Xiaomi reportedly accuses ED of ‘physical violence’ during investigation
Chinese smartphone maker Xiaomi alleges its top executives faced threats of “physical violence” and coercion during questioning by India’s financial crimes agency, according to a court document seen by Reuters.
Enforcement Directorate officials warned the company’s former Managing Director in India Manu Kumar Jain, current Chief Financial Officer Sameer BS Rao and their families of “serious consequences” if they failed to file statements as sought by the agency, Xiaomi’s May 4 filing said.
The Enforcement Directorate did not immediately respond to a request for comment.
Xiaomi has been under investigation since February and last week the Indian agency seized $725 million (approximately Rs 5,570 crore) from the company’s Indian bank accounts. According to the agency, the company had been making illegal transfers of money abroad “under the guise of royalty payments”.
Xiaomi denies any wrongdoing and says the royalty payments were legitimate. On Thursday, a judge heard Xiaomi’s lawyers and stayed the Indian agency’s decision to freeze bank assets. The next hearing is scheduled for May 12.
The company alleges intimidation by India’s top enforcement agency when executives appeared for questioning multiple times in April.
Jain and Rao were on certain occasions “threatened … with serious consequences including arrest, damage to their career prospects, criminal liability and physical assault if they did not make statements as per the regulations of” the agency, the filing in the High Court of the southern state of Karnataka said.
The executives “were able to withstand the pressure for a time, but eventually they gave in to the extreme and hostile insults and pressure and made a number of statements involuntarily,” the report said.
Xiaomi declined to comment, citing ongoing legal proceedings. Jain and Rao did not respond to questions from Reuters.
Jain is now Global Vice President of Xiaomi based in Dubai and is credited with leading Xiaomi’s rise in India, where the company’s smartphones are hugely popular.
Xiaomi was the leading smartphone vendor in 2021 with a market share of 24 percent in India, according to Counterpoint Research. The company also deals in other tech gadgets, including smartwatches and televisions, and has 1,500 employees in the country.
BATTLE OVER TRANSFERS
Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has since invoked a ban on more than 300 Chinese apps over security concerns and has imposed stricter standards on Chinese companies investing in India.
Tax inspectors raided Xiaomi’s offices in India in December. After receiving information from tax authorities, the Enforcement Directorate — which investigates cases such as foreign exchange violations — began auditing Xiaomi’s royalty payments, according to court documents.
The agency reported last week that Xiaomi Technology India Private Limited (XTIPL) transferred the equivalent of $725 million (approximately Rs 5,570 crore) in foreign currency to overseas entities, even though Xiaomi had “not availed any service” from them.
“Such huge sums of money in the name of royalties were transferred on the instructions of their Chinese parent companies,” the agency said.
Xiaomi’s court document shows that during the investigation, Indian agency officials “dictated and coerced” Xiaomi India CFO Rao “under extreme duress” to include a sentence in his statement on April 26.
The text read: “I acknowledge that the royalty payments made by XTIPL were made in accordance with the instructions of certain individuals within the Xiaomi group.”
A day later, on April 27, Rao retracted the statement, saying it was “not voluntary and was made under duress,” the file shows.
Two days later, management ordered the assets in Xiaomi’s bank accounts to be frozen.
Xiaomi had said in an earlier statement to the media that it believes all royalty payments are “legitimate and truthful” and that the payments were made for “licensed technologies and intellectual property rights used in our Indian product versions.”
The court document states that Xiaomi “regrets being the target of attacks, given that some of its subsidiaries are located in China.”
A Xiaomi spokesperson gave the following statement to Gadgets 360 regarding the reported allegation:
“The contents of the petition are confidential to the general public. There seems to be some sensationalism without considering the impact it will have on the ED, the Government of India and the company. This matter is subject to the court. We decline to comment on it. We reserve our rights in all respects and will take such steps as are advised to us to protect our reputation.”
© Thomson Reuters 2022
