$160M of Nvidia Chips Allegedly Smuggled Into China

• President Trump's announcement allowing H200 GPU exports to China (with 25% U.S. cut) on the same day as the bust undermined prosecutors' national security arguments
• China remains heavily dependent on Nvidia technology with over 60% of leading Chinese AI models using Nvidia hardware despite local chip development efforts
• Experts estimate between 10,000 and several hundred thousand AI chips were smuggled to China in 2024 alone, with continued smuggling expected despite policy changes

Federal prosecutors in Texas revealed "Operation Gatekeeper," an investigation that uncovered a China-linked smuggling network attempting to export $160 million worth of export-controlled Nvidia H100 and H200 GPUs between October 2024 and May 2025. The sophisticated operation involved operatives illegally entering the U.S., shell companies, and a secret warehouse in Secaucus, New Jersey, where an undercover federal agent witnessed GPUs being relabeled under the fake company "Sandkayan."

The scheme ended dramatically on May 28 when federal agents intercepted three trucks at the warehouse, preventing the chips from reaching China. Text messages revealed conspirators instructing drivers to deny knowledge and ordering the deletion of group chats as authorities closed in. Multiple arrests were made for smuggling the AI technology.

China's dependence on Nvidia chips remains significant, with over 60% of leading Chinese AI models using Nvidia hardware. The Center for a New American Security estimates between 10,000 and several hundred thousand AI chips were smuggled to China in 2024 alone.

In a surprising development on December 8 – the same day the investigation was announced – President Trump posted on social media that the U.S. would now allow H200 GPU exports to China with a 25% sales cut to the U.S., though Blackwell and Rubin GPUs remain restricted. This announcement immediately complicated the prosecution's national security arguments, with defense attorneys highlighting the contradiction in their court filings.

Despite the policy shift, experts believe smuggling will continue due to China's accelerating AI compute demands. Nvidia stated they work closely with government authorities to prevent secondary market smuggling, emphasizing the rigorous export control scrutiny even for older generation products.