HOUSTON – Federal prosecutors announced Monday the first-ever conviction in an artificial intelligence technology smuggling case, uncovering a sophisticated scheme to illegally export over $160 million worth of advanced computer chips to China through a network of shell companies and falsified shipping documents.
Alan Hao Hsu, who operated a Sugar Land-based shell company called HAO Global, pleaded guilty to smuggling charges along with two other businessmen who were arrested for allegedly helping divert restricted computer chips to China, U.S. Attorney Nicholas Ganjei said.
“This is just the beginning of Operation Gatekeeper,” Ganjei said during a press conference in Houston. “The Southern District of Texas will find each and every person or business working to illegally export these critical technologies to our strategic competitors.”
What Is The Tech?
At the center of the case are Nvidia’s H100 and H200 Tensor Core graphic processing units (GPUs), which are some of the world’s most powerful computer processors specifically designed for artificial intelligence and high-performance computing applications.
These aren’t ordinary computer components; they’re sophisticated processors capable of performing complex calculations at unprecedented speeds.
The H200, building upon the H100’s capabilities, is considered the world’s most advanced chip ever built. It’s specifically designed to power generative AI and process vast amounts of data at high speed.
Each baseboard can house up to eight of these powerful GPUs, creating a processing powerhouse that can handle the massive computational demands of advanced AI systems.
“These GPUs are nothing like the graphics cards you find in a home gaming computer,” Ganjei explained. “They can be used for direct military applications such as designing weapons, operating drones, and analyzing intelligence data.”
How The Smuggling Operation Worked
According to court documents, the smuggling operation began in October 2024 when Hsu, who had maintained HAO Global as a dormant company since 2014, suddenly became active in purchasing high-end computer hardware.
The company agreed to purchase 3,872 H100 and 3,160 H200 Tensor Core GPUs, with a total purchase price of $160,815,000.
Prosecutors say Hsu orchestrated a complex financial web to fund the purchases. HAO Global received wire transfers totaling more than $50 million from various entities, including companies based in Thailand, Singapore, Malaysia and China.
The money would often be routed through multiple countries before reaching HAO Global’s accounts in the United States.
To conceal the scheme, Hsu and his co-conspirators allegedly:
- Used shell companies and layers of financial transactions to obscure the source of funds
- Created false end-user certifications claiming the chips would remain in the U.S.
- Misclassified the GPUs on shipping documents as “adapters” or “computer servers”
- Provided vacant office suites in Sugar Land as business addresses
- Arranged for the chips to be relabeled with fake branding before export
The Co-Conspirators
Two other businessmen, Fan Yu Gong of Brooklyn, New York and Ben Lin Yuan, were also arrested for their alleged roles in the scheme.
Gong, a Chinese national with a pending asylum claim, allegedly operated a Brooklyn-based technology company that served as a crucial link in the smuggling chain.
According to the criminal complaint, Gong hired workers, primarily Chinese nationals, to remove Nvidia labels from the GPUs and replace them with counterfeit labels bearing the name “SANDKYAN,” a fictitious brand created to conceal the true nature of the shipments.
The relabeling operations took place in warehouses across the New York-New Jersey metropolitan area.
Yuan, who served as an executive with a Virginia-based subsidiary of a Beijing technology company, allegedly helped recruit and organize individuals to inspect mislabeled GPUs and provided false information to U.S. authorities about the ultimate destination of the shipments.
Why Can’t China Buy These Chips?
The U.S. Commerce Department’s Bureau of Industry and Security strictly controls the export of these advanced chips to China due to national security concerns.
In October 2023, the agency expanded export restrictions on advanced computing semiconductors to prevent China from obtaining critical technologies that could enhance its military capabilities.
Under these regulations, companies must obtain special licenses to export the H100, H200, and similar high-performance AI chips to China, Hong Kong and Macau. Neither Hsu, HAO Global, nor any of the alleged co-conspirators had such licenses.
“The sophisticated conspiracy allegedly created a backdoor to provide an adversarial nation with advanced technology using artificial intelligence applications and high-performance computing to advance China’s civil military fusion efforts,” said Christopher Raia, Assistant Director in Charge of the FBI’s New York office.
Operation Gatekeeper
The year-long investigation, dubbed Operation Gatekeeper, involved extensive cooperation between multiple federal agencies, including the Department of Commerce’s Bureau of Industry and Security, the FBI, and Homeland Security Investigations.
Law enforcement successfully seized millions of dollars worth of chips and prevented approximately $100 million more from being exported.
However, investigators say about $50 million in restricted technology made it to China before the scheme was disrupted.
The investigation revealed that some shipments were routed through third countries such as Singapore and Malaysia before ultimately reaching China.
In other cases, the conspirators allegedly used Canada as a transshipment point, falsely declaring it as the final destination while arranging for the goods to be redirected to Hong Kong.
“At their core, these cases are about individuals who deliberately conspired or worked with others to send this technology into the hands of America’s strategic competitors,” Ganjei said. “The country that controls these chips will dominate AI. And the country that dominates AI will lead the future.”
HAO Global and Hsu have pleaded guilty to smuggling charges and unlawful export activities. The cases against Gong and Yuan are pending.
If convicted, they face up to 10 years in prison for smuggling charges and up to five years for unlawful export activities. Each count also carries potential fines of up to $250,000 or twice the value of the goods.
The Justice Department is continuing its investigation as part of Operation Gatekeeper, suggesting more arrests could follow.
“This is just the first arrest and the first ever conviction for an AI diversion case,” Ganjei said.