Indian State Bank Busted in $2 Billion Fraud

in #india5 years ago

by James Corbett
March 4 2018

It has all the elements of a Hollywood heist movie: A well-known jeweler-to-the-stars and his shady accomplice. A risky gambit to exploit a banking loophole. Inside help from a high-ranking official. A $2 billion swindle. And the whole house of cards crashing down in spectacular, front-page fashion.

But here's the Bollywood twist: The well-known jeweler is Nirav Modi. The high-ranking official is Gokulnath Shetty, deputy manager of the Punjab National Bank. And the amount pilfered is 11,700 crore rupees.

For those not in the know, Nirav Modi is known as the bold upstart who bought up a slew of top-shelf diamonds in the depths of the 2008 economic crisis and made a fortune designing and selling his own line of "haute diamantaire" for the Hollywood glitterati. Read any rundown of the red carpet in recent years and you're likely to read descriptions of Ms. So-and-so wearing a "dazzling Nirav Modi statement necklace" or some such twaddle.

But Modi's zero-to-hero, "Mumbai boy makes it big" story came to a crashing halt last month when India's Central Bureau of Investigation unveiled a complaint from Punjab National Bank alleging a multi-billion dollar swindle run by Modi and his business partner, Mehul Choksi. Soon, Indian authorities were sealing off Modi's expensive properties, seizing his diamond inventories, and beginning a game of "Where In The World Is Nirav Modi?" that took several eyebrow-raising twists and turns, including the tidbit that his last known public appearance was at the World Economic Forum in Davos.

Pictured: Birds of a feather

So what was the swindle, exactly? It all revolves around a financial instrument called a "Letter of Undertaking," or "LoU" for short. An LoU is issued by an Indian bank to a foreign bank on behalf of one of its customers. It guarantees the credit-worthiness of the customer and puts the issuing bank on the line should the customer default.

As you can imagine, LoUs are not issued willy-nilly. They depend on the issuing bank's pre-existing credit relationship with its customer, and naturally there is the assumption that the issuer has done its due diligence on the customer and secured some collateral for the credit that the foreign bank is extending. Strangely, that seems not to have happened in Modi's case.

According to the information that is being dribbled out to the public about the Modi case, the bank that issued the LoU, the Punjab National Bank (PNB), did not have any record of having issued these LoUs. And yes, that's LoUs plural because the instruments are only good for one year and the scam has been going on since 2011. That means that, somehow or other, the PNB issued nearly $2 billion worth of LoUs on behalf of Modi and his partner on multiple occasions without knowing it. Actually, let me rephrase that: "without 'knowing' it" (nudge, nudge, wink, wink).

"But surely that's impossible!" you contend. "The LoUs are issued through SWIFT, the international banking network that the US uses as its own personal battering ram in the geopolitical sphere (even though it's 'totally not political'). And we all know that SWIFT transactions require three separate inputs from three separate banking officers, the initiator of the transaction as well as a checker and a verifier. And even when the transaction is sent, the recipient bank sends a confirmation back to the sender, which is often processed by another party altogether. There's no way a bank could issue LoUs via SWIFT without multiple people knowing!"

Well, dear reader, let me tell you how delighted I am at your intimate knowledge of internal banking regulatory systems and the SWIFT protocol in general. And you're exactly right. This is where the story gets interesting.

We know that Modi and Choksi had inside help on the scam. The above-mentioned deputy manager of the PNB, Gokulnath Shetty, has admitted to giving Modi's aides his "level 5" password that is used to issue LoUs on the SWIFT network. But that still doesn't explain how the LoUs were approved or verified, or who was handling the confirmations that the foreign banks were sending back when they were issued.

But don't worry too much about that. We have a different problem to worry about, according to India's banking regulators: the PNB's outdated computer systems! You see, it seems the bank's central system was not tied in to the SWIFT software itself. Instead, all SWIFT transactions had to be manually entered and reconciled, meaning that if an inside official "overlooked" this step, then SWIFT transactions could escape the bank's records entirely.

Long story short: Modi and his partner had inside help in securing nearly $2 billion in loans from foreign banks that were never repayed, and the PNB is left holding the bag.

To put the scope of this problem in perspective, the 11,700 crore rupees allegedly netted in this scheme is equivalent to 1/3 of PNB's entire market cap. Or should I say was equivalent to 1/3 of its market cap. Shares in the bank plunged when the news was released and the bank's market value dropped almost 11,000 crore in a matter of days. Oh, and since it's a state-owned corporation, guess who's ultimately left holding the bag to keep the whole thing float? Oops, sorry about that Mr. and Mrs. Taxpayer. We promise that won't happen again!

