Nirav Modi, an Indian jeweler, is being investigated for an alleged $1.8 billion fraud at Punjab National Bank (PNB). The fraud involved the unauthorised issuance of Letters of Understanding by PNB employees to overseas branches of other Indian banks on behalf of Nirav Modi's companies. This allowed Nirav Modi's companies to take large loans abroad without required collateral. The scam began in 2008 and continued until being discovered in January 2018. Nirav Modi and his family are believed to have fled India before the case was registered. The fraud is considered India's biggest bank fraud to date.

1. PNB SCAM
A SCAMBY : NIRAVMODI.
Presented by : Raghavendra
Iimc , Hyderabad, 9063730191.

2. INTRODUCTION TO PUNJAB NATIONAL BANK
Punjab National Bank (PNB) is an Indian multinational banking and financial services
company. It is a state-owned corporation based in New Delhi, India. The bank was founded
in 1894. As of 31 March 2017 the bank has over 80 million customers, 6,937 branches, and
10681 ATMs across 764 cities.

3. INTRODUCTION TO NIRAV MODI
Nirav Modi is a founder of “NIRAV MODI” global diamond jewellery house
established in 2010. He is being investigated in a $1.8 billion fraud case at
Punjab National Bank (PNB). Nirav Modi was the first Indian jeweller to have
been featured on the covers of Christie’s and Sotheby’s Catalogues. The
company has its headquarters in Mumbai, India.

5. Nirav modi,
Founder of “ Nirav Modi “
Global diamond Jewellery
house.
Mehul choksi,
M.D of Geethanjali Gems
Gokulnath Shetty( in grey hair),
Retd. Deputy manager of PNB’s
Foreign exchange department.
PEOPLE BEHIND THIS SCAM

6. PNB SCAM : IN DETAIL
• Punjab National Bank fraud Case relates to alleged fraudulent Letter of Understanding
(LOU) worth ₹11,600 crore (USD 1.77 billion dollars) that took place at its branch in Brady
House, Mumbai, making Punjab National Bank potentially liable for the amount. The
fraudulent transactions are allegedly linked to designer and jeweller Nirav Modi of
Gitanjali Group, against whom a complaint has been filed with the Central Bureau of
Investigation. The transactions were first noticed by a new employee in the bank. The bank
then complained to the CBI which is currently investigating the scam apart from ED.
• The bank said that two of its employees at the branch were involved in the scam, when the
bank's core banking system was bypassed when the corrupt employees issued LOUs to
overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union
Bank of India, using the international financial communication system, SWIFT. Three
Jewellers - Gitanjali Gems Ltd and its subsidiaries Gili and Nakshatra are also under the
scanner of investigation agencies.

7. • The scam was detected in the third week of January, as reported by “The Quint” quoting Sunil
Mehta, MD, PNB. He said that they have promptly investigated it over 3-4 day and approached
CBI on 29 January,2018. An FIR was booked on 30 January. 18 employees from PNB has been
suspended so far and Nirav Modi’s home and offices were raided by the Enforcement Directorate
(ED). Officials informed that Modi along with his family fled from India in the first week of January,
days before the case was registered.
• The Enforcement Directorate (ED) has registered a case under the Prevention of Money
Laundering Act (PMLA) in connection with another cheating case, on the basis of a First
Information Report filed by the CBI and conducted raids across Nirav Modi's residences in the
country.
• This case is claimed to be India's biggest bank fraud. The founder of the company Mehul
Choksi recently ran away from India along with his nephew after F.I.R was filled about the
Scam. Nirav Modi allegedly took advantage of the loopholes in the banking system by
seeking the Letters of Understanding (LOU).
• “It was found through SWIFT trail that one junior level branch official unauthorizedly and
fraudulently issued Letters of Undertaking (LOU) on behalf of some companies belonging to Nirav
Modi Group for availing buyer’s credit from overseas branches of Indian Banks,” the cautionary
note by PNB stated.

8. WHAT IS LETTER OF UNDERSTANDING (LOU)
• Letters of Understanding or LOU refers to the bank guarantee issuing for
overseas import payments. While issuing an LOU, a bank agrees to the client to
repay the principal and interest unconditionally. Here, the bank allows the
customer to raise money from another Indian bank’s foreign branch, in the form
of a short-term credit. Through LOU, one bank tells another they would meet
customer’s liability.
• The customer has to pay a margin money to the bank issuing the LOU and he
will be granted a credit limit. But in this case, there was no credit limit and Nirav
Modi did not give margin money.

