ED SEIZES XIAOMI’S ASSETS WORTH RS 5,551 CRORES OVER FOREX VIOLATIONS

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.

The ED launched an investigation into Xiaomi India’s financial transactions after it discovered that the tech company had remitted foreign currency worth Rs 5,551.27 Crores to three foreign-based entities, including a sub-owned company by Xiaomi. The primary 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 set up to benefit 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 royalty payments. This violates Section 4 of the FEMA or the Foreign Exchange Management Act.

ED also claims that Xiaomi committed fraud with banks by providing 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.

Xiaomi stated 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 would be cooperating entirely with the authorities and the officers of ED to clarify these misunderstandings.

If 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 significantly fewer chances of anyone going to jail, as FEMA proceedings are usually civil.

Last year, offices and factories of several Chinese telecom companies, including Xiaomi, were raided by the Income Tax Department on tax evasion charges.

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 secured over 22 percent of the market share, thanks to its diverse portfolio of products.

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