Lava MD Hari Om Rai Arrested under PMLA, Court gives 10 days Police Remand

· Chinese National Three other Executives also Arrested

· Rs 1.20 lakh crs of “Money Laundering” over the Nine Years Alleged

· Local Company Lava, a Designated Indian Champion may be in doldrums as MD Placed under Arrest for Helping Vivo in Transferring Money to China and setting up Vivo Operations some ten years ago

· ED Alleges Vivo Violation of Industrial Policy on FDI as a Predicate Offence under PMLA

India's Enforcement Directorate (ED) financial crime agency on 10 Oct, 2023 arrested four industry executives including one Chinese national working for smartphone maker Vivo in India in a case of alleged money laundering.

The arrest of the Chinese phone maker in India may be designed to put pressure on China Hari Om Rai caught in cross five and comes amid rising tensions between Beijing and New Delhi over issues ranging from border disputes.

Vivo said in a statement it "firmly adheres to its ethical principles and remains dedicated to legal compliance. The recent arrest deeply concerns us. We will exercise all available legal options".

The executives were arrested in relation to an ongoing 2022 case first initiated by Delhi Police where the ED raided Vivo's offices and accused it of money laundering.

The Enforcement Directorate (ED) has arrested four persons, including the chairman and managing director of Lava International, a Chinese national and a chartered accountant, in connection with its money laundering probe against Chinese phone maker Vivo.

Those arrested have been identified as Hari Om Rai, founder and managing director of Lava International, who is accused of assisting Vivo, Guangwen Kyang alias Andrew Kuang (a Chinese national who allegedly played a key role in Vivo’s money laundering activities), and Nitin Garg (chartered accountant who worked for Vivo) and Rajan Malik (statutory auditor of Lava).

The federal agency’s probe under the Prevention of Money Laundering Act (PMLA) against Vivo, started in 2022, has revealed that the Chinese phone manufacturer, after its entry in India in 2014, had incorporated 19 more companies in various cities. These companies had Chinese nationals as directors and shareholders, and controlled the complete supply chain of Vivo mobile phones in India.

It is alleged the foreign direct investment policy of 2014-15 permitted 100% overseas investment was under the government route for single brand retail. But wholesale business was automatic approval.

“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 criminal conspiracy to conceal its real ownership, control and nature of activities from Indian government authorities and entered India through automatic route,” the ED alleged.

The agency had raided Vivo’s offices and associate companies in July last year. At that time, it alleged that Vivo had illegally transferred ₹62,476 crore to China to evade taxes in India.

On Tuesday, the ED revealed that Vivo remitted over ₹ 1 lakh crore out of India since its inception in 2014 to some trading companies hired by it to create a layer so that the control of Vivo China over these local firms does not come to the notice of government authorities. This satisfies the “layering of criminal proceeds” criteria inn PMLA law. On the other hand, the remittances passed the banking and RBI oversight without objection so there is no PMLA case, experts say.

“While no profit was shown from 2014-15 to 2019-20 in the statutory filings and no income taxes were paid in India, however, huge sums were siphoned off out of India,” the ED said in the court on Tuesday while seeking custody of the accused persons (These too passed tax scrutiny so no case can be made out, experts say).

According to the ED’s court documents reviewed by HT, the network of Vivo companies communicated through various Chinese applications such as WeChat, Ding Talk, VChat, etc., and despite operating in India, their data was not maintained within the country but on servers in China.

“PMLA investigation has revealed several findings that show complete Chinese control over the Indian entities and that the Chinese ownership and control was concealed from the Indian authorities,” the ED said. “The manner in which entire structure was setup all over the country without revealing its true ownership and control and was given a garb of genuine business activities reflects a well-planned multi-layered criminal conspiracy.”

The Chinese control over Indian entities, the agency said, is reflected from the fact that a single individual – Bin Luo, a Chinese national -- was the founding or first director of Vivo India as well as 18 other entities of Vivo. Nitin Garg, a chartered accountant, assisted in incorporation of most associate companies.

About Hari Om Rai’s role, the ED has said invitation letters to the employees of Vivo China, including its CEO Shen Wei, were given by Lava International in 2013-14 and 2014-15 for business visas. Rai, along with Malik, assisted in cheating Indian government for setting up an elaborate Chinese controlled network throughout the country, it said (Experts say that Hari Om was only promoting FDI. Chinese companies brought in much needed technology and employment to India. The domination of Samsung and Apple was challenged by Chinese companies only to help the consumer suffering from monopoly pricing).

Besides, the ED said, Rai helped Chinese nationals associated with Vivo in their setup across India by arranging funds for their security deposit and in acquiring office and residential spaces.

“During investigation, it has come to light that various Chinese nationals have been travelling across India, including sensitive places of J&K and Ladakh, in gross violation of Indian visa conditions,” the ED said.