Navigating the Nvidia Chip Scandal: Lessons for Malaysian Exporters

On 3 March 2025, Singapore’s Minister for Law and Home Affairs, Mr. K Shanmugam, announced that Singaporean authorities had charged three individuals for fraud by false representation in connection with the export of servers containing advanced Nvidia computer chips (for the transcript of media conference, see here). The case, which remains under investigation, involves suspicions that the declared final destination (Malaysia) may not have been accurate, raising concerns about potential violations of U.S. export controls.

While it is impossible to comment whether the suspicions by the Singaporean authorities are correct, this case highlights an important issue for Malaysian businesses engaged in cross-border trade: the complexities of export control laws and the risks of inadvertent violations.

Understanding export controls: why they matter

One might wonder why the U.S. is so concerned about where a privately manufactured chip, such as those by Nvidia, ends up, especially since private companies are generally free to trade with any willing buyer. While this is generally true, when it comes to advanced technology, particularly semiconductors, the U.S. government imposes restrictions due to national security concerns and geopolitical considerations. These restrictions are referred to as export controls.

Export controls do not apply to all products, but they are not uncommon, particularly for high-tech goods, dual-use items, and military-related technologies. These laws are designed to prevent sensitive technologies from falling into the hands of entities that could misuse them for military or surveillance purposes.

Governments worldwide enforce export controls to comply with international security commitments or prevent unauthorized transfers of critical technology. For businesses involved in the trade of semiconductors, AI processors, and other regulated technologies, understanding these laws is crucial to avoiding penalties and trade restrictions.

Malaysia’s export control framework: the Strategic Trade Act 2010

To briefly shed light into the framework in Malaysia, like the U.S., Malaysia has its own export control framework, primarily governed by the Strategic Trade Act 2010 (STA 2010). The STA 2010 regulates the export, transfer, transit, and brokering of strategic items, including certain electronics and semiconductors.

Under the Strategic Trade (Restricted End-Users and Prohibited End-Users) Orders 2010 and 2016 (PU(A) 484/2010 and PU(A) 177/2016), Malaysia restricts or prohibits transactions with specific foreign entities, particularly those linked to Iran, North Korea, and other high-risk jurisdictions. These regulations ensure that sensitive technology does not reach unauthorized users who may use them for military or illicit purposes.

Malaysian businesses dealing in high-tech products should be aware of these restrictions and take proactive measures to verify the end-users of their products before engaging in international transactions.

U.S. Export Controls on Computer Chips: What Malaysian Companies Need to Know

The U.S. has imposed strict export controls on advanced semiconductors and AI chips, particularly those destined for China. These controls are driven by national security concerns, including the risk of such technology being used for military, surveillance, or AI applications.

Key U.S. Export Control Regulations

1. Export Administration Regulations (EAR) (15 C.F.R. Parts 730–774)
   • Commerce Control List (CCL): advanced AI chips, GPUs, and high-performance processors are classified under ECCN 3A090 and 4A090.
   • Foreign Direct Product Rule (FDPR) (§ 734.9): foreign-made chips manufactured using U.S. technology are still subject to U.S. controls if exported to China.
   • Entity List Restrictions (§ 744.11): U.S. companies cannot export advanced chips to blacklisted Chinese entities such as Huawei and SMIC without a license.
   • Military End-Use and End-User Rule (§ 744.21): chips cannot be exported if they will be used for military applications.
2. China-Specific Semiconductor Controls (15 C.F.R. § 742.6)
   • Licensing requirements for AI chips: the U.S. requires special export licenses for high-performance AI chips and servers destined for China.
   • Bans on modified AI chips: Nvidia’s A800 and H800 chips, which were designed to comply with earlier U.S. rules, are also restricted.
3. The Role of U.S. and Global Enforcement Agencies
   • The Bureau of Industry and Security (BIS) enforces U.S. export controls, investigating companies suspected of violating these regulations.
   • The Office of Foreign Assets Control (OFAC) implements financial sanctions against restricted entities.
   • International enforcement would not work without international cooperation: the U.S. works with many countries around the world, including Malaysia, to monitor and enforce compliance with export restrictions. The actions taken by Singapore following the discovery of the “Nvidia scandal” confirm the strong cooperation across borders.

What Malaysian Businesses Should Do to Ensure Compliance

Given the heightened enforcement of export controls, Malaysian companies involved in electronics, semiconductors, and AI technology should take proactive steps to avoid unintentional violations. As we will further outline below, violations, whether intentional or unintentional, can lead to severe consequences.

1. Conduct a thorough due diligence
   • Screen all customers and end-users against Malaysia’s Restricted End-User and Prohibited End-User lists.
   • Check U.S. Entity Lists and Military End-Use Restrictions for potentially sanctioned companies. The U.S. has the most sophisticated restrictions/sanctions system in the world, so this step is a must.
   • Conduct background checks to ensure that no entity engages in transshipment or diversion practices to prohibited destinations.
2. Verify the Final Destination of Goods
   • Avoid transactions where the end-user or final destination is unclear.
   • Ensure that Malaysian companies purchasing U.S.-controlled chips do not re-export them to restricted countries such as China, Iran, or North Korea.
   • Request end-use certifications and compliance documentation from customers and logistics providers.
3. Implement Strong Compliance Policies
   • Develop an internal export compliance program to ensure staff is trained on U.S. and Malaysian regulations.
   • Maintain detailed documentation on all international shipments to prove compliance if audited.
   • Appoint an internal compliance officer to oversee transactions.
4. Seek Legal Guidance for High-Risk Transactions
   • If a business deals with high-tech or AI-related exports, legal consultation is advisable before proceeding with sales to international clients.
   • Companies should assess whether U.S. or Malaysian export controls apply to their products.
   • Engage with legal professionals specializing in export controls to ensure full compliance with applicable laws.

The Impact of Non-Compliance: Legal and Reputational Risks

Companies that fail to comply with export control regulations face severe legal and financial penalties, including:

• Fines and criminal penalties under U.S. and Malaysian laws.
• Inclusion on restricted party lists, preventing future trade with international partners.
• Loss of export privileges, significantly impacting business operations.
• Reputational damage, which can harm relationships with global suppliers and clients.

Conclusion

The Singaporean Nvidia Chip Scandal case serves as a timely reminder for Malaysian businesses to strengthen their compliance measures. Given the increasing global scrutiny on export controls, companies cannot afford to overlook these regulations. By conducting rigorous due diligence, verifying end-users, and implementing strong compliance policies, Malaysian businesses can mitigate legal risks and continue to engage in legitimate international trade.

For businesses that regularly export technology or high-tech components, understanding both Malaysian and U.S. export control frameworks is now more critical than ever. Proactive compliance efforts will not only protect businesses from penalties but also ensure they maintain a strong reputation in global markets

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