When Chinese technology start-up DeepSeek shocked financial markets in January, having reportedly developed an AI system for just $6 million comparable to OpenAI offerings costing in the billions, suspicions quickly turned to Singapore. Was it possible that Chinese actors in the Southeast Asian country may have illegally acquired high-end Nvidia chips, which are subject to US export controls?
Not long afterwards, Singaporean authorities charged three individuals, including a Chinese national, in a fraud case said to potentially involve Nvidia chips. The case involves questions around shipping of computer servers to Malaysia and whether that was the final destination.
Singapore’s government has said Nvidia does not believe any chips came via Singapore, while making clear that it expects “US companies, like Nvidia, to comply with US export controls and our domestic legislation”.
Also notable was the government’s acknowledgement that:
“Singapore is an international business hub. Major US and European companies have significant operations here. Nvidia has explained that many of these customers use their business entities in Singapore to purchase chips for products destined for the US and other Western countries.”
Indeed, Singapore only receives a small volume of physical shipments of chips, yet a significant portion of Nvidia’s revenues is billed through the country. According to Nvidia financial statements, Singapore accounted for 18 per cent of the company’s revenue, yet physical shipments comprised less than two per cent.
The episode, while yet to be decided in court, has drawn attention to the risks involved in an open economy. Reporting in the Financial Times last year found China had set up a “back door” into Western markets via financial intermediaries – such as trading firms, shell companies, and holding companies, including in Singapore and elsewhere – to act as the listed buyer for restricted goods. “‘Singapore-washing’ describes a process through which Chinese companies set up a subsidiary or reincorporate in the city state to mitigate the geopolitical risks and scrutiny often directed at China-based entities,” the FT found.
Singapore’s strong corporate secrecy regulations, which offer extensive protections for foreign investors, can also make it difficult to rapidly identify the true recipients of goods.
Analysts have speculated in Nvidia’s case that it can be harder to track the final destination for purchases bound elsewhere.
Singapore has acknowledged that correlating physical goods transactions and financial transactions remains “challenging”. There is the potential for blind spots between the separate monitoring of trade flows and banking flows. The Singaporean government has acknowledged the issues and enacted new regulations.
Singapore’s strong corporate secrecy regulations, which offer extensive protections for foreign investors, can also make it difficult to rapidly identify the true recipients of goods. Singaporean law was amended in 2022 in a bid to make it difficult for actors that seek to abuse the financial system for fraud or money laundering by improving transparency. But analysts note that the register of nominee shareholders will not be made public.
When combined with the widely adopted practice of registering companies in tax havens such as the Cayman Islands or British Virgin Islands, which can make financial flows opaque, the difficulty of tracking the source of a company is compounded. In July 2023, Singaporean authorities uncovered a massive money laundering operation involving former Chinese nationals who had acquired passports from Cyprus, Cambodia, and elsewhere. These individuals laundered money in Singapore, invested in luxury goods, and invested billions in a scam compound in the Philippines.
Taken together, challenges of this type can be used by actors in China to obfuscate financial flows and potentially circumvent global restrictions on technology transfers. Regulation must constantly adapt to keep pace.
