Banking fraud

Six arrested as Indian finance minister slams oversight lapses

India's Finance Minister Arun Jaitley
India's Finance Minister Arun Jaitley

NEW DELHI/MUMBAI • India's federal police have arrested six people, including employees of billionaire jeweller Nirav Modi, as an inquiry into one of the country's biggest banking scams widens, investigators said yesterday.

The Central Bureau of Investigation (CBI) said senior associates from Mr Modi's Firestar Diamond company and his uncle and business partner Mehul Choksi's Gitanjali group were among those detained in the latest arrests on Tuesday evening.

The CBI has arrested a dozen officials from Punjab National Bank (PNB) and employees linked to the high-profile jeweller since PNB announced last week it had detected fraud of nearly US$1.8 billion (S$2.4 billion) at the Mumbai branch.

Several of those arrested are suspected of facilitating fraudulent lines of credit to companies linked to Mr Modi and Mr Choksi, investigators have stated.

India's Finance Minister Arun Jaitley decried a "lack of ethics" among sections of Indian business on Tuesday and criticised inadequate oversight by auditors and regulators.

He did not specifically refer to the scandal in his speech to a room full of bankers, but his repeated referral to "a stray incident" appeared clearly to be aimed at the massive fraud linked to Mr Modi.

Mr Jaitley is the highest-ranking government official to weigh in on the case. Mr Modi's lawyer had earlier denied the allegations.

India's Finance Minister Arun Jaitley decried a "lack of ethics" among sections of Indian business on Tuesday and criticised inadequate oversight by auditors and regulators.

The finance minister said the country needed to examine "the lack of ethics that a section of Indian business follows", and said internal and external auditors needed to examine whether they had "looked the other way or failed to detect" any wrongdoing.

Mr Jaitley also said "the supervisory agencies" needed to "introspect as what are the additional mechanisms they have to put in place to ensure that stray cases don't become a pattern again", adding: "It is incumbent on us as a state... to chase these people to the last possible conclusion to make sure the country is not cheated."

Since PNB disclosed the fraud last week, the bank, auditors and the Reserve Bank of India (RBI) have been under the spotlight over how they could have failed to detect a scam in which employees are suspected to have sent fraudulent loan guarantees through the Swift interbank messaging platform to lenders overseas.

Soon after Mr Jaitley's speech, the RBI, the country's banking regulator, said it had alerted banks about the need to prevent any "potential malicious use of the Swift infrastructure" at least three times since August 2016.

Lenders had not fully implemented all of the required measures, the central bank said.

The RBI added that it had mandated lenders on Tuesday to implement measures to strengthen their oversight of the Swift platform.

Federal police said Mr Modi, a jeweller to Hollywood stars such as Kate Winslet, left India with his family in January, prior to the case being filed.

A police complaint filed by the second largest state-run bank says companies linked to the jeweller and his relatives received credit worth close to US$1.8 billion between 2011 and 2017, using false guarantees supplied by two PNB officials.

In a letter to PNB officials, Mr Modi stated that his companies owed the bank less than 50 billion rupees (S$1.02 billion), much lower than the amount alleged by the bank. He also said PNB had jeopardised its chances of recovering the sums owed by going public with its allegations.

"Your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues," said Mr Modi in the letter, accusing PNB of acting in haste and noting that his firm has always been current on paying what it owed.


A version of this article appeared in the print edition of The Straits Times on February 22, 2018, with the headline 'Six arrested as Indian finance minister slams oversight lapses'. Subscribe