So how did this really happen? Diamond entrepreneurs don't generally come out of nowhere, become celebrity designers, get hailed on the red carpet, and pull off multi-billion dollar bank heists without something else behind them. Hmmm...

Pictured: Birds of a feather

Oh, right. I guess it helps to exchange the right handshakes with the right royals and all that. Just ask Jimmy Savile.

But the worst part of the story is that it's quite possible we haven't seen the worst part of the story yet. Given that the PNBs outdated computer systems are a key part of the scandal, it's entirely possible that this scam will be used by Prime Minister Modi (no relation) to continue pushing his "black money" / de-cashing / Aadhar agenda to make India a "world leader in electronic payment processing" blah blah blah.

Yes, that's right, the world's largest biometric database has been steadily rolling ahead for the last several years and despite several suppressed reports about how the database has already been compromised it is now mandatory for every single Indian citizen to link their bank account to their government-issued biometrically-"secured" Aadhar number. (Remember, folks, you only have until March 31st to do it or you'll get de-banked!) And now we have a front-page scandal (in the Indian press, that is) where a central conceit is that a bank's outdated computer systems are to blame for the biggest case of bank fraud in the nation's history.

Don't worry, guys, it'll all go away when every bank employee and every customer has to give their iris scans, fingerprints, DNA and fingernail clippings for every transaction! Honest!

However this turns out, it will be interesting to see what nuggets of info spill out during the investigation and prosecution of this case. I'll make the bold prediction right now: Modi, it turns out, was an innocent victim of this whole scam. He just enjoyed the occasional pizza party with Prince Charles, who personally vouches for his upstanding nature, and all charges will be dropped on the spot. But let's hope I'm wrong.

Happy banking, everybody!


Oh, right. I guess it helps to exchange the right handshakes with the right royals and all that. Just ask Jimmy Savile.

Haha, exactly. The British royals are like the Clintons with much, much better PR. In fact the Clintons are truly amateur in comparison to Liz and her clan.
I’m sure the right pasties will be found to take the blame for this scam and the real perpetrators will walk away scott free.

What’s going on in India is dreadful, the people need to get out the pitchforks and deal with the control freak Modi before it’s too late. I’m fairly sure he’s acting on behalf of the hidden British Empire who never really stopped controlling India.
It is after all the jewel in the crown!

This brings to life a saying I heard years ago "Give a man a gun & he'll rob a bank. Give a man a bank & he'll rob the world." What can we do to take the fraudsters ability to scam the money system? Take the money system out of their control. Enter $teem & $.B.D. & othet cryptos. Let's take more effort to transact DAILY with decentralized crypto currencies as often as we can...even create opportunities by introducing the people you transact with, that don't know already, to crypto. Heck, help em' open a wallet right there for y'alls transaction on the spot. Keep an eye out for the soon to come FedCoin & other centralized options that are out there & expect more "government" issued crypto rip offs to rear their ugly heads in the very near future. Also, consider making your own local currency with friends, family, neighbors, local businesses, etc. There are solutions to these issues. I am committed to helping our brothers & sisters break these monetary chains & I hope every one of you join me in this cause. The monetary system is one of the main lynch pins holding the system created by the powers that shouldn't be together. Taking that away from them will SEVERELY hamper their ability to control the masses. It'll also help end all wars so..... there's that.

This sort of thing simply cannot happen. Our wealthy leaders in this world meritocracy are constantly being snipped by everyone. Joe and Josephine Sixpack (or in this case Raj and Rajeera CupOChai) are always looking to badmouth those who have work so hard, so ethically over the years to attain their much deserved wealth and power. We have turned into a selfish, jealous and cynical people, always looking to tear down those who happen to have a little bit of success in life.

OR. Nothing fucking new here. Yet another tiny ripple in a sea of increasingly deep fraud connected through cozy relations and winking maneuvers in and among the filthy global elite. How much longer till the weight of the fraud tips the balance?

Divide and conquer is such an impressively powerful tool.

I find the term meritocracy decidedly unsuitable to describe those you refer to here. History reveals instead a pathocracy, where the most venal, savage, and ruthless of scavengers devour the substance of those with actual merit.

I'd say 'here, here', but who knows where Modi is now? He could be relaxing in his compound anywhere from Addis Ababa to Ulaan Baator, from London to Singapore. $2B buys a lot of incognito.


I'm not sure whose sense of sarcasm is more subtle, mine? But, perhaps yours @valued-customer?

