The Enforcement Directorate (ED), India’s financial crime department, has raided merchants connected to Flipkart, which is owned by Walmart and Amazon, on suspicion of breaking the nation’s foreign investment regulations. Searches at seller locations and Amazon and Flipkart subsidiaries in major cities including Delhi, Mumbai, Hyderabad, and Bengaluru were reportedly part of the pan-India operation. Reuters cited a government source who stated, “The raids on Amazon and Flipkart sellers are a part of ED’s probe… for alleged violations of foreign exchange laws.”
This most recent investigation comes after India’s antitrust commission found that Amazon, Flipkart, and some of their merchants had broken competition regulations by giving preference to certain sellers. The ED is currently investigating if any violations of the Prevention of Money Laundering Act (PMLA) happened through transactions on these platforms, despite the corporations’ repeated claims of compliance with Indian regulations.
The raids are part of an ongoing investigation into potential violations of foreign exchange laws, according to a senior official. The ED is particularly concerned about the potential indirect effects of these e-commerce platforms on product prices, which could lead to an unfair advantage for preferred vendors and an uneven playing field. According to sources, the raids took place in 19 different places across India; however, the names of the specific sellers have not been revealed. Requests for comment have not yet received a response from Flipkart or Amazon.
Amazon and Flipkart, two of the biggest e-commerce companies in India, view India as a high-potential growth market in the fast growing e-commerce sector, and this inquiry is yet another regulatory setback for them. For years, the ED has been closely examining these companies’ business procedures to see how they can get around foreign investment restrictions that restrict foreign corporations’ ability to operate multi-brand retail stores. Indian law prohibits these businesses from having direct control over goods inventory and limits them to operating a neutral marketplace platform.
According to a recent antitrust study that Reuters obtained but that has not yet been made public, Amazon and Flipkart have significant inventory control and have tight ties with a few chosen sellers. According to the research, some sellers may operate as fronts, enabling the platforms to handle product listings and inventory in ways that could circumvent legal constraints. These sellers are referred to as “name lending enterprises.”
To make matters worse, India’s trade minister recently attacked Amazon, claiming that the company’s large expenditures in India frequently compensate for business losses, pointing to potential “predatory pricing” practices. This claim emphasizes how international e-commerce platforms are coming under increased regulatory scrutiny as they negotiate India’s cutthroat retail market.
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