ED seizes ₹5.5k crore of Xiaomi India

NEW DELHI: The Enforcement Directorate (ED) has seized ₹5,551.27 crore in bank accounts of Chinese phone maker Xiaomi in connection with its probe into alleged violation of foreign exchange laws by the company’s Indian arm.

Xiaomi Technology India, which started operations in India in 2014, remitted foreign currency equivalent to ₹5,551.27 crore to three overseas entities, including a Xiaomi group entity in the guise of royalty, the central agency said in a statement.

“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” ED said. “The amount remitted to other two US-based unrelated entities were also for the ultimate benefit of the Xiaomi group entities.”

Asserting that remittances began from 2015, the agency said: “Xiaomi India is a trader and distributor of mobile phones in India under the brand name of MI. It procures the completely manufactured mobile sets and other products from the manufacturers in India. It has not availed any service from the three foreign based entities to whom such amounts have been transferred.”

“Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in guise of royalty abroad which constitute violation of Section 4 of the Foreign

Exchange Management Act (FEMA). The company also provided misleading information to the banks while remitting the money abroad,” the statement said.

Stating that the firm’s operations are compliant with local laws and regulations, a Xiaomi spokesperson said, “We have studied the order from government authorities carefully. We believe our royalty payments and statements to the bank are all legit and truthful. These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products. It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings.”

The central anti-money laundering probe agency is probing the company and its executives under the provisions of the Foreign Exchange Management Act (FEMA) related to foreign remittances worth crores of rupees made over the past few years.

The directorate’s actions signal widening scrutiny of the Chinese smartphone maker, whose India office was raided in December in a separate investigation over alleged income tax evasion.

Some other Chinese smartphone markers were also raided at the time.

On April 13, the agency examined Manu Kumar Jain, global vice-president of the company.

Jain, who is now global vice president at Xiaomi based in Dubai, appeared before investigators earlier this month, said a person with direct knowledge of the probe, asking not to be named. As part of the probe, ED also asked the company for details of foreign funding, shareholding and funding patterns, financial statements and information of key executives running the business.

(With agency inputs)

FILE Xiaomi started operations in India in 2014.