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Sunday, April 18, 2021

Nirav Modi can be extradited to India: What is the PNB scam all about?

Nirav Modi was part of what has been called the largest banking fraud in India's history. The PNB scam has been known for its massiveness and how it unfolded. Here's why.

India has finally secured an order from the British judiciary to extradite Nirav Modi to India. A British High Commission spokesperson said, “The judge decided to send the case to the Home Secretary to decide whether to order his extradition to India.” This is not the first positive order the Central Bureau of Investigation secured, the earlier was Vijay Mallya. Let’s talk about what the PNB scam is.

“Today’s judgement is a significant achievement in the context of CBI’s efforts to curb corruption and is a reminder that fugitives, who have eluded the process of law after commission of large value frauds, cannot consider themselves above the process merely because they have changed jurisdictions. The judgement also vindicates the painstaking investigation by CBI, especially since Mr Nirav Modi had raised various issues with regard to the admissibility of evidence, the fairness of the investigation, trial, prison conditions, availability of health facilities in India and extraneous consideration, with a view to divert attention from his own acts,” the CBI said in a statement.

Who is Nirav Modi? What is the PNB scam all about?

Nirav Modi was part of what has been called the largest banking fraud in India’s history. The Punjab National Bank scam stems from a fraudulent letter of undertaking worth Rs 10,000 crore issued by the bank. The key accused was Nirav and his maternal uncle Mehul Choksi, other relatives and a few PNB employees as well. Nirav got away from the country in 2018 before all of this was found. Nirav Modi, now 49, appeared via video conferencing from Wandsworth Prison in south-west London at the Westminster Magistrates’ Court for the recent hearing. He had been arrested in 2019 from a London metro station. He made multiple attempts at securing bail but they had been turned down every time as he was deemed a flight risk. Nirav is facing two sets of criminal charges: the illegal letters of undertaking or loan agreements used to clear crores in loan to the jeweller which is a case by the CBI, and the Enforcement Directorate (ED) case relating to the laundering of the proceeds of that fraud. According to reports, currently, he also faces two additional charges of evidence tampering and intimidating witnesses, which has been later added to the CBI’s case.
The CBI ensured that the proof against Nirav was seamless. The Crown Prosecution Service (CPS), representing the Indian government, alleged that Nirav used his firms – Diamonds R Us, Solar Exports and Stellar Diamonds – to make fraudulent use of PNB’s letters of undertaking. This was all done with the help of banking officials while the PNB remained unaware. The CPS also played videos in court as proof of Nirav’s involvement in intimidating dummy officers of his companies to keep themselves safe from the Indian investigating authorities. Nirav Modi’s defence team that was led by barrister Clare Montgomery, stated that the case was that of a commercial dispute involving “authorised through ill-advised lending” that took place in “broad daylight”. The defence also claimed that there was no fraud conducted.
Nirav’s extradition had also been denied earlier because of human rights violation and Indian jail conditions. But this time the CBI did not make a mistake. The judge said: “Modi fears prosecution in India. Although he has expressed suicidal thoughts, the government of India has reassured safe conditions in prison, through a video in August. The video shows better sanitation and hygiene than the video in 2019.” The video evidence showed a well-lit, well-ventilated 20 by 15 feet room equipped with all kinds of amenities. The evidence stood against Nirav’s defence of a crowded jail.

How did the PNB scam take place?

Fake LoUs were used at PNB’s Brady House branch in Fort, Mumbai. The LoUs had been opened in favour of branches of Indian banks for the import of jewellery mainly pearls for a span of one year. For this, the Reserve Bank of India guidelines layout a total time period of 90 days from the date of shipment. This guideline was clearly ignored by overseas branches of Indian banks. They failed to share any document or any kind of information with PNB. Nirav got his first fraudulent guarantee from the bank on March 10, 2011, and then eventually managed to get 1,212 more such guarantees over the next 74 months. Later on, the Enforcement Directorate discovered bank token devices used by Nirav to transfer fraudulent funds.

what is the PNB scam
Nirav Modi | Source: PTI

How did PNB not know about this?

It was pretty weird that the PNB was completely unaware of the scam for a long time. PNB employees misused the SWIFT network to transmit messages to Allahabad Bank and Axis Bank on the fund requirement. While all of this was done using the bank’s SWIFT passwords, the transactions had never been recorded in the bank’s core system. This is how the bank was kept under a shadow for so long.

How did the scam finally become public?

On January 29, 2018, PNB lodged an FIR with the CBI about fraudulent LoUs worth Rs 2.8 billion (Rs 280.7 crore) first issued on January 16. In the complaint, PNB had named three diamond firms, which were all Nirav’s — Diamonds R Us, Solar Exports and Stellar Diamonds. The scam had finally blown over to Rs 14,000 crore.

The manner in which Letters of Undertaking were obtained, “the combination as a whole, takes us to the conclusion that Nirav Modi and co were fraudulently operating”, the judge had finally said granting extradition. “Many of these are a matter for trial in India. I am satisfied again that there is evidence he could be convicted. Prima facie there is a case of money laundering.”

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