India seizes $725 million in Xiaomi assets over illegal transfers

Employees stand near the company logo at a Xiaomi store in Shanghai, China, November 1, 2021. REUTERS / Aly Song / Files

NEW DELHI (Reuters) – India said on Saturday it had confiscated $725 million from local bank accounts of China’s Xiaomi Corp. (1810.HK) After an investigation it was discovered that the smartphone maker had made illegal transfers to foreign entities by passing them on as royalty payments.

The Enforcement Directorate was investigating the Chinese company’s business practices for suspected violations of India’s foreign exchange laws. Read more

The Financial Crimes Agency said on Saturday it had confiscated the bank account assets of Xiaomi Technology India Private Limited after finding that the company had transferred the equivalent of 55.5 billion rupees in foreign currency to three foreign entities, including the Xiaomi Group entity, “in the guise of payments”.

The agency added in a statement that the transfer to two other unknown and unrelated entities based in the United States was also for the “ultimate benefit of the Xiaomi group entities”.

The directorate said that “these huge sums in the name of royalties were transferred on the instructions of the Chinese parent group entities.”

Xiaomi said in a statement later on Saturday that it complies with Indian laws and believes that “the royalty payments and their disclosures to the bank are all legitimate and honest.”

“The royalty payments made by Xiaomi India were for unlicensed technologies and IP addresses used in our Indian version products… We are committed to working closely with government authorities to clear up any misunderstandings,” she added.

The directorate’s actions against Xiaomi indicate a broadening of scrutiny of the Chinese smartphone company, whose India office was raided in December in a separate investigation into alleged income tax evasion. Some other Chinese smartphone brands at the time were also raided.

Reuters reported on April 12 that Manu Kumar Jain, the former head of India’s Xiaomi, had been summoned for questioning as part of the directorate’s investigation. Read more

A source familiar with the investigation, who asked not to be named due to the sensitivity of the matter, said Jain, who is now global vice president at Dubai-based Xiaomi, appeared before investigators earlier this month.

The Execution Department also asked the company for details of foreign funding, shareholding and financing patterns, financial data and information of key executives who run the company.

Xiaomi ranked first in smartphone sales in India in 2021, with a market share of 24%, according to Counterpoint Research. The South Korean company Samsung ranked second with a share of 19%.

Several Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has cited security concerns in banning more than 300 Chinese apps since then, including popular apps like TikTok, as well as tightening standards for companies Chinese investing in India.

Reporting by Aditya Kalra in New Delhi; Editing by William Mallard, Helen Popper and Mike Harrison

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