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

NEW DELHI, April 30 (Reuters) – India said on Saturday it had seized $725 million from the local bank accounts of Chinese company Xiaomi Corp (1810.HK) after an investigation found the manufacturer smartphones had made illegal payments to foreign entities by passing them off as royalty payments.

The Law Enforcement Directorate was investigating the Chinese company’s business practices regarding alleged violations of Indian foreign exchange laws. Read more

The financial crime agency said on Saturday it had seized the assets of Xiaomi Technology India Private Limited’s bank account after discovering that the company had handed over the foreign currency equivalent of 55.5 billion rupees. to three entities based abroad, including an entity of the Xiaomi group, “in the cover of royalties”.

The payout to two other unidentified and unrelated US-based entities was also for “the ultimate benefit of Xiaomi Group entities”, the agency added in a statement.

“Such huge sums in the name of royalties were paid on the instructions of their Chinese parent group entities,” management said.

Xiaomi said in a statement later on Saturday that it abides by Indian laws and believes that “its royalty payments and statements to the bank are all legitimate and true.”

“These royalty payments that Xiaomi India made were for licensed technologies and IP addresses used in our Indian version products…we are committed to working closely with government authorities to clarify any misunderstandings,” he said. added.

Management’s actions against Xiaomi signal scrutiny of the Chinese smartphone maker, whose Indian office was raided in December as part of a separate investigation into alleged tax evasion. Some other Chinese smartphone markers were also attacked at the time.

Reuters reported on April 12 that former Xiaomi Indian chief Manu Kumar Jain has been called in for questioning as part of the management’s investigation. Read more

Jain, who is now global vice president of Dubai-based Xiaomi, appeared before investigators earlier this month, a source with direct knowledge of the investigation said, asking not to be named due to the sensitivity of the case.

The Law Enforcement Branch also asked the company for details of foreign financing, shareholding and funding patterns, financial statements and information on key company executives.

Xiaomi was India’s top smartphone seller in 2021, with a 24% market share, according to Counterpoint Research. South Korean Samsung was the No. 2 brand with a 19% market share.

Many 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 including popular apps like TikTok, and also tightened standards for Chinese companies investing in India.

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

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