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PNB fraud: More lapses by bank surface as Mehul Choksi faces fresh raids

Nirav Modi might be in Hong Kong where he has considerable financial interests, though his lawyer refused to disclose the whereabouts of his client.

business Updated: Feb 20, 2018 17:41 IST
Alekh Archana and Rajesh Ahuja
Alekh Archana and Rajesh Ahuja
Hindustan Times, Mumbai/New Delhi
PNB fraud,Mehul Choksi,Nirav Modi
The state-owned Punjab National Bank (PNB) in Mumbai.(AFP Photo)

The Enforcement Directorate (ED) conducted fresh searches on Sunday at over four dozen premises linked to Gitanjali Group chairman Mehul Choksi even as more lapses in Punjab National Bank’s (PNB) internal processes and inadequate oversight came to the fore in an estimated Rs 11,400 crore fraud.

Interviews with executives from several state-run banks and experts revealed that billionaire jewellery designer Nirav Modi and companies linked to him were able to siphon funds in concert with some PNB executives because of the failure of the bank to integrate its own transaction-recording software with the international financial messaging system.

Modi, law-enforcement agencies were tipped off, might be in Hong Kong where he has considerable financial interests, officials said, though his lawyer Vijay Aggarwal refused to disclose the whereabouts of his client. Aggarwal is in Dubai to formulate strategy with Modi’s legal associates.

“Informers have told us that Nirav Modi in all likelihood is in Hong Kong and his maternal uncle Mehul Choksi is in the US, but in the absence of any official confirmation from Interpol, we cannot say anything conclusively,” said a senior officer, entrusted with the probe into the PNB scam, who did not wish to be named. When HT contacted Modi’s lawyer Aggarwal in Dubai, he said, “Yes, I am in Dubai to hold meeting in connection with the case and I am in touch with Nirav Modi but I cannot disclose his whereabouts.”

Asked about Modi’s plans to return India, Aggarwal said, “My client has not fled from India and he is being hounded by multiple agencies simultaneously. A decision with regard to his return will be taken in due course.”

Modi, his wife Ami, brother Neeshal and maternal uncle Choksi left India in the first week of January.

The CBI has sought Interpol help to find Modi and Choksi.

A central bank communication corroborated the failure of the bank to keep its security systems and internal checks up to date. “The fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls,” the Reserve Bank of India (RBI) said in a release on February 16. The RBI has initiated a supervisory assessment of PNB’s control systems.

Officials of Mumbai’s Brady House branch of PNB, without approvals, issued so-called letters of undertaking, or LoUs, (essentially guarantees) that helped Modi’s companies raise credit from other banks.

The foreign banks gave the funds to Modi companies on the assurance that PNB will pay up if there is a default.

According to bankers, transactions on SWIFT, an inter-bank messaging facility, must go through a built-in system of audit and reconciliation. These include seeking approval from officials other than those having banking relation with the client, red flags for a sudden spurt in transactions, and a breach of sectoral and group exposure limits, among others. SWIFT stands for Society for Worldwide Inter-Bank Financial Telecommunication.

PNB has maintained that transactions and messages sent through SWIFT were not recorded in its core banking system software, which typically records daily transactions. This allowed the errant employees escape notice of bank auditors.

Following fresh searches at Gitanjali Group companies, a senior ED official said the agency seized gold and jewellery worth Rs 20 crore. In earlier raids on Modi’s firms, the ED seized diamonds, gold and precious stones worth Rs 5,674 crore.

On Monday, ED officials will speak to Dinesh Dubey, former independent director of Allahabad Bank, who has alleged that loans were granted to Gitanjali Gems despite his dissent note.

The CBI has arrested three accused — retired PNB deputy manager Gokulnath Shetty, suspended PNB employee Manoj Kharat and Modi’s alleged accountant Hemant Bhatt.

Bank of India, a public sector institution, issued a circular on Saturday saying that as per the CVC’s guidelines, all officers serving in the same post should be rotated and no one should work in the same municipal area for more than five years.

News agency PTI reported on Sunday that the ED and the IT department had zeroed in on 200 shell companies in India and abroad that were being used to receive funds as part of the alleged fraud.

Opposition leaders kept up their attack on the government over the issue. Congress president Rahul Gandhi questioned the PM’s silence on the matter.

“PM Modi tells kids how to pass exams for 2 hrs, but won’t speak for 2 mins on the 22,000Cr banking scam. Mr Jaitley is in hiding. Stop behaving as if you’re guilty! Speak up,” the Congress leader tweeted. He was referring to Prime Minister Narendra Modi holding an interaction with students ahead of annual school exams.

West Bengal chief minister Mamata Banerjee linked the fraud to the government’s demonetisation exercise. BJP national secretary Rahul Sinha accused her of spreading lies to protect the Congress.

(Additional reporting by Remya Nair and Deborshi Chaki)

First Published: Feb 18, 2018 23:32 IST