~49-BN UNEXPLAINED FUNDS IN NIRAV MODI, CHOKSI FIRMS: I-T
Billionaire jewellery designer N ir av Mo di, the main accused in the ~114- billion fraud at Punjab National Bank (PNB), has been under the scanner of central probe agencies since 2013. An income tax investigation on Mo di and his uncle Mehul Choksi revealed unaccounted or unexplained funds to the tune of ~49 billion.
P NB executives had opened fraudulent letters of undertakings( Lo Us) without authority on behalf of firms belonging to the Nirav Modi group.
The Directorate of Revenue Intelligence (DR I) and the income tax( I-T) department had pro bed Mo di and entities promoted by him between 2013 and early 2017. This is the period when possibly several Lo Us were issued by P NB or were in the process of opening in favour of branches of Indian banks abroad for the import of diamonds and pearls.
“It is evident that the P NB saga was not discovered overnight and various authorities, including P NB itself, were aware of the irregularities in the business model adopted by the jewellery firm,” said a banker.
The Central Bureau of Investigation( C BI ), which is currently probing the matter, has sought the investigation reports from both the I-T department and the DR I to access additional information, which could help it join the dots, said a CBI source.
Significant incriminating evidence was found during the I-T’ s search operations on
N ir av Mo di and his associates in January 2017. The agency’ s voluminous report comprised over 10 kinds of mod us operandi adopted by Mo di and his firms to evade tax. Business Standard has reviewed a copy of the report.
The report revealed that Nirav Modi’s firms had total cash receipts of ~2.52 billion in its retail business. Of this, it had accepted ~1.6 billion against the sale of diamond jewellery, which was over and above the sale consideration recorded in the books of accounts.
On the foreign assets front, it was found that Mo di was the sett lo rand beneficiary of the Monte Cr is to Trust in Jersey. This was the underlying trust of Monte Cr is to Ventures, an entity incorporated in Bahamas. Modi had contested that the trust was never operational and had no assets. I-T officials are in the process of verifying his statement with foreign authorities.
Further, Fire star International, Modi’s flag ship company, had received total funds a mounting to ~2.84 billion between March 2013 and April 2014 from Jade Bridge Holdings and For com Worldwide Investments based in Cyprus and Mauritius, respectively.
The report said the “source and creditworthiness” of these funds remained unexplained. However, it said the documents submitted by these foreign entities were prepared at Mo di’ s office in India.
The agency also found that Fire star had received a separate tran che of foreign funds a mounting to ~2.71 billion from Singapore’ s Is ling ton International, whose beneficial owner is stated to be Mo di’ s sister P ur vi Me ht a.
The I-T department, which also investigated Gitanjali Gems, a firm promoted by Mehul Choksi, found that both the Mo di and G it anj ali groups were engaged in providing accommodation entries on commission basis. Mo di’ s firms made bogus purchases to the tune of ~3.44 billion, while G it anj ali made bogus purchases of ~20.21 billion from three Mumbai based entities.
Other than these, the I-T report said Modi had not reported international transaction details of ~5.15 billion.
The I-T investigation was based on the DR I investigation launched in 2013-14, which had first detected customs duty evasion by Mo di and three of his firms.
According to the DR I, all these entities including Mo di have allegedly diverted imported, duty-free, high-value diamonds to the domestic market. The DR I then had put a stay on Mo di’ s export consignments to the UAE, the US, and Canada. Further, it had issued two show-cause notices to Mo di and three of its firms and levied a penalty of ~371 million.
The agency had then found that cut polished diamonds worth ~1 billion were lying in stock against the declared stock of ~11 billion. Similarly, the entities declared pearl stocks of worth ~1 billion against which the stock they kept was only ~40 million.
The whole issue also highlights the role of other banks’ officials in foreign offices. A standard protocol in any money transfer mechanism is two-way communication, experts in the field say. So, by theory, the processing bank must send a query confirming the encashment of PNB’ s guarantee. The practice here is P NB will not respond if it is a legitimate transaction. The creation of the transaction trail is important but not necessary.
Sources said at least in one case, an overseas bank had asked for a clarification on payment instructions received, but it is not clear if PNB officials ignored the warning made over a year ago.
PNB’ s letter to bank chiefs also pointed out to such a collusion.