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Two people were just arrested for smuggling AI chips to China. And the rumors basically point to the fact that these were Nvidia chips. There is a whole bunch of drama. People are asking Nvidia to put kill switches and backdoors in their chips. Nvidia has responded. The White House is weighing in. This is quite a crazy story and builds on a lot of press and it's been going over the last few years with chips acts and basically the, the quote, unquote AI race that the US says they're in with China right now. So we're gonna be diving into all of that on the podcast. Before we do, I wanted to mention if you want to try any of the AI models that I talk about on the show, I'd love for you to go check out my own startup, which is AI Box AI. You basically get access to the top 40 AI models. Everything from OpenAI, Anthropic, Cohere, Deepseek, Google, Meta, tons of others, audio models from 11 labs, tons of interesting new image generation models, all for 20 bucks a month on one platform. The cool thing about it is you can actually chat and switch what model you're talking to in the same conversation. So you can ask a question and have OpenAI respond and then just regenerate the response with Claude and Deepseek and Meta and Google and see which one gives you the best response. Tons of cool features. I'd love to hear what you have to say about it. We're actively adding new features all the time. So this is a project I have been working on. I'm really excited about. You can go check it out. There's a link in the description to AI Box AI. All right, let's get into the smuggling world of AI chips. So two people were arrested. The Department of Justice in the United States has basically said that these were two Chinese nationals and they were shipping, basically they were involved in shipping tens of millions of dollars worth of high performance AI chips to China. So this isn't a small amount of money. This is, this is quite, you know, we're talking probably like $50 million of these AI chips. So a lot of money. And again, we know companies spend billions on this, so it's, I guess not an insane amount. But what I would say is probably that these aren't the only two people in all of America that were smuggling chips or in all of the world that were smuggling chips. There's a lot of drama in the past about Singapore being the third biggest purchaser of AI chips from Nvidia and Nvidia basically saying no, and people saying, look, Singapore buys them. And that's just really shell companies smuggling them to China. And Nvidia is like, no, no, you know, that's just the offices of a lot of, you know, Asian companies are set up in Singapore. That's where we process the, that's where we take the payments from. But really they're going to other countries and we're complying with all the rules. So there's, there's a lot of, like, drama, to say the least, around this. But this is, I think, one of the big, one of the big events that has happened on US soil. So this is Chung Gang and Xi Wei Yang, both of them arrested in California and basically they quote, unquote, violated the Export Control Reform Act. It's a felony. It carries a statutory penalty of a maximum of 20 years in prison. They are accused of willfully shipping sensitive technologies. So Basically this is GPUs to China through California. They had their company, they had this company called ALX Solutions. Just as, you know, very random shipping company. Doesn't seem like anything crazy. The doj, interestingly enough, didn't say what chips were actually being shipped, but they did say that they were shipping, quote, the most, the most powerful chip in the market. So basically this is an Nvidia chip. Since Nvidia dominates this entire market, it's kind of funny they didn't want to call it Nvidia. Maybe they're being nice and they said that it was, quote, designed specifically for AI applications. Yeah. So it's basically that means that it's going to be probably Nvidia's H100 GPUs and routers actually reported and specifically said that that was what got shipped. So I don't know if they know anything else or they're just saying the quiet part out loud. But in any case, a review of all of the documents that the DOJ dropped basically showed that they. So they had this company called AXLL Solutions and they were, they had basically these chips and some other tech that they were using and they were shipping between Singapore and Malaysia. So they weren't shipping this straight to Beijing from California as that would, you know, put a lot of red flags. But they're going to Singapore and Malaysia. And again, this is kind of in line with the controversy that people have been talking about how Singapore is the third biggest, you know, purchaser of Nvidia chips, or, sorry, a third of Nvidia's sales are Singapore. It's like, wow, that's, you Know, small company, small country, a lot of GPU chips. But what was interesting was this company that was shipping to Singapore, Malaysia, they were getting their payments from Hong Kong and China. So the payments were pretty obvious. I don't know why they wouldn't have also just routed the payments through other countries as this obviously made it like pretty obvious where it was coming from. The DOJ also found a bunch of records communicating, you know, and a bunch of communications that were saying that they were shipping to Malaysia to specifically go around US export restrictions. So it's pretty blatant what they