As the BJP and Congress blame each other for looking the other way while diamond czar Nirav Modi and his family allegedly defrauded the Punjab National Bank, the CBI has said that a majority of the Letters of Understanding (LoUs) in the Rs 11,400-crore scam were either issued or were renewed in the bank in 2017-18.
The CBI on Thursday registered a fresh FIR in the case against Mehul Choksi, maternal uncle of Nirav Modi, and his three companies claiming that they swindled PNB to the tune of Rs 4,886.72 crore in 2017-18 by way of getting 143 LoUs issued through the bank.
Notably, the first FIR in the case dealing with alleged swindling of Rs 280.7 crore through eight LoUs registered by the agency on January 31 also mentions that the LoUs were issued in 2017. To this FIR, CBI has now added new information provided by PNB on Wednesday and estimated the total loss in the first FIR at Rs 6,498 crore.
The cumulative figure for the total loss to PNB thus stands close to Rs 11,400 crore.
CBI sources said that since the accused — Modi and his relatives — were rolling over the LoU money by way of getting them renewed, many old LoUs too have been renewed in 2017.The CBI on Friday questioned four PNB officials in connection with the case. Notably, they are all being probed for their dealings with Modi and his companies between 2014 and 2017.
These included Bechu B Tiwari, chief manager of the Bank’s Nariman Point Branch in Mumbai between February 2015 and October 2017; Sanjay Kumar Prasad, current DGM of the bank and then AGM of Brady House Branch between May 2016 and May 2017; Mohinder K Sharma, then concurrent auditor between November 2015 and July 2017 and Manoj Kharat, then Single Window Operator holding office between November 2014 and December 2017.
Punjab national bank fraud case: FIRs against Nirav Modi, Gitanjali Group's Mehul Choksi Boxes of jewellery sealed by investigators line a display at a Nirav Modi showroom in Delhi
The FIR registered on Thursday against Choksi says: “Accused Bank officials Gokulnath Shetty and Manoj Kharat in connivance with accused companies and directors during 2017-18 defrauded PNB to the tune of Rs 4886.72 crore in issuance of fraudulent and unauthorised LoUs in favour of foreign branches of different India-based banks and purported LCs (Letters of Credit) in favour of foreign suppliers of the accused companies.”
The FIR names 16 accused which includes Choksi, his three companies Gitanjali Gems, Gili India and Nakshatra Brand; one managing director, 10 directors and two PNB officials apart from unknown people. It alleges that apart from getting 143 LoUs issued, Choksi also got 224 Foreign Letters of Credit (FLCs) through PNB.
According to the FIR, Shetty and Kharat deliberately omitted making entries of LoUs issued on behalf of Choksi’s companies in the Core Banking System (CBS) of the bank to avoid detection.
“Funds raised were meant to be used for payment of import bills of accused companies whereas it was dishonestly and fraudulently utilised for discharging the earlier liabilities on account of buyer’s credit facility by overseas branches of Indian banks,” the FIR said.
The modus operandi regarding issue of FLCs (Foreign Letters of Credit), the FIR says, was that they were opened initially by entering smaller amounts in the CBS and sending FLCs through SWIFT messages.
“The accused bank officials…unauthorisedly enhanced the value of FLCs manifold and issued amendments to said FLCs but did not enter the same in CBS,” the FIR said.
In its complaint to CBI, PNB has raised questions on the conduct of officials in the foreign branches of various banks as well. It has said that according to RBI guidelines, LoUs for trade in jewellery and diamonds is issued only for a period of 90 days but PNB officials were issuing LoUs for a period of even six months to a year. This, PNB said, should have raised an alarm in the foreign branches.
CBI on Friday conducted raids at 26 locations across six cities in five different states in connection with the PNB scam case. ED too has searched 35 locations across 11 states in connection with the case and seized jewellery and diamonds worth Rs 549 crore. The searches were conducted at locations connected to Modi and Choksi. All premises searched by CBI are connected to companies owned by Mehul Choksi. The companies include Gitanjali Gems, Gili India and Nakshatra Brand.
CBI sources said these three companies have 36 subsidiaries in India and abroad. The agency has carried out searches at premises connected to 18 subsidiaries in India. Of these 17 are in Mumbai and one in Hyderabad.
The searches were conducted in Maharashtra (Mumbai and Pune), Gujarat (Surat), Rajasthan (Jaipur), Telangana (Hyderabad) & Tamil Nadu (Coimbatore).
Following the CBI FIR on Choksi, ED has also identified 29 immovable properties belonging to the accused. It has summoned Modi and Choksi to its Mumbai office on February 23. It has also got orders issued from Nirav Modi’s office that their subsidiaries and showrooms in Macau, Beijing, New York and London not make any further sales.
