Exclusive-US embeds trackers in AI chip shipments to catch diversions to China, sources say

Yahoo

4 days ago

By Fanny Potkin, Karen Freifeld and Jun Yuan Yong
SINGAPORE/NEW YORK (Reuters) -U.S. authorities have secretly placed location tracking devices in targeted shipments of advanced chips they see as being at high risk of illegal diversion to China, according to two people with direct knowledge of the previously unreported law enforcement tactic.
The measures aim to detect AI chips being diverted to destinations which are under U.S. export restrictions, and apply only to select shipments under investigation, the people said.
They show the lengths to which the U.S. has gone to enforce its chip export restrictions on China, even as the Trump administration has sought to relax some curbs on Chinese access to advanced American semiconductors.
The trackers can help build cases against people and companies who profit from violating U.S. export controls, said the people who declined to be named because of the sensitivity of the issue.
Location trackers are a decades-old investigative tool used by U.S. law enforcement agencies to track products subject to export restrictions, such as airplane parts. They have been used to combat the illegal diversion of semiconductors in recent years, one source said.
Five other people actively involved in the AI server supply chain say they are aware of the use of the trackers in shipments of servers from manufacturers such as Dell and Super Micro, which include chips from Nvidia and AMD.
Those people said the trackers are typically hidden in the packaging of the server shipments. They did not know which parties were involved in installing them and where along the shipping route they were put in.
Reuters was not able to determine how often the trackers have been used in chip related investigations or when U.S. authorities started using them to investigate chip smuggling. The U.S. started restricting the sale of advanced chips by Nvidia, AMD and other manufacturers to China in 2022.
In one 2024 case described by two of the people involved in the server supply chain, a shipment of Dell servers with Nvidia chips included both large trackers on the shipping boxes and smaller, more discreet devices hidden inside the packaging — and even within the servers themselves.
A third person said they had seen images and videos of trackers being removed by other chip resellers from Dell and Super Micro servers. The person said some of the larger trackers were roughly the size of a smartphone.
The U.S. Department of Commerce's Bureau of Industry and Security, which oversees export controls and enforcement, is typically involved, and Homeland Security Investigations and the Federal Bureau of Investigation, may take part too, said the sources.
The HSI and FBI both declined to comment. The Commerce Department did not respond to requests for comment. The Chinese foreign ministry did not have immediate comment.
Super Micro said in a statement that it does not disclose its 'security practices and policies in place to protect our worldwide operations, partners, and customers.' It declined to comment on any tracking actions by U.S. authorities.
Dell said it is 'not aware of a U.S. Government initiative to place trackers in its product shipments.'
Nvidia declined to comment, while AMD did not answer a request for comment.
CHIP RESTRICTIONS
The United States, which dominates the global AI chip supply chain, has sought to limit exports of chips and other technology to China in recent years to restrain its military modernization. It has also put restrictions on the sale of chips to Russia to undercut war efforts against Ukraine.
The White House and both houses of Congress have proposed requiring U.S. chip firms to include location verification technology with their chips to prevent them from being diverted to countries where U.S. export regulations restrict sales.
China has slammed the U.S. exports curbs as part of a campaign to suppress its rise and criticized the location tracking proposal. Last month, the country's powerful cyberspace regulator summoned Nvidia to a meeting to express its concerns over the risks of its chips containing "backdoors" that would allow remote access or control, which the company has strongly denied.
In January, Reuters reported the U.S. had traced organized AI chip smuggling to China via countries such as Malaysia, Singapore, and the UAE — but it is unclear if tracking devices were involved.
The use of trackers by U.S. law enforcement goes back decades. In 1985, Hughes Aircraft shipped equipment subject to U.S. export controls, according to a court decision reviewed by Reuters. Executing a search warrant, the U.S. Customs Service intercepted the crate at a Houston airport and installed a tracking device, the decision noted.
U.S. export enforcement agents sometimes install trackers after getting administrative approval. Other times they get a judge to issue a warrant authorizing use of the device, one source said. With a warrant, it is easier to use the information as evidence in a criminal case.
A company may be told about the tracker, if they are not a subject of the investigation, and may consent to the government's installation of the trackers, the source added. But the devices can also be installed without their knowledge.
People involved in diverting export-controlled chip and server shipments to China said they were aware of the devices.
Two of the supply chain sources, who are China-based resellers of export-controlled chips, said they regularly took care to inspect diverted shipments of AI chip servers for the trackers due to the risks of the devices being embedded.
An affidavit filed with a U.S Department of Justice complaint regarding the arrests of two Chinese nationals charged with illegally shipping tens of millions of dollars' worth of AI chips to China earlier this month describes one co-conspirator instructing another to check for trackers on Quanta H200 servers, which contain Nvidia chips.
It said the English language text was sent by a co-conspirator, whose name was redacted, to one of the defendants, Yang Shiwei.
'Pay attention to see if there is a tracker on it, you must look for it carefully," said the person, who went on to call the Trump administration by an obscenity. "Who knows what they will do."