Punjab National Bank (PNB), the country’s second-largest public sector lender, is now in the middle of a ₹11,400 crore transaction fraud case.
On Wednesday morning, PNB informed the Bombay Stock Exchange that it has detected some “fraudulent and unauthorized transactions” in one of its branches in Mumbai to the tune of $1771.69 million (approx). Following the announcement, the share price of the State-owned bank plunged 10%.
Meanwhile, the Central Bureau of Investigation (CBI) received two complaints from PNB against billionaire diamantaire Nirav Modi and a jewelry company alleging fraudulent transactions worth about ₹11,400 crore, the Press Trust of India reported. This is in addition to the ₹280 crore fraud case that he is already under investigation for, again filed by PNB.
Who is Nirav Modi?
Nirav Modi, the billionaire in the middle of this controversy, is a luxury diamond jewelry designer who was ranked #57 in the Forbes list of India’s billionaires in 2017. He is the founder and creative director of the Nirav Modi chain of diamond jewelry retail stores and is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the globe. His designs have been worn to the Oscars by ‘Hidden Figures’ star Taraji P. Henson and to the Golden Globes by Dakota Johnson, among others. Actor Priyanka Chopra is the brand ambassador.
How was the fraud detected?
According to the complaint filed by PNB with the CBI on January 28, the fraudulent issuance of Letters of Undertakings (LOU) was detected at the Mid Corporate Branch, Brady House in Mumbai.
A set of partnership firms — Diamond R US, Solar Exports, and Stellar Diamonds — approached the bank on January 16 with a set of import documents and requested for Buyer’s Credit to make payments to overseas suppliers. The firms have Nirav Modi, his brother Nishal Modi, Mr. Nirav’s wife Ami Nirav Modi, and Mehul Chinubhai Chokshi as partners.
Buyers Credit is, typically, a short-term loan facility extended to an importer by a bank to finance goods and services. It is a common mode of transaction in international trade where a bank extends credit to the importer and a finance agency based in the exporter’s country guarantees the loan.
As there was no sanctioned limit in the name of the firms, the branch officials requested the firms to furnish 100% cash margin for issuing the LOU for raising the Buyer’s Credit. At this, the firms contested that they have been availing this facility in the past; but the branch records do not corroborate this.
On digging further, the bank officials discovered that two of its employees had fraudulently issued LOUs in the past without following prescribed procedures and approvals. The employees had then transmitted SWIFT instructions to the overseas branches of Indian banks for raising Buyer’s Credit without making entries in the banking system to avoid detection.
The complaint also said that the funds so raised for the payment of the Import Bills have not been utilized for such purposes in many cases.
As per the FIR, five of the SWIFT messages (SWIFT is a messaging network used by financial institutions to securely transmit instruction) were issued to Allahabad Bank in Hong Kong and three to Axis Bank in Hong Kong.