Encrypted texts reveal how Nvidia chips and U.S. tech are being smuggled to China and Russia

In March 2024, Matthew Kelly, a 49-year-old marketing executive from New York, allegedly texted his business partner Stanley Yi Zheng what looked to be a draft pitch to drum up new clients.

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In the message, sent on Chinese messaging app WeChat, Kelly allegedly wrote he was looking for partners willing to help move Nvidia GPUs to buyers in China, which the U.S. government had banned from receiving the cutting-edge chips. Kelly wrote business was “lucrative” right now, with millions in profits to be made per order. He wanted people who could either find buyers who needed Nvidia chips for “AI, cloud, bit mining etc.” or who could find customers in China to act as a fake front company, according to court records.

A quick 28 minutes later, Zheng allegedly replied: “DO NOT MENTION ANYTHING ABOUT CHINA.”

Delete those lines, Zheng messaged, according to screenshots of their text exchanges in court records. All references to China needed to be struck because, Zheng wrote, “We will draw attention from US government for embargo [sic] violation.”

Kelly wrote back that they had already shared these details with other people. Zheng responded, “We just talk about it, no one can hold it as evidence against us.”

That exchange and more than a dozen others landed in court records alleging Zheng, Kelly, and a third co-conspirator, Tommy Shad English, 53, of Atlanta, conspired to commit smuggling and export control violations in March 2026. The U.S. government has until June to decide on formal charges.

The English-Kelly-Zheng trio is just one in a growing list of smuggling cases showing the complexities of regulating the sale of highly sensitive American-made semiconductors in the shadow of national security concerns—with corporate compliance programs intended as a cure-all. The U.S. government has imposed a series of highly aggressive export controls intended to keep advanced, American-made technology out of the hands of adversaries in China, Iran, and Russia—from leading-edge AI accelerators that can power autonomous weapons and military supercomputers to the commodity-level chips that show up in the Russian cruise missiles slamming into Ukraine. The red tape has caught some of the diversion to countries connected to Russian military activity and banned Chinese companies, but across both categories, including advanced GPUs smuggled to China through fake front companies and the everyday commodity microcontrollers going to Russia, the flow hasn’t stopped.

In the past 12 months, the Commerce Department’s Bureau of Industry and Security has announced nearly $420 million in combined penalties and forfeitures related to the illegal smuggling of semiconductor technology to China. In February 2026, the BIS announced a $252 million civil penalty against Applied Materials for illegally shipping $126 million of semiconductor manufacturing equipment to China through a Korean subsidiary.

In July 2025, Cadence Design Systems agreed to pay $95 million to the BIS and in fines and forfeitures to the Department of Justice. In a plea agreement, the company admitted that employees transferred highly sensitive chip design technology to a university in China that the U.S. believes uses the U.S.-made tech to build supercomputers that support nuclear explosive and military simulation activities.

In a Florida case, prosecutors alleged Hon Ning “Matthew” Ho created a fake realty company in Tampa with Cham “Tony” Li as a front for shipping Nvidia GPUs to China through Thailand and Malaysia. Prosecutors in Ho’s case told the court the scheme led to 400 Nvidia A100 GPUs being shipped to China between October 2024 and January 2025. Two other alleged attempts to smuggle 10 Hewlett Packard Enterprise supercomputers with Nvidia H100 GPUs and 50 separate Nvidia H200 GPUs were disrupted by law enforcement, the DOJ said. The government is seeking the forfeiture of the 50 Nvidia H200 chips.

And in one of the highest profile cases to date, federal prosecutors in March 2026 announced the arrest of Supermicro cofounder Yih-Shyan “Wally” Liaw on charges he masterminded a $2.5 billion scheme to route the company’s servers to China through a sham company in Southeast Asia. Liaw, who served as a business development executive and on the board, has pleaded not guilty. Neither Supermicro nor any of its other executives were named in the case and an internal investigation is underway. The company disclosed on Tuesday that it got a second subpoena from the Securities & Exchange Commission on April 28, after receiving one in connection with an investigation in 2024.

And those are just the latest, and most high profile cases. A landmark September 2024 report from the U.S. Senate Permanent Subcommittee on Investigations found that despite a spate of new export restrictions following Russia’s 2022 invasion of Ukraine, U.S.-made tech has found its way into Russian weapons, and frequently moves through Chinese smuggling networks. An analysis by Ukra