India's foreign exchange authority has confirmed the seizure of Chinese phone maker Xiaomi's Rs 5,551 crore for allegedly sending money abroad illegally, the country's top anti-money laundering body said in a statement today.
The Enforcement Directorate, or ED, seized Rs 5,551 crore of Xiaomi Technology India Pvt Ltd in April, the biggest seizure of funds in the country till date.
Now, the authority under the Foreign Exchange Management Act, or FEMA, has confirmed that ED was right in seizing Xiaomi's funds, which the Chinese firm allegedly transferred out of India illegally, the probe agency said in a statement today.
FEMA is India's rulebook that guides all foreign exchange transactions.
The ED said the foreign exchange authority agreed that the way Xiaomi India held funds outside the country on behalf of the group entity violated the FEMA, and this led the funds to be seized.
In April, the ED said Xiaomi India sent the funds abroad "in guise of royalty", which was a violation of the FEMA.
"The competent authority also observed that payment of royalty is nothing but a tool to transferring the foreign exchange out of India and the same is in blatant violation of provisions of FEMA," the ED said in the statement today.
Xiaomi India is a fully owned arm of China-based Xiaomi group. It started operations in India in 2014 and began sending money abroad a year later.
"Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to two other US-based unrelated entities were also for the ultimate benefit of Xiaomi group entities," the ED said in the statement today.
Xiaomi India has not used any service from the three foreign entities to whom the funds have been sent, the ED said, adding the phone maker also gave misleading information to banks while sending money abroad.
Xiaomi India had filed a petition before the Karnataka High Court over the funds seizure. The court dismissed the petition in July.
In May, Chinese state media had reported India should stop "regulatory assault" on Chinese companies after Xiaomi Corp alleged threats of "physical violence". Xiaomi had told the Karnataka High Court that its top executives faced threats and coercion during questioning by the Enforcement Directorate in the illegal remittances case. The Enforcement Directorate had called the allegations "untrue and baseless".
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