Nirav Modi scam at PNB: CBI arrests 3 more, ED to question five banks

The Enforcement Directorate suspects money laundering by Nirav Modi, will verify checks and balances

On Monday, the Central Bureau of Investigation (CBI) officials said the probe agency had arrested three more Punjab National Bank (PNB) employees of the Brady House branch in Mumbai in connection with the Nirav Modi case, taking the total arrests to six. 

PNB chief manager Bechhu Tiwari and manager Yashwant Joshi, both from the foreign exchange department, and Praful Sawant, officer-export, were arrested on Monday. The CBI had arrested PNB’s former manager Gokulnath Shetty and single-window operator Manoj Kharat, and Modi firms’ authorised signatory Hemant Bhat on Saturday.

The Enforcement Directorate (ED) will question five banks that honoured the letters of undertaking (LoUs) issued by PNB in the Nirav Modi scam and will seek an explanation as to whether they verified the LoUs’ credentials before disbursement of money to Nirav Modi’s group companies, said an ED official.

The five banks include Frankfurt and Mauritius branches of State Bank of India, Bahrain branch of Canara Bank, Antwerp branch of Bank of India, and Hong Kong branches of Axis Bank and Allahabad Bank. Over 150 fraudulent LoUs worth ~114 billion were issued by PNB to other banks.

The ED had registered two enforcement case investigation reports under the Prevention of Money Laundering Act this month. The report was based on the CBI’s first information reports pertaining to the fraud.

PNB said that it would honour all bona fide commitments made in the LoUs to foreign branches of Indian banks.

    Multiple-probe agencies at work

• ED to question 5 banks’ LoUs issued by PNB
• Seeks explanation whether LoU credentials were verified
• Summons PNB senior officials on possible system failure at various levels
• Initiates enquiry against 200 shell firms to check money laundering 
• I-T probes 80 people for alleged cash transaction of Rs 2.52 billion from Modi’s group
• CBI questions Vipul Ambani for second consecutive day
• Interrogates 13 former and present employees of PNB, Modi firms
• Seals PNB’s Brady House branch, where banking fraud had taken place
• Apprises CVC that it was a system failure at several levels in the banking system

“We are questioning other banks and employees at various levels, the checks and balances adopted by them,” said ED Director Karnal Singh. Singh is in Mumbai to meet the investigating officers and plan the further course of action against the accused.

Singh said the alleged scam had been going on since 2011. Since then, the bank had extended the credit and rolled over the LoUs, he said. “We have asked PNB to submit an audit report of the last eight years along with the Reserve Bank of India audit report,” he added.

The agency noted that PNB had issued the LoUs without adequate collateral. According to the ED, over 500 LoUs had been issued by PNB since March 2011.

The LoUs never showed up in PNB’s core banking system (CBS), which was done through SWIFT by some bank officials. “We are looking at the money trail and possible money laundering,” said Singh.

Sources said that some senior officials of PNB had been summoned to understand the CBS and the possible lapses as it was hard to believe that the LoUs were issued without the consent of senior executives, said another ED official.

The ED hinted that more seizures would take place in the coming days. So far, the ED had searched more than 200 premises across the country and seized assets worth nearly ~60 billion. Valuation of these assets would be completed in 15 days, clarified the official. 

The probe agency also wants to ensure that the accused parties involved do not sell their assets.

Subsequently, the enforcement agency also collected data of at least 200 suspected shell firms from the tax authorities and initiated an enquiry on the information provided. The ED believed that shell firms would have a crucial role in identifying the money trail of the LoUs.

The probe agency is confident of relocating Modi and his family with the help of a foreign authority.

Meanwhile, the income-tax (I-T) department is examining 80 individuals who allegedly purchased diamond jewellery worth ~2.52 billion in cash from Nirav Modi’s group. In January 2017, the I-T department had conducted searches at Modi’s and Gitanjali’s group companies. During the search operation, over ~49 billion was detected from various businesses in India and abroad.

In Modi’s retail operations, ~1.59 billion of cash was found to be received by the company. Sources said an amount of ~940 million was mapped with the permanent account number of these individuals.

According to tax authorities, a majority of them who transacted in cash are well-known promoters and executives from Corporate India and some politicians. “The cash transactions were made during the demonetisation period since buying jewellery was a preferred route by people to offload banned ~500 and ~1,000 notes held as unaccounted cash. All suspected individuals who indulged in the said transactions would soon be summoned for questioning,” said an I-T official. 

Meanwhile, the core I-T investigation team, including the directorate-general of Mumbai, was in New Delhi to meet Revenue Secretary Hasmukh Adhia and the Central Board of Direct Taxes on the PNB fraud.

Source said the finance ministry wanted the investigative agencies to adopt a strict plan of action and bring the accused to book. I-T sources hinted that they would announce some major steps to nail the accused in the next few days.

Meanwhile, the CBI questioned Vipul Ambani for the second consecutive day. Ambani is president-finance in Modi’s flagship firm Firestar International since April 2014.

The CBI also interrogated 13 former and present employees of PNB, including general managers, on Monday. It also questioned four employees of Modi’s firms.

The CBI team sealed PNB’s Brady House branch, where the transactions related to the banking fraud had taken place, for the purpose of investigation. The branch was sealed to ensure none of the records was tampered with till the investigation is completed. 

The central agency is said to have also made presentations to the Central Vigilance Commission (CVC) on the PNB fraud. It had apprised the CVC of a system failure at several levels in the banking system. Central Vigilance Commissioner K V Chowdary on Monday also met senior executives of PNB and the finance ministry in connection with the ~1140-billion fraud case, allegedly involving billionaire Nirav Modi and others, being probed by the CBI.

Tightening the noose, the government on Monday ordered the Serious Fraud Investigation Office to probe around 110 companies and 10 limited liability partnerships related to diamantaire Nirav Modi and his business associate Mehul Choksi.