PETALING JAYA: Malaysia is set to tighten semiconductor regulations amid US pressure to curb the unauthorised flow of advanced artificial intelligence (AI) chips to China.
Tengku Datuk Seri Zafrul Abdul Aziz said Washington has asked the country to closely track the movement of high-end Nvidia chips that enter the country, over suspicion that many are ending up in China, in violation of US export rules.
“(The US is) asking us to make sure that we monitor every shipment that comes to Malaysia when it involves Nvidia chips,” Tengku Zafrul told the Financial Times.
“They want us to make sure that servers end up in the data centres that they’re supposed to and not suddenly move to another ship,” The Investment, Trade and Industry Minister said according to The Financial Times.
Malaysia has emerged as one of the fastest-growing hubs for data center development, with much of the activity centered in the southern state of Johor.
Over the past 18 months, Johor has attracted more than US$25bil in investments from players such as Nvidia, Microsoft, and TikTok owner ByteDance to establish data centers. The state has also recently entered into an agreement with Singapore to create a special economic zone.
Tengku Zafrul added that he had established a task force with digital minister Gobind Singh Deo to strengthen regulations around Malaysia’s rapidly growing data centres industry, which depends on chips from Nvidia.
Nevertheless, Tengku Zafrul also emphasised the difficulty of tracking semiconductors through global supply chains, which involve chipmakers, suppliers and buyers as well as companies involved in manufacturing and distributing servers.
“The US is also putting a lot of pressure on their own companies to be responsible for making sure they arrive at their rightful destination,” he said. “Everybody’s been asked to play a role throughout the supply chain.”
“Enforcement might sound easy, but it’s not,” he added.
Concerns over the illicit chip trade in the region have intensified in recent weeks following Singapore’s charges against three individuals in a US$390mil fraud case linked to the suspected sale of Nvidia chips from Malaysia to China.
Nvidia’s Singapore office accounts for nearly a quarter of its global sales, fueling concerns in Washington that some of these chips may be making their way into China.
However, Nvidia has clarified that the majority of these transactions involve invoicing international companies through Singapore, with only a small portion of chips physically passing through the country.
Three weeks ago, Singaporean authorities arrested nine individuals—three of whom have since been charged—after conducting raids on 22 locations in connection with suspected fraudulent sales of servers containing Nvidia chips.
The fraudulent sales included Dell and Supermicro servers, prosecutors said. In the meantime, Singapore has requested assistance from the US and Malaysia in investigating the movements of the servers.
Singaporean authorities had also stated that it remains unclear whether Malaysia was the final destination for the servers containing the AI chips or if they were subsequently shipped elsewhere.
To this end, Tengku Zafrul said US authorities believed the Nvidia chips ended up in China after passing through Malaysia. However, he said the investigation had turned up no evidence that the chips arrived at the Malaysian data centre to which they were purportedly sold.
In written replies to StarBiz last week, Tengku Zafrul had emphasised that Malaysia did not violate the Strategic Trade Act (STA) 2010 in this case involving the alleged shipment of restricted US AI chips, though authorities are still assessing if other laws were breached.
STA 2010 regulates the export, transshipment, transit and brokering of strategic items and technology, including dual-used items and technologies, that may facilitate design, development and production of weapons of mass destruction.
The Act also incorporates the Strategic Item List (SIL), which categorises strategic items into several groups, including military goods, dual-use items, and other technologies with potential applications in weapons development.
Parties involved in the trade of these items must register with the Strategic Trade Secretariat and obtain permits from Miti.
Miti told StarBiz that the AI chips that were alleged to have made their way into Malaysia (based on a fraudulent declaration by three Singapore-based traders who are currently facing charges in Singapore) are not included in the SIL under STA 2010.