The ED has seized consumer tech brand Xiaomi’s assets worth a whopping Rs. 5,501 crores over violation of foreign exchange laws. The economic intelligence agency Enforcement Directorate took action against Xiaomi Technology India Private Limited and seized a total of Rs. 5,551 crores from the company’s bank accounts under the relevant provisions of FEMA (Foreign Exchange Management Act, 1999).
It should be noted that Xiaomi India is completely owned by Xiaomi Group, a multi-billion dollar earning tech group from China. The ED initiated its investigation earlier this year in February in connection with illegal remittances (transfers, broadly speaking), carried by the company.
Following the bombshell seizure of the assets, the ED issued a statement in which it stated that Xiaomi had been remitting its money since 2015. The company has so far remitted currency equivalent to Rs. 5,551 crores to foreign based entities in the guise of Royalty.
“Such huge amounts in the name of Royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US based unrelated entities was also for the ultimate benefit of the Xiaomi group entities,” the ED’s statement read.
According to Economic Times, Xiaomi India saw a sales growth of 7% year-on-year over 2019, with revenue clocking at Rs. 38,196 crores ($5.2 billion). While the 7% increase may seem like a moderate growth, what’s interesting is that Xiaomi managed to earn a profit of Rs. 401 crores ($55 million) after earning $20 million a year prior to that.
With tech brands like Oppo, OnePlus, RealMe, who target budget conscious Indian buyers, and brands like Samsung, Apple and more, who target buyers who want the best of the best, Xiaomi has over the course of years given brands a run-for-their-money.
Meanwhile, the company has been jolted by a problem worth over Rs. 5,000 crores, as India’s financial intelligence agency ED has seized its assets.
The Facts of the Matter
On Saturday, India’s financial forensic intelligence agency ED reported that it seized Xiaomi India’s deposits worth Rs. 5,551.27 crores. The ED has been probing the company’s Indiam arm – Xiaomi Technology Private LTD for foreign exchange laws violations and as such, has seized the amount under FEMA (Foreign Exchange Management Act, 1999).
Xiaomi Remitted Currency Over Rs Five Thousand Crores
On Saturday, ED issued a statement about the matter which read, “The company started its operations in India in the year 2014 and started remitting the money from the year 2015. The company has remitted foreign currency equivalent to INR 5551.27 crore to three foreign based entities which include one Xiaomi group entity in the guise of Royalty.”
What the ED Said About the Matter
The ED further noted that such amounts under the guise of royalties were remitted on the instructions of “Chinese parent group entities”. It’s statement further notes that Xiaomi India has not availed services from the foreign based entities to which the transferred such huge amounts.
“Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in the guise of Royalty abroad which constitutes violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” the ED statement further read.
ED Brought Xiaomi VP for Questioning This Year
It should be noted that earlier this year, the ED had roped in Manu Kumar Jain, Xiaomi Global VP for questioning regarding the case. Following the report, Xiaomi issued a statement where it assured that it has complied with all the regulations and are confident on their position.
“We give paramount importance to the laws of the land. We are fully compliant with all the regulations and are confident of the same. We are cooperating with authorities with their ongoing investigation to ensure they have all the requisite information,” the statement said.