“Enormous profits”
Nvidia senior manager linked to Supermicro scheme smuggling AI servers to China
Nvidia worker indicted after Jensen Huang scolded Supermicro for AI server smuggling.
Taiwan has indicted nine people—reportedly including an Nvidia senior manager and two Supermicro employees based in the country—who allegedly helped forge documents to cover up illegal exports of high-end AI servers to China in violation of US export controls.
On Monday, Reuters reported that prosecutors in Keelung did not release any names but confirmed that the suspects were “charged with breach of trust and document forgery.” One suspect linked to a related case remains at large, accused of the “siphoning of funds from a distributor company involved” in helping China get access to restricted Nvidia chips.
Since 2022, the US has required a license to export semiconductors to China, with the intent of protecting national security by staying ahead of China in the AI race. But after the US arrested Supermicro co-founder Wally Liaw in March for allegedly funneling $2.5 billion in restricted AI servers to China since 2024, Taiwan launched a separate probe to learn more about the scheme.
Taiwan’s investigation found that co-conspirators attempted to falsify documents to make it appear that 130 B300 servers were installed and in use at a Taiwan facility. But 74 of those servers “were ultimately exported and delivered to Chinese customers,” Reuters reported, while the rest, 56, were intended to go to China but were blocked once Taiwanese customs officials “detected irregularities.”
Ars could not reach Supermicro or Nvidia for comment.
Huang urged Supermicro to “fix” problem
In a statement to PC Mag, Supermicro has previously confirmed that it’s cooperating with Taiwanese investigators.
“Supermicro is committed to protecting our advanced technologies and intellectual property. We are working closely with Taiwanese authorities on recent events, which underscore the importance of continued collaboration across industry and government to strengthen safeguards, enhance supply chain visibility, and facilitate the enforcement of export control laws,” Supermicro said.
The firm is not a target of the probe, Supermicro emphasized, which so far has targeted at least 12 locations to uncover suspected smugglers. Although US employees are believed to be integral to the scheme, Lauren Barden-Hair, an expert in China’s power over multinational firms across Southeast Asia, posted an op-ed in The Hill, noting that the US found that “a nameless Southeast Asian firm” was “at the heart of the operation.” That firm allegedly coordinated with co-conspirators at Supermicro and Nvidia, succeeding for years at ensuring that China wasn’t completely blocked from accessing Nvidia’s most advanced AI chips.
Both US firms will likely need to assess the steps they take to comply with US export controls. In May, before any Nvidia employees were linked directly to the scheme, Nvidia CEO Jensen Huang was highly critical of Supermicro for its failing compliance program, urging that a fix was needed, Tom’s Hardware reported.
“We insist our partners are compliant. We hope that they will enhance and improve their regulation compliance and prevent that from happening in the future,” Huang said at the time.
Supermicro has confirmed that it has already made changes. It also fired several employees that an internal investigation connected to the Chinese AI server scheme, Tom’s Hardware reported. Conducted by a third party, that probe cleared Supermicro’s current senior officials of any involvement. However, the company may have been neglectful in not noticing that “billions of dollars’ worth of hardware was being sent to questionable clients,” Tom’s Hardware noted. Spooked investors have even sued Supermicro for securities fraud, fearing that the company’s sales may be dominated by such illicit sales.
Taiwanese prosecutors said that all employees indicted were “fully aware” that Nvidia and Supermicro have “rigorous internal control procedures” regarding exports to China, Reuters reported. The US and Taiwan have recently tightened those controls, prosecutors said, yet employees’ scheme only got more brazen, Barden-Hair’s op-ed suggested. Supermicro’s team allegedly was so confident that it could evade US and Taiwanese export controls that it made “increasingly daring deals” to get China the computing power it wanted.
Taiwan officials announced that they recently uncovered more of the same misconduct. They alleged that Nvidia’s manager and Supermicro employees “colluded with one another at various levels for enormous profit, illegally exporting high-end servers, increasing corporate compliance costs, and severely damaging our nation’s international image,” Taiwan authorities said Monday.
US may cut off China’s remote access to AI
The US is determined to cut off China’s access to Nvidia’s AI chips and servers, and it seems to be taking a two-prong approach to tighten controls even further.
First, lawmakers are weighing a bill called the Remote Access Security Act (RASA), which would allow US export controls to extend to include remote cloud-based access to critical hardware and software, CNBC reported.
Passing that law would allow rule-making that could cut China off from exploiting a known loophole that currently impedes the US from interfering with its remote access to Nvidia chips via data centers in Southeast Asia. According to industry experts, remote access to computing power is a key factor driving Chinese models’ capability gains for companies including Alibaba, ByteDance, and Tencent, CNBC reported. And China will apparently soon have more data centers nearby to potentially expand remote access to compute, as hyperscalers plan to multiply the number of facilities in the region, leaping from two data centers today to 31 planned projects underway.
That bill will likely face industry pushback, CNBC suggested, since cloud providers would bear the cost of that new compliance regime, including implementing better know-your-customer protocols.
For the US, ending remote access may seem like an increasingly urgent priority, but the Supermicro scandal shows that evading controls can often be as easy as forging a document in an overburdened system where neither top executives nor customs officials managed to flag billions of dollars in fraudulent diversions.
However, the global crackdown on employees who are striking shady deals to export AI servers to China does come as Nvidia recently announced it’s increasing the prices of AI servers by 15 percent. So, at the very least, any employees motivated by the potential of gaining even higher profits from illicit sales will seemingly be on notice.
In her op-ed, Barden-Hair suggested that the US was blindsided by Chinese AI server smuggling because it failed to learn from its own history. In 1998, the Senate Committee on Governmental Affairs investigated “Chinagate,” a campaign finance scandal where China used Southeast Asian companies as a cover to try to influence election outcomes.
In that scheme, China learned that cultivating ties with business moguls—particularly those who had deep financial investments in China but were based just outside its sovereign territory—provided the “ideal cover,” Barden-Hair said. And similarly, the unnamed Southeast Asian firm at the heart of the Supermicro scandal appears to follow the same playbook, she said.
“It is easy to point out errors in judgment after a disaster, and US export control authorities deserve support and praise for their efforts to protect national security,” Barden-Hair said. “But it is important that we take the right lessons from the Supermicro scandal amid our shaming of the guilty, and remember the hard-earned lessons of the past. With the anonymous company the Justice Department refers to, China is showing us, again, that its pawns are scattered beyond its borders, and that its financial tentacles have a real and devastating influence.”
