Vivo's Money Laundering Activities Are An Attempt To Destabilize India's Financial System, Threaten Sovereignty: ED To Delhi High Court

In a new development in the money laundering case against Chinese smartphone manufacturer Vivo, the Enforcement Directorate (ED) has alleged that company's seized bank accounts are "clearly involved in money laundering".

The central investigating agency has also submitted that this is not a case of mere commission of an economic offence but has been carried out in an "attempt to destabilize the financial system of the country and also to threaten the integrity and sovereignty of the nation."

In an affidavit filed on 21st July, 2022, the ED submitted that as per its investigations, the Director of Grand Prospect International Communication Pvt Ltd (GPICPL- a company already under investigation for charges of money laundering) Bin Lou, had incorporated multiple companies all over the country and used them to transfer huge amount of funds to Vivo India. It was alleged that out of the total sale proceeds of Rs. 1,25,185 crores, Vivo India remitted Rs. 62,476 crores. i.e, almost 50% of the turnover out of India, mainly to China. These remittances were made in order to disclose huge losses by these companies to avoid payment of taxes in India.

Through the affidavit, the ED submitted that due procedures as per law was followed during its search and seizure operations at Vivo premises. However, the employees of Vivo India, including some Chinese nationals, did not cooperate with the search proceedings and had tried to abscond, remove and hide digital devices which were retrieved by the search teams. 

The agency has also informed the Court that the freezing order issued by it is merely provisional as it is only for a fixed period not exceeding 180 days as provided in sec. 20 of the PMLA. 

"Further before confirmation of freezing order the petitioner would be heard by the adjudicating authority as provided in Section 8 of PMLA. Therefore there is sufficient compliance with the principles of natural justice," the affidavit reads.

In response to the claims made by Vivo that no notice was provided to them before the search and seizure operations, the ED said that there was no requirement to give any notice/ communication before search and seizure/ freezing of bank accounts under Section 17 of the Prevention of Money Laundering Act (PMLA), 2002.

It said that the only requirement under Section 17(1) of the Act is to have "reasons to believe" that the company was involved in money-laundering, or was in possession of proceeds of crime involved in money-laundering. Further, ED said sufficient safeguards had been provided under PMLA to redress the grievance of the petitioner. Thus, instead of filing a writ petition, the petitioners should contest these grounds before the Adjudicating Authority.

ED submitted that there was no explicit requirement under the law to establish/ identify/ quantify the proceeds of crime before freezing the same under Section 17(1A) of PMLA. Further, while an attachment order in terms of Section 5 of PMLA was issued, where the officer had reasons to believe that a certain property was proceeds of crime, ED stated that a freezing order under Section 17 could be issued when after a search the officer had reasons to believe that any person was in possession of any proceeds of crime or in possession of any property related to crime.

While elaborating upon this submission, the ED further stated that–

"Section 5 uses the expression "such property" and denotes certainty with respect to the property being proceeds of crime. Section 17 however uses the expression in "any proceeds of crime" and "any property related to crime". The use of such expressions makes it clear that while in case of attachment under section 5, it is certain as to which property is proceeds of crime, at the stage of section 17(1-A) it is not clear as to which specific property/ quantum of property is proceeds of crime and therefore a wider power has been provided to freeze the property including any property related to crime."

Thus, the ED submitted that its actions of freezing the accounts of Vivo were consistent with law.

The ED also submitted that Article 19(1)(g) was a freedom granted in respect of a lawful trade, occupation and business and not in respect of a business conducted based on fraud and misrepresentation of identity.

Earlier, in an order dated 13th July, 2022, the Delhi High Court had directed  Vivo India to furnish a bank guarantee worth Rs. 950 crore. Vivo was also permitted to operate its bank accounts to the extent that a balance of Rs 250 crore was maintained in its accounts at all times. The Court also directed Vivo to submit details about its remittances to China to the ED as well.

The matter is now listed for July 28, 2022.