US Sanctions China's Y Combinator for Stolen Google Secrets

By Daniel Rao | 24 October 2026

The United States has just put a venture capital firm on a sanctions list — not for moving money to a weapons programme, not for evading an embargo, but for writing a seed cheque. On 19 October, the State Department blacklisted five Chinese entities under the Protecting American Intellectual Property Act, and the names tell the story: a Shanghai startup built on stolen Google AI blueprints, and the celebrated incubator — the successor to Y Combinator China — that gave it seed funding. For American technology investors, this is the part where the room goes quiet: Washington has started treating the money behind stolen IP the same way it treats the theft itself.

The action, announced in a State Department fact sheet and enforced by the Treasury's Office of Foreign Assets Control the same day, is one of the sharpest moves yet in Washington's campaign against Chinese AI. The five targets: Shanghai Zhisuan Technology Co Ltd, the startup founded by convicted former Google engineer Linwei Ding; Qiji Chuangtan Beijing Investment Management Co Ltd — better known as MiraclePlus, the Beijing venture firm founded by ex-Microsoft and Baidu AI executive Lu Qi; two MiraclePlus-managed venture funds, Phase I and Phase II; and a Phase I-owned holding partnership, Zhiyuan Enterprise. The department says Ding touted his knowledge of Google's technology while pitching Zhisuan, claiming it could replicate the search giant's "super intelligence" infrastructure. "Theft of trade secrets is a serious threat to US economic, foreign policy, and national security interests," State Department spokesman Tommy Pigott said in a statement announcing the designations.

A Google data centre in The Dalles, Oregon — the kind of AI supercomputing infrastructure at the heart of the Linwei Ding theft case. Photo: Tony Webster, via Wikimedia Commons, CC BY 2.0.

Washington's playbook just changed

This is not how these cases usually end. Typically, the arc goes like this: an employee walks out of an American tech company with its secrets, the FBI knocks, a jury convicts, and the story dies in a sentencing hearing. This time, the story refused to die. Seven months after a San Francisco jury convicted Ding of stealing Google's AI infrastructure secrets, Washington has followed the money — straight to the investors who funded his startup.

The legal instrument matters. The Protecting American Intellectual Property Act — PAIPA, the trade-secret sanctions law enacted in 2022 — authorises the US government to punish foreign entities that benefit from the theft of American trade secrets. It has rarely been used. As one trade-law analysis put it, this is a rare case of Washington sanctioning a venture firm over its seed bet. Venture capital runs on a simple operating theory: you fund people, not ideas, and you don't audit where their "experience" came from. That operating theory now has a sanctions risk attached.

We checked the State Department's fact sheet against OFAC's 19 October designations notice ourselves — all five names match, right down to the venture funds' full legal titles — and the designations sit on OFAC's Non-SDN Menu-Based Sanctions List, a detail with real consequences: screening systems that only check the main Specially Designated Nationals list will not flag these names.

The man at the centre of it

Linwei Ding — also rendered as Ding Linwei — joined Google in May 2019 as a software engineer, working on the software behind the company's supercomputing data centres. That gave him access to some of the most jealously guarded engineering in American tech: the architecture of Google's custom Tensor Processing Unit chips, its GPU systems, and the networking software that stitches thousands of chips into a single AI supercomputer.

Between May 2022 and April 2023, prosecutors say, Ding uploaded more than 2,000 pages of confidential material from Google's network to his personal cloud account. At the same time, he was secretly laying the groundwork for his own AI company in China, setting himself up as its chief executive while still drawing a Google salary. The business pitch, preserved in a WeChat promotion quoted in court filings, had a brazen candour: "We have experience with Google's ten-thousand-card computational power platform; we just need to replicate and upgrade it" — the pitch was, literally, the stolen goods.

Ding resigned from Google in late 2023, booked a one-way ticket from San Francisco to Beijing, and was arrested by the FBI in March 2024. In January 2026, after an eleven-day trial in San Francisco, a federal jury convicted him on all fourteen counts — seven of economic espionage and seven of theft of trade secrets. Prosecutors had sought a 70-month prison term. In August, US District Judge Vince Chhabria threw out the espionage convictions, ruling the government had not shown Ding knew or intended his theft to benefit the Chinese government. The theft convictions stood, and on 1 September Chhabria sentenced Ding to 12 months minus a day in prison, two years of supervised release, more than $198,000 in restitution to Google, and a $2,500 fine. "This was a systematic, brazen effort to steal Google's property and to benefit himself with it," the judge told the courtroom. The Justice Department is appealing the dismissal of the espionage counts.

Here is the detail that explains this week's sanctions: Zhisuan — the startup Ding founded in 2023 — was marketed as able to build a software platform that could "accelerate machine learning workloads, including training large super intelligence (SI) models powered by supercomputing chips". In its own materials, the company claimed familiarity with Google's TPU Superpod architecture, which clusters thousands of chips into a single logical network, and said it could replicate Google's infrastructure "to fit China's national conditions". According to the State Department, Zhisuan "has knowingly engaged in, or benefitted from, significant theft of trade secrets of United States persons, which occurred on or after January 5, 2023."

