Explained: Why Vivo is under the scanner, what ED has found so far

Vivo Mobile India Ltd — the Indian branch of the Chinese mobile phone manufacturer — on Friday moved the Delhi High Court against the freezing of all its bank accounts by the Enforcement Directorate (ED) in connection with a money laundering case. The court agreed to hear the plea on urgent basis today.

Vivo India argued that freezing of accounts would not only impede business operations in India but also adversely affect those around the world. “If amounts in the petitioner’s bank accounts remain frozen, it would not be able to pay statutory dues to competent authorities under various enactments, leading to the petitioner being in further violation of law. The freezing also prevents payment of salaries to thousands of employees…” it said.

The company, owned by China’s BBK Electronics, is one of India’s biggest smartphone makers, accounting for a 15 per cent market share, according to Counterpoint Research.

ED case against Vivo

ED earlier this week raided 48 locations over ‘forged identification documents and falsified addresses’ by firms linked with Vivo India. The agency said it had searched 48 locations spanning across the country belonging to Vivo Mobiles India Private Limited and its 23 associated companies such as M/s Grand Prospect International Communication Pvt Ltd (GPICPL) on Tuesday.

Also read: ED conducts raids against Vivo, related companies in money laundering probe

The ED case is based on a Delhi Police FIR of February against GPICPL where its shareholders had been found to forged identification documents and falsified addresses at the time of incorporation. “The allegations were found to be true as the investigation revealed that the addresses mentioned by the directors of GPICPL did not belong to them, but in fact it was a government building and house of a senior bureaucrat,” the ED said.

Incorporated in 2014

According to the ED, Vivo Mobiles India Pvt Ltd was incorporated on August 1, 2014 as a subsidiary of Multi Accord Ltd, a Hong Kong-based company, and was registered at ROC Delhi. GPICPL was registered on December 3, 2014 at ROC Shimla, with registered addresses of Solan, Himachal Pradesh and Gandhinagar, Jammu.

The ED claimed that GPICPL was incorporated by Zhengshen Ou, Bin Lou and Zhang Jie with the help of one Nitin Garg, a chartered accountant. Bin Lou left India on April 26, 2018. Zhengshen Ou and Zhang Jie left India in 2021.

“ED’s investigation revealed that the same director of GPICPL, namely Bin Lou, was also an ex-director of Vivo. He had incorporated multiple companies across the country spread across various states, a total of 18 companies around the same time, just after the incorporation of Vivo in the year 2014-15 and further another Chinese National Zhixin Wei had incorporated further 4 companies,” an ED statement said.

Profits channelled out of India

On Thursday the ED said nearly half the company’s profits — amounting to Rs 62,476 crore — had been remitted out of the country and primarily to China. The agency named 23 associated companies. “These remittances were made in order to disclose huge losses in Indian incorporated companies to avoid payment of taxes in India,” ED said in a statement.

The agency has blocked 119 bank accounts linked to Vivo’s India business which were holding Rs 465 crore, Rs 73 lakh cash and 2 kg gold bars, as part of a probe into alleged money laundering by the company.

False addresses

According to the ED, it has evidence that Vivo officials used forged documents while incorporating the companies. The addresses mentioned did not belong to them, but in fact it was a government building and house of a senior bureaucrat, the agency said.

It alleged that “employees of Vivo India, including some Chinese nationals, did not cooperate with the search proceedings and tried to abscond, remove and hide digital devices which were retrieved by the search teams.”

Earlier this week, Vivo India said it is ‘cooperating with the authorities to provide all required information’. “As a responsible corporate, we are committed to be fully compliant with laws,” a spokesperson said.

The investigation has been going on since February 2022, ED said.

Action against Chinese-backed companies

In May, Vivo and ZTE Corp, faced an investigation for alleged financial irregularities as the government increases scrutiny of businesses originating in China, with whom India is locked in a tense border stand-off.

The ED in April ordered the seizure of ₹ 5,551 crore worth of deposits of Vivo’s rival Xiaomi India, another Chinese smartphone giant, for allegedly violating foreign exchange rules.

Also read: ED seizes over ₹5,500 Cr of Xiaomi in assets over Forex violations

The stepped-up action against the Chinese-backed companies in India comes two years after the military stand-off between the two countries along the Line of Actual Control (LAC) in eastern Ladakh that is yet to be fully resolved.

Last month China said ‘frequent investigations’ into local units of Chinese firms ‘impeded the improvement of business environment’ in India. China this week said it hoped India would conduct investigations per the law and provide a ‘fair’ and ‘non-discriminatory’ business environment for Chinese firms.