While seizures mean enforcement is working, P Sundramoorthy says they also show that 'organised actors' are eyeing Malaysia as a potential hub to circumvent curbs on China.
P Sundramoorthy of Universiti Sains Malaysia said the seizure in June and reports of other cases indicated that organised actors were eyeing Malaysia as a potential transhipment point to circumvent trade curbs and smuggle such high-value chips to China.
He said Malaysia possessed attractive characteristics for transnational criminal networks, including major airports and ports, an extensive logistics network, free trade zones and a sophisticated semiconductor and electronics industry.
“These are legitimate economic advantages, but the same characteristics can also create opportunities for criminal exploitation.
“From a criminological perspective, such cases are an important warning signal because they suggest that organised actors may be testing Malaysia’s vulnerabilities as a potential transit and transhipment point,” he told FMT.
Sundramoorthy said this could also mark a shift from conventional smuggling towards strategic-technology trafficking, where criminal syndicates exploit legitimate supply chains instead of operating outside of them.
He said false declarations, intermediary firms, complex ownership structures and transhipment arrangements could make illicit transactions appear legitimate and harder to detect.
However, the criminologist said the seizure also proved that Malaysia’s enforcement authorities, particularly the customs department, had been effective in foiling attempts to exploit the country.
“The criminological concern is therefore not simply the number of seizures, but whether there is evidence of a recurring network, common facilitators, repeated companies, financial connections or the systematic exploitation of Malaysian logistics infrastructure.”
In late August, Taiwan charged nine people, including Nvidia and Super Micro employees, with alleged involvement in illegally exporting AI servers to China.
Taiwan is the world’s largest producer of advanced AI chips. The US has made it illegal for these semiconductors to be exported or sold in China without a licence since 2022.
In June, the Malaysian customs department foiled an attempt to smuggle 72 server units with advanced AI chips worth RM52.9 million through KLIA. The units were bound for another Asian country but further details were not disclosed.
Similarly, Singapore revealed last year that Nvidia AI chips were shipped from the US to the city-state before going to Malaysia. It was unclear if Malaysia or another country was their final destination.
FMT has reached out to the customs department for the number of AI chip seizures made in the past year.
Why the demand for Nvidia chips in China?
IT expert T Murugason said the attempts to illegally export Nvidia chips showed that the semiconductors were still in high demand, even in China, despite the major strides it had made in recent years.
“Nvidia’s dominance comes from three key strengths: powerful AI chips, software that developers depend on, and a strong supply-and-partner ecosystem that makes switching difficult.
“Together, these create a cycle that continues to drive demand,” he said.
Murugason expressed concern that failing to act appropriately on AI chip smuggling could land Malaysia in hot water, adding that this was becoming a geopolitical battle between the US and China.
Sundramoorthy agreed, saying Malaysia must not become an enforcement proxy for any country but instead preserve its sovereignty by preventing its territory or logistics infrastructure from becoming part of an illegal network.
“The key principle should therefore be: ‘Malaysia decides according to Malaysian law, but Malaysia cooperates internationally.’ This allows us to remain sovereign while recognising that transnational technology trafficking cannot be effectively addressed through unilateral action,” he said.
Fortify end-user, end-destination verification
To detect other chip-smuggling attempts, Sundramoorthy urged the authorities to enforce stronger end-user and end-destination verification processes to ensure that they know where a shipment is headed, especially if it involves high-value chips.
“A declaration that equipment is merely transiting Malaysia should not automatically be accepted at face value where the goods are subject to strategic controls or originate from highly sensitive technology supply chains.”
He also called for more coordinated information-sharing between enforcement agencies and authorities as well as intelligence-sharing with the relevant jurisdictions.
He said the latter did not mean allowing another nation to dictate Malaysia’s policies but ensuring that transnational crime networks cannot exploit gaps between different regulatory systems in different countries.
“Investigators should also ask who organised the transaction, who financed it, who provided the documentation, who the intended end-user was and whether Malaysian companies knowingly or unknowingly acted as facilitators,” he said. - FMT
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