Punjab National Bank (PNB) employees linked to the Rs 13,800 crore loan fraud have bought assets abroad and maintained overseas bank accounts, investigators have said. Details unearthed by investigating agencies CBI and the Enforcement Directorate reveal that the employees may have used funds from the Nirav Modi scam to create overseas assets, the Economic Times reported on Wednesday.
The unnamed sources told the business daily that the bank has started proceedings to recoup the funds from the rogue employees. The bank has sought legal opinion in the matter, the report said.
"While only a few employees have been named till now, more employees could be involved in the fraud. The bank has been intimated about the development," the report quoted an undisclosed source as saying. "Investigating agencies like CBI and ED do not have jurisdiction outside India and may not be able to recover the money. A legal strategy is being put in place as to how to deal with the employee situation," one of the sources added.
In a revelation that rattled Indian banking sector and plunged the markets into chaos, PNB revealed in February that diamond merchant Nirav Modi had defrauded the bank of Rs 13,800 crore by manipulating the Letter of Undertaking (LoU) in connivance with bank staff.
Dozens of LoUs issued by the senior staff at one of the Mumbai branches of the bank enabled Modi and his uncle Mehul Choksi avail millions of dollars from overseas branches of other Indian banks.
LoUs are used to provide credit guarantee of up to $20 million for exporters at a time. Public sector Category-I banks had the permission to offer these guarantees. In the PNB scam, multiple fraudulent letters were issued by the bank staff, allowing jewelers Nirav Modi and Mehul Choksi defraud banks. Overseas branches of many leading banks advanced funds to Modi on the PNB guarantees, resulting in massive loses to India's No. 2 lender.
Investigators have found that the jewelers, instead of using funds for the stated purpose round-tripped the cash through the hawala route. In most cases, Modi and associates brought the money raised overseas through LoUs back to India the same day through fake transactions to Indian shell companies they owned.
Not an easy process
"In Nirav Modi's companies, money was diverted after a few days through bogus transactions, but in Choksi's companies, including Gitanjali Gems, there were many instances when the money returned to India within 24 hours," an officer involved in the probe said.
Investigators believe that more PNB staff may have been part of the Nirav Modi scam and stashed funds away overseas. CBI has booked seven PNB employees in connection with the massive fraud. While the bank has started processes to recover the money, legal experts have said it may not be an easy process. "It would be tough to recover these assets as in most instances people don't create assets in their own name outside India. PNB will have to eventually prove in the court of law that a conspiracy was hatched by their employees against the bank and that the bank is a victim," Zulfiquar Memon, Managing Partner of law firm MZM Legal, told ET.
