ED seizes Xiaomi’s assets worth Rs 5,551 Crores over Forex violations, company responds

The Enforcement Directorate has seized Rs 5,551 Crores from the bank accounts of Xiaomi Technology India for violations of Forex exchange and remittances. Xiaomi Technology India is the Bengaluru based arm of the Chinese telecom firm. [caption id=“attachment_10624051” align=“alignnone” width=“640”]  Xiaomi India has been accused of diverting funds in the form of Foreign Exchange to companies that provided it no services.[/caption] The ED launched an investigation into Xiaomi India’s financial transactions after it discovered that the tech company has remitted foreign currency worth Rs 5,551.27 Crores to three foreign-based entities, including a company that is sub-owned by Xiaomi. The main violation, the ED claims, is that the Indian arm disguised these remittances as royalty. “Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” said the ED in a statement. ED also said that the other two entities were US-based companies which were set up for the benefit of the Xiaomi group. As per ED’s investigation, Xiaomi India did not avail of any service or technology from these three entities to whom the money was transferred. They also claim that Xiaomi India created a documentary facade among the group entities, and made the remittances under the guise of royalty payments. This violates Section 4 of the FEMA or the Foreign Exchange Management Act.

ED also claim that Xiaomi committed fraud with banks by providing them with misleading and false information while sending the money abroad. Earlier in April, the ED had summoned the global vice-president of Xiaomi, Manu Kumar Jain, while they were investigating the matter.   [caption id=“attachment_10624081” align=“alignnone” width=“640”]  Manu Kumar Jain is the Global Vice President at Xiaomi.[/caption] Xiaomi put out a statement that its operations are compliant with Indian laws and the payments that are being flagged as violations were indeed royalty payments. They also added they will be cooperating completely with the authorities and the officers of ED to clarify these misunderstandings.   In case Xiaomi is found guilty of violating FEMA’s Section 4, they may be slapped with a penalty that can be at least three times the contravened amount. However, there are very less chances of anyone going to jail, as the proceedings under FEMA are usually civil in nature. Last year, offices and factories of several Chinese telecom companies, including Xiaomi, were raided by the Income Tax Department on charges of tax evasion.

On the business front, Xiaomi has been leading the smartphone market in India for years now. Despite the pandemic and the dip in smartphone sales, Xiaomi has managed to secure over 22 per cent of the market share, thanks to its diverse portfolio of products.