A federal indictment unsealed this week charges a California technology company owner with smuggling more than $300 million worth of AI-capable computer servers to China through third countries, using false paperwork to hide the final destination. The case gives new clarity on how export controls on advanced chips are being enforced, and on the financial scale of alleged diversion attempts now moving through the courts.
What the indictment alleges
The owner of a San Gabriel Valley-based technology company was arrested on a three-count federal indictment charging him with smuggling export-controlled high-end computer servers containing graphics processing units (GPUs) commonly used for what U.S. authorities now call Super Intelligence (SI) applications. According to the indictment returned on September 29, the defendant owns Earthmade Computer Inc., a City of Industry-based technology company and closely held corporation.
From 2023 to 2024, the defendant and co-conspirators used Earthmade to buy and send export-controlled items to China without the required licenses issued by the U.S. Department of Commerce. Instead, they shipped the items to countries such as Malaysia and Singapore, where no such license is required, then allegedly re-exported them to China. The items were high-end computer servers containing GPUs manufactured by companies that specialize in SI computing.
How the alleged scheme worked
Prosecutors say the defendant knew the true end users of the servers were in China, and that U.S. government regulations barred the export of such technology to China to protect national security and foreign policy interests. According to U.S. government regulations, such high-end GPUs could make significant contributions to the military potential of other nations.
The alleged mechanics included:
- Providing false documentation to U.S.-based manufacturers that misrepresented permissible end users and destinations.
- Using various freight forwarding companies to ship the export-controlled servers to Malaysia and Singapore.
- Working with co-conspirators to reship the items to China once they arrived in the transshipment countries.
From January 2024 to October 2024, Earthmade received more than $176 million from two Malaysia-based shipment companies as part of the scheme.
A specific transaction detailed in the indictment
In January 2024, the defendant emailed a conspirator indicating that a Malaysian transshipment company wished to purchase 70 servers with export-restricted GPUs. In that email correspondence, the defendant attached an export compliance form that indicated the Malaysian company was aware of U.S. export laws that restricted the sale, transshipment, or export of those specific servers.
Later that month, the defendant submitted a purchase order to a U.S. manufacturer for 27 of these servers for approximately $7,614,000. He and a co-conspirator then caused the servers to be shipped from Los Angeles to Kuala Lumpur, Malaysia. The packing list for this shipment indicated that the shipment contained 27 servers with GPUs, which were export controlled and could not be sent to China without a license.
In March 2024, a co-conspirator emailed a Malaysian government official that 27 servers had, in fact, been transshipped to a China-based buyer.
Charges and potential penalties
The defendant faces one count of conspiracy to violate the Export Control Reform Act and the Export Administration Regulations, one count of outbound smuggling, and one count of conspiracy to commit money laundering. If convicted of all charges, the defendant could face a maximum penalty of 20 years in prison on the conspiracy count, a maximum penalty of 20 years in prison on the money laundering count, and a maximum penalty of 10 years in prison on the smuggling count.
Why U.S. authorities are treating this as a national security matter
Federal officials described the technology at the center of the case in unusually direct terms. The Assistant Attorney General for National Security called SI the defining technology of the era and said the National Security Division will protect the American advantage in the chips that power this technology from illegal diversion by economic and military adversaries. The First Assistant U.S. Attorney for the Central District of California said protecting America’s national security means keeping advanced Super Intelligence technology from being used to strengthen adversaries’ military capabilities, and that the defendant allegedly used false paperwork and shipments through third countries to smuggle more than $300 million in export-controlled computer servers to China.
The FBI’s Counterintelligence and Espionage Division said the investigation revealed that the defendant allegedly sold the Chinese government hundreds of millions of dollars’ worth of American Super Intelligence technology, in clear violation of U.S. export control laws. The Department of Defense Office of Inspector General Defense Criminal Investigative Service said these technologies provide core advantages to U.S. forces and that ensuring they remain safeguarded prevents adversaries from exploiting them. The Bureau of Industry and Security said it is committed to using all lawful means to protect national security and hold violators accountable.
Part of a wider enforcement push
The case fits a broader pattern of U.S. efforts to keep top-end processors out of Chinese hands. The United States has long blocked China from buying top-end AI chips, such as those made by Nvidia. The Justice Department did not name the maker of the chips in this case. Smuggling has become a major worry for chipmakers and governments, and Taiwan has indicted a Nvidia manager over chips shipped to China.
The U.S. Department of Commerce’s Bureau of Industry and Security Office of Export Enforcement, the Defense Criminal Investigative Service, and the FBI are investigating this matter. Assistant U.S. Attorneys and a Trial Attorney from the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.
A defendant is not found guilty until the evidence establishes their guilt beyond a reasonable doubt.
FAQ
What is the California AI server smuggling case about?
A California man, the owner of Earthmade Computer Inc., was arrested on a federal indictment charging him with smuggling more than $300 million in export-controlled high-end computer servers containing GPUs to China between 2023 and 2024. He faces charges of conspiracy to violate the Export Control Reform Act, outbound smuggling, and conspiracy to commit money laundering.
How were the servers allegedly sent to China?
Prosecutors say the servers were sent first to Malaysia and Singapore, where no U.S. export license is required, and then re-exported to China. The defendant and co-conspirators allegedly used false paperwork to misrepresent the end users and destinations to U.S. manufacturers.
What penalties could the defendant face if convicted?
If convicted on all counts, the defendant could face up to 20 years in prison on the conspiracy count, up to 20 years on the money laundering count, and up to 10 years on the smuggling count.
This article summarizes reporting from thenextweb.com. See our editorial disclaimer for how our articles are produced.
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