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India Seizes $726 Million From Chinese Mobile Maker Xiaomi for Violation of Foreign Exchange Laws

A native of New York, Alina has a Bachelors degree in Corporate Communications from Baruch College and writes about human rights' related issues, politics, tech and society.
Published: May 2, 2022
Customers inspect smartphones made by Xiaomi at a Mi (my home) store in Gurugram, India on August 20, 2019. (Image: SAJJAD HUSSAIN/AFP via Getty Images)

Authorities in India have accused Chinese phone maker Xiaomi Corp. of breaching the country’s foreign-exchange laws, seizing over 55.51 billion rupees (approximately US$726 million) from the company’s local branch.

The incident marks India’s latest clash with a Chinese company over their activities in-country — a major market for the mobile giant. Xiaomi has been one of the most successful smartphone brands in the fast-growing market, growing to become the largest by shipment volumes in the country.

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India’s anti-money-laundering agency said in a statement that it had examined Xiaomi’s bank accounts in the country, under the provisions set forth by the Foreign Exchange Management Act.

According to the agency’s findings, the company’s local unit had remitted money to three foreign-based entities with ties to Xiaomi, falsely claiming the money was for royalty payments, the Indian Enforcement Directorate said.

Money laundered ‘under guise’ of royalty payments

“Huge amounts of money were sent in the guise of royalty payments under the instructions of their Chinese parent group entities,” the directorate said. The amount remitted to “other two US-based unrelated entities” were also for the “ultimate benefit of internal Xiaomi group entities.”

“Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India,” the statement read, adding that “the company also provided misleading information to the banks while remitting the money abroad.”

In recent years, India has taken a hard line against Chinese companies operating within the country ever since troops from the two countries clashed in 2020 over border disputes. In November of that year, India blacklisted more than 200 mobile applications from Chinese providers, including e-commerce giant Alibaba, video streaming platform TikTok owned by ByteDance Ltd, as well as several other apps used on Xiaomi’s phones.

Xiaomi India former head, Manu Jain, was summoned by the directorate earlier this year for questioning over tax related compliances and company structure. The country’s anti-money laundering office has also been investigating several other Chinese firms since December.

Following India’s ban of Chinese apps over national security concerns, Xiaomi’s products have taken a hit in popularity. To improve its image, Xiaomi rebranded several of its shops in India two years ago with “Made in India” banners in a move that analysts said was the company’s attempt to distance itself from its Chinese parent firm.

The company then refreshed its smartphone, smart TV and tablet lineups with new models in India earlier this week, commanding 23 percent of the local smartphone market share in the first quarter of this year.

Xiaomi disputes findings

In response to the allegations, Xiaomi said in a May 5 statement that its royalties’ payments are all legitimate, as they were made for the “in-licensed technologies and IPs used in our India version products.”

The company also disputed the asset seizure, arguing that its royalty payments are justified and its “statements to financial institutions have been accurate.”

“All our operations are firmly compliant with local laws and regulations,” Xiaomi India said in a Twitter post. “These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products,” the company said, adding that, “these were legitimate commercial arrangements for Xiaomi India to make.”

When asked whether the company would be taking legal action to reclaim its assets, Xiaomi representatives declined to comment.

“We are committed to working closely with government authorities to clarify any misunderstandings,” it said.