WHO IS NIRAV MODI?
Nirav Modi who is in the middle of this controversy, is a luxury diamond jewellery designer who was ranked #57 in the Forbes list of India’s billionaires in 2017. He is the founder and director of the Nirav Modi chain of diamond jewellery retail stores, and is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the world. His luxury designs have been won 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.
WHAT IS BANK FRAUD
Bank fraud is considered to be a white-collar crime. Bank fraud is a crime and occurs when a person uses unethical means to receive money or assets from a bank and financial institution. Recent bank scam shock bank sector across the nation. It was none other than the Nirav Modi PNB Fraud Story.
WHAT WAS PNB COMPLAINT
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.
Letter of Undertaking is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
It is a Buyer credit is a short-term credit available to an importer from overseas lenders such as banks and other financial institution for goods they are importing.
WHAT ACTUALLY HAPPENED?
- A set of partnership firms – Diamond R US, Solar Exports and Stellar Diamonds – approached the bank with a set of import documents and requested for Buyer’s Credit to make payments to overseas suppliers. The firms have Nirav Modi, his family members as partners.
- As there was no sanctioned limit in the name of the firms, the bank branch officials requested the company to furnish 110% cash margin for issuing the LOU for raising the Buyer’s Credit. At this time the firm contested that they have been availing this facility in the past, but the branch records do not corroborate this.
- Shetty, a former deputy manager at the Punjab National Bank, and Manoj Kharat, have been described as the “single window operators” of the scam that is now being billed as the biggest in India’s banking history.
Further, the bank officials discovered that two of its employees had fraudulently issues LOUs in the past without following prescribed bank 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.
WHAT IS SWIFT CODE?
- SWIFT stands for Society for Worldwide Interbank Financial Telecommunication code. It is an internationally – recognized identification code for banks around the world. SWIFT codes are most commonly used for international wire transfers and are comprised of 8 or 11 alphanumeric characters. The International Organisation for Standardization (IOS) was the authoritative body that approved the creation of SWIFT codes.
- The complaint also said that the funds so raised for the payment of the Import Bills have not been utilised 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.
- The worrying aspects of the scam is that in its statement, PNB says that based on the fraudulent transactions, other banks appear to have advanced money to the customers abroad. It goes on to add that these transactions are contingent in nature and any liability arising out of these on the bank will have to be decided based on the law and genuineness of underlying transactions.
- However Rs. 11, 400 crore scam comes at a time when the central government is attempting to provide a breather to ailing PSBs, having announced an Rs. 2.11 lakh crore capital infusion to the sector in October 2017. For this year PNB will receive Rs. 5, 473 crore as capital infusion from the government through a mix of recapitalisation bonds and direct infusion.
So, these were all the little details of the PNB Fraud Story.
Thanks And Regards
CA Anurag Jain