"China's Y Combinator" is now on the list

That is where MiraclePlus walks into the frame — and it is the part of this story with genuine shock value in both Beijing and Silicon Valley. MiraclePlus is one of China's most recognisable startup machines, and its pedigree runs straight back through the Valley's most famous accelerator.

Its founder, Lu Qi — who goes by Qi Lu in the West — is one of the most storied executives in AI. A former Microsoft AI scientist, he was recruited by Baidu in 2017 to lead its artificial intelligence efforts, quitting a year later for personal reasons. Then came the Silicon Valley chapter: in 2018, then-Y Combinator president Sam Altman recruited Lu to run Y Combinator's new China operation. When YC abandoned its China expansion in 2019, Lu and his team spun the operation out as an independent firm — MiraclePlus. It runs two startup camps a year, has backed some of China's hottest AI names, including inference platform SiliconFlow and robotics maker AgiBot, and both of those companies are reportedly eyeing Hong Kong listings.

According to the State Department, Ding applied to MiraclePlus's incubation programme on Zhisuan's behalf, "touting his experience with and knowledge of Google's technology and internal systems", and MiraclePlus then "gave seed capital in exchange for an ownership stake in Zhisuan". One analysis of the case reports the stake at seven per cent, via a MiraclePlus-affiliated venture fund. State says Ding used the firm's stage to pitch his ability to replicate Google's technology "to fit China's national conditions" — help that, in Washington's telling, turned stolen secrets into a funded company. To be clear about what the public record shows: it does not establish that MiraclePlus knew the technology had been stolen. The sanctions target the financing relationship, not a finding of complicity in the theft itself.

Qi Lu (Lu Qi), photographed speaking at UC Berkeley during his time leading Microsoft's Online Services Division. He went on to run Y Combinator China for Sam Altman, then spun the operation out as MiraclePlus. Wikimedia Commons, CC0.

MiraclePlus is not taking this quietly. In a statement on 20 October, the firm denied investing in Zhisuan at all, said the sanctions were imposed without any prior communication, and said it is in talks with relevant parties to get them lifted — adding that it expects the matter to be resolved through "candid communication". That denial sits in direct tension with the State Department's account of a seed investment for equity, and how that contradiction gets resolved — in court filings, in OFAC records, or in quiet negotiation — will be one of the stories to watch in the months ahead.

What the sanctions actually do

OFAC's menu of PAIPA measures is comprehensive. All five entities' property under US jurisdiction is blocked, and Americans are barred from dealing with them. US banks cannot lend them more than $10 million in any twelve-month period; foreign exchange and bank-transfer transactions involving them are banned; and no US person may invest in or buy significant amounts of their equity or debt. Anyone screening only the SDN list will miss these — the designations sit on the Non-SDN Menu-Based Sanctions List, which is exactly the kind of technicality that catches compliance teams out.

There is one notable carve-out. OFAC's General License 2 permits qualifying wind-down transactions involving MiraclePlus and its three affiliated partnerships — including any company they own at least half of — through 12:01 a.m. Eastern time on 19 January 2027, provided any payment to them lands in a blocked US account. Zhisuan gets no such grace: it is not named in the license, and its dealings with the US financial system end immediately. The message is legible: the incubator gets a runway to unwind; the alleged vehicle of the theft gets the door slammed.

Beijing's reply: "egregious"

Beijing answered within two days. On 21 October, China's commerce ministry expressed "firm opposition" to the sanctions, saying they "severely harm the legitimate rights and interests" of Chinese businesses. "The nature of this act is egregious," the ministry's statement said. "China firmly opposes this." Washington was urged to "correct its erroneous practice", and Beijing said it would take "necessary measures" — without specifying what any of those measures are. Chinese state media, for its part, framed the move as a sign of American anxiety, with one outlet crowing that Washington "can't even keep up with DeepSeek".

Beijing's response is worth reading in the context of the week: the sanctions landed just as Washington ordered civilian agencies to strip DeepSeek from their systems, and as Treasury outlawed US AI investment in China outright — part of a widening enforcement perimeter that also covers Beijing's green light for DeepSeek and MiniMax to take their AI global. The MiraclePlus designations extend that perimeter into venture capital itself.

The verdict: a warning shot that happens to be a cannon

Let's be honest about what happened here. A federal jury convicted Linwei Ding of a systematic theft of some of the most valuable engineering secrets in American technology — and he got twelve months minus a day. Prosecutors wanted nearly six years. If that sentence was the system's answer to the theft, the answer was, frankly, a shoddy one: it priced a decade of Google's infrastructure genius at roughly the cost of a parking ticket for a multinational.

