Rs 5,500 crore deposits of Xiaomi seized for ‘forex violations’

NEW DELHI: The Enforcement Directorate on Saturday “seized” Rs 5,551 crore in the bank accounts of Chinese mobile manufacturing company Xiaomi for alleged violation of Indian foreign exchange rules. “Under the cover of various unrelated documentary facade created among the group entities, the company remitted this amount in the guise of royalty abroad that constitute violation of Section 4 of Fema.

The company also provided misleading information to the banks while remitting the money abroad,” the ED said. In a statement, Xiaomi spokesperson said the company’s operations in India are “firmly compliant with local laws and regulations”.

“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,” it said.

The ED began its investigation against Xiaomi in February this year and tracked the company’s outward remittances since 2014 when it started the India operations. The probe revealed that Xiaomi India procured all its mobile sets and other products from manufacturers in India and had availed no services from the three foreign-based entities to whom it had made such huge remittances.

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

On April 13, the ED had questioned Xiaomi’s global vice- president (VP) Manu Kumar Jain in connection with allegations of huge remittances going out of the country. The Chinese group is already facing investigation from the income tax department for alleged tax evasion. Many of its premises, including those of its vendors in India, were raided in December last. After Jain was questioned by the ED, a spokesperson for Xiaomi had said that it is a law-abiding and responsible company.

“We give paramount importance to the laws of the land. We are fully compliant with all the regulations… We are cooperating with authorities with their ongoing investigation,” the spokesperson said. Other Chinese origin mobile manufacturers are also under scrutiny of the agencies here with suspicious transactions and alleged tax evasion.