Analysis of the Punjab National Bank Scam: Key Players and Structural Failures
Mehul Choksi was arrested in Belgium, connected to the Rs 14,000 crore Punjab National Bank scam orchestrated by him and Nirav Modi. This fraud involved fraudulent Letters of Undertaking and exploitation of the SWIFT system, remaining undetected for years due to internal collusion and failures in banking oversight. The incident prompted major reforms in India’s banking sector.
In a significant development, Mehul Choksi, the fugitive diamond trader, was arrested in Belgium, following a request for his extradition by India. This arrest reignites the notorious Punjab National Bank (PNB) scam, initially valued at approximately Rs 13,500 crore, later revised to Rs 13,850 crore, orchestrated by Nirav Modi and his uncle Choksi.
The scam, revealed by Punjab National Bank in January 2018, involved fraudulent practices including bribery and international money laundering. Modi and Choksi exploited legal loopholes to siphon nearly Rs 14,000 crore from PNB’s Mumbai branch, using fraudulent Letters of Undertaking (LoUs), which are typically legitimate instruments for companies seeking short-term credit.
From March 2011 to November 2017, Modi’s companies secured 1,212 LoUs from PNB. Of these, only 53 were legitimate. The perpetrators colluded with bank officials who were allegedly bribed to issue LoUs without authorization, enabling them to maintain their fraud undetected for years by exploiting the SWIFT system for fund transfers.
Discovery of the fraud came when PNB reported it to India’s Reserve Bank on January 25, 2018. Subsequently, the Central Bureau of Investigation (CBI) charged Modi and initiated searches across his properties. On February 16, reports indicated that 150 fraudulent LoUs were processed by PNB officials.
Internal oversight failed significantly, as the Reserve Bank adopted a broad audit approach, employing multiple auditing firms over several years without a focused examination. This negligence allowed the manipulation of banking systems and failed to integrate SWIFT operations with PNB’s core systems, contributing to the prolonged scam.
The Punjab National Bank scam underscored critical failures in banking oversight and compliance, leading to significant financial reform. The arrests of key players like Mehul Choksi indicate a turning point in the ongoing investigations. Enhanced auditing measures and the prohibition of LoUs have since been implemented to prevent such frauds in the future.
Original Source: www.ndtv.com