The sanctions are Washington's real verdict — harsher, broader, and aimed at a much bigger target than one engineer. Ding is going away for a year; MiraclePlus, a firm that has touched hundreds of Chinese startups and whose portfolio companies are heading for Hong Kong listings, is now toxic to every dollar under US jurisdiction. Whether or not the firm knew the pitch was built on stolen goods, the precedent is set: from now on, every seed cheque written on a founder's "experience" at an American tech giant carries a due-diligence question with the force of sanctions law behind it. That is an earthquake disguised as paperwork — and Silicon Valley's investors would be fools to shrug at it.

Frequently asked questions

What exactly did Linwei Ding steal?

According to prosecutors and the trial evidence, more than 2,000 pages of confidential material relating to Google's AI supercomputing infrastructure: the architecture of its custom Tensor Processing Unit chips, GPU systems, networking equipment, and the software that connects thousands of chips into systems capable of training and running large AI models. A superseding indictment put the figure at more than 1,000 unique files uploaded from Google's network to his personal cloud account between May 2022 and May 2023.

Why is a venture capital firm on a sanctions list?

Because the State Department says MiraclePlus "gave seed capital in exchange for an ownership stake" in Zhisuan, the startup Ding founded, and gave Ding a stage on which to pitch technology the department says was stolen from Google. The law used — PAIPA — explicitly targets foreign entities that benefit from trade-secret theft, not just the thieves. MiraclePlus denies it invested in Zhisuan at all, so this part of the story is contested.

What do the sanctions actually block?

Five things under US jurisdiction: the entities' property is blocked and transactions with them are prohibited; US banks cannot lend them more than $10 million a year; foreign-exchange and bank-transfer deals involving them are banned; and Americans cannot invest in their equity or debt. A wind-down license gives existing dealings with the four MiraclePlus entities until 19 January 2027; Zhisuan gets no grace period. Notably, the names sit on OFAC's Non-SDN Menu-Based Sanctions List, so SDN-only screening tools will miss them.

Is this evidence of a new Google breach?

No. Nothing in the State Department or OFAC announcements suggests a fresh intrusion at Google. The theft took place between May 2022 and April 2023, Ding was arrested in March 2024, and the sanctions are the enforcement tail of that same case — aimed at the company and investors that Washington says profited from the stolen material. Nor is this a general ban on Chinese AI investment: it is a targeted action under a trade-secret sanctions law.

What happened to the espionage charges against Linwei Ding?

In August 2026, US District Judge Vince Chhabria threw out the seven economic-espionage convictions, ruling the government had not shown Ding knew or intended his theft to benefit the Chinese government — as opposed to Chinese companies. The seven theft-of-trade-secret convictions stood, and on September 1 Ding was sentenced to 12 months minus a day, two years of supervised release, more than $198,000 in restitution to Google, and a $2,500 fine. The Justice Department is appealing the dismissal. (Per AsiaOne and survivalnomics.org.)

Update, Oct. 24: Beijing's rebuttal hardened — and Meta's AI chief is the US's Exhibit A

Beijing's denial has hardened into a doctrine. On October 20 China's commerce ministry expressed "firm opposition" to the sanctions and urged the US to "correct its erroneous practice"; in a fuller rebuttal carried by survivalnomics.org, the ministry insisted China's AI achievements are the result of "long-term basic research and open cooperation" and have "nothing to do with the so-called 'stealing of trade secrets.'" The ministry also threatened unspecified "necessary measures" — none have been named as of October 24.

Washington, for its part, has an Exhibit A it keeps returning to. Meta's AI chief Alexandr Wang has called China's technology competition an "open secret" operation, arguing China is on par with the US on algorithms "because of large-scale espionage," per survivalnomics.org's account of his June 14, 2025 remarks. The Ding case — a convicted engineer, a seed cheque, and now a sanctions designation — is the enforcement version of that argument.

Two things to watch: whether Beijing ever names the "necessary measures" it threatened, and whether MiraclePlus's portfolio companies — SiliconFlow and AgiBot, both reportedly eyeing Hong Kong listings — start to feel sanctions-adjacent pressure from investors and banks screening against the Non-SDN Menu-Based Sanctions List. Separately, the Justice Department is appealing the dismissal of Ding's espionage counts, so the criminal case has one more act.

Sources

US State Department fact sheet, "Imposing Sanctions to Protect Americans from Intellectual Property Theft" (19 October 2026); OFAC 19 October 2026 designations and PAIPA General License 2; Associated Press reporting via the Economic Times and Red Hot Singapore; South China Morning Post; The Straits Times; ICLG news; Dealroom News; FDD analysis; Moneycontrol and Courthouse News via Mad Robot Blog on the September sentencing.

Daniel Rao is TechPulse USA's senior correspondent covering US-China technology competition, AI policy, and enforcement. He writes about where money, chips, and geopolitics collide.