Exclusive: Days after CBI FIR in PNB scam, Nirav Modi withdrew huge sum from an Indian bank in Antwerp

New Delhi: A week after the Central Bureau of Investigation (CBI) filed the first case against Nirav Modi for defrauding Punjab National Bank (PNB), the diamantaire withdrew huge sums from a government-owned bank in Antwerp, Belgium. Top officials in the investigating agencies said the transaction was shocking as all overseas centres of Indian banks were alerted on 31 January, the day premier investigating agency had filed the FIR against Nirav Modi his brother Neeshal Modi, wife Ami Modi and uncle Mehul Choksi. Although officials refused to divulge the name of the public sector bank, they said several accounts were frozen only days after Nirav Modi had managed to extract the money.

Nirav Modi. Facebook image

"We have also received reliable information that Nirav Modi was in the US when the transaction took place. His pugmarks were spotted and reported to us. But, we lost the trail in the first week of March," officials said.

After the Rs 13,000 crore bank fraud, the agencies had sought information on overseas centres of Indian banks that were doing business with the companies floated by Nirav Modi and his uncle Mehul Choksi. The CBI had said Nirav Modi-led Firestar Group companies were sanctioned credit limits under consortium. In the case of Firestar International Limited, PNB was the leading bank and in the account of Firestar Diamonds International Private Limited, Union Bank of India was the lead bank.

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"The bank officials have also been quizzed over local auditors of overseas centres of Indian banks with exposure to the Nirav Modi, Mehul Choksi case. They have not been able to produce all the requisite documents to ascertain Nostro account reconciliation and whether red flags were raised about the transactions with the corresponding banks. We had asked for the documents related to two Indian banks operating in Hong Kong, however, they are yet to respond. The auditor’s role in the overseas centre also needs to be probed once we receive the information required for the immediate investigation," officials pointed out.

PNB had alleged that its officials mainly Gokulnath Shetty and Manoj Karat of Brady House branch in Mumbai fraudulently issued LoUs without following bank’s prescribed procedures of obtaining required request applications, documents, approval of the authorities. And, these officials without making entries in the banking system, transmitted SWIFT instructions to the overseas branches of the Indian bank under buyer’s credit. The PNB officers also issued Foreign Letter of Credit (FLCs) by entering a smaller amount in trade finance module of CBS system and got the reference number generated. Subsequently, SWIFT message was sent for the amount. Without making any change in trade finance module of CBS system the conniving officers sent modified SWIFT message for an enhanced amount under the same reference to the beneficiary bank.

The Reserve of India prescribes that credit for import of ski-precious and precious stones including pearls should not be more than 90 days. However, in most cases, the credit allowed under LoUs was much beyond the limit. This should have evoked suspicion in the minds of overseas centres of Indian banks extending buyers credit but these banks never raised an alarm on the violation and continued to provide funding against fraudulent LoUs.

A CBI note said: "These LoUs were knowingly issued without any sanctioned limit and without 100 percent cash margin, causing huge liability to PNB to the tune of over Rs 6,500 crore. The modus operandi adopted by the accused persons that transpired in the investigation is that, for settling the earlier LoUs/buyers credit, fresh LoUs were opened and funds generated thereof from foreign banks were utilized for settling the outstanding LoUs/buyers credit. PNB is not in possession of the documents related to the said LoUs. It transpired that the same were being returned to the accused firms by Gokulnath Shetty, in order to avoid the detection of the fraud. Most of these documents are yet to be recovered."

A senior officer in the agency on the condition of anonymity confirmed that a local auditor in Hong Kong is under the scanner. The single auditor was apparently involved in auditing books of several state-owned banks. Total nine public sector banks with 13 centres are operating in Hong Kong. On the question, whether they will quiz the Indian bank officers posted abroad, the investigator said the agencies need to get transaction details and audit reports before planning next step.

"There is a suspicion that overseas centres are trying to cover up the lapses and it could be a matter of separate enquiry," he said.

Investigation status

The CBI said it was the responsibility of manager (forex) and branch head to monitor the activities carried out by the Gokulnath Shetty, then deputy manager. The agency said it was also the duty of the internal chief auditors of the branch to keep a track of all the transactions of the branch on a daily basis and report the same immediately.

"Therefore, their failure to detect the fraud facilitated the illegal activities carried out right under their nose. This also points towards their connivance in the entire scam," CBI said.

The investigating agency has argued that the main beneficiaries of the fraud—Nirav Modi, Ami Modi, Neeshal Modi and others—who are highly resourceful and influential, are evading the process of law.

The CBI note further said: "While the magnitude of this case is being fathomed, all the perpetrators of the fraud including known and unknown officials of PNB, employees of Nirav Modi Group, other private persons and unknown officials of other banks, within and out of India are yet to be ascertained and brought to justice. This scam by Nirav Modi Group was allowed to go unchecked for more than 8 years which is highly unusual."