PNB Scam

The Punjab National Bank scam relates to the fraudulent letter of undertaking worth Rs 10,000 crore issued by the bank.

The key accused in the case were jeweler and designer Nirav Modi, his maternal uncle Mehul Choksi, and other relatives and some PNB employees. Nirav Modi and his relatives escaped India in early 2018, days before the news of the scam became public. The PNB scam has been dubbed as the biggest fraud in India’s banking history.

Who is Nirav Modi?

Nirav Modi is a luxury diamond jeweller and designer who was ranked 57 in the Forbes list of billionaires in 2017. He is also the founder of the Nirav Modi chain of diamond jewelry retail stores. Modi is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the globe. He has 16 stores in diverse locations such as Delhi, Mumbai, New York, Hong Kong, London, and Macau. He is currently in the United Kingdom and is seeking political asylum in Britain.

How does the 10,000-crore scam happen?

Bankers used fake Letters of Undertakings (LoUs) at PNB’s Brady House branch in Fort, Mumbai. The LoUs were opened in favor of branches of Indian banks for the import of pearls for a period of one year, for which Reserve Bank of India guidelines lay out a total time period of 90 days from the date of shipment. This guideline was ignored by overseas branches of Indian banks. They failed to share any document/information with PNB, which was made available to them by the firms at the time of availing credit from them. Nirav Modi got his first fraudulent guarantee from PNB on March 10, 2011, and managed to get 1,212 more such guarantees over the next 74 months. The Enforcement Directorate (ED) recovered bank token devices of the foreign dummy companies used by the fugitive diamond trader to transfer the fraudulent funds. The probe agency found that Nehal Modi, brother of Nirav Modi had destroyed the devices and had even secured a server located in the United Arab Emirates (UAE) soon after the scam broke out. These dummy firms had been receiving the fraudulent PNB LoUs and were based out in British Virgin Island and other tax havens. The enforcement agency has so far seized movable and immovable properties to the tune of Rs 2362 crore in the PNB fraud case.

How was the Punjab National Bank management oblivious to this?

PNB employees misused the SWIFT network to transmit messages to Allahabad Bank and Axis Bank on fund requirements. While all this was done using SWIFT passwords, the transactions were never recorded in the bank’s core system — thereby keeping the PNB management in the dark for years.

How did the scam unfold?

On 29 January 2018, PNB lodged an FIR with the CBI stating that fraudulent LoUs worth Rs 2.8 billion (Rs 280.7 crore) was first issued on 16 January. In the complaint, PNB had named three diamond firms, Diamonds R Us, Solar Exports, and Stellar Diamonds. As of 18 May 2018, the scam has ballooned to over Rs 14,000 crore.