Meanwhile, prosecution in the case of Nirav Modi has been filed under Income Tax Act for which hearing has been fixed on February 27. The Government said that the 105 bank accounts of Modi and his family and group concerns have been attached by the Income Tax department.
The accused mentioned in the fresh FIR filed by CBI include Choksi (Managing Director Gitanjali Gems); Gokulnath Shetty (retired DGM of PNB); Manoj Kharat (then single window officer of PNB); and companies Gitanjali Gems Ltd , Gili India Ltd, Nakshatra Brand Ltd; directors of the companies Krishnan Sangameshwaran, Nazura Yash Ajaney, Dinesh Gopaldas Bhatia, Aniyath Shivraman Nair and Dhanesh Vrajlal Sheth, Jyoti Bharat Vora, Anil Umesh Haldipur, Chandrakant Kanu Karkare, Pankhuri Abhijeet Warange, Mihir Bhaskar Joshi and unidentified bank officials.
According to sources, the saga unfolded after a bribery complaint by the Hong Kong branch of an Indian bank. An employee of the billionaire told the bank officials that the reason why a particular Letter of Undertaking (LoU) was delayed was that an official of Punjab National Bank’s (PNB’s) Mumbai office in Brady House had asked for a bribe to issue the guarantee.
It was business as usual for the overseas branch to bring this to the notice of the Reserve Bank of India (RBI), which immediately asked for an explanation from the PNB officials. Upon preliminary investigations, the suspicion for the bribe demand fell upon an employee at the branch. The entire scam fell through after that. The bank started digging into records of Modi’s companies and found they had not put the required security deposits needed to issue guarantees.
The person who demanded the bribe, now suspended, turned out to be one who was aware of former deputy manager Gokulnath Shetty’s ways in managing LoUs bypassing the core banking system. Though it’s not clear at this point if this person was also an accomplice of Shetty in the scam. In short, the bank employee in question wanted to pull a Shetty-style operation on his own, but Modi’s representative was a greenhorn to these tricks and decided to play by the rulebook instead, say sources. Shetty retired last November.
The last LoUs raised, according to the CBI’s First Information Report (FIR), was in February 2017. In the FIR, and subsequently in a letter to 30 bank chiefs, the PNB said when a margin of 110 per cent was asked to be deposited, as there was no sanction of any fund or non-fund based limits, the companies insisted they were “undertaking such transactions for last so many years”.
However, it could also be possible that several PNB and other bank officials were well aware of the ongoing scam, but a small change in the RBI’s reporting format in January this year threatened to topple the applecart. And then a victim-hunt started. Going by the RBI’s latest reporting format, the scam would have come to light anyway. At least to the RBI by the end of this quarter, just a month before the scam came to light.
The RBI on January 4 said in a notification that instead of multiple filings, banks should harmonise all their statistics in an easy to read and analytics-friendly data format called eXtensible Business Reporting Language, or XBRL. Importantly, in the XBRL requirement, the RBI added some heads – Unsecured Guarantees, Non-funded Commitments, and Non-Fund Based Advances.
All guarantees, letters of credit (LCs) and LoUs fall under these categories. The RBI is yet to respond to a Business Standard query on the issue. In a call with analysts on Friday evening, PNB’s MD and CEO Sunil Mehta stuck with the bank’s version of the story. This paper’s efforts to reach the management for an official confirmation was not successful. In the call, Mehta hung up after realising the media was also on the call. A system-wide LC storm brewing? On Thursday, the entire officer strength of the department of financial services, in the finance ministry, was roped in for fire-fighting.
Beyond PNB, their immediate job was to figure out how many more state-owned banks had issued such dubious LCs. They are worried that the arrangement tapped into by the Modi companies could have been used at other banks as well. Finding rogues, though, would be a tedious task, as that essentially means matching each LC with the collateral or margin money demanded. While the officers said such a possibility was remote, they also conceded no checks or balances had worked at PNB to prevent the largest banking sector fraud in India. Another issue that will need to be sorted out is how PNB’s human resources department allowed two offenders to continue in their seats for rather long.
The bank has a transfer policy, under which each executive has to be transferred after every three years. If the officer has been promoted, he has to be transferred automatically even before the three-year term. One of the two said officials had been promoted to the rank of deputy general manager during the time he serviced the Modi accounts. There was no effort to remove him or his assistant from their posts for years.
An HR department source at the bank said it was difficult to draft in officers willing to work in specialised departments such as forex or large credit appraisals. They claim there was no mala fide in the said official’s long run in the chair, until he retired in November 2017. The recent developments have also effectively nixed the bank’s plans to merge any other state-owned bank with itself until the scam fire is doused — and that will take quite some time.