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 Ukraine’s National Agency for Corruption Prevention found 2,797 foreign components in Russian weapons, and 72% of those had their origins in the U.S.

Those include complex weaponry like Kh-101 cruise missiles that have killed Ukrainian citizens and children, the analysis found. And the market for these components is vast and deep. From January to October 2023, Russia brought in $8.8 billion in materials it needed for Russian military production, the report states, while China imported $349.4 billion in semiconductors in 2023 including lawful imports for all uses. 

In addition, the judge in a closely watched civil case in Texas will hear oral arguments next week as to whether Ukrainian citizens can hold American semiconductor companies liable under Texas law for injuries suffered in Russian military airstrikes that have generally included their companies’ components. The plaintiffs have argued the American companies breached their duty by allegedly allowing the sale of components into the wrong hands, despite export controls, leading to the goods allegedly making their way into Shahed drones, Kh-101 and Iskander-M missiles. The suit names Texas Instruments, AMD, Intel, and Mouser Electronics; the companies have filed a motion to dismiss the case, arguing the companies themselves did not make the sales. The case will move to oral arguments on the motion next week. Texas Instruments, AMD, and Intel did not immediately respond to a request for comment. A spokesperson for Mouser said the company denies the allegations in the lawsuits and that the company is committed to complying with all applicable export controls.

‘The money is just too good’

Greg Thomas, chief executive of ChainSentry, a firm that conducts gray-market surveillance of semiconductor supply chains, said export controls have created an artificial scarcity that has made advanced chips almost irresistible to smugglers. Moreover, the semiconductor industry’s compliance culture hasn’t kept up. 

“It comes down to something really simple,” Thomas said. “The money is just too good.”

He said the industry’s mindset is stuck in a prior era, when American power was measured by how widely U.S. technology was embraced and adopted around the world. That calculus changed dramatically following Russia’s invasion of Ukraine in February 2022. 

Following the attack, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) responded immediately with specific controls aimed at keeping commodity and advanced chips out of Russia and Belarus. Then in October 2022, BIS imposed a sweeping set of new controls on advanced computing integrated circuits, computer commodities with those chips in them, and other semiconductor manufacturing equipment. The stated purpose was to cut off China’s access to chips that power advanced computing that could further its goals in “military modernization, including nuclear weapons development, facilitation of advanced intelligence collection and analysis, and for surveillance,” the rule states. 

Generally, chips above certain performance thresholds are restricted, while lower-end mature chips are sold to China routinely and most sales to Russia are prohibited or require a license, which is often denied, said Brian Burke, a litigator and board advisor with expertise in China.

“Nevertheless, chips that are prohibited from being sold to Russia and China still find their way there somehow,” said Burke. “Diversion, smuggling and other black-market tactics” always seem to happen no matter how strict the controls are, he added.

One big challenge in trying to control access to some of this technology however, is the pervasiveness of some of the chips. While cutting-edge AI processors like Nvidia GPUs dominate the headlines, they account for a small percentage of the nearly 1 trillion chips sold worldwide each year, according to the U.S.-China Economic and Security Review Commission. The rest are inexpensive components such as microcontrollers, signal processors, and power-management chips that the commission described as “ubiquitous” across auto, industrial, consumer electronics, military, and medical device sectors. The foundational semiconductors drove an estimated $10.8 trillion in U.S. economic activity in 2023, according to the Semiconductor Industry Association. Congress itself acknowledged the issue in the 2018 Export Control Reform Act, noting that controls applied unilaterally to widely available items “generally are less effective” at keeping them from making their way to adversaries.

“Semiconductors are the building blocks of global power in the 21st century,” said Thomas. “The semiconductor industry can either accept that and wake up to the fact that they’re not just making chips anymore, they’re literally the building blocks of global power, or we can decide whether there’s a United States even worth caring about in another 15 or 20 years.”

When these chips reach adversaries, it could lead to U.S. forces and defenders fighting against their own innovations, he said. 

“When an adversary or a competitor faces us on a battlefield or on the other side of a market, they need to bring their own game, not ours,” said Thomas. 

In a statement, Chinese Embassy spokesperson Lu Pengyu said that as principle, China “has consistently opposed the U.S. practice of overstretching the concept of national security and abusing export control measures.”

“Such conduct constitutes a grave violation of market economy laws and principles of fair competition; it undermines the international economic and trade order, disrupts the stability of global industrial and supply chains, and ultimately harms the interests of all nations,” said Pengyu.

