In the wake of cracking down on financial irregularities, the Enforcement Directorate (ED) recently filed its first charge sheet related to a money laundering investigation involving Vivo India and four tech executives. This move follows allegations that shell companies facilitated Vivo in remitting ₹1 lakh crore outside India between 2014 and 2021, forming the basis for money laundering charges against the Chinese phone maker.
The prosecution complaint, submitted on December 6, 2023, invokes the criminal sections of the Prevention of Money Laundering Act.
The federal probe agency arrested four persons in this investigation, including Hari Om Rai, the founder and MD of Lava International. Rai is accused of aiding Vivo in alleged financial improprieties. The other individual in custody is Guangwen Kyang, also known as Andrew Kuang, a Chinese national allegedly playing a key role in Vivo’s money laundering activities. Additionally, Chartered Accountants Nitin Garg, associated with Vivo, and Rajan Malik, a statutory auditor of Lava, are implicated. Strikingly, Vivo India, as a corporate entity, has also been named as an accused in the charge sheet.
Raids, Money Transfers, and Ethical Dilemmas
The federal probe agency’s investigations, which commenced in 2022, reveal a complex web of financial transactions. Vivo allegedly incorporated 19 more companies in various cities since its entry into the Indian market in 2014. The newly identified companies associated with Vivo India had Chinese nationals serving as directors and/or shareholders, wielding significant control over the entire supply chain of Vivo Mobiles in India.
During the FDI (foreign direct investment) policy of 2014-15, 100% foreign investment in single-brand retail required government approval. However, for wholesale cash and carry business, 100% FDI was permitted under the automatic route, bypassing the need for government approval. In an attempt to circumvent government scrutiny, Vivo China allegedly entered India, posing as a wholesale cash and carry business as part of a criminal conspiracy to conceal its true ownership, control, and activities from Indian authorities.
This strategic move allowed Vivo China to avoid government approval and operate in India through the automatic route.
The Enforcement Directorate (ED), in a statement in October, mentioned, “In order to avoid taking government approval, Vivo China devised a plan whereby they entered India under the garb of wholesale cash and carry business as part of a criminal conspiracy to conceal its real ownership, control, and nature of activities from Indian government authorities and entered India through automatic route.”
In July 2022, the Enforcement Directorate (ED) carried out raids on the offices of Vivo and its affiliated companies, marking a significant turning point in the investigation. During these raids, the ED made startling allegations, claiming that Vivo India had “illegally” transferred an enormous sum of Rs 62,476 crore to China between 2017 and 2021, with the purported intention of evading tax payments in India. The money laundering probe suggests that Vivo remitted over ₹1 lakh crore outside India since its inception in 2014 to certain “trading companies” employed by Vivo. This strategy created a layer to prevent the detection of Vivo China’s control over these Indian companies by government authorities.
The complex financial manoeuvres undertaken by Vivo raise questions about the regulatory oversight and challenges posed by global companies operating in the Indian market.
The plot thickens in the Vivo money laundering saga with revelations from the Enforcement Directorate’s (ED) court documents, as reported by HT. Despite showing no profits in statutory filings from 2014-15 to 2019-20 and paying no income taxes in India during this period, substantial amounts were allegedly siphoned off from the country. The ED claims that its findings indicate Chinese control over Indian entities, with Chinese ownership and control purposefully concealed from Indian authorities.
According to the probe agency, the Chinese control over Indian entities is evident in the fact that Bin Luo, a Chinese national, served as the founding or first director of Vivo-India and 18 other associated entities.
Vivo responded to these allegations in October, asserting a commitment to ethical principles and legal compliance. The recent arrests have raised concerns for the company, prompting an exploration of all available legal options. As the situation unfolds, clarity from Vivo on these serious allegations becomes imperative, inviting scrutiny and calls for accountability in international business operations.
Amidst the legal saga of money laundering, Hari Om Rai, the founder and MD of Lava International, asserts his lack of involvement with Vivo-India or its representatives since 2014. In a recent court statement, Rai clarified that although discussions about a potential joint venture took place around a decade ago, he has had no financial dealings or transactions with Vivo-India or any entity linked to Vivo. Rai’s legal representation emphasized that he has not benefited monetarily and has not been connected to any alleged “proceeds of crime.”
The Enforcement Directorate (ED) initiated its investigation by filing an enforcement case information report (ECIR) on February 3, 2023. This action followed an earlier FIR by the Delhi Police in December against an associated company of Vivo-India, Grand Prospect International Communication Pvt Ltd (GPICPL), along with its directors, shareholders, and other professionals. The complaint, lodged by the Corporate Affairs Ministry, alleged the use of “forged” identification documents and “falsified” addresses during GPICPL’s incorporation in December 2014.
As the Vivo India money laundering saga unfolds, it sends shockwaves through the business landscape. The case raises questions about financial transparency, cross-border transactions, and the robustness of regulatory frameworks.
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