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The Nirav Modi PNB bank fraud that saw the owner flee the country

Nirav Modi store

The Nirav Modi-PNB bank fraud, also known as the Punjab National Bank scam, was a major financial scandal that unfolded in India in 2018.

The fraud allegedly involved jeweller Nirav Modi and his associates, who accused of manipulating the banking system to fraudulently obtain funds from Punjab National Bank (PNB), one of India's largest public sector banks.

The scam came to light when PNB discovered fraudulent transactions worth around ₹11,400 crore (approximately $1.8 billion) at its Brady House branch in Mumbai.

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The fraud involved the issuance of fraudulent Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) by PNB officials in collusion with Nirav Modi's companies.

LoUs are a form of credit guarantee provided by a bank to facilitate overseas trade. In this case, PNB officials issued LoUs without following proper procedures and without securing the required collateral from Nirav Modi's firms.

These fraudulent LoUs were then used to obtain credit from other banks, both within India and abroad.

Nirav Modi's companies, including his flagship firm Firestar Diamond International, used fraudulently obtained funds to purchase rough diamonds and other precious stones.

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It is alleged money was laundered through a complex network of shell companies based in multiple countries.

Nirav Modi. Image: Wiki Commons/The Times of India

The scam exposed several loopholes and deficiencies in PNB's systems and processes, such as the lack of proper controls, weak oversight, and inadequate risk management.

The fraud remained undetected for an extended period due to the failure of internal checks and balances within the bank.

Following the disclosure of the fraud, Nirav Modi and his uncle, Mehul Choksi, who was also implicated in the scam, fled the country.

Interpol issued Red Notices against them, and the Indian government initiated extradition proceedings to bring them back to face trial.

The PNB-Nirav Modi fraud case led to significant repercussions in the Indian banking sector and triggered a series of reforms.

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The incident prompted the government and regulators to tighten banking regulations, improve internal controls, and enhance supervision to prevent similar frauds in the future.

The investigation into the scam is ongoing, and efforts are being made to recover the defrauded funds and bring the perpetrators to justice.

Modi is currently being held in jail in the UK.

He argues he won't get a fair trial in India, despite the Home Office signing off an order for his extradition to face trial.

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