In yet another banking fraud, India's second-largest lender Punjab National Bank (PNB) revealed that it has detected “fraudulent and unauthorised” transactions worth over £1.13 billion at one of its Mumbai branches. It revealed transactions by billionaire jeweller Nirav Modi and related entities. In a complaint to the Central Bureau of Investigation (CBI), PNB said that Modi and companies linked to him conspired with its officials to get guarantees or Letters of Undertaking to help fund buyer's credit from other overseas banks.
PNB alleged that the funds, that were ostensibly raised for the purchase and sale of diamonds, were not used for that purpose. An extensive inquiry revealed that the fraud extended past PNB to other lenders like the State Bank of India, Union Bank, Axis Bank Ltd. and Allahabad Bank. PNB Managing Director Sunil Mehta said that, “The bank's £1.13 billion scam had begun way back in 2011, only to be detected on January 3 this year. We detected the fraud on January 3. We got to know that 2 of our employees did some unauthorised transactions. The bank initiated criminal action against our staff members.”
Addressing the media, Mehta said that the bank lodged a complaint with the CBI on January 29, after which, the agency registered an FIR on the next day. “In response to our registered FIR, raids are being conducted on involved groups and establishments, documents and records are being seized.”
He also stressed that the bank has the “capability and capacity” to overcome the crisis, adding that steps are being taken to protect financial interest of banks adding that the government too is monitoring the situation on a “day to day” basis. “This is a standalone incident. It has taken place only in one of our branches.”
Agencies were quick on their feet this time. The CBI and other enforcement agencies conducted actions to make sure no time was lost. In lessons that were seemingly learnt from the 2016 Vijay Mallya mishap, the BJP government was having none this time.
ED conducts searches, seizes assets
The Enforcement Directorate conducted searches on 23 premises associated with Nirav Modi, his business partner Mehul Choksi of Gitanjali Jewellers, and others, in Mumbai, Delhi, Surat, Hyderabad, and Jaipur in connection with the scam. They seized assets worth £510 million. Also, it attached £300,000 found in a bank account associated with the jeweller. Sources close to the investigation said the assets seized included diamonds, semi-precious stones, pearls, gold and silver.
Estimate of the assets was determined on their “stock” value and the market value could be several times more. An ED source said five premises belonging to Nirav and Choksi were sealed in Mumbai. Immovable properties are currently being identified and those belonging to Nirav and Choksi would be attached. The agency is expected to conduct more searches over the next few days.
Senior PNB officials visited ED headquarters last week, and met director Karnal Singh to brief him on the swindle.
Three bank insiders arrested
A retired and a serving official of PNB, and an executive of Modi's company, were arrested by the CBI in connection with the fraud. Officials said the agency also carried out searches at the Brady Road branch of the bank in Mumbai. Sources said “incriminating documents” related to the case were recovered. Retired deputy manager of PNB, Gokulnath Shetty, single-window operator Manoj Kharat, and Hemant Bhat have been taken into custody.
While the initial FIR listed eight fraudulent transactions worth over £28 million, further complaints from the bank revealed that the amount investigated in the first FIR was over £649.8 million. It involved 150 Letters of Understanding (LoUs) which were fraudulently issued by Shetty and Kharat. The remaining 150 fraudulent LoUs worth over £488.6 million issued for Gitanjali Group are part of the second FIR registered by the agency against Choksi and his companies Gitanjali Gems, Nakshatra Brands, and Gili. An LoU is a letter of comfort given by a bank, a kind of guarantee, to a foreign branch of an Indian bank on behalf of its client allowing him to raise money from that bank for short-term credit. Officials said all the LoUs were issued or renewed during 2017-18.
Probe intensifies, Govt comes down on Modi, relatives
As it investigates India's biggest banking fraud, PM Narendra Modi's administration has identified as many as 150 shell companies related to Modi and his associates. A multi-agency probe is reportedly underway in the fraud. A senior government official said that in parallel with the actions of the law enforcement agencies and income tax authorities, the Corporate Affairs Ministry “has identified 150 shell companies for investigation”.
Shell companies are generally used for illicit fund flows and do not have a lot of business activities. Both, the CBI and ED continue their crackdown on the fraud, have registered a fresh case against Choksi, claiming to have seized ornaments worth £54.9 million in raids.
