$2.5 billion in AI servers. That's how much US technology allegedly got rerouted to China through an elaborate smuggling operation involving dummy hardware, manipulated serial numbers, and a Southeast Asian front company.
The US Department of Justice charged three individuals on March 19, 2026 with conspiring to illegally export high-performance AI server systems - the kind built around advanced GPUs (the specialized chips that power AI model training and inference) - to China without the required export licenses.
The Scheme: Dummy Servers and Hair Dryers
The defendants are Yih-Shyan "Wally" Liaw, 71, a US citizen from Fremont, California who co-founded and served as Senior VP of Business Development at a publicly traded US server manufacturer; Ruei-Tsang "Steven" Chang, 53, general manager at the same manufacturer's Taiwan office; and Ting-Wei "Willy" Sun, 44, a third-party broker described as a "fixer."
According to the DOJ, between 2024 and 2025 the defendants directed a Southeast Asian company to purchase roughly $2.5 billion in US-assembled servers, claiming they were for that company's own use. Instead, the servers were repackaged into unmarked boxes and shipped to China.
To fool compliance inspectors, the defendants allegedly staged thousands of non-functional "dummy servers" at the Southeast Asian location. Surveillance footage captured workers using hair dryers to remove and manipulate labels and serial numbers on the real hardware before diversion. In one roughly three-week stretch from late April to mid-May 2025, $510 million in servers were diverted.
No export license was ever obtained from the US Commerce Department.
What They're Facing
Each defendant faces three counts: conspiracy to violate the Export Control Reform Act (up to 20 years), conspiracy to smuggle goods from the United States (up to 5 years), and conspiracy to defraud the United States (up to 5 years). Liaw and Sun have been arrested. Chang remains a fugitive.
The Bigger Picture for AI Hardware Controls
This case lands at the intersection of two forces shaping the AI industry right now: the massive demand for GPU compute power and the US government's increasingly aggressive enforcement of chip export restrictions to China.
The Commerce Department has steadily tightened controls on which AI accelerator chips and server systems can be shipped to China, citing national security concerns. Companies like Nvidia have had to design China-specific, lower-performance chip variants to comply. But a $2.5 billion alleged smuggling ring suggests the demand gap between what China can legally buy and what it wants is enormous - and that enforcement remains a cat-and-mouse game.
For anyone building on or selling AI infrastructure, this case is a signal that the DOJ is treating export control violations in the AI hardware space as a top enforcement priority. The scale here - billions of dollars, sophisticated deception tactics, cross-border coordination - puts this well beyond a paperwork violation.