Singapore police arrested three people on Thursday for allegedly smuggling chips from American tech giant Nvidia to China, throwing a spotlight on China’s efforts to obtain advanced components in defiance of export restrictions – and showing just how diligently American companies are working to enforce those restrictions.
The three men arrested on February 27 were two Singaporeans and a Chinese national named Li Ming. Li was charged with committing fraud by making false representations, while his Singaporean partners were charged with criminal conspiracy to commit fraud.
Six other people were arrested in raids in 22 locations by the Singapore police and customs agents last week. A trove of paper and electronic documentation was seized during the raids.
The alleged conspiracy involved purchasing high-end computers that included restricted chips from Nvidia and claiming they would be sold to legitimate buyers in Malaysia. Singaporean officials said the Dell and Supermicro servers were actually sent to China.
The crackdown got underway after China debuted its new DeepSeek artificial intelligence system, which astounded the tech world by delivering performance close to the top tier of AI programs at a purported fraction of the development cost. The Chinese government touted DeepSeek as a tech war victory so profound it could revitalize China’s moribund economy and rally its technology industry after years of terrifying political crackdowns.
DeepSeek roiled stock markets around the world because its creators claimed they could deliver a product typically requiring industrial-scale investments of time and money at bargain-basement prices. If these claims hold up, the barriers to entry into the world’s most exciting new technology market would drastically lower. The value of some key tech stocks plunged as a result, since their high value was predicated on AI products being very expensive to create.
China portrayed the DeepSeek rollout as a breathtaking victory in the tech wars made possible by Chinese industry, ingenuity, and, of course, the wise leadership of the Chinese Communist Party. In the months since it rocked the world, many of DeepSeek’s claims to deliver world-class performance at discount prices have been challenged, and the product has been exposed as a privacy-invading nightmare riddled with Chinese Communist censorship.
The U.S. Department of Commerce (DOC) in February began investigating whether DeepSeek was developed using Nvidia chips acquired by Chinese companies in defiance of export restrictions. DeepSeek’s hardware unquestionably uses Nvidia chips, but its creators claimed all of them were legally purchased, and none were on the list of banned technology exports to China.
The DOC investigation highlighted Malaysia, Singapore, and the United Arab Emirates (UAE) as likely conduits for chip smuggling to China.
“It appears that a substantial fraction of DeepSeek’s AI chip fleet consists of chips that haven’t been banned (but should be), chips that were shipped before they were banned; and some that seem very likely to have been smuggled,” Dario Amodei, CEO of rival AI company Anthropic, said in February.
“We insist that our partners comply with all applicable laws, and if we receive any information to the contrary, act accordingly,” Nvidia responded.
The Rand Corporation argued that the most important lesson of DeepSeek was “the need for smarter export controls,” such as closing some loopholes, increasing oversight on chip manufacturers, and cracking down on “chip smuggling.”
“Maintaining U.S. leadership in computing power is one of the best tools for countering Chinese AI ambitions, though it must be part of a broader strategy,” Rand counseled.
A few weeks later, it appears the crackdown on chip smuggling is underway. Singaporean officials said they are attempting to take down a “shadow network” that traffics in banned Nvidia chips, which are legally shipped to Singapore in large quantities. Conspiracies like the one exposed on Thursday divert powerful computers to forbidden buyers in China after filing false paperwork that shows legitimate sales.
Nvidia conceded it has a problem with Singapore, noting that the country serves as a locus to “centralize invoicing” for products that are “almost always shipped elsewhere.” For this reason, Singapore accounts for about 18 percent of Nvidia’s customer billing but only two percent of its end-user shipping.
Industry analysts say a complete ban on Nvidia exports to China – including a crackdown on third-party smuggling plus more export restrictions on high-end chips that are currently legal to sell to Chinese companies – might reduce up to $5 billion of Nvidia’s annual revenue. Nvidia says the current regime of export controls has already cost the company a huge amount of income.
Singaporean officials said that while they do not approve of companies using them as a backdoor to circumvent the export controls of other nations, they have no legal obligation to enforce those controls. They do, however, intend to punish fraud and false representation – crimes which can be punished by up to 20 years in prison.
