US Official Alleges DeepSeek Aids Chinese Military & Dodges Sanctions – Crypto’s New Compliance Nightmare?

DeepSeek in the crosshairs: A US official drops bombshell allegations that the Chinese AI firm is funneling tech to the military and slipping past sanctions. Here’s why the crypto world should care.

The ‘dual-use’ dilemma

When AI research blurs the line between civilian and military applications, every blockchain project using their models just inherited a compliance headache. Regulators are circling.

Sanctions sleight-of-hand

Alleged workarounds involving cryptocurrency payments and offshore shells could make DeepSeek the latest test case for OFAC’s crypto-tracing capabilities. Tether transactions anyone?

VCs sweating bullets

Investors who poured millions into ‘apolitical’ AI infrastructure now face the ultimate KYC challenge: proving their money didn’t accidentally fund geopolitical brinksmanship.

As usual in tech, the real crime isn’t breaking rules—it’s getting caught while Silicon Valley plays the same game with better lawyers.

DeepSeek allegedly shares user data with China

According to a senior State Department insider speaking anonymously to Reuters, DeepSeek’s business goes well beyond merely offering open-source versions of its AI engines.

The official revealed that the Chinese startup sought to use Southeast Asian shell firms to access high-end semiconductors that cannot be shipped to China under US regulations.

“This effort goes above and beyond open-source access to DeepSeek’s AI models,” the official said, speaking on condition of anonymity in order to speak about US government information.

The US official says DeepSeek “willingly provided and will likely continue to provide support” to the People’s Liberation Army and related intelligence outfits. Internal procurement records, cited over 150 times, apparently show DeepSeek helping PLA research bodies.

If accurate, the revelations could alarm DeepSeek’s millions of global users, since Chinese law demands that any domestic tech firm hand over data when the government asks.

The same senior official claims DeepSeek shares user stats and private data with Beijing’s surveillance network. Past statements by US legislators noted that DeepSeek routes American users’ information to China via backend links tied to China Mobile, a state-controlled telco.

DeepSeek has so far chosen not to comment on these privacy concerns, leaving a cloud of uncertainty over how much personal data might be exposed.

The company is accused of evading export controls

Perhaps most concerning to Washington is DeepSeek’s alleged chip-acquisition tactics. US export curbs have blocked high-end Nvidia H100 GPUs from Chinese buyers since 2022, out of fear they would supercharge Beijing’s military AI ambitions.

Yet, DeepSeek supposedly set up shell companies in Southeast Asia, intending to slip these chips into Chinese hands or tap them remotely through external data centres. The State Department won’t say if those schemes truly succeeded.

Despite these strictures, DeepSeek reportedly has “large volumes” of Nvidia’s premium chips. A Nvidia spokesperson insisted to Reuters that DeepSeek is using only legally obtained H800 units, not the prohibited H100, though three sources told Reuters otherwise.

Singaporean authorities even charged three men in February with fraud linked to moving Nvidia chips from the city-state to DeepSeek operations.

US officials stress that DeepSeek has not been blacklisted, nor have they accused Nvidia of willful complicity. But the wider context is clear: America’s distrust of China’s AI advances has led to tighter export rules and intense scrutiny. DeepSeek’s meteoric rise, it seems, may rest on more than homegrown innovation.

Pressed about new sanctions or tougher export measures on DeepSeek, the senior official offered only, “nothing to announce at this time.” Meanwhile, Nvidia says current restrictions effectively bar it from China’s data center market, which has been ceded to local giants like Huawei.

Chinese ministries have not responded to requests for comment, leaving DeepSeek to navigate an international backlash without public defence.

Though some Silicon Valley execs and US tech engineers praised DeepSeek’s V3 and R1 models, skeptics point to likely hidden costs that far exceed the reported $5.58 million spent on training. Questions also swirl over how a relatively young startup could amass such advanced hardware amid tight export rules.

As investigations continue in Malaysia and elsewhere, DeepSeek’s claims of matching OpenAI and Meta may yet face a reckoning, not just on technical merit, but on ethics, geopolitics, and the opaque pathways it used to build its empire.

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