Probe into $2.4b fraud at Indian bank picks up pace

Indian investigators have closed down a branch of a state-run bank that is at the heart of a US$1.77 billion (S$2.33 billion) fraud and questioned more of its employees as they probed the biggest scam in the country's banking history.
The Brady House branch of state-run Punjab National Bank in Mumbai was closed yesterday as officers searched the premises and interviewed staff, in one of the biggest scams being investigated by the Central Bureau of Investigation.
The Brady House branch of state-run Punjab National Bank in Mumbai was closed yesterday as officers searched the premises and interviewed staff, in one of the biggest scams being investigated by the Central Bureau of Investigation.PHOTO: EPA-EFE

Officers question staff over scam that went undetected for 7 years

Officers from the elite Central Bureau of Investigation (CBI) yesterday swarmed all over the Brady House branch of state-run Punjab National Bank (PNB) in Mumbai, India's financial capital, which is at the heart of a US$1.8 billion (S$2.4 billion) fraud case involving a prominent billionaire jeweller.

At least three people, including two junior bank employees, have been arrested so far in connection with the fraud which went undetected for seven years.

The branch was closed yesterday as investigators questioned more staff, conducted searches and pored over records in what a CBI spokesman described as one of the biggest scams being investigated by the agency.

The three people arrested include former deputy bank manager Gokulnath Shetty, who was working in the foreign exchange department at the Brady House branch, and Mr Manoj Kharat. Mr Shetty retired last May. A source described the third person nabbed, Mr Hemant Bhat, as the "authorised signatory" of the companies tied to jeweller Nirav Modi.

All three men appeared before a packed courtroom in Mumbai last Saturday and were remanded into custody until March 3 to allow the CBI to continue investigations. No charges have yet been laid.

PNB has said that the two employees arrested by police colluded with companies belonging to Mr Modi and another jeweller, Mr Mehul Choksi, who heads retailer, Gitanjali Gems, and other companies.

PNB said the two officers issued fraudulent Letters of Undertaking to overseas branches of other Indian banks which lent money to the jewellers based on a guarantee from PNB.

REFORMS NEEDED

This is a complete failure of all systems from internal control to regulators. Credits were accepted and money lent without cross-verification or reconciliation or looking at exposure limits.

MR RISHI SAHAI, managing director of investment bank Cogence Advisors.

PNB said in the complaint to the CBI that it was looking into the alleged misuse of the Swift interbank messaging system and incomplete ledger entries.

Mr Modi, who is an Indian national, has not commented on the case, and sources said he left the country on Jan 1, some 28 days before investigations began.

His passport has been revoked by the Indian authorities and his home and offices raided by different agencies, including the Enforcement Directorate and the CBI.

Mr Choksi, Mr Modi's wife Ami, an American citizen, and his brother Nishal Modi, a Belgian citizen - who have all been named as allegedly involved in the fraud - also left the country early last month.

Born in Antwerp, Belgium, Mr Modi came into prominence with high-profile advertisement campaigns which included Bollywood star Priyanka Chopra and English model Rosie Huntington-Whiteley.

His jewellery business was branded "NIRAV MODI", and he has a chain of boutiques stretching from New York and London to Beijing. His jewellery has adorned Hollywood stars like Kate Winslet.

Just last month, he was at the World Economic Forum in Davos and Indian media carried a group photograph of him and other Indian business people posing with Prime Minister Narendra Modi, who is no relation.

The authorities have yet to establish the whereabouts of the jeweller - who was No. 85 on Forbes' 2017 list of India's richest people.

The bank fraud coincides with an effort by the Modi government to clean up the banking sector and initiate banking sector reforms.

Experts said it highlights all that is wrong with India's banking system and the need for reforms.

"Our own assessment is that it is a reflection of process failure in the bank. It is an eye opener for the system and regulator," said Mr Tarun Bhatia, managing director, investigations and disputes, Asia-Pacific, at risk-management firm Kroll.

Questions range from how junior employees in PNB got away with the fraud for years and whether senior management knew what was going on.

"This is a complete failure of all systems from internal control to regulators. Credits were accepted and money lent without cross-verification or reconciliation or looking at exposure limits," said Mr Rishi Sahai, managing director of investment bank Cogence Advisors.

A version of this article appeared in the print edition of The Straits Times on February 20, 2018, with the headline 'Probe into $2.4b fraud at Indian bank picks up pace'. Print Edition | Subscribe