Modi, associates flee country
Hollywood's A-list jewellery designer, Nirav Modi reportedly left India on January 1, way before the PNB whiffed out the scam. His brother and Belgian citizen, Nishal, wife and US citizen Ami, and business partner Mehul Choksi departed on January 6. A look out circular has been issued by the CBI against all four. Also, enforcement agencies have issued a look out circular to all exit and entry ports to inform them about the movement of any accused.
Passports suspended
The Ministry of External Affairs have suspended Modi and Choksi's passports for four weeks with immediate effect. It said that the passports would be revoked if it did not hear from them in the next seven days on why their passports should not be impounded or revoked. The government also announced a multi-agency probe into Modi's dealings. “After suspension of his passport, he cannot move to a different location. Wherever he is, he will remain in the same country,” a MEA spokesperson said.
However, the confidence that Modi is effectively grounded in the US rests on the assumption that he does not have the passport of any other country. The possibility that he may have not acquired Belgian papers after getting his Indian passport, cannot be ruled out. When asked about Modi's whereabouts, the spokesperson said, “The gentleman is not in touch with any of our officers and we don't know his location.” TV channels have however, traced him to a 36th floor suite at JW Marriott's Essex House that overlooks New York's famous Central Park.
You destroyed my brand: Modi
In a letter written to the banks on Monday, Modi accused PNB of “destroying his brand”. “The erroneously cited liability resulted in a media frenzy which led to immediate search and seizure of operations, and which in turn resulted in Firestar International and Firestar Diamond International effectively ceasing to be going-concerns,” he wrote in the letter. “This thereby jeopardised our ability to discharge the dues of the group to the banks.”
Modi stated that his companies owe the bank much lower than the amount alleged by the bank. “Nirav Modi Group ran a legitimate luxury brand business and the brand had become India’s foremost global luxury brand, standing side by side with some of the biggest jewellery brands in the world. In the anxiety to recover your dues immediately, despite my offer, your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues leaving a trail of unpaid debts. Whatever may be the consequences I may face for my actions, the haste was, in my humble submission, unwarranted.”
Speaking separately, Modi's lawyer Vijay Aggarwal said, “There's nothing, there is nothing in it.” Regarding the diamantaire's dealing with the bank, he said “everything is documented”, before adding that PNB had regularly levied fees on its dealings with the jeweller's firms. When asked about his legal strategy, Aggarwal said, “Until there is no chargesheet, there is no strategy. When there is a chargesheet, there will be a strategy.”
Who is Nirav Modi?
A regular feature on the lists of the rich and famous, Nirav Modi is a billionaire diamantaire and an Indian citizen. The country's 85th richest person, he is an elite jewellery designer and his creations have been sported by high-profile stars including Priyanka Chopra and Kate Winslet. Modi has 10 boutiques across the globe, including two in the US, one in Beijing, two in Hong Kong, and two in India.
He reportedly changed his status to NRI before fleeing the country, in a development that went unnoticed by the banks. Modi was classified as an Indian promoter of his borrowing companies that were issued the LoUs. Several other banks also had a fund and non-fund based exposure to his other companies. A certified copy of a resolution dated November 6, 2017, by shareholders of ANM Enterprises Pvt Ltd, a company owned by Modi, mentions him as an NRI.
Mehul Choksi: A 'compulsive liar'
Chairman and MD of Gitanjali Group, 53 year old Mehul Choksi boasts of a turnover of £1.30 billion. Taking over the company founded by his father Chinubhai, Choksi took the then £5 million company to the international arena. Unsatisfied with the single trade company's limited outcome, he has today grown Gitanjali's product portfolio with several brands including Gili, Nakshatra, Asmi, D'damas, Maya, Diya, and Sangini. They are sold through over 4,000 points of sale in multiple retail shops.
Gitanjali also acquired Italian brands like Valenete, Stefan Hafner, Nouvelle Bague, IO SI and Porrati. As the news of the scam came to light, several people have come forward to share their bad encounters with the billionaire. A group of seven graduates had reportedly dragged Choksi to court last year. The students who had collected £300,000 through crowdfunding, mortgage, and aid from their parents to open a franchise of Gitanjali Jewellery Retail in October 2013, were shocked when they realised that the diamonds and gems sent to them for a security deposit of £150,000 were “third grade”, damaged, and old.
Santosh Srivastava, a self-claimed whistleblower and former vice president of Gitanjali, also came to the light citing Choksi's constant lying, cheating and tricking people.
