Enforcement Directorate issues a show-cause notice to Xiaomi’s India unit

India’s crime-fighting agency, the Enforcement Directorate, has issued a show-cause notice to Xiaomi’s India unit, its officials, and three banks as part of an investigation into illegal remittances made by the Chinese smartphone maker to foreign entities.

Under the Foreign Exchange Management Act (FEMA), the notice pertains to remittances totaling 55.51 billion Indian rupees ($673.2 million).

According to the Enforcement Directorate, Xiaomi engaged in the unlawful transfer of money abroad since 2015, utilizing misleading information and disguising the funds as royalty payments. Last year, the agency froze Xiaomi’s assets in India, alleging that the company had made illegal remittances by falsely presenting them as royalty payments to foreign entities.

Xiaomi denies the allegations, countering that its royalty payments were legitimate and expressing its commitment to safeguarding its reputation and interests.

The agency contends that Xiaomi’s actions violate Section 4 of the Foreign Exchange Management Act, which imposes restrictions on the acquisition, ownership, possession, or transfer of foreign exchange, foreign securities, or immovable property located outside India.

In April, an Indian court rejected Xiaomi’s plea against the asset seizure, marking a significant setback for the company, which is among India’s rapidly growing smartphone brands.

Xiaomi has made substantial investments in India, including the establishment of manufacturing facilities and the launch of affordable smartphones targeting price-sensitive consumers.

Chinese enterprises, particularly those in India, have faced increased scrutiny and regulatory challenges. Indian authorities have been vigilant in enforcing financial regulations and investigating alleged violations, such as tax evasion, money laundering, and breaches of foreign exchange rules.

Tensions between India and China, stemming from a border conflict, have further complicated the operations of Chinese companies in India since 2020.

Over 300 Chinese apps, including popular ones like TikTok, have been banned in India due to security concerns. Chinese companies like WeChat and Alibaba have also encountered scrutiny, restrictions, and compliance issues related to data privacy, national security, and local laws in recent years.