Just seven years after the discovery of an astronomical Rs 14,000 crore scam, a fugitive Dimenteer Mehul Choksi was fugitive in Belgium on Saturday. The Belgian Department of Justice on Monday confirmed NDTV that infamous businessman was in custody. It further said that India started requests for his extradition.
Vikas brought back one of the biggest financial fraud in India’s banking history, including the state -owned Punjab National Bank.
What was the PNB scam?
In January 2018, Punjab National Bank revealed that it had detected a large -scale fraud at one of his branches in Mumbai. It was initially revised up to Rs 13,850 crore before Rs 13,500 crore. At that time this celebrity jeweler Nirav Modi and his uncle Mehul Choksi, who were then performed by the Managing Director of Gitanjali Ratans.
The scam, including the guarantee of fraud, bribery and international money laundering, triggered a shake-up in the country’s financial and regulatory systems.
How did the fraud work?
Choksi and his nephew Nirav Modi, currently in London Jail, were surrounded by about Rs 14,000 crore from the Brady House branch of Punjab National Bank in Mumbai. He pulled the mega heirs with the help of bank officials.
To cheat the bank, Choksi and his nephew ignored legal processes, inflated the Credit’s Foreign Papers (FLCs) and received fraud letters of the undertaking.
Indian banks have a guarantee issued by Indian banks to help obtain short -term credit from foreign branches of Indian lenders. These devices are for legitimate trade transactions, not for general borrowings.
Companies of Nirav Modi and Mehul Choksi, including Firestar Diamond, Diamond R US and Gitanjali Ratna, achieved a shocking number of Luas – 1,212 from PNB’s Brady House branch in Mumbai between March 2011 and November 2017. While 53 loos were valid during this period, the rest were allegedly fraud.
Swift system and insider collusion
Bank officials, including former Deputy General Manager Gokulnath Shetty, were allegedly bribed to release these Luas without appropriate authority, collateral or internal recording. This allowed the transaction to stay away from the bank books.
The fraudsters exploited the Swift System (Society for Worldwide Interbank Financial Telecommunications) to root funds abroad without triggering the alarm in the main systems of the bank. This systemic weakness combined with internal collusion allowed the fraud to be set aside for seven years.
Funds obtained through Luce were funnel in shell companies abroad, and loans were repeatedly rolled to hide the growing loan. The inner red flag was either ignored or deliberately suppressed, delay in detection.
How it was discovered
On January 25, 2018, Punjab National Bank (PNB) presented a fraud report to the Reserve Bank of India (RBI). On 29 January, the bank filed a formal criminal complaint with the Central Bureau of Investigation.
Till 5 February, the CBI had accused Nirav Modi in a multi-gruesome cheating case. On 14 February, PNB filed another complaint with the CBI, alleging frauds related to Nirav Modi. A day later, on 15 February, the CBI discovered the properties of Nirav Modi including their homes, showrooms and offices in Mumbai, Delhi and Surat.
On 16 February, PNB provided more information to the CBI, which revealed that 150 fraud letters (Loos) were issued by its authorities by Nirav Modi and others involved in the scam.
Systemic oversite failures and auditing laps
RBI had a hand-off approach for bank inspections, focusing on comprehensive systems rather than individual operational nuances, NDTV reported back in 2018. In the case of Punjab National Bank, 18 different auditing firms were used in seven years, which prevents any deep, continuous examination.
While the auditors met with major figures including Gokulnath Shetty, his reports from 2011 to 2017 did not indicate anything immunity or dangerous. At that time, the RBI did not implement the integration of the core banking system with the Swift network, which was an exploitation of a flaw in PNB fraud.
Prominent accused: Nirav Modi and Mehul Choksi
Nirav Modi, an internationally known jeweler, participated with Firestar Diamond and many other diamond firms owned by Nirav.
Mehul Choksi, his uncle, India’s largest jewelery, one of the retail series, led Gitanjali gems.
Both are accused of masterminding fraud, exploiting regulatory flaws and fleeing the country before the scam. Nirav Modi was later located in the UK, where he is extradition in India.
Till the arrest in Belgium on 12 April, Mehul Choksi was on the run, marking a turn in a long -standing investigation.
Why the scam hid for so long?
The PNB scam revealed serious flaws in the bank’s internal surveillance and compliance systems. PNB unknowingly ripened an environment for exploitation by not integrating Swift communication with core banking software and relying on some internal formulas for foreign exchange operations.
Over time, fraud activities became systemic – the loan was hidden through a continuous loan rollover, and failed to mark internal audit discrepancies.
Later further improvement
The PNB scam led widespread reforms in India’s banking sector. The issue was banned for a period on issuance, the Swift system was better integrated with internal software and urged banks to strengthen internal investigation.
