NIRAV MODI PNB SCAM-2018
Nirav Modi is a luxury diamond jeweler and designer who was once a billionaire and had
ranked 57th in the Forbes list of billionaires of 2017. He is the founder of the Nirav Modi
chain of diamond jewellery in retail stores. He was born on 27th February 1971 in Palampur,
Gujarat and grew up in Antwerp, Belgium. At the age of 19, Nirav Modi and his family
moved to Mumbai to work in his uncle’s business Mehul Choksi, head of Gitanjali Group
which is a retail jewellery company. He got married to Ami, the daughter of a diamond
businessman Amukuraj Choksey.
WHAT IS THIS CASE ABOUT?
The Case study is about the Punjab National Bank scam which is related to a fraudulent
letter of undertaking worth Rs 14,000 crore issued by the bank. The key accused in this case
were jeweller and designer Nirav Modi, his maternal uncle Mehul Choksi, and other relatives
and some PNB employees. He was charged by Interpol and the Government of
India for criminal conspiracy, criminal breach of trust, money laundering and breach of
contract in August 2018.
HOW DID THIS 14,000 CRORE SCAM HAPPEN?
Punjab National Bank (PNB) is India's second-biggest state-run lender. This scam gave the
biggest stun to the financial sector of the country after a fraud worth approximately Rs
10,000 crore was undertaken at a single branch in Mumbai.
The bank discovered that at least 2 of its employees from its Brady House branch in Mumbai
repeatedly issued Letters of Undertaking (LOU) to Nirav Modi's companies without
regulating it according to the processes. According to the bank, the employees issued the
LOUs without securing cash reserve or collateral or without any undertakings and also
without recording the transactions in the bank's core banking software where all the
transactions are supposed to be noted down.
Nirav and his companies reportedly purchased those LOUs in Hong Kong to secure buyer’s
credit from the local branches of Indian banks like Allahabad Bank, Union Bank, Axis Bank,
Bank of India, State Bank of India. The officials from these suspect banks issued the LOUs
and informed these branches through the international cash transfer service called SWIFT
(Society for Worldwide Interbank Financial Telecommunication). The role of SWIFT is to
connect all international banks worldwide. So, the officials from the suspect banks knew
that PNB had not integrated its SWIFT recordings with the bank's core banking system. They
decided not to record these transactions in the banking system to avoid controversies and it
ended up deregulation the law.
HOW THIS SCAM WAS SOLVED?
The whole scam or scandal came to a position where it can be terminated when the officials
from three diamond firms approached PNB officials for bank credit to import those rough
stones from overseas. When the three firms approached PNB in January 2018 for bank
credit via a Letter of Undertaking (LOUs), the official concerned in the bank to look around
for a 100 percent cash margin as there had been no pre-sanctioned limit regarding this for
these firms.
The diamond firms objected to the bank's demand and claimed that they have been availing
this facility for a very long time since the past. However, the PNB branch records did not
report or reveal details of any such facility having been granted to the said firms anytime till
now. This missing record led to a red flag and forced the bank to immediately launch an
internal investigation and instigate the previous bank credits.
The internal inquiry then revealed that two officials from their bank itself had fraudulently
issued LOUs to the said firms in the past without following the regulating process. These
fraudulent or misleading LOUs were then transmitted across the SWIFT system to know
which credit was offered to the said firms.
On 29 January 2018, PNB filed an FIR with CBI stating the fraudulently issuing of LOUs worth
280 crores which were first issued on 16th January also naming those three diamond firms.
And as of May 2018, with all clear and deep investigation, the scam reportedly was of
Rs.14000 crores. Nirav Modi and his relatives escaped India in early 2018, days before the
news of the scam became public.
PNB scam has been reported saying to be the biggest fraud in India's banking history.
[Sources:
https://en.wikipedia.org
https://www.business-standard.com
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