Federal U.S. prosecutors in two states are scrambling to keep a 58-year-old Canadian businessman locked up until his trial, saying he poses a danger to national security and there is no other way to stop him fleeing.
That depiction of Benlin Yuan, of Mississauga, Ont., stems from Yuan’s arrest and alleged role in a US$50-million plot to smuggle restricted high-tech Nvidia computer chips used in artificial intelligence processing into China, and follows a judge’s unexpected order granting Yuan release on bail.
Prosecutors in Virginia delayed his release while prosecutors in Texas argue it is a serious mistake that will cause irreparable harm.
Yuan was born in China and moved to Canada with his wife 20 years ago, settling in Ontario. He became a Canadian citizen and worked in information technology. Yuan and his wife have a daughter and for the past decade he has been travelling back and forth between Mississauga and Sterling, Virginia, for work.
Yuan was arrested in Sterling on Nov. 28 and charged with conspiring to violate export controls, although it wasn’t announced at the time.
Almost everything now known about the case happened in secret at proceedings taking place under a court order of confidentiality, which was lifted last week.
Yuan’s arrest was a secret, his first court appearance on Dec. 1 was in secret, and his detention review two days later was also held in secret. That hearing featured testimony about the computer chip plot by an assistant special agent-in-charge of the Office of Export Enforcement in the Department of Commerce.
Court heard allegations of a cabal of technology employees with links to China buying powerful Nvidia computer chips by claiming they were being used in the United States or being sent to countries not subject to export controls, when really they were being smuggled to China. The U.S. investigation was codenamed Operation Gatekeeper.
The federal agent testified that an undercover officer who spoke Mandarin went into a warehouse in New Jersey where pallets of Nvidia components were stored. The undercover officer watched workers scraping off Nvidia labels and replacing them with branding for a fake company.
When agents later seized the large shipment, representatives of the Chinese buyers thought it had been stolen and started negotiating with the undercover officer for its return. They agreed to pay a $1-million ransom, but the buyers insisted the shipment be inspected before payment, court heard.
That’s where Yuan allegedly came into the plot, according to a transcript of the proceeding obtained by National Post.
Yuan sat in court next to his lawyer, wearing glasses and a green prison-issue jumpsuit for his three-hour hearing.
He was described as a co-CEO of Asiacom Americas, a U.S. subsidiary of a large China-based company. The company’s first work was in Canada offering IT managed services in 2013, according to its website. It expanded to the United States a year later and set up headquarters in Virginia.
Yuan has no criminal record and was working in the United States on an L-1A visa that is valid to 2028, his lawyer said. An L-1A allows a multinational company to transfer a non-American corporate executive to manage its business in the United States.
Assistant special agent-in-charge Nicholas Crane said federal authorities have a cooperating witness who participated in the plot while he was a subordinate of Yuan. He said Yuan held encrypted chats with superiors in China about the chips.
Yuan is accused of recruiting and instructing the six inspectors who arrived to examine the packages before paying the ransom. Several of them were Asiacom Americas employees and Yuan was instructed to send copies of the identification for each of the inspectors to officials at the Beijing company.
The inspectors had arranged for three trucks to carry the enormous load and were told not to say anything about China being its destination, court heard. The U.S. government prevented the shipment from leaving.
Yuan is also accused of handling the storage of a different shipment of Nvidia products destined for China at his office. A cooperating witness for U.S. prosecutors alleged that Yuan told him not to put fake labels on this one as he thought that would cause problems; he would rather the Nvidia labels just be removed.
That shipment almost made it out. It was seized from an airplane before takeoff.
As National Post first reported, U.S. authorities also seized export-controlled technology
that was addressed to an air freight facility in Mississauga,
close to Toronto’s Pearson airport, according to allegations filed in court.
Crane said Yuan wasn’t paid for his participation.
Yuan’s lawyer, Alexander Blanchard, cross examined Crane and found he had little direct knowledge of the case. The criminal complaint against Yuan had been sworn by a different agent.
“I do not know,” was a frequent answer to Blanchard’s questions. Asked if there was any evidence Yuan was involved in the purchasing of any of the computer components, Crane said: “I do not know.” Asked if there was evidence Yuan ever put a fake label on a component, or evidence Yuan filed false export information, or had personally shipped anything, Crane gave the same answer.
Blanchard turned to the judge.
“Your Honour,” he said, “I have sat through more preliminary hearings than I could possibly count over the last decade, and I have never heard an agent respond ‘I don’t know’ so many times.”
Blanchard said the evidence against Yuan was so thin the charge against him should be dropped.
After hearing the evidence and argument, U.S. Magistrate Judge Lindsey Vaala in federal court in Virginia said the government’s case was “frustrating.”
“I don’t think your evidence is particularly strong,” Vaala told prosecutor José Ortiz, but said she found “just enough” evidence for probable cause to maintain the charge, but prosecutors failed to convince her Yuan couldn’t be released on bail with conditions — including surrendering his Canadian passport — while he waited for his trial.
Prosecutors quickly asked that Yuan remain in custody while they appeal.
In a motion to stop Yuan’s release, filed on Dec. 4, prosecutors said Yuan is an “extraordinary flight risk” and a danger.
“There is substantial evidence that the Defendant is a person of financial means with international contacts,” prosecutors said. He has “the means to flee” with “co-conspirators abroad likely willing to help him.”
In 2022 Yuan traveled on a Chinese passport, they said.
If he flees to China, he would be beyond reach of U.S. courts and if he flees to Canada, prosecutors said, he would likely also evade prosecution because U.S. export restrictions do not exist in Canada, and courts in Canada might find he hasn’t breached any law punishable in Canada, which is an element of extradition.
The danger allegation stems not from Yuan being considered violent, but rather his knowledge posing a danger to U.S. national security.
When pulling the cloak of secrecy off Operation Gatekeeper, revealing the arrest of Yuan and another man, Tom Gong, a citizen of China living in New York, as well as guilty pleas by a Texas man to unlawful export activities, Nicholas Ganjei, U.S. attorney for the Southern District of Texas, described the stakes of the case as being almost existential.
“These chips are the building blocks of AI superiority and are integral to modern military applications. The country that controls these chips will control AI technology; the country that controls AI technology will control the future,” Ganjei said.
In reply, filed Dec. 10, Blanchard said the case against Yuan is “glaringly weak” and complained that despite Yuan being approved for bail he remains detained.
“Mr. Yuan has experienced a rapid deterioration in his vision since his arrest, suggesting that his prediabetes, diagnosed years ago, at some point developed into full-blown diabetes,” Blanchard wrote.
If convicted, Yuan faces a maximum sentence of 20 years in prison, although he would more likely face closer to six years.
Blanchard declined to comment to National Post on the case. A request for comment from Asiacom Americas on Yuan’s arrest, status with the company, and on the allegations went unanswered prior to publishing deadline.
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