9. • Nirav Modi’s three firms- Diamond R Us, Solar Exports and Stellar Diamonds
managed to pay rough stones to its customers on a regular basis. The
payment was made through loans by different banks including Allahabad
Bank, and Axis Bank. Modi’s firms raised the loans by showing the LOUs
issued by the PNB. But there was no official record of any Letters of
Understandings in the PNB.
• In a situation when a customer fails to repay the loan, the bank issuing the
LOU have to pay all these banks that give loans to a borrower on the basis of
the LOU issued by the lender.
• A complaint was filed by PNB with the CBI accusing Nirav Modi and others of
defrauding the bank and causing loss of RS 280 crore. The PNB, according to
a report by the “Scroll” , has said that it would repay back the liabilities they
were responsible for.

10. DIFFERENCE BETWEEN LOC AND LOU
• A Bank Guarantee and a Letter of Credit are similar in many ways but they're two
different things. Letters of credit ensure a transaction proceeds as planned, while
bank guarantees reduce the loss if the transaction doesn't go as planned.
• A Letter of Credit , sometimes referred to as a documentary credit, acts as a
promissory note from a financial institution, usually a bank or credit union. It
represents an obligation taken on by a bank to make a payment once certain
criteria are met. Once these terms are completed and confirmed, the bank will
transfer the funds. The letter of credit ensures that the payment will be made as
long as the services are performed.

11. • For example,
An American wholesaler receives an order from a Canadian company. The wholesaler has no
way of knowing whether the buyer can fulfil his payment obligations, and requests a letter
of credit be provided in their contract. The purchasing company applies for a letter of credit
at a bank where it already has funds or a line of credit (LOC). After the goods have been
shipped, the bank would pay the wholesaler its due as long as the terms of the sales
contract are met, such as delivery before a certain time or confirmation from the buyer that
the goods were received undamaged. The letter of credit substitutes the bank's credit for
that of its client, ensuring correct and timely payment.
• Letters of credit are especially important in international trade due to the distance
involved and potentially differing laws in the countries of the businesses involved. In these
transactions, it is not always possible for the parties to meet in person. The bank issuing
the letter of credit holds payment on behalf of the buyer until it receives confirmation that
the goods in the transaction have been shipped.

12. • Letter Of Understanding or Bank guarantees, represent a more significant contractual
obligation for banks than letters of credit do. A bank guarantee, like a letter of credit,
guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is
only paid if the opposing party does not fulfil the stipulated obligations under the contract.
This can be used to essentially insure a buyer or seller from loss or damage due to non
performance by the other party in a contract.
• Bank guarantees insure both parties in a contractual agreement from credit risk. For instance
A Construction company and its cement supplier may enter into a new contract to build a mall.
Both parties may have to issue bank guarantees to prove their financial stance and capability.
In a case where the supplier fails to deliver cement within a specified time, the construction
company would notify the bank, which then pays the company the amount specified in the
bank guarantee.

13. WHAT IS SWIFT
The Society for Worldwide Interbank Financial Telecommunication
provides a network that enables financial institutions worldwide to
send and receive information about financial transactions in a secure,
standardized and reliable environment.
• The instructions regarding LOU is sent through a system called
Society for Worldwide Interbank Financial Telecommunication
(SWIFT). This system is trusted by all other banks since it has to be
endorsed by a supervisor. According to the note by PNB, junior level
branch official sent instructions to the foreign branches on behalf of
the PNB which was unnoticed by the bank.

14. WHAT IS CBS ?
• CBS stands for the core banking system where all branches are interconnected. It
enables customers to operate their accounts to avail banking services from any branch
of the bank on CBS network. The customer here comes to the bank’s customer and no
more acts as a branch customer. Customers of CBS branches will get all the banking
facilities from any other CBS branch from anywhere in the world. In CBS all the
transactions are updated on a real-time basis. The PNB could not detect the fraud
since the official did not route the transactions through CBS.
• In case of PNB, the bank said that two of its employees at the branch were involved in
the scam, when the bank's core banking system was bypassed and the corrupt
employees issued LOUs to overseas branches of other Indian banks, including
Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial
communication system, SWIFT.

