On December 8, federal prosecutors in Texas unsealed documents revealing an investigation into a massive smuggling network spanning the United States and the world.
The investigation, dubbed Operation Gatekeeper by federal authorities, focused not on drug smuggling or stolen goods, but on an alleged secret underground network of drug suppliers. Nvidiagraphics processing unit, or GPU. Such chips are the backbone of AI racing and can be used for both military and civilian purposes.
The government has announced that a hidden smuggling ring is sending chips to China in violation of the U.S. National Security Export Control Act. The smuggling syndicate allegedly involved a covert warehouse-transport operation in New Jersey that was infiltrated by operatives who entered the United States illegally, fake front companies, and at least one undercover operative working on behalf of the U.S. government.
The federal investigation’s findings highlight the desperate struggle between the United States and China for access to cutting-edge chips that many believe will determine the fate of the global economy. They say the smuggling organization attempted to export at least $160 million worth of Nvidia H100 and H200 GPUs to China between October 2024 and May 2025.
The demand for these chips from China is huge, and the best supply is still in the United States. Although China is establishing its own local AI chip market, the country remains heavily dependent on Nvidia’s technology.
“I think more than 60% of the major AI models in China are now using Nvidia hardware,” said Lei Wang, an analyst at Semianalysis. “NVIDIA has a systemic advantage from hardware to software. And right now, when you combine those two factors, I think that’s still something that China is trying to catch up to.”
As facts gathered, the government sent undercover agents to a warehouse in Secaucus, New Jersey. There, the individual allegedly witnessed the suspects rebranding Nvidia GPUs with a fake company name called “Sandkayan.” The government said the goods were incorrectly classified as “adapters”, “adapter modules” and “contactor controllers” on transport and export documents.
Operation Gatekeeper culminated in a dramatic scene on May 28, when three trucks hired by the conspirators arrived to retrieve smuggled chips at a warehouse in New Jersey.
In near real time, a user of the text chain allegedly used by the co-conspirators sent a message that one of the truck drivers transporting goods to a warehouse in New Jersey reported that police were on the scene asking questions about the destination of the shipment.
The co-conspirators instructed the driver to “just say you don’t know anything,” according to the documents.
Five minutes later, one of the co-conspirators sent another message to the entire text thread saying, “Disband this group chat and delete everyone,” prosecutors said. Shortly afterward, prosecutors said federal agents swooped in to secure high-tech equipment and prevent goods at the site from being shipped to China.
The incident comes amid a series of similar busts of NVIDIA’s unauthorized exports in recent months. The Center for a New American Security think tank estimates that between 10,000 and hundreds of thousands of AI chips were smuggled into China in 2024 alone.
“I feel like in today’s world there are so many ways you can get your hands on Nvidia chips in all sorts of illegal ways,” Wang said. “You can set up data centers globally, you can have shell companies buy Nvidia chips, and it’s very difficult for Nvidia to track and do due diligence.”
An Nvidia spokesperson told CNBC that the U.S. government’s export policies are rigorous and comprehensive.
“Even the sale of older generation products in the secondary market is subject to intense scrutiny and review,” an NVIDIA spokesperson said. “With millions of controlled GPUs in use in businesses, homes and schools, we will continue to work with governments and customers to prevent second-hand smuggling.”
But on the same day that federal prosecutors announced the investigation, President Donald Trump made a social media post that could derail the entire operation.
President Trump said on Truth Social that the United States will now allow exports to China of Nvidia’s H200 GPU, the most powerful GPU seized by authorities in Operation Gatekeeper. President Trump said those exports would be allowed, provided the United States receives 25% of the sales. President Trump added that Nvidia’s most advanced AI chips, the Blackwell GPU and Rubin GPU, have not yet been approved for export.
Operation Gatekeeper resulted in the arrest of two businessmen and the plead guilty by a Houston man and his company of smuggling cutting-edge AI technology. But the president’s announcement threw into turmoil a case by U.S. prosecutors seeking to argue that smuggling of the same chips is a risk to national security. Defense attorneys for the indicted men were quick to jump at the opportunity.
“The President lied when he announced that the United States would allow the export of Nvidia’s H200 GPU, the most powerful GPU seized by authorities in this case, to China,” lawyers wrote in a court filing the next day.
Some experts said they believe even Nvidia’s top-of-the-line AI chips will continue to be smuggled into China.
“I don’t think smuggling will stop like this,” Wang said. “It’s unclear to me whether the new opening of H200 chips will be enough to meet China’s AI demand. The computing demand we’re seeing globally is accelerating, and I believe it should be the same in China.”
