India’s Enforcement Directorate just issued a show cause order to Xiaomi Technology India Ltd and three foreign banks – Citi bank, HSBC Bank and Deutsche Bank AG. An order to show cause is the type of court order that requires one or more parties to prove or disprove something to the court. In this case, it’s about a Foreign Exchange Management Act violation amounting to the equivalent of $6.7 million.
The actual violation is by Xiaomi, but the banks listed above received their orders as well since they have a role in the violation. According to ED, the banks allowed foreign remittances without obtaining any Technical Collaboration Agreement.
The issue dates back to 2022 when the Indian government seized the equivalent of $6.7 million from Xiaomi India’s bank accounts due to illegal outflow of capital. After the ED carried out an investigation, it was concluded that Xiaomi India transferred foreign exchange out of the country and held it there on behalf of the group entity. This is in direct violation of section 4 of the FEMA, 1999.