The Directorate of Enforcement is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India. The ED seized Rs 5,551.27 crore from a Bengaluru-based Chinese telecom firm Xiaomi Technology India. This is said to be one of the ED’s biggest operations especially dealing with a multinational company. The seizure has finally taken place after months of long investigations by ED. Xiaomi, is one of the top mobile phone brands in the country, operates in more than 100 countries. And is said to have an annual turnover of Rs 34,000 crore INR. The money has been seized from four bank accounts of Xiaomi under the provisions of Foreign Exchange Management Act, 1999.
A source from the ED has said. The company had already sent a major portion of the money to its group companies in China. “The balance amount was lying in its four bank accounts. At HSBC, Citi Bank, IDBI and Deutsche Bank”. the official source said. The royalty amount has been remitted based on the instruction of its Chinese parent group. “The company has remitted foreign currency equivalent to Rs 5,551.27 crore to three foreign based entities which include one Xiaomi group entity, in the guise of royalty”. The ED said. A certain amount has also been remitted to two more unrelated US-based entities, the source added.
Xiaomi’s “illegal remittances” violate FEMA
As per the agreement, Xiaomi operates in India since 2014. And procures the completely manufactured handsets from domestic manufacturers based in India. The contract manufacturers have a direct relationship of trade supplying raw material and manufacturing of mobile sets to Xiaomi. As per the specifications provided by Xiaomi China, ED stated.
“Xiaomi India has not provided any technological input or software-related assistance to these contract manufacturers. Interestingly, Xiaomi India has transferred money to the three foreign-based entities. From which they have not availed any kind of service”. ED official stated.
The firm did not request for approval or authorization while remitting the money or participating in such transaction. Therefore, this hereby makes it a violation of Section 4 of the Foreign Exchange Management Act (FEMA). The company is said to have also allegedly provided misleading information to the banks while remitting the money abroad.