ED attaches Rs 5,551 cr of Chinese smartphone giant Xiaomi for forex violations

The central agency that investigates economic offences said that the money was in the bank accounts of the Chinese smartphone giant and was seized for alleged 'illegal outward remittances' in February.

"Xiaomi India is a wholly-owned subsidiary of China-based Xiaomi group. This amount of Rs 5,551.27 crore lying in the bank accounts of the company has been seized by the Enforcement Directorate," the agency said in a statement.

"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. Such huge amounts in the name of royalties were remitted on instructions of Chinese "parent group" entities, the ED has alleged.

According to ED, the amount, the remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities.

The ED said that the Chinese phone maker gets fully made mobile sets from Indian manufacturers but hadn't availed any service from the three foreign entities to whom the money was transferred.

"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 a violation of section 4 of the FEMA," the agency said.

Xiaomi has been also alleged of providing "misleading information" to the banks while remitting funds to foreign entities.

Earlier in April, ED summoned the former India head of China's Xiaomi Corp Manu Kumar Jain to investigate if the company's business practices conformed with Indian foreign exchange laws, Reuters reported citing sources.

According to the report, the central agency had started investigating Xiaomi in February, and in the past few weeks, it sent a summon to the former company's former managing director in India.

Jain is now a global vice president at Xiaomi based out of Dubai, the Reuters report said, adding that he was in India, though the purpose of his visit wasn't clear.

Asked about the investigation, a Xiaomi spokesperson said that the company fully abides by the Indian laws and was "fully compliant with all the regulations", according to the report.

"We are cooperating with authorities with their ongoing investigation to ensure they have all the requisite information," the statement said.

Xiaomi India operates as a trader and distributor of smartphones under the brand name MI.

Xiaomi was the top smartphone seller in 2021 with a 26 percent market share.