The Indian subsidiary of Chinese smartphone vendor, Xiaomi Group is under investigation in India for alleged illegal remittance of US$716.4 million to three entities outside of India in the name of royalties, even though the company never used the services of any of the three companies.
Xiaomi is currently the leading smartphone vendor in India with some 22% market share, ahead of Chinese rival Realme, Samsung, Apple and others. But its lead has been under threat since the start of the probe in February, having dropped from 27%.
The probe, which forms part of a larger action recently undertaken by various law and revenue enforcement agencies in India, was occasioned by an alert by intelligence agencies against Chinese firms relating to alleged money laundering and other violations.
As part of the investigations, India’s Enforcement Directorate (ED) reportedly seized about $725.5 million belonging to handset maker Xiaomi. ED is the law enforcement and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India.
The ED said Xiaomi India is being investigated for alleged violations of India’s Foreign Exchange Management Act (FEMA) since February related to suspected illegal remittances.
Reports from India said the action against Xiaomi falls under the special powers granted to the ED under sections of the FEMA which allow the directorate to seize assets equivalent to the amount suspected to be held overseas in contravention of the act’s provisions.
The company allegedly remitted foreign currency to three foreign entities in the name of royalty payments but has not used any services from the three foreign-based entities to which the payments have been made.
ED said it also found the company had provided misleading information to the banks while remitting money abroad.
But Xiaomi India insists that its royalty payments are all legitimate and that the company’s operations are compliant with local laws and regulations. It also said it will cooperate with government agencies.
In a statement, the company said: “The royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products.”
Meanwhile, industry research firm, Strategy Analytics, has warned Xiaomi’s lead of India’s smartphone market could be jeopardized further if the Chinese vendor cannot swiftly resolve the ongoing probe, which is said to becoming increasingly combative.
