India’s Directorate of Enforcement (ED) has reportedly seized Rs 5,551.27 crore (about $725.5 million) belonging to handset maker Xiaomi Technology India Pvt Ltd, a wholly owned subsidiary of the China-based Xiaomi Group.
The ED is a law enforcement and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
The ED says that Xiaomi India is being investigated for alleged violations of India’s Foreign Exchange Management Act (FEMA) since February related to suspected illegal remittances.
India’s Economic Times explains that the action against Xiaomi falls under the special powers granted to the agency under sections of the FEMA which allow the directorate to seize assets equivalent to the amount suspected to be held overseas in contravention of the act’s provisions. Xiaomi India can appeal once the chargesheet is filed.
The company allegedly remitted foreign currency to three foreign entities in the name of royalty payments but has not used any services from the three foreign-based entities to which the payments have been made.
ED, which is investigating the company’s foreign funding, shareholding, financial statements and related activities, says it also found the company had provided misleading information to the banks while remitting money abroad.
Xiaomi India says the company's royalty payments are all legitimate and that the company's operations are compliant with local laws and regulations. It also says it will cooperate with government agencies.
Quoted in India’s Economic Times, a Xiaomi statement says: “The royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products.”
ED’s probe is described as part of a larger action recently undertaken by various law and revenue enforcement agencies following an alert by intelligence agencies against Chinese firms relating to alleged money laundering and other violations.