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Why Chinese Smartphone Companies Are Under ED’s Radar Once Again

The Enforcement Directorate (ED) conducted raids at 44 locations of Vivo and other Chinese mobile firms alleging that the concerned firms violated the Prevention of Money Laundering Act (PMLA)

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Enforcement Directorate (ED) PTI

Trouble is brewing for Chinese smartphone companies in India once again. In a recent development, the Enforcement Directorate (ED) conducted raids at 44 locations of Vivo and other Chinese mobile firms alleging that the concerned firms violated the Prevention of Money Laundering Act (PMLA). The raids were conducted across Delhi, Uttar Pradesh, Meghalaya, Maharashtra and Madhya Pradesh and southern states. 

Notably, the development comes two months after the federal agency seized Rs 5,571 crore from Xiaomi India.

Galwan Valley Clash and its Consequences

In the past two years, the government has stepped-up actions against Chinese companies and their funded entities alleging that the said companies committed financial crimes like money laundering and tax evasion while operating in India. The stepped-up actions are also being viewed as a direct consequence of the ongoing two-year-long stand-off between China and India along the Line of Actual Control (LAC) in Eastern Ladakh, and the Galwan Valley clashes between the two countries. 

Moreover, citing national security, the government banned the short video app Tik Tok, the mobile game PubG, and several other Chinese apps. ED is also conducting money-laundering investigations against several NBFCs and fintech companies which are backed by Chinese Funds alleging that these companies generated proceeds of Rs 940 crore by indulging in predatory lending activities and violating RBI guidelines while operating in India. 

Allegations Against VIVO

The crackdown against VIVO and other related firms has been viewed as the second-biggest such clampdown by the ED after Xiaomi. Apart from allegations of violation against PMLA, the ED is also investigating Vivo regarding security-related issues based on an FIR filed by Delhi Police against one of the company’s distributors in Jammu & Kashmir. As per the FIR, the company is alleged of being involved in forging the identity papers of some Chinese nationals.

The investigation is based on an FIR filed by Delhi Police against one of the company’s distributors in Jammu & Kashmir. Notably, as the probe against Vivo has intensified, the company’s two directors–Zhengshen Ou and Zhang Jie have reportedly fled from India. 

This is not the first time that Vivo has come under the radar of government agencies. In 2021, the company, along with its Chinese peers–Xiaomi and Oppo and their respective distributors were investigated by the Income Tax (I-T) Department in over 25 cities across India including Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Guwahati. The investigation revealed details of alleged tax evasion by the firms on income worth more than Rs 6,500 crore. 

Xiaomi’s Legal Tussle Against ED

In what is being touted as the biggest crackdown on any Chinese firm so far, ED seized Rs 5,551.27 crore from Xiaomi India in May this year pertaining to the violations of the Foreign Exchange Management Act (FEMA). The raids were conducted across several locations in Bengaluru–the company’s headquarters. Notably, as part of the investigation, the company’s former managing director and the global vice-president Manu Kumar Jain, and current Chief Financial Officer (CFO) Sameer B S Rao were also questioned in relation to the case.  

A report by The Economic Times quoted the ED officials stating that Xiaomi began remitting the money in 2015 and has remitted foreign currency worth Rs 5,551.27 crore to three foreign-based entities that include one Xiaomi Group unit as royalty payments.  

“Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi Group entities,”  the source said.  

Notably, the I-T department had raided the factories of Foxconn India Unit and Dixon Technologies in relation to tax evasion in 2021. Both companies are Xiaomi’s contract manufacturers in India. 

Denying the allegations, Xiaomi India approached Karnataka High Court last month, accusing the ED of resorting to coercion and physical abuse while questioning the company’s top executives. While the federal agency denied the allegations made by Xiaomi, the Karnataka High Court asked the ED to halt the probe against Xiaomi. In a recent development, ED rejected the claims by Xiaomi India regarding the clearance of funds by the I-T department. 

Crackdown on Huawei

Chinese telecom major, Huawei Telecommunications (India), had also been embroiled in allegations of tax evasion in February this year. While conducting multiple raids at the company’s premises in Delhi, Gurugram and Bengaluru the I-T department seized record books of Huawei. Notably, in June, the Delhi High Court summoned Huawei India’s CEO Li Xiongwei, Deputy CFO Sandeep Bhatia, Head of Tax Amit Duggal and Head Of Transfer Pricing, Long Cheng in relation to a complaint filed by the I-T department against the company for withholding information that was sought. 

China Hopeful For Honest Investigations 

Amidst the ongoing crackdown on Chinese companies by the Indian government, China is hopeful that the dispensation will provide a “truly fair and non-discriminatory” business environment for Chinese firms. 

Chinese Foreign Ministry spokesman Zhao Lijian said, “As I have stressed, the Chinese government has always asked Chinese companies to abide by laws and regulations when doing business overseas. In the meantime, we firmly support Chinese companies in safeguarding their lawful rights and interests.”

"We hope the Indian authorities will abide by laws as they carry out the investigation and enforcement activities and provide a truly fair, just and non-discriminatory business environment for Chinese companies investing and operating in India,” he added.

Notably, responding to the investigation against VIVO, Wang Xiaojian, Chinese Embassy spokesperson said, “The frequent investigation of Chinese companies by the Indian side not only disrupts the normal business activities of the companies and damages the goodwill of the companies.”
 
“China is closely monitoring this matter. The Chinese government has always required Chinese companies to operate legally and compliantly overseas. At the same time, it firmly supports Chinese companies in safeguarding their legitimate rights and interests,” he added.

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