Law Enforcement Branch denies Xiaomi coercion charges in forex investigation

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The Law Enforcement Branch has denied allegations that Xiaomi executives were coerced into making statements implicating the Chinese smartphone maker during its investigation into forex violations against the company.

“The ED denies Xiaomi India’s allegations that statements by its officials were taken under duress as false and baseless,” a statement from the central agency said on Monday.

The statement came in response to a Reuters report quoting the Chinese newspaper world times as criticizing the actions of the ED. “India should stop its ‘regulatory assault’ on Chinese companies,” the news agency wrote quoting the Global Times.

Reuters reported on Saturday that Xiaomi told an Indian court that its top executives had been subjected to threats and coercion during questioning by the Law Enforcement Branch.

According to Reuters, the Global Times said in an opinion piece that the uncertainty surrounding “Xiaomi’s difficult regulatory situation should raise a red flag for India” and called on New Delhi to halt its “regulatory assault on Chinese companies”.

“The perception that Chinese and foreign companies might be intentionally targeted and suppressed is not something good or favorable for India,” the newspaper said. “It is of great importance for India to maintain normal and effective communication and coordination with Chinese investors.”

Last month, the ED seized Rs 5,551.27 crore belonging to Xiaomi Technology India Private Limited under the provisions of the Foreign Exchange Management Act 1999. Xiaomi India is a 100% subsidiary of the Chinese Xiaomi Group.

According to the ED, the amount seized was in the company’s bank accounts. The agency opened an investigation into alleged illegal remittances made by the company in February. Earlier last month, the agency interviewed Manu Kumar Jain, global vice president of Xiaomi, in the matter.

In a statement, the ED had said, “The company started its operations in India in the year 2014 and started remitting money from the year 2015. The company remitted foreign currency equivalent to INR 5,551.27 crore to three foreigners. [sic] based entities, which include a Xiaomi Group entity, under cover of royalties. These huge sums in the name of royalties were paid on the instructions of the Chinese entities of their parent group. The amount paid to two other unrelated US-based entities was also for the ultimate benefit of Xiaomi Group entities.

“Xiaomi India purchases fully-manufactured mobile sets and other products from Indian manufacturers. Xiaomi India did not receive any service from the three foreigners [sic] based entities to which these amounts were transferred. Under cover of various independent documentary fronts created between group entities, the company remitted this amount under cover of overseas royalties, which is a violation of FEMA Article 4. The company also provided misleading information to banks when transferring the money overseas,” the ED statement read.

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