- The US charged two men in connection with an operation to smuggle Nvidia AI chips to China.
- The DOJ said the group relabeled Nvidia chips as "SANDKYAN" to evade US export controls.
- The arrests follow a wider probe that seized $50 million in smuggled GPUs and cash.
Ever heard of a chipmaker called "SANDKYAN?"
No? That's because it doesn't exist — it was the fake company name involved in what US authorities are saying was a "sophisticated" AI chip-smuggling operation.
On Monday, prosecutors announced they have arrested several parties in connection with an operation that involved smuggling Nvidia's most advanced AI chips to China and Hong Kong in violation of US export control laws.
Among those are Fanyue "Tom" Gong, a 43-year-old tech-company owner in New York, and Benlin Yuan, a 58-year-old Canadian executive. They were arrested on December 3 and November 28, respectively, after investigators linked them to the trafficking network, the Department of Justice said in a press release published Monday.
The Nvidia chips, known as GPUs, are used to train cutting-edge AI models and high-performance computing systems. They are tightly restricted due to their potential military applications.
"These chips are the building blocks of AI superiority and are integral to modern military applications," said US Attorney Nicholas Ganjei for the Southern District of Texas, adding that the smuggling operation threatened national security.
Yuan's lawyer told Business Insider he had no comment about the cases. A representative for Gong could not immediately be identified.
An Nvidia spokesperson told Business Insider that the export system is "rigorous and comprehensive" and that it will "continue to work with the government and our customers to ensure that second-hand smuggling does not occur."
It comes as President Donald Trump on Monday announced his approval for Nvidia to sell H200 chips to China under a plan that includes a 25% payment to the US.
How prosecutors say the smuggling operation worked
Prosecutors said the smuggling operation relied on falsified paperwork, shell companies, and covert relabeling.
The people involved purchased GPUs through straw buyers and intermediaries who claimed the hardware was destined for US customers or countries that don't require export licenses, prosecutors said.
Once the chips reached US warehouses, the DOJ said, workers under Gong's direction removed Nvidia labels and then rebranded the GPUs as "SANDKYAN," a fake company name.
Shipping documents were also rewritten to classify the GPUs as generic computer parts, the DOJ said.
The mislabeled GPUs were then exported covertly to China, Hong Kong, and other restricted destinations, often routed through a Hong Kong logistics firm and a China-based AI company.
Yuan, who ran the US arm of a Beijing IT company, recruited inspectors and instructed them not to disclose the GPUs' true destination, Ganjei said.
Prosecutors said Yuan also helped craft false explanations when federal authorities detained certain shipments.
The arrests are part of "Operation Gatekeeper," a wider crackdown that earlier led Texas businessman Alan Hao Hsu and his company to plead guilty to smuggling offenses. According to court documents unsealed on December 8, Hsu exported or attempted to export $160 million worth of Nvidia's H100 and H200 chips to China, Hong Kong, and other prohibited countries.
Prosecutors said they seized more than $50 million in GPUs and cash from Hsu's operation. The activity took place between October 2024 and May 2025, the DOJ said.
Gong and Yuan remain in custody pending further proceedings. Yuan was charged with conspiring to violate the Export Control Reform Act, while Gong was charged with conspiring to smuggle goods out of the US. If convicted, Yuan faces up to 20 years in prison. Gong faces up to 10 years.
