certain products and ship them to China via Thailand.

DOJ highlighted an exchange where, in a group chat titled “GPU Partnership”, Zheng sent a message discussing the market value of Nvidia’s chips in China.

The trio allegedly discussed prices in China just months before ordering hundreds of chips. Source: DOJ

In March 2024, Kelly reportedly sent a draft solicitation message that stated, among other things: “We . . . have a few customers in China but it’s a banned country for distribution. It’s a lucrative business right now – millions of dollars in profits per order – so we are looking for partners.”

Messages appeared to confirm the use of pass-through partners for exports to China. Source: DOJ

Just 28 minutes later, Zheng allegedly replied “DO NOT MENTION ANYTHING ABOUT CHINA [sic]”.

The three men have each been charged with conspiring to commit smuggling and export control violations.

Zheng was arrested on 22 March, while Kelly and English surrendered to authorities three days later.

Notably, the arrests followed a separate investigation involving Supermicro co-founder Wally Liaw.

Earlier this month, DOJ announced Liaw was charged for allegedly conspiring to divert “high-performance computer servers assembled in the United States and integrating sophisticated US artificial intelligence technology” to China.

After Liaw was arrested on 20 March, US senators Jim Banks and Elizabeth Warren called on the country’s Department of Commerce to pause Nvidia’s export licenses for advanced AI chips to Asian markets, citing concerns the tech could be redirected to China.