The Fraud Examiner

How a Nearly $2 Billion Fraud in India Continued Undetected for 6 Years
 

Mason Wilder, CFE                       
Research Specialist, Association of Certified Fraud Examiners                                 



Many large-scale frauds have had lasting impacts on companies, industries and even countries. Some negative, some positive. In the case of India’s Punjab National Bank (PNB) and its still-unfolding fraud scandal, there are indications that the ultimate result could be a much more fraud-resistant banking system in one of the world’s fastest-growing economies.

The Fraud: What Happened?

In February, state-run lender PNB disclosed exposure to a loss of just less than $1.8 billion due to fraudulent loan guarantees given to famous jeweler Nirav Modi and companies related to his uncle Mehul Choksi. The initial PNB disclosure led to two junior bank officials’ arrests and kicked off a scandal that, as of publication, continues expanding in scale, scope and potential implications.

As it stands, allegations suggest that several PNB employees at the Brady House branch in Mumbai issued fraudulent Letters of Undertaking (LoUs) that functioned as loan guarantees to Modi and Choksi’s companies over a period of six years, using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. The fraudulent LoUs sent to foreign branches of Indian state-run banks, or public service banks (PSBs), allowed Modi and the Choksi companies to obtain loans based on the PNB guarantees. At least one PNB official allegedly received bribes and kickbacks in the form of gold coins and jewelry in return for authorizing the LoUs.


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