A number of Punjab National Bank officials in collusion with businesses owned by Gujarati Forbes listed Diamond and jewellery merchant Nirav Modi exploited India’s second largest PSU bank, Punjab National Bank, to defraud it of money that may add up to $1.8 billion, or Rs 12,000 crore.

A month ago, Punjab National Bank registered a criminal charge that blamed Mr Nirav Modi and others for committing bank fraud, which amounted to 2.8 billion rupees.

Again this week, Punjab National Bank accused publicly, that Nirav Modi was one of those who are engaged with the charge of $1.8 billion misrepresentation – which has prompted fears for India’s second largest public sector bank.

HOW NIRAV MODI DEFRAUDED BANKS?

This was reverberated by law and justice minister of India, who admitted before the media that “Nirav Modi and his accomplices attempted to bypass established banking channels by perpetrating this fraud”. [1]

Possibly, the amount may be even higher if the modus operandi employed in this fraud is being used in other banks as well. It is emerging that any bank with exposure to Nirav Modi and his associates has been defrauded using the same modus operandi.It is now learnt that at least 30 banks, including Bank of Baroda, Andhra Bank, Central Bank of India, Vijaya Bank, Union Bank of India, Oriental Bank of Commerce, Dena Bank, Syndicate Bank, UCO Bank, Corporation Bank, IDBI Bank, ICICI Bank, Standard Chartered and EXIM Bank, among others conducted financial transactions with Firestar International, Firestar Diamonds, Gitanjili Gems and Gitanjali Export Corporation. Al, the companies have been named in the FIR filed against Modi and his associates on Jan 29.

PNB discovered that at least 2 individuals, deputy manager Gokulnath Shetty and clerk Manoj Kharat, from its Brady House branch in Mumbai repeatedly issued Letters of Undertaking (LoU) to Nirav Modi’s companies and their banks without

• following the processes
• securing cash reserve or collateral and
• without recording the transactions in the bank’s core banking software, the system on which the banks’s financial transactions are run and recorded.

A LoU (Letter of Undertaking) is a guarantee by the issuing bank to the receiving bank and the companies that it would undertake to pay a certain amount of money on a specific date.

Nirav and his companies leveraged those LoUs in Hong Kong to secure buyers’ credit from the local branches of Allahabad Bank (estimated to be Rs 2,000-2,200 crore), Union Bank (about Rs 2,000-2,300 crore), Axis Bank (about Rs2,000 crore) and State Bank of India (Rs 960 crore), among others. Between five-six Hong Kong branches of Indian Banks (Allahabad Bank, Axis Bank, Union Bank of India, Bank of India and State Bank of India) are believed to have issued buyers’ credit against these LoUs.

Reportedly, the PNB employees misused the SWIFT network to transmit messages to Allahabad and Axis Bank on fund requirement. One has to log on to the SWIFT network to fill up fields like the account number and SWIFT code, following which it is endorsed by a supervisor. The process is completed once the bank gets a confirmation message. In this case, the transactions were reportedly never recorded on the bank’s system due to the connivance of Khare and Shetty.

While Shetty retired in May, 2017, PNB has, meanwhile, suspended 10 officials after its preliminary investigation. PNB managing director Sunil Mehta says it approached CBI on January 29 after it detected the fraud. “The fraud was detected in the third week of January and a case was filed with CBI,” Mehta said. The fraudulent LoUs were discovered when Modi’s companies Solar Exports, Stellar Diamonds and Diamonds R US asked PNB for buyers’ credit in mid-January.

The bank official managing the forex desk told them that since they didn’t have pre-sanctioned limits, they should provide cash margins or collateral. To that the companies responded by saying that they had been availing the buyers credit in the past. Punjab National Bank began investigating it at this point. PNBs first complaint was filed on January 29 with the CBI mentioning it as a Rs 280 crore fraud. However, on February 14 it issued another statement saying it detected fraud of $1.77 billion (Rs 11,300 crore).

Observers suspect round-tripping of funds raised from one bank being used to pay up buyers’ credit for the other bank in this modus operandi. Over 150 such LoUs were issued since the first one was fraudulently issued in 2011. Interestingly, while an LoU expires in 90-180 days, these bank officials are believed to have rolled them over after each expiry, as a result the fraud lay undetected for over 7 years. In a letter to PNB, Nirav Modi is believed to have asked for six months to pay Rs5,000 crore due from him. Since the buyers’ credit has been issued against PNB’s LoUs, the bank is liable to pay for any shortfall, non-payment by Nirav Modi and his companies. PNB’s managing director said the bank will honour every payment owed to these banks.

READ DETAILED FIR, Complaint by PNB & List of LoUs

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PMO & ROC both have prior information in July 2016

The story of Nirav Modi’s loot can be understood by the communication between whistleblower SV Hari Prasad, who had sent information on this scam to the PMO in July 2016. He had complained about Gitanjali Gems and its MD Mehul Choksi, the uncle and business partner of Nirav Modi. Moreover, Nirav Modi’s photos at the World Economic Forum in Davos, Switzerland in late January with the prime minister in the same frame, were no coincidence but were taken following an already fixed schedule.

“Sir, the PMO has sent you a complaint filed by me. Please act immediately on this, because if it is delayed then the accused will flee the country like Vijay Mallya of Kingfisher. Please respond as soon as possible.”

SV Hari Prasad had emailed this letter to the public grievance officer of the Registrar of Companies (ROC) on July 29, 2016. In this email, Hari Prasad had given reference of the complaint sent by PMO to ROC, in which it was clearly mentioned that the PMO received SV Hari Prasad’s complaint on July 26 and sent it to ROC for further action.

