Seven years after he fled India simply earlier than the invention of an astronomical Rs 14,000 crore rip-off, fugitive diamantaire Mehul Choksi was arrested in Belgium on Saturday. The Belgian Justice Division on Monday confirmed to NDTV that the disgraced businessman was in detention. It additional mentioned that India initiated the request for his extradition.
The event introduced again one of many greatest monetary frauds in India’s banking historical past, involving the state-owned Punjab Nationwide Financial institution, into the highlight.
What Was The PNB Rip-off?
In January 2018, Punjab Nationwide Financial institution disclosed that it had detected a large fraud at certainly one of its branches in Mumbai. It was initially pegged at Rs 13,500 crore earlier than being revised to Rs 13,850 crore. It was orchestrated by movie star jeweller Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems on the time.
This rip-off, involving fraudulent ensures, bribery and worldwide cash laundering, triggered a shake-up within the nation’s monetary and regulatory techniques.
How Did The Fraud Work?
Choksi and his nephew Nirav Modi, at the moment in a London jail, siphoned off almost Rs 14,000 crore from Punjab Nationwide Financial institution’s Brady Home department in Mumbai. They pulled off the mega heist with help from financial institution officers.
To defraud the financial institution, Choksi and his nephew bypassed authorized processes, inflated International Letters of Credit score (FLCs) and obtained fraudulent Letters of Enterprise (LoUs).
An LoU is a assure issued by Indian banks to assist corporations acquire short-term credit score from abroad branches of Indian lenders. These devices are meant for legit commerce transactions, not normal lending.
Nirav Modi and Mehul Choksi’s corporations, together with Firestar Diamond, Diamond R US, and Gitanjali Gems, secured a staggering variety of LoUs – 1,212 of them between March 2011 and November 2017 – from PNB’s Brady Home department in Mumbai. Whereas 53 LoUs throughout this era had been legit, the remainder had been allegedly fraudulent.
The SWIFT System And Insider Collusion
Financial institution officers, together with former Deputy Common Supervisor Gokulnath Shetty, had been reportedly bribed to challenge these LoUs with out correct authorisation, collateral or inner recording. This allowed the transactions to stay off the financial institution’s books.
The fraudsters exploited the SWIFT system (Society for Worldwide Interbank Monetary Telecommunication) to route funds overseas with out triggering alarms within the financial institution’s core techniques. This systemic weak spot, mixed with inner collusion, allowed the fraud to go undetected for seven years.
Funds obtained by LoUs had been funnelled into shell corporations abroad, and the loans had been rolled over repeatedly to disguise the mounting debt. Inner purple flags had been both ignored or intentionally suppressed, delaying detection.
The way it was found
On January 25, 2018, the Punjab Nationwide Financial institution (PNB) submitted a fraud report back to the Reserve Financial institution of India (RBI). On January 29, the financial institution lodged a proper felony criticism with the Central Bureau of Investigation (CBI).
By February 5, the CBI had charged Nirav Modi in a multi-crore dishonest case. On February 14, PNB filed one other criticism with the CBI, alleging fraud involving Nirav Modi. A day later, February 15, the CBI carried out searches at Nirav Modi’s properties, together with his properties, showrooms, and places of work in Mumbai, Delhi, and Surat.
On February 16, PNB supplied extra particulars to the CBI, revealing that 150 fraudulent Letters of Enterprise (LoUs) had been issued by its officers to Nirav Modi and others concerned within the rip-off.
Systemic Oversight Failures And Auditing Lapses
The RBI had a hands-off method to financial institution inspections, specializing in broader techniques as a substitute of the specifics of particular person operations, NDTV reported again in 2018. In Punjab Nationwide Financial institution’s case, 18 completely different auditing companies had been used over seven years, stopping any deep, sustained examination.
Whereas auditors did meet with key figures, together with Gokulnath Shetty, their experiences from 2011 to 2017 didn’t level to something amiss or alarming. On the time, the RBI had not enforced integration of core banking techniques with the SWIFT community, a loophole exploited within the PNB fraud.
The Key Accused: Nirav Modi And Mehul Choksi
Nirav Modi, an internationally recognized jeweller, owned Firestar Diamond and partnered with a number of different diamond companies.
Mehul Choksi, his uncle, headed Gitanjali Gems, certainly one of India’s largest jewelry retail chains.
Each are accused of masterminding the fraud, exploiting regulatory loopholes, and fleeing the nation earlier than the rip-off was uncovered. Nirav Modi was later situated within the UK, the place he’s combating extradition to India.
Mehul Choksi had been on the run, till his arrest in Belgium on April 12, marking a turning level within the long-standing investigation.
Why Did The Rip-off Stay Hidden So Lengthy?
The PNB rip-off revealed severe flaws within the financial institution’s inner monitoring and compliance techniques. By not integrating SWIFT communications with core banking software program, and counting on a couple of insiders for international change operations, PNB inadvertently created an setting ripe for exploitation.
Over time, the fraudulent actions turned systemic – the debt was hidden by fixed mortgage rollovers, and inner audits didn’t flag the discrepancies.
The Aftermath And Reforms
The PNB rip-off led to wide-ranging reforms in India’s banking sector. The issuance of LoUs was banned for a interval, SWIFT techniques had been higher built-in with inner software program and banks had been urged to strengthen inner checks.
Discover more from News Journals
Subscribe to get the latest posts sent to your email.
