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The AI race between the U.S. and China continues to simmer, despite strict technology restrictions in place. Thanks to a strict embargo, U.S. companies have been restricted from supplying critical AI infrastructure to China. More specifically, Nvidia GPUs, which are considered the driving force behind the generative AI progress, are strictly banned from being sold to Chinese companies. However, the Nvidia chips have still ended up in China by illicit means. But it seems the feds have finally tasted some success in putting a lid on such trade. The Justice Department has announced the arrest of two businessmen in Texas for violating the U.S. export control and smuggling laws by attempting to supply AI hardware.

Additionally, the owner of a Houston-based company named Hao Global LLC has also filed a guilty plea after cash and Nvidia AI hardware worth $50 million were recovered from them. This won’t be the first case where illicit Nvidia hardware has popped up in the same conversation as China’s AI progress. A few weeks ago, it was reported that Nvidia chips valued at approximately a billion dollars were illegally moved to China, despite the chip export controls. To recall, restrictions on chips that could allow the development of supercomputers in China have been in place since 2022, while a ban on the sale of Nvidia H20 AI chips was announced in April this year.

Interestingly, the feds have charged a Texas-based individual named Alan Hao Hsu for having “knowingly exported and attempted to export” Nvidia H100 and H200 GPUs valued at roughly $160 million. “These GPUs are used for both civilian and military applications,” the DOJ’s Office of Public Affairs shared in a press statement. Hsu and his partners allegedly smuggled critical AI hardware between October 2024 and May 2025 using forged papers and misreporting.

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In the latest Texas action, law enforcement agencies have also arrested Fanyue “Tom” Gong, owner of a New York-based technology, and Benlin Yuan, chief executive at the U.S.-based subsidiary of a Chinese company. They allegedly worked with a Hong Kong-based logistics company and bought the Nvidia GPUs through intermediaries in the U.S. Hsu, whose company is said to have received $50 million in wire transfers linked to China, faces up to 10 years in prison and a penalty exceeding the overall gains from the illicit trade.

After acquiring the GPUs, the Nvidia labels were removed and replaced with the label of a bogus company named “Sandkyan.” These rebadged Nvidia AI chips were later declared as generic computer parts and subsequently shipped to their clients in China. Gong and Yuan are now facing 20 years in prison and fines to the tune of $1 million. The case is still being investigated by the Commerce Department’s BIS Office, the FBI field offices in Washington and New York, and the Immigration and Customs Enforcement Homeland Security Investigations (ICE HSI).

The Texas arrests won’t be the first incident of its kind. Merely a month ago, the feds indicted four individuals over a plot to send Nvidia chips to China in violation of export laws. Interestingly, in the second week of December, the Trump administration allowed Nvidia to sell H100 and H200 GPUs to Chinese clients, on condition that the U.S. government gets a 25% cut of the sales. Nvidia, on the other hand, saw its market share crash to zero in China, owing to the ban. But it appears that the trade restrictions aren’t having the intended impact. According to The Information, Chinese AI giant DeepSeek is still deploying the banned Nvidia GPUs to develop top-tier models that rival the likes of ChatGPT.