In 2018, Punjab National Bank (PNB), India’s second-largest state-run bank, reported a colossal fraud that rocked the financial community. The Rs. 13,500 crore fraud was traced to one Mumbai branch and involved high-profile individuals like billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems.
Choksi was arrested in Belgium this week after India sought his extradition on account of his involvement in the PNB fraud case. Let’s read about the scam in detail and how Choksi
How the Scam Unfolded?
PNB filed its first fraud report with the Reserve Bank of India (RBI) on January 29, 2018, and followed it with a criminal complaint to the Central Bureau of Investigation (CBI). A second fraud report and complaint were filed on February 7, leading to an FIR against Nirav Modi’s companies, Gitanjali Group, and Chandri Paper & Allied Products Pvt Ltd by February 13. The Enforcement Directorate (ED) also launched parallel investigations into alleged money laundering.
LoUs, which are usually employed for export transactions and never for retail, were the focal point of the scam. The investigators say Modi started obtaining these guarantees from PNB’s Brady House branch at Mumbai from as long ago as March 2011. During the next six years, he received 1,212 LoUs, which is a far cry from 53 authentic LoUs extended to his companies during the same timeframe.
The fraud remained undetected for years because of the collusion of bank insiders, among them then Deputy General Manager Gokulnath Shetty, who avoided PNB’s core banking systems to issue these guarantees. The money, which Modi had alleged he needed to import pearls, was diverted and laundered. Total fraudulent guarantees of $1.77 billion (Rs. 11,400 crore) were availed to obtain loans from foreign branches of Indian banks.
Modi left India in 2018 mere days before the case was made public.
Role of Mehul Choksi
Mehul Choksi was heavily involved in the scam through his firm, Gitanjali Gems, and other related firms. The Enforcement Directorate (ED) states that Choksi and his companies conspired with tainted bank officers to obtain LoUs fraudulently and illicitly increase Foreign Letter of Credit (FLC) limits outside of proper banking norms.
This resulted in huge losses for PNB but benefited the individuals and firms involved. Three charge sheets have been filed by the CBI and ED against Choksi, outlining his role in criminal conspiracy, money laundering, and embezzlement.
Shortly before the scam was revealed, Mehul Choksi escaped from India, subsequently obtaining citizenship of Antigua and Barbuda under a special investment scheme. His escape led to a prolonged legal and diplomatic tussle as Indian officials attempted his extradition.
In a dramatic turn of events in 2021, Choksi went missing in Antigua and turned up in Dominica, reportedly trying to make his way to Cuba. He accused kidnappers of abducting him, which made his extradition further difficult.
In India, there is a special court for PMLA (Prevention of Money Laundering Act) hearing the Enforcement Directorate’s appeal to make Mehul Choksi an Fugitive Economic Offender (FEO). If allowed, this will enable the government to proceed to confiscate his assets. It should be recalled that Nirav Modi was made an FEO in 2019, while the case of Choksi has been pending since 2018.
