Punjab National Bank Scam

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The Punjab National Bank Fraud Case relates to fraudulent letter of undertaking worth ₹11,356.84 crore (US$ 1.4 billion) issued by the Punjab National Bank at its Brady House branch in Fort, Mumbai; making Punjab National Bank liable for the amount.[1] The fraud was allegedly organized by jeweller and designer Nirav Modi. Nirav, his wife Ami Modi, brother Nishal Modi and uncle Mehul Choksi, all partners of the firms, M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds; along with PNB officials and employees, and directors of Nirav Modi and Mehul Choksi's firms have all been named in a chargesheet by the CBI.[2] Nirav Modi and his family absconded in early 2018, days before the news of the scam broke in India.

Nirav Modi is currently in the United Kingdom and is seeking political asylum in Britain though the Indian government has officially asked for his extradition.[3] The Enforcement Directorate has begun attaching assets of the accused and is seeking to immediate confiscation under the Fugitive Economic Offenders Ordinance.[4]

Modi is on the Interpol's wanted list for criminal conspiracy, criminal breach of trust, cheating and dishonesty including delivery of property, corruption, money laundering since February 2018.[5][6]

The bank initially said that two of its employees at the branch were involved in the scam, as the bank's core banking system was bypassed when the corrupt employees issued LOUs to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT. The transactions were noticed by a new employee of the bank. [7] The bank then complained to the CBI, who is currently investigating the scam apart from ED and RBI. On a later date, CBI named key officials Usha Ananthasubramanian, former CEO of PNB, executive directors KV Brahmaji Rao and Sanjiv Sharan in a chargesheet holding them responsible for failure to implement several circular and caution notices issued by the RBI regarding the reconciliation of SWIFT messages and core banking systems.[8]

Investigation[edit]

Punjab National Bank (PNB) alleges associates of three firms - Diamond R US, M/s Solar Exports and M/s Stellar Diamonds- approached PNB on 16 January 2018, with a request for LoUs to make payment to its overseas suppliers. The bank demanded at least a 100 percent cash margin for issuing LoUs, but the firms contested that they had received LoUs without any such guarantee in the past. Branch records did not show any such facility having been granted to the firms, PNB suspected fraud and began digging into transaction history.[9] On 29 January 2018, PNB filed a complaint with the CBI, wherein it was alleged that Nirav, Ami Modi, Nishal Modi and Mehul Choksi, all partners of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds, in collusion with two bank officials committed the offence of cheating against PNB and caused a wrongful loss. The PNB official in his complaint informed the agency that at the Bank’s branch office at Brady House in Fort, Mumbai, two of its employees, Gokulnath Shetty, retired Deputy Manager of PNB and another bank official Manoj Kharat, issued fraudulent LoUs to Hong Kong based creditors on behalf of three firms associated with Nirav Modi and the Gitanjali Group. “The public servants committed abuse of official position to cause pecuniary advantage to Diamonds R US, Solar Exports and Stellar Diamonds and wrongful loss of Rs 280.70 crore to PNB during 2017,” said the first information report (FIR) filed by CBI.[9][10]

As of 18 May 2018, the scam has ballooned ₹14,356.84 crore (US$2.1 billion) and Nirav Modi is said to be hiding in London, allegedly travelling on a fake passport.[11][12]

On 13 June 2018, the CBI approached the Interpol to issue a red corner notice (RCN) against Nirav Modi's brother Nishal and one of his executives in connection with its probe into the Punjab National Bank (PNB) fraud. The CBI sent a request to the Interpol to issue a RCN against Nirav Modi and his uncle Mehul Choksi of the Gitanjali Group. [13]

On 20 August 2018, former MD and CEO of Allahabad Bank, Usha Ananthasubramanian was granted bail on a surety bond of Rs 1 lakhs by Special CBI court in Mumbai. A week earlier, the government had dismissed Usha on the last day of her work. Ananthasubramanian was MD of Punjab National Bank between August 2015 and May 2017 and had also served as its executive director. She was dismissed with immediate effect. [14] On 7 September 2018 one of the accused of the Punjab National Bank (PNB) fraud, Nitin Shahi filed an application in a special Central Bureau of Investigation (CBI) court to book PNB as an additional accused in the case. The hearing on the matter is scheduled to be held on September 21. The application filed by Shahi stated that, although the PNB has not been charge sheeted on the fraud case, there are materials available for prima facie proceeding against the bank. [15]

