Nvidia Faces Smuggling Scrutiny as DOJ Charges $300m Server Case and US-China Deadlines Shift
· TexaHub · Semiconductors, Geopolitics & Tech, Artificial Intelligence
A new $300m indictment, Bloomberg's reporting on missed red flags at Nvidia and an unformalised truce extension define the first week of October for AI-chip flows to China.
A new indictment in Los Angeles
The US Justice Department announced on 1 October the arrest of Greg Lui, 38, also known as Yiu Kong Lui, of San Gabriel, California, on a three-count federal indictment alleging that he smuggled more than $300 million worth of export-controlled computer servers to China [3]. According to the department, the indictment was returned on 29 September and charges Lui with conspiracy to violate the Export Control Reform Act and the Export Administration Regulations, outbound smuggling, and conspiracy to commit money laundering [3]. Lui owns Earthmade Computer Inc., a company based in City of Industry, California [3].
Prosecutors allege that from 2023 to 2024 Lui and co-conspirators used Earthmade to buy high-end servers containing graphics processing units, supplied false documentation to US manufacturers about end users and destinations, shipped the servers to countries such as Malaysia and Singapore, where no licence is required, and then re-exported them to China [3]. The department says Earthmade received more than $176 million from two Malaysia-based shipment companies between January and October 2024 [3]. One example in the release describes a January 2024 purchase order for 27 servers worth about $7,614,000, shipped from Los Angeles to Kuala Lumpur, and a March 2024 email in which a co-conspirator told a Malaysian government official that the servers had been transshipped to a China-based buyer [3].
The Justice Department release does not name the chip supplier, while Engadget reported that the servers contained Nvidia AI chips [3][1]. If convicted on all counts, Lui faces maximum terms of 20 years each on the conspiracy and money-laundering counts and 10 years on the smuggling count [3]. The department notes that an indictment is merely an allegation and that defendants are presumed innocent [3].
Bloomberg's questions for Nvidia
The arrest coincided with a Bloomberg feature, summarised by Engadget on 2 October, reporting that officials are asking why Nvidia missed red flags as its chips continued to reach China [1]. Engadget cited Bloomberg's sources as saying at least 115,000 restricted Nvidia processors have been smuggled into China [1]. It quoted Daniel Remler, a former head of AI policy at the State Department, as saying: "I've never felt like we got a straight answer as to how it's possible for so many chips to be going to the Southeast Asia region if they were not serving customers in China." [1]
A summary of the Bloomberg piece by AI Weekly reported that Nvidia had removed more than half of its previously authorised Asian AI-chip buyers after tightening its approval process, with stepped-up due diligence in Singapore, Malaysia and Japan [2]. The same summary referred to the seizure of a SGD 55 million Singapore mansion linked to the smuggling network and to intercepted cargo in Taiwan [2]. Nvidia has not been accused of helping smugglers, and a company spokesperson told Bloomberg, according to Engadget, that "When the law is clear, American companies honor US laws as they are, not as America's critics wish they were." [1] AI Weekly separately quoted the company as saying that "smuggling is a nonstarter" [2].
The sticker-removal episode cited in coverage of the feature comes from an earlier case [1]. In March, prosecutors in the Southern District of New York unsealed an indictment against Yih-Shyan "Wally" Liaw, Ruei-Tsang "Steven" Chang and Ting-Wei "Willy" Sun, alleging a scheme in which a Southeast Asian company bought about $2.5 billion of servers from a US manufacturer between 2024 and 2025 for diversion to China [4]. The indictment, as described by the department, alleges that Sun and a broker staged dummy servers for a Commerce Department inspection, "using a hair dryer to remove and affix labels and serial number stickers to the server boxes and to the dummy servers themselves" [4]. Engadget identified the manufacturer as Super Micro and the buyer as Bangkok-based OBON [1].
Beijing's own export-control deliberations
The Financial Times report that China is weighing tighter export controls on AI models and chips is not new this week; Reuters carried it on 21 July [5]. According to that report, China's Ministry of Commerce consulted Alibaba, ByteDance and Zhipu about restricting overseas access to advanced models and data transfers for training, and explored stopping overseas chipmakers such as Qualcomm and TSMC from producing advanced chips based on designs from Chinese companies [5]. The Next Web reported at the time that officials had decided nothing, that no timeline existed and that the ministry had not published a draft [6]. This publication found no subsequent report confirming that a draft has been issued.
Deadlines in flux
Treasury Secretary Scott Bessent said in a Fox News interview that the US-China trade truce, originally due to expire on 10 November, would be extended to 10 January 2027 [7]. Sources differ slightly on the date of the announcement: Supply Chain Dive, publishing on 24 September, said it was made on Wednesday, while National Law Review dated the Treasury announcement to 23 September and the AsiaAI tracker to 24 September [7][9][10]. Bessent described the purpose as "to give us more time to see what we can do on the economic front" [7].
The extension would push back the Bureau of Industry and Security's Affiliates Rule, which extends Entity List restrictions to firms 50 per cent or more owned by listed parties and had been due to return on 9 November [8][10]. As of 30 September, BIS had not published a Federal Register notice formalising the change, according to law firm Crowell & Moring's trade blog, and National Law Review reported the same gap on 2 October [8][9]. The AsiaAI tracker likewise noted that, as of 28 September, no formal notice had altered the dates, leaving China's suspension of its October 2025 rare-earth announcements nominally due to lapse on 10 November [10]. Supply Chain Dive reported that China had paused implementation of its rare-earth export controls under the truce [7].
In this publication's assessment, the week's events point in two directions at once. Enforcement against transshipment through Southeast Asia is intensifying in US courts, while the regulatory deadlines that frame chip and mineral trade between Washington and Beijing remain subject to announcements that have yet to appear in the official record [3][8][10].
Sources
[1] NVIDIA's smuggling problem is getting worse — Engadget, 2 Oct 2026
[2] Nvidia Pressed on Red Flags as China Chip Smuggling Cases Mount — AI Weekly, 2 Oct 2026
[3] California Man Arrested for Smuggling More Than $300 Million in Export-Controlled Computer Servers to China — US Department of Justice, Office of Public Affairs, 1 Oct 2026
[4] Three Charged with Conspiring to Unlawfully Divert Cutting Edge U.S. Artificial Intelligence Technology to China — US Department of Justice, Office of Public Affairs, 19 Mar 2026
[5] China considers tighter export controls on AI models and chips, FT reports — Reuters via Yahoo Finance, 21 Jul 2026
[6] China weighs export controls on its own AI models and chips, FT reports — The Next Web, 21 Jul 2026
[7] US, China to extend trade war truce by 2 months — Supply Chain Dive, 24 Sep 2026
[8] U.S.-China Trade Truce Extended Two Months: BIS Affiliates Rule Suspension Follows — Crowell & Moring International Trade Law blog, 30 Sep 2026
[9] BIS Affiliates Rule Suspension Extended but Uncertainty Remains — National Law Review, 2 Oct 2026
[10] Chip Export Controls Tracker — AsiaAI.FYI, 30 Sep 2026