How did SV Hari Prasad sense that a huge scam was going on?

Talking to TV channels and newspaper reporters, Hari Prasad said, “I had made a business deal with Nirav Modi and Mehul Choksi in 2012. The deal was about taking a franchise of Nirav Modi brand. I invested about ₹10 crores and in exchange, the Nirav Modi company had to supply goods worth ₹25 crore. But when I did not receive anything even a year after the investment, I tried getting in touch with Nirav Modi and Mehul Choksi. But both of them refused to meet me.”For two years Hari Prasad kept trying to recover his money, but it was no use. Finally, Hari Prasad registered a complaint in Bengaluru police station. But here also nothing happened. He again filed a complaint, but it was no use. After that Hari Prasad started digging into the balance sheets of Nirav Modi’s companies and then found out that there was a huge scam going on.Hari Prasad then sent a complaint to the CBI. But after being disappointed with the CBI response, he sent the details of the case to the PMO. The PMO acknowledged the receipt of his complaint and sent it to ROC for further action. And ROC too closed the matter without taking any action or even asking Hari Prasad for any details regarding the case.[2]

THE RAIDS

The Enforcement Directorate has raided various premises of Nirav Modi belonging to his entities-Firestar Diamonds, Stellar Diamonds, Find Diamond R US and Solar Exports- all across the country and have seized diamonds, precious stones and jewellery worth an estimated Rs5,100 crore. Nirav Modi, his wife Ami (a US citizen), his brother Nishal (a Belgian citizen) as well as his uncle Mehul Choksi, promoter of Gitanjali Gems, fled the country between January 1 and January 6.

Nirav Modi’s house, showrooms and workplaces in Delhi, Surat and  were inspected on Thursday, despite the fact that no complaints against him were recorded, after Punjab National Bank (PNB) accused him of committing fraud and misrepresentation at the cost of the honest citizens to profit the business tycoon and others. Nirav Modi, who was spotted a few days back in one of the group photograph in Davos with Prime Minister Narendra Modi, left India on 1st January. The Congress blamed PM Modi for assiting “Chhota Modi”[3] get away from the nation inspite of him being acquainted with the fact that Nirav Modi was involved in a scam since 2016, when an informant kept him informed on Nirav Modi’s uncle Mehul Choksi and cautioned that he would leave the nation.

Modi is positioned 1,234 in Forbes’ list of world’s billionaire for 2017, and 85 in India. His monetary worth is assessed at $1.73 billion through his business of jewellery and retail organizations, as per the Forbes’ site.

Yet, for a few years now, life for the 47-year-old multi-millionaire man has definitely not been alluring. Since 2014, a year after he initially made to the Forbes’ billionaire list, Modi has been under the strict scrutinization of law implementing organizations—the Enforcement Directorate (ED) and Central Bureau of Investigation (CBI)— and in addition, the tariff office for concerned unlawful purchases and deals.

In 2014, the Directorate of Revenue Intelligence (DRI) held him accountable for professed divergence of imported, tax free, cut and cleaned jewels and pearls to the local market. The DRI called it an infringement of import-export standards. Right now, he is the focal point of a CBI examination for supposedly deceiving Punjab National Bank to the extent of Rs.280 crore. The Enforcement Directorate, in the mean time, has filed a case against him for illegal concealment of money, and is directing numerous inspections on properties possessed by him.

“Prime Minister, Shri Narendra Modi, was made aware of this entire fraud by one Shri Hari Prasad by way of a written complaint filed on 26th July, 2016 and acknowledged by PMO,” admitted party representative Randeep Surjewala, further adding “no action was taken” and the “bank lost the money and the accused escaped.” [4]

He additionally claimed that PM Modi knew about 42 FIRs pending against absconding.

Surjewala held the authorities liable, inclusive of the finance ministry, for “sleeping on their job.”

“Loot and escape”, he stated, had turned into the trademark of the BJP-led government at the Union.

He asserted that the “whole system was bypassed,” and wanted to know “who is protecting Nirav Modi.” He alluded to “active complicity at the highest level.” [5]

[1] PNB Fraud: Diamond, Gold Jewellery Worth ₹5,100 Crore Seized From Nirav Modi Premises’ (The Hindu, 2018) <http://www.thehindu.com/business/pnb-fraud-congress-targets-pm-on-davos-photo-with-nirav-modi/article22761643.ece> accessed 16 February 2018.

[2] https://www.nationalheraldindia.com/corruption/is-the-modi-govt-not-being-truthful-in-nirav-modi-case-pictures-and-documents-are-telling-different-story

[3] ANI |, ‘BJP Deplores Congress For Terming Nirav Modi As ‘Chota Modi’ (Aninews.in, 2018) <https://www.aninews.in/news/bjp-deplores-congress-for-terming-nirav-modi-as-chota-modi201802151830510001/> accessed 16 February 2018.

[4] India News, ‘PMO Was Alerted About Nirav Modi’s Fraud In 2016: Congress – Times Of India’ (The Times of India, 2018) <https://timesofindia.indiatimes.com/india/pmo-was-alerted-about-nirav-modis-fraud-in-2016-congress/articleshow/62932218.cms> accessed 16 February 2018.

[5] India News, ‘PMO Was Alerted About Nirav Modi’s Fraud In 2016: Congress – Times Of India’ (The Times of India, 2018) <https://timesofindia.indiatimes.com/india/pmo-was-alerted-about-nirav-modis-fraud-in-2016-congress/articleshow/62932218.cms> accessed 16 February 2018.

Analysis Report by Anuj Kumar & Swagata Banerjee (Legal Desire Media & Publications)