Reebok has been booked for alleged Foreign Exchange Management Act (FEMA) violations by the Enforcement Directorate (ED). Reebok may face penal action and money laundering charges for running unauthorized retail outlets as well as breach of export commitments.
Reebok India — now a subsidiary of the German sports goods-maker Adidas.
Sources said the ED has registered a case for alleged FEMA violations against Reebok India as the firm failed to keep its commitment to export goods worth Rs 8,000 crore in the first 10 years of its operations.
The commitment not to engage in retail sales and to meet export commitments were the twin grounds on which Reebok was allowed to start operations in India. Besides, the company also promised not to import goods that could be manufactured locally.
However, sources in the ED claim that their investigations revealed Reebok India hardly manufactured any goods locally, imported most of its wares from its manufacturing units based in south-east Asia.
A Reebok India spokesperson confirmed the ED case against the company, saying, “We are extending full cooperation to the authorities in their investigation. Please understand that we cannot share any further details since the matter now rests with the Indian law enforcement authorities.”
The company recently was in news when it claimed that it detected irregularities of Rs 870 crore in its India operation. It has since registered an FIR with the economic offence wing of Haryana and announced closure of hundreds of its retail outlets.
The ED probe into whether the company allegedly violated FEMA guidelines to start a countrywide retail chain predates company’s complaint to Haryana police. By the time company reported the fraud in its India operation, the international taxation division of the income tax department had carried out an exhaustive audit on the business operations of Adidas’s Indian subsidiaries and called for its tax returns for scrutiny.
The Serious Fraud Investigation Office in the corporate affairs ministry has also initiated a probe against Reebok India and sought details of company’s complaint that retail outlets were started unauthorized by those responsible for company’s India operations and who have since been removed.