Translating Nirav Modi Scandal and PNB Fraud: A quick Google search of Nirav Modi will get you tons of glittering pictures along with stunning actresses from Bollywood and Hollywood. However, peeling off those images exhibits a giant swindler. The Punjab National Bank (PNB) swindle or Nirav Modi Scandal, amounting to a whopping ₹11,356.84 crores is the most massive scam in the annals of India’s banking.
In this piece, we’ll dissect the PNB Fraud or the Nirav Modi scam, discover the mastermind behind it, and dissect how this diamond titan managed to drain billions from the country.
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Who Exactly is Nirav Modi?
Nirav Modi is an illustrious diamond jeweler and designer, who has his name featured on the list of India’s diamond royalty. Forbes enlisted him on the 57th position on its list of billionaires in 2017. Born into a diamond business family in Gujarat, Nirav Modi was raised in Belgium.
Having attended the Wharton School at the University of Pennsylvania, Modi dropped out and joined his father to learn trade under his uncle Mehul Choksi’s business at the tender age of 19. Mehul Choksi was also the head honcho of the Gitanjali Group which boasts holding 4000 retail jewelry stores throughout the country.
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Tutored under him, Modi grasped the nitty-gritty of the diamond industry which led him to found the diamond sourcing and trading company, ‘Firestar’ in 1999. Subsequent successes brought him to acquire other exemplary jewelry businesses. These included well-established businesses like Frederick Goldman in 2005, and Sandberg & Sikorski and A.Jaffe in 2007 in the USA.
In 2010, he launched his diamond stores in various spectacular locations, such as Delhi, Mumbai, New York, Hong Kong, London, and Macau. Modi gathered the limelight after designing the famous “Golconda Lotus Necklace” embedded with an aged, 12-carat, pear-shaped diamond in 2010 and the Riviere of Perfection, featuring 36 flawless white diamonds, accumulating a total of 88.88 carats, sold at Sotheby’s auction.
Having significant personalities like Donald Trump, actress Naomi Watts, and model Coco Rocha at his New York store launch, the shop also offered big luxury brands including Hermes, Chanel, Prada, and Gucci. Landing this store incurred a whopping amount of $1.5 million for a year.
Modi’s career peaked as one of the Indian diamond tycoons with Kate Winslet donning his jewelry for the Oscars. Everything was smooth until the scandal news broke out.
How Was Nirav Modi Able to Execute The Scam?
The commencement of the scandal happened in 2011, long before it surfaced in 2018. To execute the scandal, Nirav Modi utilized a banking instrument known as the LOU (Letters of Undertakings). An LoU works as a bank guarantee allowing its customers to raise short-term loans. These loans can be raised from Indian banks’ foreign branches overseas.
Being involved in importing diamonds from foreign countries, Modi had to deal with foreign currencies. To do that, he approached foreign branches of Indian banks that offered cheaper rates. But the question here is what collateral could Modi provide? The answer to this is where LOUs come into the picture. Nirav Modi approached PNB for an LOU which was used as collateral for these short-term loans.
However, these LOUs are bound to collateral condition in the domestic bank issuing the LOU. But PNB overlooked this requirement and dispensed the LOUs trusting Modi’s guarantee.
(Nirav Modi as he chats with Prince Charles)
With successful business growth in 5 years that would have generally taken 20 years, Modi seemed to have a smooth ride with his scandal. But when it came to paying back, Modi had planned to eventually list his “successful” company with securities sold at a premium. These funds would then be utilized to pay off the billions in debt.
But the real shocker came in 2018 when one of Modi’s companies (Diamonds R Us, Solar Exports, and Stellar Diamonds) approached PNB for LOUs, the bank employees demanded 100 per cent cash margins. Contesting against this, Nirav Modi’s companies claimed that they had availed LOUs without collateral before.
This drew the attention of PNB officials towards their accounts which later revealed irregularities of Rs. 280.7 crores and promptly lodged an FIR with the CBI for fraudulent LOUs issued. As the officials further unfolded the scam, by May 18, 2018, the scam had escalated to over Rs 14,000 crore.
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What Potential Aftereffects Did the Scam Bring?
The professional and personal fallouts after the scam were unparalleled. Citizens were outraged knowing that one businessman could potentially squander billions. This came after the Vijay Mallya scandal.
But the main culprits, Nirav Modi, his wife, younger brother and Mehul Chowksi had already left the country when the news broke out. Since the loans were taken from Indian banks in foreign countries, it almost wrecked the entire banking sector of India. Indian government had to step in to salvage the conditions.
Many PNB officers were arrested in the following investigation. Top PNB officials defended themselves by blaming a few of the bank employees for the scam. They explained that the scam occurred due to irregularities in the banks’ SWIFT systems. However, it was implausible to assume that the loss of billions could occur without the involvement of top bank officials.
(PNB Scam Informant –Hari Prasad)
An intriguing shift in the case occurred when reports regarding the informant, jeweller Hari Prasad, came to light. In 2016, he penned exhaustive letters about the ongoing scam to the Prime Minister’s office, drawing attention to PNB and urging for action. These letters were merely acknowledged by the PMO and passed on to the Registrar of Companies.
The RoC dismissed the case, which caused the scam to take a political angle. The Opposition was pointing fingers at the Modi government for being complacent, whereas the government retorted that the original LOUs were issued under the Congress’s watch.
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Final Thoughts
Regardless who perpetrates the scam or who gets embroiled in it, the common people always bear the brunt. This was the case with the Nirav Modi deception, also known as the PNB fraud. Ultimately, it’s the public’s hard-earned money deposited in PNB bank. Nirav Modi is currently living a comfortable life overseas, despite the accusations. We can only hope that justice will eventually prevail in the PNB fraud case.
Aron, with a degree in Commerce from Mangalore University, dove into Equity research to satisfy his financial market curiosity. Outside of work, he can be found binge watching a show, supporting RCB, and daydreaming about his upcoming trip to Kasol. Also, he strongly believes in teaching children about taxes by eating their ice cream.
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