Illegal Remittances Case: ED Issues Show Cause Notices To Xiaomi, Its Top Officials & Banks

The Enforcement Directorate (ED) on Friday (June 9) said it has issued a show cause notice to Chinese smartphone major Xiaomi in connection with a probe involving making alleged illegal remittances.

“The adjudicating authority has issued SCN (show cause notice) to Xiaomi Technology India Private Limited, its officials and 3 banks under FEMA on the basis of complaint filed by the ED with respect to illegal remittances made by the company to the tune of INR 5,551.27 Cr,” the agency said in a tweet. 

As per a statement by the Directorate, show cause notice was issued to Xiaomi India’s current chief financial officer (CFO) Sameer Rao, former managing director Manu Jain, and three banks under the provisions of the Foreign Exchange Management Act, 1999.

The ED also sent notices to Citibank, HSBC Bank and Deutsche bank AG for allowing Xiaomi to send remittances overseas in the guise of royalty without proper due diligence. 

The ED further noted that these banks violated Section 10(4) and 10(5) of FEMA and enabled the smartphone maker to send remittances abroad without obtaining any underlying ‘Technical Collaboration Agreement’ from the company.

A Xiaomi spokesperson told Reuters it is studying the matter and waiting for the written order. The spokesperson further said that the Chinese smartphone maker’s operations in India are compliant with local laws and regulations.

The development comes barely a month after the Karnataka High Court (HC) rejected a petition filed by the original equipment manufacturer (OEM) challenging the seizure of funds worth INR 5,551 Cr by the ED over alleged FEMA violations. 

At the centre of the row is an overarching probe launched by the agency. The ED has alleged that Xiaomi India unauthorisedly remitted amounts to the tune of INR 5,551.27 Cr to three entities overseas in the guise of royalty payments, without procuring any services from them. 

While one of the three firms involved is a Xiaomi group company, the remaining two entities are based out of the US, as per the ED. The US-based entities were incorporated for the ultimate benefit of the China-based parent company, the agency has alleged.

The OEM is also in the dock for allegedly providing misleading information to the banks while remitting the money abroad.

As part of the investigation, the ED had earlier summoned Xiaomi’s former India boss Jain and seized INR 5,551 Cr worth of proceeds in the case. Eventually, the Competent Authority confirmed the seizure of the funds and held that the proceeds were remitted outside India in contravention of existing norms and in an unauthorised manner.

Apart from Xiaomi, other Chinese smartphone makers such as OPPO and Vivo have also been in the dock for alleged evasion of tax and customs duty. While Vivo India is accused of illegally remitting INR 62,476 Cr to foreign entities, OPPO India is said to have allegedly evaded tax to the tune of INR 4,389 Cr.