16. NIRAV MODI FRAUD BEGAN A DECADE AGO
• The practice of illegally issuing Letters of Understanding (LoUs) and Foreign Letter of
Credits (FLCs) and then rolling them over to favour Nirav Modi and Mehul Choksi groups
started in 2008 and continued till these were discovered in January this year, according
to CBI officials, reported IANS. The illicit activities resulting in fraud of Rs 11,300 crore
occurred under the nose of top Punjab National Bank officials but they claimed to be
unaware of the scam.
• The revelation came to the force during the questioning by CBI officials to Rajesh Jindal,
who was holding the charge of Mumbai-based PNB's Brady House Branch Head between
August 2009 and May 2011, Gokul Nath Shetty, a retired Deputy Manager from the
same branch who retired in May 2017, Bechu B. Tiwari (Chief Manager, in charge of
Forex Department), Yashwant Joshi (Scale II manager of Forex Department) and Prafful
Sawant (Scale I officer, export).

17. LATEST HIGHLIGHTS OF NIRAV MODI FRAUD
• 1. The Central Bureau of Investigation (CBI) officials said the alleged multi-
crore fraud by issuing LOUs and FLCs for sanction of loan to diamantaire Nirav
Modi and his uncle Mehul Choksi's group of firms continued during Jindal's
tenure. Jindal, posted as GM Credit at PNB's Head Office in New Delhi, was
heading the second largest branch of the PNB when the practice of issuing the
LoUs without sanctioned limits continued, reported IANS.
• 2. All five PNB officials arrested so far were part of the forex department at the
bank's Brady House branch at the time of the fraud took place, said officials,
adding these employees, in collaboration with the staff and associates of the
firms headed by Nirav Modi and Choksi, committed wrongdoings for personal
gains.

18. • 3. PNB's employee Tiwari, in his capacity as Chief Manager, was to monitor Shetty's
transactions. However, Tiwari told the interrogators that during 2015-17, he did not
monitor the fraudulent and illegal LoUs issued by Shetty.
• 4. The ED on Thursday said it has frozen mutual funds and shares worth Rs 94.52 crore
of the Nirav Modi and Mehul Choksi groups. It also seized nine high-end luxury cars of
Modi as part of its investigation against him under the criminal provisions of the
Prevention of Money Laundering Act (PMLA). These include a Rolls Royce Ghost, a
Mercedes Benz, a Porsche Panamera, three Honda variants, a Toyota Fortuner and an
Innova. Officials of the agency said frozen mutual funds and shares worth Rs 86.72
crore belong to Choksi and his group, and the rest are owned by the Modi group.
• 5. CBI officials said details of additional amounts (of around Rs 6,400 crore) would be
added to the first FIR. The second FIR also names 11 directors of the three Cholksi
owned Gitanjali group companies-- Gitanjali Gems Ltd, Gili India Ltd and Nakshatra
Brands Ltd. The PNB fraud came to light on January 16 when officials of Nirav Modi
companies approached the bank for buyers' credit without collateral saying they had
been getting such facility for years. The bank said that the official who had earlier
allowed such illegal facility through LoUs and FLCs had retired by then, and on checking
by officials, the whole fraud unravelled.

19. NIRAV MODI FAMILY TRUST ALLEGEDLY SWINDLED
540 CR BANK FUNDS, PAPERS SHOW
• The CBI, while charging Nirav Modi for swindling Punjab National Bank (PNB) of
Rs. 6,498 crores, in transactions dating back to 2011, has named three of Mr
Modi's firms as being the recipients of the embezzled money: Diamond 'R'US,
Solar Export and Stellar Diamonds.
Mr Nirav Modi has denied any wrongdoing.
• But an NDTV investigation has found that an entity known as NDM Family Trust
(Nirav Deepak Modi Family Trust) withdrew Rs. 539 crores from one of those firms
- Diamond 'R' US - in the financial year 2014-15.
• There are no public records for Diamond 'R' US and the Modi Family Trust; they
appear to be what are known as proprietorship firms, not required to disclose their
finances.

22. EFFECTS OF THIS SCAM
Following the declaration, the shares in PNB, the country's second-biggest state-run lender and fourth-biggest
overall by assets, fell by 9.93 per cent.