$160 million worth of export-controlled Nvidia chips were allegedly smuggled into China

Contessa Brewer (Correspondent) 00:00.040

December 8th, federal prosecutors in Texas unsealed documents that revealed an investigation into a massive smuggling network that stretched across the United States and around the world dubbed Operation Gatekeeper by the feds. The investigation wasn't focused on drug smuggling

Contessa Brewer (Correspondent) 00:17.560

or stolen goods, but rather an alleged secret underground network of suppliers for Nvidia's graphic processing units or GPUs. Ayman Javers joins us with a follow-up on that story. Hi Ayman.

Eamon Javers (Senior Washington Correspondent) 00:30.000

Hey there, Contessa. You're right. The government said a hidden smuggling ring was sending chips to China in defiance of American national security export control laws. The smuggling syndicate allegedly involved operatives illegally entering the United States, phony front

Eamon Javers (Senior Washington Correspondent) 00:45.320

companies and a secret warehouse shipping operation in New Jersey that was penetrated by at least one undercover agent working on behalf of the US government. Here's how the operation allegedly worked.

Eamon Javers (Senior Washington Correspondent) 00:57.240

That empty office space in Sugarland, Texas a step sensibly served as the headquarters for a company that was actually run out of an individual residence in nearby Missouri City, Texas. Federal prosecutors allege that the company purchased Nvidia components from an American

Eamon Javers (Senior Washington Correspondent) 01:12.000

electronics firm and then shipped them to Singapore and then on to Hong Kong. In another case, a Houston-based company allegedly purchased computer components from a firm in Southboro, Massachusetts, shipped them to a logistics facility in Secaucus, New Jersey, where they were

Eamon Javers (Senior Washington Correspondent) 01:27.200

re-labeled with a phony company name and shipped to a New York warehouse. Paperwork suggested the components would then be shipped on to Australia.

Eamon Javers (Senior Washington Correspondent) 01:36.280

An Nvidia spokesperson told CNBC that the US government's export control process is rigorous and comprehensive. Even sales of older generation products on the secondary market are subject to strict scrutiny and review, the Nvidia spokesperson said. While millions of controlled

Eamon Javers (Senior Washington Correspondent) 01:52.160

GPUs are in services at businesses, homes, and schools, we will continue to work with the government and our customers to ensure that second-hand smuggling does not occur. And on the same day the federal prosecutors announced this investigation, Contessa, President Trump made a

Eamon Javers (Senior Washington Correspondent) 02:07.560

social media post that could undermine the whole operation. Trump said on True Social that the United States would now allow Nvidia's H200 GPUs, the most powerful GPUs seized by authorities in Operation Gatekeeper to be exported to China. Trump said those exports would be

Eamon Javers (Senior Washington Correspondent) 02:23.840

allowed, provided that the US received a 25% cut of the sales. And the president added that Nvidia's most advanced AI chips, the Blackwell and Reuben GPUs are still not authorized for export. So that throws federal prosecutors case into some question here. Defense attorneys for

Eamon Javers (Senior Washington Correspondent) 02:41.200

the men charged have said in court filings that the government's claim that this alleged smuggling threatened national security can't be right because the president is allowing it to happen. Contessa, back

Contessa Brewer (Correspondent) 02:51.200

over to you. That's got to be frustrating for the prosecutors and for the investigators who went after this. Isn't the problem in the first place the smuggling like labeling tables boxes falsely for export seems like that would be criminal.

Eamon Javers (Senior Washington Correspondent) 03:06.680

Yeah, it's a surprisingly low-tech smuggling operation for a high-tech product. What the allegation in this case says is that there was this facility in New Jersey in Secaucus in a warehouse where Chinese operatives were going in taking these Nvidia GPUs and simply slapping fake

Eamon Javers (Senior Washington Correspondent) 03:24.840

labels on top of the GPUs. So they had a fake company they called San Kean that that San Cayen label just slapped on top of the Nvidia label and then they changed the bill of lading descriptions of what these items actually were to sort of nonsensical terms to try to fool export

Eamon Javers (Senior Washington Correspondent) 03:41.400

control officials at the point of embarkation. So clearly it's old-fashioned low-tech smuggling. I mean this is right out of like a prohibition whiskey run but then in this case this is Nvidia GPUs going

Contessa Brewer (Correspondent) 03:55.040

to China. Do you know I mean Nvidia chips have just been in such high man. We've talked a lot about whether there's enough supply. How did the smuggling operation get hold of these GPUs in the first place?

Eamon Javers (Senior Washington Correspondent) 04:09.400

They seem to have purchased them from re resellers of NVIDIA Gear, right? So uh they don't seem to be purchasing them directly from NVIDIA, but from other third-party companies. Now, it's not clear in the documents because oftentimes they're referred to just as Company 1 and

Eamon Javers (Senior Washington Correspondent) 04:23.480

Company 2. So you don't know exactly who they're referring to. But a lot of this seems to be more or less legitimate purchasing activity by a company that's on its face based in Houston, for example, and then in reality that company is shipping them offshore, even though sending

Eamon Javers (Senior Washington Correspondent) 04:40.360

documents and certification to the original seller saying this is for legitimate US-based purposes and then out the back door it goes to

Contessa Brewer (Correspondent) 04:48.000

China. Amen Jabers, thank you for bringing us that update. Appreciate it.