PNB fraud case: ED conducts searches at Nirav Modi, Gitanjali Gems properties

Investigations in the PNB-Nirav Modi fraud case intensified on Thursday with Enforcement Directorate (ED) conducting searches and sealing some premises owned by Nirav Modi and Gitanjali Gems.

The ED conducted searches at 10 locations which were not raided by the CBI, a source privy to the information in the Rs 11,000-crore fraud case told Moneycontrol. The locations spanned primarily on west India — five in Mumbai, three in Surat and two in Delhi.

The searches led to seizure of diamonds and jewellery and the ED will begin the valuation process soon, the source said. Besides, some properties have been sealed as well.

The ED will also examine whether the Rs 11,000 crore amount disclosed by Punjab National Bank in the case is true. The agency will also question senior PNB officials as it suspects that a fraud of such magnitude cannot be carried out without the involvement of senior management, the source said.

PNB alleges that some officials at the foreign branches too were hand in glove with the Nirav Modi and Gitanjali firms.

Modus Operandi

Three diamond firms belonging to the Nirav Modi Group and some other firms owned by Gitanjali Gems held current accounts at a domestic branch of Punjab National Bank (PNB). These firms purchased raw gems from overseas firms, and had to make payments to the sellers in foreign currency.

The sellers of the raw gems held accounts at foreign branches of Indian banks.

A junior official at PNB fraudulently issued ‘letters of undertaking’ (LoUs), allowing Niravi Modi group companies to get short term loans (buyers’ credit) from overseas bank branches to pay the sellers. Under the terms of the LoU, PNB was the guarantor of these loans.

The Nirav Modi and Gitanjali Gems firms would ask the corrupt PNB official to issue LoUs and get the foreign branches of the Indian banks to make payments to the sellers.

Interestingly, the transaction request was not routed through the core banking system, but instead through SWIFT, the global financial messaging service. As a result, the higher authorities at PNB were unaware of the fraud.

The fraud came to light when the corrupt PNB official retired. When the Nirav Modi and Gitanjali firms requested for fresh LoUs, they were denied, since the records did not mention any such arrangement. The firms said they had been availing of the facility for years. On scrutiny, the fraud was exposed.

Interestingly, PNB alleges that some officials at the foreign branches too were hand in glove with the Nirav Modi and Gitanjali firms.