[Edaily Reporter Bang Sung Hoon ] It is estimated that hundreds of thousands of NVIDIA artificial intelligence (AI) chips were smuggled into China via Southeast Asia despite U.S. export controls. The value of these chips amounts to billions of dollars (trillions of won). Criticism is growing among U.S. officials that NVIDIA failed to recognize clear warning signs.

◇Removing Serial Numbers with Hair Dryers… Through Southeast Asia to China
According to Bloomberg News on the 1st (local time), U.S. authorities believe China has smuggled in computing power equivalent to more than 115,000 NVIDIA AI chips. This corresponds to the volume of chips Bloomberg reported last year as part of a data center project in the desert region of western China. At the time, NVIDIA and authorities in various countries assessed the plan as unrealistic given export controls, but if the U.S. authorities’ assessment is correct, a quantity exceeding that estimate has already entered China.

Semianalysis, a semiconductor research firm, estimated—based on supply chain audits and comparisons of production and installation data—that hundreds of thousands of AI chips have slipped through the regulatory net. This volume is sufficient to fill several small data centers or a few megacenters.

An image that has come to symbolize the smuggling operation is a surveillance camera photo released by U.S. prosecutors last March. It shows a woman in a warehouse in Southeast Asia using the hot air from a red hair dryer to peel off serial number stickers attached to server packaging.

Three individuals, including Wally Liao, co-founder of the U.S. server manufacturer Supermicro, were indicted in connection with this case. They are accused of selling $2.5 billion (approximately 3.3975 trillion won) worth of servers to a Southeast Asian company, which then diverted them to Chinese customers. Bloomberg reported, citing sources, that the intermediary in question was OBON, a digital infrastructure company based in Bangkok, Thailand. Liao has pleaded not guilty, and the trial is set to begin next March.

Similar cases are occurring across Asia. In Taiwan, infrastructure firm Flying Tiger is accused of ordering 130 servers equipped with NVIDIA’s latest “Blackwell” chips and then diverting 74 of them to China via Japan and Indonesia. The remaining 56 were seized by the Taiwan Coast Guard last May, and an NVIDIA executive suspected of being a key figure in the case was also arrested.

In Singapore, prosecutors seized a $40 million (approximately 54.36 billion won) mansion last July that is suspected of having been purchased with proceeds from smuggling.

The U.S. government believes that some of the smuggled chips ended up with Chinese AI companies, such as DeepSeek, helping them compete with Anthropic and OpenAI. The Trump administration believes DeepSeek installed Blackwell chips in a data center in Inner Mongolia, and Alibaba is also suspected of being one of the end customers in the Liao case. Alibaba has denied these allegations.

◇“Missed the Warning Signs” vs. “A Drop in the Ocean”
NVIDIA has never been accused of violating export controls or intentionally aiding in smuggling. However, U.S. officials and industry experts point out that there are gaps in NVIDIA’s customer due diligence.

In fact, the space rented by Flying Tiger was far too small to accommodate all the servers it had ordered. Operating the servers purchased by Obon would have required a data center with a capacity of over 100 megawatts (MW). Supermicro approved the sale even though the total operational capacity of all data centers in Thailand at the time was only a few hundred MW. According to the indictment, Obon’s building lease agreement was fake.

Daniel Lemer, who led AI policy at the State Department under both the former Biden and Trump administrations, pointed out, “I have never heard a proper explanation for how so many chips could end up in Southeast Asia unless they were intended for Chinese customers.”

NVIDIA acknowledges that other companies engage in smuggling but maintains that the scale is negligible. An NVIDIA spokesperson stated, “The circumvented exports uncovered by the government and the media are a drop in the bucket compared to the vast computing resources China already possesses,” adding, “The volume of circumvented exports alleged by U.S. prosecutors amounts to less than 0.5% of NVIDIA’s products.” Chinese semiconductor companies are expected to produce approximately 2 million AI chips this year.

◇Enforcement Loosened Under Jensen Huang’s Influence… “A Game of Whack-a-Mole”
Analysts suggest that NVIDIA CEO Jensen Huang’s use of his personal relationship with President Trump to secure a relaxation of export controls also contributed to the lax enforcement. Last December, he persuaded President Trump to allow the sale of up to 1 million older-generation “Hopper” chips to China. While exports of Blackwell chips remain banned, this move has enabled Chinese companies to secure chips on par with Huawei’s top-of-the-line products.

Leeja Tobin, who oversaw China policy on the National Security Council (NSC) during Trump’s first term, said, “The CEO of NVIDIA has more influence over export control policy than President Trump’s cabinet members.”

There are also concerns about a lack of enforcement capacity. The Bureau of Industry and Security (BIS) at the Department of Commerce, which oversees export controls, had only about 10 overseas enforcement personnel until this year’s budget increase. Critics also argue that the agency did not fully exercise its authority even after identifying violations.

The BIS failed to block shipments despite early knowledge of Flying Tiger’s smuggling network and merely issued a “voluntary request”—rather than a mandatory order—to Supermicro to halt sales to Obon. Black market brokers are now circumventing restrictions by using new routes through Europe and the Middle East. One U.S. official lamented, “It’s the worst game of whack-a-mole we’ve ever played.”