were doing. I wonder why it like wasn't more sophisticated than that, why they didn't go to multiple countries or I don't know, like, it just seems silly that like they would have Chinese companies paying them. So anyways, whatever. This is what Nvidia said about this whole situation. They said this case demonstrates that smuggling is a non starter. We primarily sell our products to well known partners, including OEMs who help us ensure that all sales comply with US export control rules. And even relatively small exporters and shippers or shipments are subject to thorough review and scrutiny. And any diverted products would have no service support or updates. Okay, so Nvidia is saying, look, this is a great example. They arrested these guys. That means that, you know, this is probably like a very crazy, random example and it got shut down. So this, you know, isn't a thing that happens. I think in reality there's probably a lot of these cases that go unprosecuted that people that haven't been caught doing this. I don't think this is the only two people in all of America that were, you know, shipping tens of millions of dollars. Obviously this is a lot of money. But I think Nvidia did make a good point which is that if anything does kind of slip through the supply chain, right, get stolen or sold on the black market or maybe like a company, a legit company buys a bunch and then the legit company, quote unquote, goes bankrupt or gets acquired by someone else who now has control of the GPUs. There's a lot of ways you could get control of GPUs without like having to get them directly from Nvidia, even though Nvidia says, you know, that they make sure everything's legit. But Nvidia did say that if something like that did happen, you would have no service support or updates. Right? Nvidia isn't going to be servicing and updating the chips that are in China, unless maybe there's some sort of VPN or some sort of way. Like, actually, I think there's probably ways to be pretty sneaky with this. So what is the solution? What's kind of the political landscape around this whole situation right now? I think one of the biggest things right now is that the AI Action plan has just come out. Trump recently announced this whole AI Action plan, and in it he basically says that, you know, it's really, really important that America has strong export restrictions. And so it's kind of a big thing that they have focused on a potential solution to curbing all of this smuggling that the US Government suggested was to implement tracking technology into chips. So basically, you know, they. They're just like, look, put some tracking technology, technology into the chips and then I think, you know, and then, you know, like, who's using them and where they're located. Chip makers are very opposed to this. I think this kind of makes a lot of sense. Nvidia made a blog post on Tuesday all about this specific topic. And basically in their blog post they say, they say, quote, Nvidia has been designing processes for over 30 years. Embedding backdoors and kill switches using into chips would be a gift to hackers and hostile actors. It would undermine global digital infrastructure and fracture trust in US Technology. Establishing established law wisely requires companies to fix vulnerabilities, not create them. Okay, they make a good point. But also I think they know that, like, this would completely shut it down. Whereas, like, if, like, let's say 30 or 20% of the revenue might be seeping into China, that's kind of a huge chunk of revenue, they probably don't want to get shut off. Now, to be fair, they, they did, like, revise their forecasted numbers and completely removed China and like, look, we're selling anything to China. Even though they're working on a deal to basically get some smaller chips shipped to China and be allowed to do that. But I think what they don't want is like, look, we don't want to put back doors in. This is something that China has been criticized for forcing companies in China to put back doors in. And so Nvidia's like, look, we don't want to do that. And I think a lot of people might be like, yeah, but it's to fight against China. But I think most Americans probably don't. And American companies don't want backdoor government backdoors into their chips from the US Government either. Just seems like, you know, we already have enough of a surveillance state over here in My opinion, but who am I? In any case, it is, it's pretty interesting and they make a good point that basically it would be, it would be a vulnerability for hackers, right? You can imagine if they put these back doors in and it's all well meaning and maybe it's just to make sure that they, everybody's complying with the law. Some hacker gets an exploit, which is inevitable. It's not a, it's not an if, but it's a when. And then if they were able to go and shut down all the GPUs in the world from that, like, that would be horrible and really mess up a lot of AI companies, mess up a lot of innovation. So I think Nvidia just like doesn't see a lot of pros to their own company in this. So they've been pretty opposed to it. They say that's not sound policy, it's an overreaction that would irreparably harm America's economic and national security interests. So yeah, Nvidia, to say the least, is not thrilled with that particular prospect. So we'll see what ends up actually happening to curb the smuggling that is happening right now. 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