Nvidia employee implicated in escalating Supermicro smuggling scandal, but demand only intensifies for Nvidia hardware

An Nvidia employee has been detained in Taiwan over allegations of forgery and breach of trust, in relation to the Supermicro smuggling scandal, that saw servers ostensibly sold to companies in Southeast Asia routed to China instead. Nvidia itself hasn’t been accused of wrongdoing, and it published a statement calling smuggling a “nonstarter,” saying that any GPUs sold through such a system would have no “service, support, or updates.”

But that hasn’t stopped Nvidia from taking its own measures to reduce its exposure to potential future smuggling efforts. Earlier this month, it created a form of “whitelist” for companies it sells to. It also investigated the firms it will continue to do business with, even sending staff members to customer data centers at the urging of the White House for verification.

Prosecutors have made it clear from the start that Supermicro isn’t under investigation, merely its employees. The same is true of Nvidia. But as the AI frontier model race heats up and the White House floats banning Chinese models outright, Nvidia could face further restrictions on its hardware sales and greater scrutiny of its international actions.

Investigation escalation

The Supermicro smuggling scandal first came to light in March, when a trio of individuals were detained for deliberately mislabelling servers planned for sale to Southeast Asian countries. Instead, though, they sold them to China, getting around US export controls. The detentions included Supermicro co-founder, Yih-Shyan “Wally” Liaw, as well as a Supermicro sales manager in Taiwan, and a third-party broker who previously worked at Supermicro.

Where those detentions happened on U.S. soil, though, the investigations went international in May, when the Taiwan Keelung District Prosecutors’ Office executed search warrants against three individuals it claimed were involved in illicit smuggling efforts. Although it was said to be independent of the U.S.-led investigation, it involved the same companies and was part of the same overall scheme designed to smuggle Nvidia hardware into China.

In Taiwanese law, selling GPUs to China — even the U.S.-restricted kind — isn’t strictly a crime, but filing fraudulent paperwork and falsifying documentation absolutely is. That’s why Taiwanese authorities have leaned on local fraud laws to tackle this increasingly international case.

Although the authorities were clear that Supermicro as a company wasn’t being investigated, a number of high-level employees were. That continued in June when Taiwanese officials raided the Supermicro offices in Taiwan, as well as the homes of six individuals and three company sites, all said to be involved in the smuggling scheme.

The widening scope of the investigation ultimately pulled in workers from Supermicro distributor Albatron Technology and data center operator Chief Telecom. Taiwan has since said it is considering placing a criminal ban on all AI chip exports to China, locking down smuggling routes that have been actively exploited for several years.

But now the investigation is escalating up the supply chain and has now reached Nvidia itself. Although the company isn’t under investigation, Nvidia’s culling of potentially problematic suppliers and buyers might not do much if its own workers are facilitating the smuggling actions.

This is serious

The Nvidia employee in question has the surname Chang, but has remained otherwise unnamed. He was detained on suspicion of falsifying business documents, with authorities searching his home and workplace on July 24, marking the first time that Nvidia’s premises have been investigated in this manner since the start of the smuggling scandal.

Prosecutors consider him strongly suspected of the charges, with a very real risk for attempted flight, destruction of evidence, and collusion with witnesses.

“Smuggling is a nonstarter,” an Nvidia spokesperson told Tom’s Hardware. “We primarily sell our products to well-known partners, including OEMs, who help us ensure that all sales comply with U.S. export control rules. Even relatively small exporters and shipments are subject to thorough review and scrutiny on both sides of the globe, and any diverted products would have no service, support, or updates.”

Although authorities are clear that they are not investigating Nvidia as a company, an employee’s involvement in the scheme will put a spotlight on Nvidia’s actions and raise further questions about any additional involvement it or its employees may have had.

CEO Jensen Huang said in May that there was “no evidence of any AI chip diversion,” but the situation has obviously changed since then. At the beginning of June, U.S. Senator Elizabeth Warren wrote to Nvidia general counsel Tim Ter, asking for evidence that supported Huang’s claims.

Supply and demand

At the time of writing, there is a legitimate channel for Chinese firms to purchase Nvidia GPUs, but they’re not the most cutting-edge Blackwell chips. There are older Nvidia GPUs granted licenses that are reviewed on a case-by-case basis, with the U.S. government taking a 25% revenue share cut of the sales. This reportedly adds up to just 75,000 units for 10 different Chinese companies – a relatively trivial amount of GPUs for Nvidia.

This is for the China-only, neutered Nvidia GPUs like H20 and H100s — not the cutting-edge GB200 and GB300 Blackwell-based stacks available to Western AI developers.

But this legal demand comes despite the lack of cutting-edge hardware options, the regulatory hoops that those involved need to jump through, and the Chinese government using carrots and sticks to encourage the use of domestic chip options.

That’s because for certain tasks, Nvidia GPUs remain the best. For training, there’s nothing that can compete with Nvidia’s options. Chinese firms like Deepseek have tried previously, but they had to switch back to Nvidia when Chinese alternatives didn’t measure up. Although some post-training fine-tuning is now possible on Chinese hardware, the Moonshot’s headline-grabbing Kimi K3 was trained on potentially smuggled Nvidia Blackwell GPUs.

Considering the impact that Kimi K3 has had on the AI industry, it’s hard not to imagine other Chinese AI developers looking to have their own “Deepseek moment” wouldn’t search out access to Blackwell GPUs themselves.

The net may be closing on the Supermicro smuggling scheme, but the incentive is there for others to take its place, if they haven’t already.