ED seizes Rs 5,551 crores from Xiaomi for illegal remittances

The Enforcement Directorate on Saturday seized Rs 5,551 crores from bank account of Xiaomi Technology Pvt Ltd under the provisions of Foreign Exchange Management Act 1999.

The probe agency in a release said that it seized the said amount from Xiaomi in connection with illegal outward remittances made by the company.

Additionally the probe agency has also issued a summon notice to the company under the FEMA Act, a notification by the ED showed.

Xiaomi India is wholly-owned subsidiary of China based Xiaomi group.

“This amount of Rs. 5551.27 crore lying in the bank accounts of the company has been seized by the ED. ED had initiated investigation in connection with the illegal remittances made by the company in the month of February this year”, ED said in its release.

The company began operations in India in 2014 and began remitting funds in 2015.

The company has sent foreign currency of Rs 5551.27 crore to three foreign-based organisations, one of which being a Xiaomi group company operating under the name Royalty.

On the orders of their Chinese parent group organisations, such large sums in the name of royalties were remitted. The money sent to two unrelated businesses in the United States was also intended for the Xiaomi group’s benefit.

Essentially, Xiaomi India, that uses the brand name MI, is a trader and distributor of mobile phones in India. Xiaomi India purchases fully assembled mobile handsets and other products from Indian manufacturers.

ED found that the three foreign-based organisations to whom such funds were routed did not provide any service to Xiaomi India.

The mobile giant transmitted this cash in the pretext of royalty abroad under the cover of several unrelated documentary facades formed among the group organisations, which is a breach of Section 4 of the FEMA. While remitting money abroad, the company also presented banks with false and misleading information, ED said.

“As a brand committed to India, all our operations 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," a spokesperson for Xiaomi said in a statement.