PNB fraud: Diamond, gold jewellery worth Rs.5,100 crore seized from Nirav Modi premises

PNB fraud: Diamond, gold jewellery worth Rs.5,100 crore seized from Nirav Modi premises

Nirav Modi's passport revoked, assets seized, look out circular issued, says Union Minister Ravi Shankar Prasad.

Union Minister Ravi Shankar Prasad said on Thursday that Punjab National Bank fraud–accused jewellery designer Nirav Modi was not part of the Prime Minister Modi’s delegation at the World Economic Forum in Davos. "He was part of the CII [Confederation of Indian Industry] delegation," he asserted.

He said Nirav Modi's passport had been revoked and a Look Out Circular (LOC) issued against him.

The Enforcement Directorate has searched premises linked to billionaire jewellery designer Nirav Modi in Mumbai, Delhi and Gujarat today. The agency filed a ₹280-crore money laundering case against Mr. Nirav Modi, his wife Ami, brother Nishal and business partner Mehul Choksi on February 14, following a complaint by PNB.

Agency sleuths swooped down on at least 10 premises linked to the case early this morning. They searched Modi’s residence in Kurla, jewellery boutique in Kala Ghoda area, three company offices in Bandra and Lower Parel in Mumbai, three premises in Surat in Gujarat and Modi’s showrooms in Chanakyapuri and Defence Colony in Delhi.

Agency sleuths swooped down on at least 10 premises linked to the case early on February 15. They searched Mr. Nirav Modi’s residence in Kurla, jewellery boutique in Kala Ghoda area, three company offices in Bandra and Lower Parel in Mumbai, three premises in Surat in Gujarat and Mr. Nirav Modi’s showrooms in Chanakyapuri and Defence Colony in Delhi.
Who is Nirav Modi?
Nirav Modi, the billionaire in the middle of this controversy, is a luxury diamond jewellery designer who was ranked #57 in the Forbes list of India's billionaires in 2017. He is the founder and creative director of the Nirav Modi chain of diamond jewellery retail stores, and is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the globe. His designs have been worn to the Oscars by 'Hidden Figures' star Taraji P. Henson and to the Golden Globes by Dakota Johnson, among others. Actor Priyanka Chopra is the brand ambassador.

How the fraud was detected
According to the complaint filed by PNB with the CBI on January 28, the fraudulent issuance of Letters of Undertakings (LOU) was detected at the Mid Corporate Branch, Brady House in Mumbai.

A set of partnership firms -- Diamond R US, Solar Exports and Stellar Diamonds -- approached the bank on January 16 with a set of import documents and requested for Buyer's Credit to make payments to overseas suppliers. The firms have Nirav Modi, his brother Nishal Modi, Mr. Nirav's wife Ami Nirav Modi, and Mehul Chinubhai Chokshi as partners.

Buyers Credit is, typically, a short-term loan facility extended to an importer by a bank to finance goods and services. It is a common mode of transaction in international trade where a bank extends credit to the importer and a finance agency based in the exporter's country guarantees the loan.

As there was no sanctioned limit in the name of the firms, the branch officials requested the firms to furnish 100% cash margin for issuing the LOU for raising the Buyer's Credit. At this, the firms contested that they have been availing this facility in the past; but the branch records do not corroborate this.

On digging further, the bank officials discovered that two of its employees had fraudulently issued LOUs in the past without following prescribed procedures and approvals. The employees had then transmitted SWIFT instructions to the overseas branches of Indian banks for raising Buyer's Credit without making entries in banking system to avoid detection.

The complaint also said that the funds so raised for the payment of the Import Bills have not been utilised for such purposes in many cases.

As per the FIR, five of the SWIFT messages (SWIFT is a messaging network used by financial institutions to securely transmit instruction) were issued to Allahabad Bank in Hong Kong and three to Axis Bank in Hong Kong.

What will happen now?
One of the worrying aspects of the scam is that in its statement, PNB says that based on the fraudulent transactions, other banks appear to have advanced money to the customers abroad. It goes on to add that these transactions are contingent in nature and any liability arising out of these on the bank will have to be decided based on the law and genuineness of underlying transactions.

Meanwhile, Joint Secretary in Department of Financial Services Lok Rajan said “I don’t think this is out of control or too big a worry at this point. That is my broad sense.”

However, the ₹11,400 crore scam comes at a time when the Central government is attempting to provide a breather to ailing PSBs, having announced a ₹2.11 lakh crore capital infusion to the sector in October 2017.