How Mehul Choksi Involved in Rs. 13,500 Crore Punjab National Bank Scam with Nirav Modi, Arrested in Belgium

Mehul Choksi was arrested in Belgium on Monday after India's extradition request for his suspected participation in the PNB loan scam case.

What was the Rs 13,500 Crore Scam in Punjab National Bank?

In 2018, India's financial sector faced a major jolt when Punjab National Bank (PNB), the second-largest state-owned bank by assets, revealed a massive fraud case. The scam, amounting to around Rs. 13,500 crore, was traced back to a single branch in Mumbai. High-profile individuals such as billionaire jeweller Nirav Modi and his uncle Mehul Choksi, who was then the managing director of Gitanjali Gems, were allegedly involved in orchestrating the fraud, which sent shockwaves across the banking and corporate sectors.

Mehul Choksi and Nirav Modi are accused of conspiring with a few corrupt bank employees to obtain the bank's systems to get false Letters of Undertaking (LoUs), which enabled them to loot huge amounts of funds under the cover of trade finance.On January 29, 2018, the PNB submitted its initial fraud report to the Reserve Bank of India (RBI). The Central Bureau of Investigation (CBI) thereafter received a criminal complaint from the bank.

On February 7, a second fraud report and CBI complaint were filed by PNB. By February 13, a formal complaint had been filed against Chandri Paper & Allied Products Pvt Ltd, the Gitanjali Group, and the Nirav Modi Group. The Enforcement Directorate (ED) also started the concurrent investigations into suspected money laundering case against Modi and Chouski.

Bank LoUs, Primary Instrument in PNB Scam

The primary instrument used in the scam was LoUs, which are bank guarantees given by Indian bank branches abroad to enable short-term lending for business purposes. These LoUs are used for commercial or trade transactions rather than being issued against typical retail purchases.

According to investigators, in March 2011, Nirav Modi started obtaining the LoUs from PNB's Brady House office in Mumbai. He was able to secure 1,212 of these guarantees over the course of the following six years, which is significantly more than the 53 actual LoUs that were granted to his companies during that time.

Who was the PNB insider involved in the scam that helped Mehul Choksi and Nirav Modi?

Bank insider, notably Gokulnath Shetty, the then-Deputy General Manager, reportedly bypassed basic banking processes to provide these guarantees, allowing the scam to go undiscovered for years.

Mehul Choksi was a major player in the scam through his company Gitanjali Gems and other related businesses. Choksi has been accused by the ED of defrauding PNB in collusion with corrupt bank employees. He procured LoUs fraudulently and possessed increased FLCs without following the banking protocols.

Under the pretence that they needed the money to import pearls, they obtained loans from Indian banks' overseas branches by illegally obtaining guarantees worth $1.77 billion, or Rs 11,400 crore. The money was purportedly laundered and diverted rather than being utilised for the purported importation of pearls and other commodities.

CBI and ED Charges Against Mehul Choksi

To date, Choksi has been charged with three crimes by the CBI and ED, including embezzlement, money laundering, and criminal conspiracy.

Where is Nirav Modi after the PNB scam?

Days before a formal complaint against Nirav Modi and his accomplices in the Punjab National Bank scam was filed, Modi fled India in 2018. He avoided being arrested and investigated right away by leaving the country before any legal action could be done. Serious concerns were raised by his abrupt departure on how he managed to get away while being investigated for such a significant financial scam.