Agencies Probe Involvement of Overseas Bank Branches in Indian Jeweler’s Fraud Case

Investigative agencies will look into the possible involvement of six overseas branches of Indian public and private sector banks into the scam involving luxury jeweler Nirav Modi, the Economic Times reported citing sources. The branches under the scanner are the State Bank of India branches in Mauritius and Frankfurt, Bank of India in Antwerp, Canara Bank in Bahrain, Allahabad Bank in Hong Kong, and Axis Bank in Hong Kong.

The investigation has been prompted by the questions raised by the Punjab National Bank (PNB) in its complaint to the Central Bureau of Investigation (CBI). Agencies are investigating their dubious role that reflects either “lackadaisical attitude” or complicity with Modi and the co-accused, who embezzled several thousands of crores of rupees via fraudulent Letters of Undertakings (LoU), the report said.

The officials have said that the PNB, while admitting the fraud committed by two of its employees, has pointed fingers at other banks that have financed Modi and his companies in violation of RBI guidelines. As per PNB’s complaint, the bank has said the fraud could have been “easily detected” by the overseas branches of Indian banks had they exercised “due diligence.”

As per RBI guidelines, the credit for import of semi-precious and precious stones should not be more than 90 days. However, the credit allowed to Modi’s companies as per the fraudulent undertakings in most cases was  for almost a year.

PNB’s complaint said: “This should have evoked suspicion in the minds of overseas branches of Indian banks extending buyers credit. These banks never raised any alarm on violation of RBI guidelines and continued to provide funding against fraudulent LoUs.” The bank said that “there is no documentary evidence available to prove that these import transactions are bona fide trade transactions.”

The publication Economic Times quoted a top official as saying: “The fact that such a significant RBI guideline was flagrantly violated by a number of Banks raises a suspicion on the involvement of more bank officials.It needs to be probed whether these banks, which blissfully financed Nirav Modi’s dealings did it out of laxity or design.”

As per documents made available by PNB, the six aforesaid banks lent finances on fraudulent LoUs (obtained from PNB) to the tune of Rs 4,886.72 crore between March 1, 2017 and May 2, 2017. The PNB further said that the officer also issued foreign letter of credit (FLC) by entering a smaller amount in trade finance module of core banking system (CBS) and generating the reference number. A SWIFT message was sent for the amount.

“Subsequently, without making any change in trade finance module of CBS system, the conniving officer sent modified SWIFT message for enhanced amount under the same reference to the beneficiary bank. The beneficiary/overseas supplier had discounted the documents drawn under such FLS (based on SWIFT message) with overseas banks,” the complaint read.

In connection with this scam, raids have been held at 73 locations across India, in which assets worth Rs. 5,674 crore were seized by the Enforcement Directorate (ED) on Feb. 17. The Enforcement Directorate raided at least 45 premises, including jewelry showrooms and workshops, across 15 cities on Feb. 19, according to PTI.

The CBI had arrested three persons, including the two Punjab National Bank officials, as of Feb. 19. They are in judicial custody until March 3. Meanwhile, Nirav Modi and his brother Mehul Choksi’s passport were suspended for four weeks while the billionaire, as per earlier reports, was spotted at a plush hotel in New York.