New Delhi: Pulling off one of the biggest bank frauds in the country, fugitive diamantaire Nirav Modi and his uncle Mehul Choksi created a complex web of deception through fraudulent Letters of Undertaking (LoUs) to siphon off Rs 14,000 crore from state-owned Punjab National Bank in connivance with some bank officials.
After multiple twists and turns in a protracted legal case, Modi on Wednesday lost his appeal against extradition to India as the High Court in London ruled that his risk of suicide is not such that it would be either unjust or oppressive to extradite him to face charges of fraud and money laundering.
The USD 2 billion-fraud not only triggered a political slugfest but also led to increased scrutiny on banking operations in the country.
LoU is a form of guarantee issued by a bank to an entity for availing short term credit from the overseas branch of any Indian lender.
These LoUs are not issued against general retail transactions and instead are used for business or trade transactions.
Companies linked to Nirav Modi obtained these LoUs from PNB’s Brady House branch in Mumbai, but instead of genuine business transactions, the funds were allegedly siphoned off with the help of some rogue employees of the country’s second biggest state-run lender.
Modi obtained his first LoU from PNB’s Brady House branch on March, 2011. He managed to get 1,212 more such guarantees over the next 74 months.
During these six years, 53 genuine (non-fraudulent) LoUs were also issued to the Nirav Modi Group — the first in March 2011 and last in November, 2017.
However, later the LoUs were chiefly used to launder funds, as per investigative agencies.
Nirav Modi fled India in 2018 to evade the law days before a case was registered against him and his associates.
PNB unearthed the scam on January 25, 2018, and submitted a fraud report to the Reserve Bank of India (RBI) on January 29. On that day, a criminal complaint for registration of FIR was also made with the CBI. This was followed by another fraud report being submitted to the RBI on February 7, the day when one more complaint was filed with the CBI.
On February 13, 2018, an FIR was filed with the CBI against Nirav Modi Group, Gitanjali Group and Chandri Paper & Allied Products Pvt Ltd. A complaint was also filed with the Enforcement Directorate. Stock exchanges were informed the next day.
In the complaint, PNB had alleged that Modi and companies linked to him colluded with some of its officers — including a former deputy general manager Gokulnath Shetty — who was posted in the foreign exchange department of its Mumbai branch.
They fraudulently acquired guarantees worth USD 1.77 billion or Rs 11,400 crore to obtain loans from the overseas branches of Indian banks, claiming to need the cash to import pearls.