15 February 2018

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Facts Explained Punjab National Bank Scam Fraud $1.8 billion

Facts Explained Punjab National Bank Scam Fraud $1.8 billion

Punjab National Bank (PNB), the second largest public sector bank in India, on Wednesday detected a $1.8 billion fraud in one of its branches in Mumbai.

Nirav Modi is already being investigated by the CBI, which put out a lookout notice for him earlier this month. Based on a complaint by the bank, the agency had filed an FIR on January 31. In searches at 17 locations in the case today, the Enforcement Directorate said it had seized diamonds, jewellery and gold worth Rs. 5,100 crore.

The CBI FIR dated 31 January, 2018 was based on a complaint filed by Avneesh Nepalia, the Deputy General Manager at Punjab National Bank.

It alleged that the partnership firms mentioned in the complaint had gained an amount of
Rs 280.70 crore rupees while the bank suffered a wrongful loss of the same magnitude.

The FIR charges the accused under Section 120-B (criminal conspiracy) read with Section 420 (cheating) of the Indian Penal Code as well as Section 13(2) (criminal misconduct by public servant) read with Section 13(1) (d) of Prevention of Corruption Act, 1988

The CBI FIR itself lists out the details of the accused.
The primary name is that of Nirav Modi who is listed as a partner in M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds.

It also names his associates Nishal Modi, Ami Nirav Modi and Mehul Chinubhai Choksi.

The final two names are associated with Punjab National Bank.
The first, Gokulnath Shetty, is a retired Deputy Manager with the bank while the other, Manoj Hanumant Kharat is an SWO with the bank.

Billionaire jewellery designer Nirav Modi had left the country on 1 January much before the CBI received a complaint from Punjab National Bank on 29 January about a Rs 280-crore fraud

As per media reports Nirav Modi, who is believed to be in Switzerland, was also present in a group photo of Indian CEOs with Prime Minister Narendra Modi, issued by the Press Information Bureau, in World Economic Forum on 23 January, six days before the bank sent its first complaint against him to the CBI, according to the officials.

Nirav Modi was booked by the CBI, along with wife, brother and business partner Choksi on 31 January, for allegedly cheating the state-run Punjab National Bank to the tune of Rs 280 crore.

The bank has sent two more complaints to the CBI on Tuesday, saying the scam was worth more than Rs 11,400 crore.

His brother Nishal, a Belgian citizen, also left the country on 1 January, while wife Ami, a US citizen, and business partner Mehul Choksi, who is the Indian promoter of Gitanjali jewellery chain, departed on 6 January, the officials said.

The agency issued a look out circular against all the four after registering the first FIR against them, they said.

India Today reported that among the 40 properties raided by CBI in connection with the alleged fraud involving Nirav Modi, 9 properties belonged to the jeweller.

40 properties of Mehul Choksi, Nirav Modi's relatives sealed to prevent documents leak, reports India Today
CBI issued lookout notices against Nirav Modi, his wife, brother, and Mehul Choksi reports India Today

How this scam happened in PNB Bank?

It began with diamond firms approaching PNB for opening letters of credit for import of rough stones. As per the terms of the LC, a common banking tool, PNB would pay the overseas suppliers on behalf of Nirav Modi’s firms within a certain period (typically three months) and recover the money from Modi. It’s a market practice to extend the LC if the client (i.e., NM) is unable to cough up the money at the end of the LC tenure.

PNB employees issued fake LoUs, on the back of which foreign branches of a few Indian banks — including Axis and Allahabad Bank — gave dollar loans to PNB. These foreign currency loans were used to fund PNB’s Nostro accounts and from these accounts funds moved to certain overseas parties. A Nostro account is the account an Indian bank (here, PNB) has with an overseas bank.

Based on unauthorized Lo-Us, the PNB employees misused the SWIFT network to transmit messages to Allahabad Bank and Axis Bank on fund requirement.

Nirav Modi allegedly acquired fraudulent letters of undertaking (LoU) from one of the branches of PNB for receiving overseas credit from other Indian lenders.
A LoU is a letter issued by the bank to branches of other banks. Based on this, foreign branches of Indian banks offer credit to buyers.
The letters of undertaking basically helped the companies owned by Nirav to raise credit.
In this case, branches of Allahabad Bank and Axis Bank got trapped as they offered credit to Nirav Modi’s company based on PNB’s LoU.

Three companies - Gitanjali, Ginni and Nakshatra, to which loans were issued and recalled by the banks, are also under the scanner.

The PNB employees allegedly didn’t make entries in the bank system, and avoided detection by using the SWIFT system.

“SWIFT is like a fax which is not integrated with the CBS. The concerned firm manipulated and used this technology to send the LoU with the help of some of officials who gave access to the LoU fraudulently,”

In using SWIFT, one has to log into the network to fill up fields like the account number and SWIFT code, following which it is endorsed by a supervisor. The process is completed when the bank receiving the message confirms and the details are validated. While all this was done using SWIFT passwords, the transactions were never recorded in the bank’s core system — thus keeping the PNB management in the dark for a long time.

The complaint filed by PNB mentions five LoUs that were issued in favor of Allahabad Bank at Hong Kong and three LoUs in favor of Hong Kong branch of Axis Bank.

"Based on these transactions, other banks appear to have advanced money to these customers abroad

PNB named three of Nirav Modi’s group firms in its complaint - Solar Exports, Diamonds R Us and Stellar Diamonds. Nirav, Ami, Nischal and Mehul are partners in these firms.

These firms were named by the bank as they had approached it for buyers’ credit, which would help them pay their suppliers who are overseas.

According to the PNB the alleged fraud was carried out by two staffers by not entering the transactions in the bank's core banking solution. In raising funds and moving money out of PNB, the two directly used SWIFT — the global financial messaging service used to move millions of dollars across borders every hour  and bypassed the core system which processes daily banking transactions and posts updates.

"It is a failure of PNB's internal checks and controls.

How is it possible that only 2 employees did the fraud?
How is the possible that auditors failed to detect this scam so long?
How is it that before FIR the accused person left India?
Did accused persons got information in advance that FIR is going to be registered against them?

Is it one more failure of CBI and ED?

All accused will they go to Jail?
No, Indian laws are full of loopholes, no one will go to jail.
If required accused people are rich they will refund the money and case will get closed.

Majority are corrupt thus we Indians got the corrupt laws which help the white criminals to enjoy their life without going behind bars.

Again and again same type of frauds happen in banking system but RBI and government of India is not able to fill loopholes by making necessary changes in Indian bank system.

Reality views by sm –

Thursday, February 15, 2018

Tags – PNB Scam Explained Facts