The CBI registered a disproportionate assets case against a retired deputy manager of Punjab National Bank, Gokulnath Shetty, a key accused, for allegedly amassing wealth 200 per cent more than his known sources of income.[16]

Reforms[edit]

On 1 March 2018, the government approved the Fugitive Economic Offenders Bill to deter economic offenders from evading the process of Indian law by giving powers to the government to confiscate assets of a fugitive, including Benami assets of absconding loan defaulters.[17] The bill covers a wide range of economic offenders which include: loan defaulters, fraudsters, individuals who violate laws governing taxes, black money, benami properties, financial sector, and corruption. On 12 March2018, the government introduced the bill in the Lok Sabha.[18]

In March 2018, the Reserve Bank of India scrapped banking instruments such as the Letter of understanding (LoU) and Letter of Comfort (LoC) that in an attempt to plug a loophole and improve banks’ due diligence in trade credit. Some bankers said that LoUs and LoCs led to receiving banks depending completely on the issuing bank on creditworthiness.[19]

See also[edit]

References[edit]

  1. ^ "PNB will honour commitments to banks in LoU case". The Economic Times. 28 March 2018. Retrieved 1 June 2018.
  2. ^ "PNB scam: CBI to file chargesheet against 19 accused by May 15". India Today. Retrieved 1 June 2018.
  3. ^ "Video: India asks UK to help extradite Mallya, Lalit Modi, Nirav Modi : The Good, The Bad And The Ugly: Business Today". www.businesstoday.in. Retrieved 1 June 2018.
  4. ^ "PNB fraud: ED to seek 'immediate confiscation' of Nirav Modi's assets under Fugitive Economic Offenders Ordinance - Firstpost". www.firstpost.com. Retrieved 1 June 2018.
  5. ^ "- INTERPOL". www.interpol.int. Retrieved 31 August 2018.
  6. ^ "- INTERPOL". www.interpol.int. Retrieved 30 August 2018.
  7. ^ "A freshly appointed official first noticed the fraud at Punjab National Bank". Moneycontrol. Retrieved 15 February 2018.
  8. ^ Sahgal, Ram (22 May 2018). "Former MD of PNB was aware of Nirav Modi fraud, says CBI". The Economic Times. Retrieved 1 June 2018.
  9. ^ a b "Top jeweller Nirav Modi booked by CBI in Rs 280 embezzlement case | Latest News & Updates at Daily News & Analysis". dna. 5 February 2018.
  10. ^ Gopakumar, Gopika (5 February 2018). "CBI books billionaire Nirav Modi in Punjab National Bank cheating case". livemint.
  11. ^ "Nirav Modi is in UK, say Indian high commission officials - Times of India". The Times of India. Retrieved 18 May 2018.
  12. ^ "Nirav Modi fraud costs PNB Rs 14,357 cr - Times of India". The Times of India. Retrieved 18 May 2018.
  13. ^ "PNB fraud: CBI asks Interpol to issue red corner notice against jeweller Nirav Modi's brother Nishal".
  14. ^ "Usha Ananthasubramanian, CEO of Allahabad Bank Granted Bail by CBI Court in Nirav Modi Fraud Case". Yahoo News. Retrieved 20 August 2018.
  15. ^ "PNB fraud: Accused files plea in CBI court". Yahoo News. 7 September 2018. Retrieved 7 September 2018.
  16. ^ "Nirav Modi loan default case: CBI registers DA case against retired PNB official". Yahoo News. 16 November 2018. Retrieved 16 November 2018.
  17. ^ "Government cracks down on financial fraud, approves Fugitive Economic Offenders Bill - Times of India ►". The Times of India. Retrieved 13 March 2018.
  18. ^ Nair, Remya (12 March 2018). "Fugitive Economic Offenders Bill to cover wide-ranging white-collar crimes". livemint.com/. Retrieved 13 March 2018.
  19. ^ "RBI discontinues Letter of Undertaking, Letter of Comfort as instruments of trade credit". The Economic Times. 13 March 2018. Retrieved 13 March 2018.