Because this subject is something I'm quite passionate about, let me clear the air and stop with the word play for a moment:

These interconnect, rich powerful scumballs are a shitstain on humanity's collective underwear. Anything other than this exact sentiment gleaned from my previous comment should be taken as my pathetic attempts to find comfort in misery...a little cynical humor may help to absolve some anger, maybe.

There is no meritocracy except in small pockets of decent people acting with honesty, kindness and in true, level-playing field competition with one another. These pockets are few and far between unfortunately. At the highest levels of the global society, the worst elements of mankind manipulate, scam and defraud in order to stay at the top. I hope I'm being clear here. Thanks for your comments @valued-customer

Here! Here!

I do enjoy a good, transparent rant =)

This is exactly why I am sorta rooting for Modi. He did them more damage than I ever will with my pointless angry words. The sooner their citadels of skulls and their mountains of dead men's bones are brought crashing down, the sooner we might replace it with voluntary interdependence and an egalitarian post-market economy; a society built on recognizing each the other's free will and self determination.

Technology bursts at the seams with industry that can perch on our desktops; with godlike AI that can whisper eldritch and elusive truths in our straining ears, that we might work together in peace and harmony, to conquer, not one another, not even the world, but the stars and all beyond.

Thank you for cheering me up!

You boil it down nicely. Chop, chop to the point - root for the most brazen, repugnant elites as they trip over themselves, pulling all their associated down with them.

I will not go to negativetown, WE DO have better days ahead! To the stars :)

What a great article ! Birds of a feather ? More like crooks of a feather ! I'm not touching the "occasional pizza party with Prince Charles" bit, as I don't know where it's been and suspect Chuck's other mate Jimmy Saville may have touched it. Ewww

Crooks of a cluster. Talking of which, (pizza) sex scandals unfold again in the UK this time involving UK charity Oxfam in Haiti.

Im pretty sure the fraud started when they revoked the larger bank notes. This is just the begining of the meltup. I wish everyone best wishes and health but this is going to get worse

Very interesting story. And more interesting than the story, is your way of telling the news story.

Really Enjoyed reading it, and getting awareness about the future of India.
Thanks a lot for sharing such important and useful information.

I have another story suggestion for you:-

If you are in India, please do an investigative story on Bollywood Star Sri Devi’s death. I think she was murdered, but the Indian media and government are portraying it as a normal death, which it is not. She has surely been murdered. Please investigate and share your findings here on steemit.

Keep up the great work of true journalism. Keep Steeming. Wishing you all the best.

Upvoted, resteemed and started following you.

Well he hasn't taken only from punjab national bank, there are various banks from which he has took the loan, and now he is a defaulter, I live in India in jammu and kashmir, he has took some amount of loan from that bank too, well he has took large amount of money from the punjab national bank that is why it comes in news very often, I don't get why such a reputable person does such a mischievous act, he was a known business man, known for his jewellery, his jewellery was used not only by Bollywood stars but also by Hollywood stars, and I am not able to get how was he able to leave from India, maybe some inside men helped him.

Frauds here there everywhere.... Gods made this place to live peacefully & see what people have been doing here..

Thanks for sharing this message.Always we can gather many updates from your blog.
Thank you so much.
@resteem & follow done.

This is a look into the future for the west.. use our bank or go without money.


Yes but James, Prince Charles told me to 'tighten my belt', so he can save humanity...

completely he hasn't full merely from punjab resident bank, near are assorted banks from which he has took the loan, and at this point he is a defaulter, I live in India in jammu and kashmir, he has took certain sum of give somebody an advance of from that mass too, precisely he has took chubby quantity of cash from the punjab native panel that is why it comes in news actual often, I don't understand why such a highly regarded guise does such a ill-behaved act, he was a branded firm man, notorious for his jewellery, his jewellery was old not barely by Bollywood stars but plus by Hollywood stars, and I am not gifted to acquire how was he skilled to time off from India, perhaps more or less inside men helped him.

"Just ask Jimmy Savile."

Ouf! Maybe he will soon, in hell. OTOH, it is hard to deride someone that has done so much to reveal the insanity of trusting banks, and struck a potentially mortal blow to one that has been so harshly demeaning and crushing the the Indian people.

As bad as ordinary hacking and phishing attacks are, consider how much more devastating they will be when biometric data is part of the proceeds of such attacks. When the hackers have your retinal scans, fingerprints, and DNA, how do you recover your identity?

The decashification of India is intended to be a model for the rest of the world, as cash is too easy to hide from digital snoops intent on securing their cut of your labors, and this ramming of the duplicity of Indian banks into the public eye may be the best thing that ever happened to hapless Indian people being herded into economic corrals for the benefit of their parasitic overlords.


Would never have heard about it other than this. Thanks James.

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