Enforcement on the Rise

In the English-Kelly-Zheng case, authorities claimed the trio started working together in May 2023, after the revamped BIS export control regime took effect. 

At the time, Kelly created a WhatsApp Business group chat called, “GPU Partnership” to allegedly organize the purchase of thousands of servers packed with export-controlled Nvidia GPUs, including A100, H100, and A800 chips. In October 2023, English allegedly placed a purchase order for 750 servers for $170 million, and 600 allegedly contained chips that required an export license to China under the new export regime. The alleged scheme worked by faking the end-user certifications and routing orders through phony buyers in Thailand so they could work around getting the license from the BIS, authorities said. That purchase failed due to one unnamed company’s compliance controls, and the group tried to order another 500 servers that contained an export-controlled chip, the DOJ alleged. That deal also failed. 

The group chat served as a command center so the three could allegedly coordinate on the market value of the chips in China, the status of purchase orders, and so they could work out how to trick corporate compliance teams into believing the end users were in Thailand, authorities said. In the group chat, Kelly told English that another company had a legit-looking website with pitch decks and financial records. English allegedly responded, “I’m not breaking my back. I fake [sic] these weeks ago.”

Zheng was arrested on March 22, 2026, and is being held without bail. Kelly and English surrendered to authorities on March 25. English’s attorney declined to comment and Kelly did not respond to a request. Zheng could not be reached.

In a statement, a Nvidia spokesperson said its ecosystem partners must be committed to strict compliance and that its due diligence has led to prosecutions of would-be smugglers and that it continues to work with the government.

“As systems become increasingly large and complex, unlawful diversion is a recipe for failure—Nvidia does not provide any service or support for such systems, and the enforcement mechanisms are rigorous and effective.”

David Rybicki, co-leader of law firm K&L Gates’ white collar defense and investigations practice group, said the Trump administration is laser-focused on export enforcement, particularly when it comes to China. 

“If you’re a company in this space, it is totally essential that you take a thorough review of your sanctions compliance and export control compliance programs because export control is super aggressive right now,” said Rybicki. 

While regulatory enforcement has generally shrunk under the current administration starting with DOGE, that isn’t the case for the BIS. Congress approve an additional $44 million to the BIS to combat illicit export of technology and additional set of full- and -part-time positions devoted to export enforcement, AI executive order implementation, and modernization—all directed toward this exact issue. There are also provisions for the hiring of export control officers in Taiwan and Finland. The Trump Administration is now requesting $450 million and 1,077 positions for fiscal 2027, which would double the workforce devoted to export controls.

The House Foreign Affairs Committee marked up 21 bills in a single session last month and eight separate, additional bills are floating around Congress related to advanced AI and export controls, including the Safe Chips Act and the Chip Security Act. The enforcement actions, plus the ramp up in staffing and budget, signal that the cases thus far may be the tip of the iceberg, said Rybicki. They’re also a signal that the slap-on-the-wrist era of policing export control compliance programs is deep in the rear-view mirror.

The U.S.-China Economic and Security Review Commission recommended in its 2025 annual report to Congress the formation of a consolidated economic entity that integrates BIS, Treasury’s Office of Foreign Assets Control (OFAC), Defense Technology Security Administration, and other agencies to create a real-time intelligence and enforcement force on par with Treasury’s financial sanctions group. The recommendation builds on what the commission found to be a significant gap between export controls, export control enforcement from the government, and corporate compliance programs meant to deter chip diversion. That gap has created a national security vulnerability that China and Russia are exploiting, the report found, and it could eventually lead to the U.S.’s strategic advantage being squandered. 

The commission warned that China is quickly developing AI capabilities powered by smuggled American-made components, and they’re being used to modernize the military, develop nuclear weapons, and deploy AI-powered surveillance tools. 

Rybicki said he expects BIS to place agents in Turkey, United Arab Emirates and other nations that have served as landing points before controlled components are transshipped to banned countries. 

“The typical pattern is somebody exports from the United States to Turkey, UAE, or the Maldives, whatever the third country involved is, and the controlled technology is then exported to Russia or China,” Rybicki said. “The top priority for enforcement is anything with a China nexus.”

The enforcement pipeline is typically long, he added, and the investigations are incredibly complex. Most take years to develop, meaning cases that are being investigated right now likely won’t see indictments or civil actions for several years. But the aim is very clear, he added.

“This is a high priority area for the administration,” said Rybicki. “And it’s not going away.”