Taiwan indicted nine people for allegedly selling 74 Supermicro servers equipped with Nvidia B300 graphics processing units, or GPUs, to China, exposing a network of deception in Taiwan to illegally export U.S.-controlled technology.
The U.S. began restricting the sale of advanced Nvidia chips to China in 2022 for national security reasons, including the risk that they could serve a military use. Nvidia, the world’s biggest chip designer, and Supermicro, an American AI server company, are required to comply with these export controls.
On March 19, the U.S. Department of Justice indicted three people connected to Supermicro — one U.S. citizen and two Taiwanese citizens — for allegedly diverting at least $510 million worth of AI servers to China. The defendants allegedly fabricated documents, staged bogus equipment to pass audits and used an intermediary company to conceal the true buyer. The servers, equipped with advanced Nvidia chips, were assembled in the U.S., shipped to Taiwan, then sent to a fake buyer in Southeast Asia and finally smuggled into China.
The export of advanced chips to China is not a criminal offense in Taiwan like it is in the U.S. But Taiwanese companies selling chips based on American-origin technology can be subject to U.S. restrictions via the Foreign Direct Product Rule.
A day after the indictment, Taiwan’s Ministry of Economic Affairs issued a statement urging Taiwanese companies to follow international export control regulations. The media also focused on Supermicro’s past compliance issues. The server company was fined $17.5 million in 2020 by the U.S. Securities and Exchange Commission for widespread accounting violations and has since been accused of accounting manipulation and sanctions evasion. During a May trip to Taiwan, Nvidia CEO Jensen Huang told local reporters he hoped Supermicro would improve its regulatory compliance. “Ultimately, Supermicro has to run their own company,” Huang said.
But a couple of months after the U.S. indictment, the Keelung District Prosecutors’ Office launched the first phase of its local investigation, ultimately charging nine individuals across seven different companies in Taiwan, including Nvidia. Eight were charged with breach of trust and forgery, while one was charged with allegedly siphoning funds from a company connected to the case.
The indicted individuals include a distribution manager at Nvidia’s Taiwan office; two sales managers at Supermicro’s Taiwan branch; the chief executive of Albatron Technology, a listed Supermicro distributor; a project manager at data center service provider Chief Telecom; and the president of server sales company Flying Tiger Tech.
The scheme was as follows: Supermicro’s Taiwan subsidiary sold 130 Nvidia-equipped servers to Flying Tiger Tech via Albatron Technology. The use of a listed distributor kept Supermicro from looking into where the money was actually coming from, according to Digitimes. Flying Tiger Tech had obtained whitelist status from Nvidia, which is required to buy Nvidia-equipped servers from Supermicro, and falsely claimed the servers would be installed in Taiwan, in a data center provided by Chief Telecom. Two Supermicro sales managers were in on the deal, according to the indictment.
Even though the data center provided by Chief Telecom was not big enough to house 130 servers, the distribution manager at Nvidia, who was allegedly aware of the plan, assured his managers the inspection had passed muster. 74 units were transshipped to China for a $21.21 million profit, which was received by the president of Flying Tiger Tech. The remaining 56 units were destined for Japan but were flagged by Taiwanese customs and never left.
The case raises questions about why exporting advanced chips to China is not yet criminalized under Taiwanese law, and whether closing such loopholes would make chip smuggling from Taiwan to China more difficult. It also raises questions about the efficacy of Nvidia’s compliance regime, particularly given the number of Taiwanese companies involved and the enormous amount of money at stake.
Are these Supermicro servers just the tip of the iceberg?
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