SFIO Seeks Detailed Probe Into Xiaomi India’s Business Model
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Xiaomi has landed in fresh trouble in India. The serious fraud investigation office (SFIO) has reportedly recommended a probe into alleged irregularities in the smartphone maker’s business model and compliance with the foreign exchange management act (FEMA).
According to Reuters, SFIO has recommended a detailed investigation to examine the movement of funds by Xiaomi. The agency has also reportedly called for probing whether the company sought mandatory investment approvals after India tightened scrutiny of Chinese investments following border clashes between the two nations in 2020.
Sources reportedly said that the Centre is examining the memorandum that was drafted in May this year. Based on the report, the proposed investigation would examine:
- Xiaomi’s foreign investors and beneficial ownership
- Movement of funds between Xiaomi and related entities
- Whether required government approvals were obtained for investments post 2020
- Possible violations of India’s foreign direct investment (FDI) rules
- Whether financial statements and auditor reports contain material mis-statements
- The company’s relationships with sellers and ecommerce platforms
As per the report, the SFIO proposal said that it was recommending action against Xiaomi based on complaints and inputs received from the commerce ministry. It also called for “coordination” between other government agencies to flag overlapping violations.
While the proposal did not specify the information that SFIO had reviewed, the agency, however, reportedly dished out a 21-point investigation framework with methodology and plan of action, including possible summoning of company executives if needed.
“The inquiry should specifically cover whether preferential and exclusive launches of Xiaomi products on selected e-commerce platforms …. defeated the intent of the FDI policy applicable to ecommerce (companies),” SFIO reportedly said in its recommendations.
Inc42 has reached out to Xiaomi for comments on the development. The story will be updated based on their response.
However, a Xiaomi spokesperson told Reuters that the company has not received any notice or communication from the SFIO. “We accord paramount importance to the laws of the land and comply with them fully at all times,” the company reportedly added.
The development comes as Xiaomi continues to be under regulatory scrutiny in India, with authorities examining alleged FEMA violations and customs-duty evasion.
In January 2022, the government issued three show-cause notices to the original equipment manufacturer (OEM) and sought ₹653 Cr in customs duty for the period between April 2017 and June 2020.
In addition, the Enforcement Directorate (ED) in 2022 seized ₹5,551 Cr from Xiaomi India’s bank accounts under FEMA norms, alleging that the company had illegally remitted money overseas as “royalty”.
The development also comes as Chinese President Xi Jinping is expected to visit India over the weekend to attend a BRICS summit.
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