properties associated not only with the accused, but also their relatives. “We have been given clear direction from the Ministry of Finance to seize all properties of the accused companies and people,” said a senior IT officer, adding that they have also been entrusted to probe quid pro quo in the case.
The investigating agencies found that it was more than just a failure on the part of PNB, which issued several Letter of Undertaking ( LoU) and Letter of Credit on behalf of which Modi and Choksi took money from foreign branches of India- based banks. The CBI found that a total 293 Letters of Undertaking ( LoU) and 224 foreign letters of credit were issued. The CBI said that the cheating and fraud happened during 2017 and 2018.
The agency stated that the Reserve Bank of India ( RBI) prescribes that credit for import of semi- precious and precious stones, including pearls should not be more than 90 days. However, in most cases, the credit allowed under referred LoUs are much beyond 90 days. “For outstanding buyers’ credit, the LoUs are established for about 360 days ab- initio. This should have evoked suspicion in the minds of overseas branches of Indian banks extending credit to buyers. These banks never raised any alarm on violation of RBI guidelines and continued to provide funding against fraudulent LoUs,” said a senior CBI officer.
The agency found that PNB employees fraudulently is- sued letters of undertakings on behalf of firms — Solar Exports, Stellar Diamonds, and Diamonds R Us — that is owned by Nirav Modi, for availing of buyers’ credit from overseas branches. The same branch officials fraudulently issued LoUs and foreign letters of credit to companies — Gitanjali Gems, Gili, and Nakshatra — belonging to Mehul Choksi.
“But interestingly, none of the transactions was routed through the core banking system ( CBS), thus avoiding early detection of fraudulent activity,” CBI spokesperson Abhishek Dayal told DNA.
He further said that the modus operandi with regard to the foreign letters of credit is that they were opened initially for smaller amounts by creating purported entries in core banking solution ( CBS) system and sending the relevant foreign letters of credit through SWIFT messages.
“The accused bank official, pursuant to the conspiracy, unauthorisedly and dishonestly enhanced the value of foreign letters of credit manifold and issued amendments to the said letters of credit through SWIFT messages, without recording them in CBS, which led to the overseas branches of Indian banks discounting the bills submitted by the beneficiary suppliers,” he said.
The agency stated that bank officials deliberately did not make entries in CBS and purportedly issued LoUs and foreign Letters of Credit to ‘ avoid detection’.
To me it is case of system failure. It is strange that SWIFT messages could be made without getting into CBS system. In such a situation, frauds are likely to occur, not only in this Bank, but in other banks as well, where similar practices are followed. Also, a person not being rotated on a job for more than eight years is baffling and HR management of the Bank has to be held accountable for the same.
As things stand today, there is a need to look into accounts of all major jewellers, particularly what happened a few years back in the Winsome Diamonds case, and surprisingly PNB was involved in that case as well. Surprisingly, we do not hear about more than 5,000 crore fraud cases for reasons best known to banks, RBI and the government.
There is an urgent need to look at LOCs, LOUs and SBLCs, having been issued by banks over all these years and their misuse. Banks with foreign operations are more suspect to these practices. I would not be surprised if more skeletons come tumbling out of the cupboards.
As regards role of auditors, whereas one would like to sympathise with them for the difficult task that they face in view of LOCs/ LOUs having been issued out of the books, but unusual movements in Nostro accounts could have given them some reasons to look in to the matter deeply. But it is also a matter of fact that reconciliation of Nostro accounts is an ongoing process and even RBI inspectors and inspectors of banks who spend far greater time in branch compared to statutory auditors could not detect it. In my view, such a fraud could not have occurred without the connivance of at least six employees. The SWIFT message involves maker, checker and approver, and in case of large amounts, the foreign operation employee is supposed to get the transaction confirmed from an employee other than maker, checker or approver. So, it is not a straight- jacketed case. It needs to be investigated from various angles, particularly of money laundering.