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