MUMBAI/NEW DELHI: The Rs 13,600 crore fraud at Punjab National Bank (PNB) can have been orchestrated by way of a few rogue staff, nevertheless it escaped detection on account of popular risk-control and tracking lapses in many spaces of the bank, the bank’s own interior probe has found.
PNB, second-biggest state-controlled lender, has up to now alleged that a handful of staff at a single Mumbai branch issued faux bank guarantees over several years to help two jewellery teams - controlled by way of Indian diamond multi-millionaire Nirav Modi and his uncle Mehul Choksi - carry billions of dollars in foreign credit score and commit India’s biggest-ever bank fraud.
The bank’s CEO Sunil Mehta informed Reuters in April he had suspended 21 officers and “will not spare” others found all in favour of lapses, but he also described the fraud as a “small turmoil”.
However, a 162-page interior report, produced by way of PNB officers tasked with probing the fraud, lays bare lapses that move some distance beyond a few branch officers. The report, a duplicate of which was reviewed by way of Reuters, lays out how failings by way of 54 PNB officers - starting from clerks to foreign exchange managers, and auditors to heads of regional offices, allowed the fraud to be perpetrated. Eight of the 54 are amongst those who have been charged by way of the police for his or her roles within the scandal.
The report, which the PNB officers introduced to the bank’s fraud risk control arm on April 5, at the side of dozens of pages of annexed bank records and interior e-mails, is also part of the proof submitted by way of the federal police in its court docket case towards those allegedly involved within the fraud. The report’s findings have not up to now been made public.
DAMNING CONCLUSIONS
The unearthing of the fraud in January has not most effective uncovered shortcomings within the control of PNB, but has also undermined confidence in India’s state-run banking sector, which controls over two-thirds of the nation’s bank property.
The damning conclusions of the report stand in contrast to the loss of regulatory action taken by way of the government for the reason that fraud was reported.
No penalty has been imposed on PNB as a result of the fraud and there has been no senior control shake-up.
A PNB spokesman informed Reuters the bank “can not share details on a sub-judice case”. He added: “We must reiterate that we will be able to not spare any one who is found responsible without reference to the level or place within the bank,” he said.
PNB did not reply to a query about what action was taken towards the “erring” officers mentioned within the report.
The Reserve Bank of India (RBI) and the banking secretary, Rajiv Kumar, didn’t reply to requests for comment.
The report does not say whether the PNB investigators imagine those involved within the tracking disasters have been aware of the fraud.
Significantly, they said one of the causes the fraud went undetected for years was on account of lapses inside of one of the crucial bank’s essential spaces at its New Delhi headquarters, equivalent to its credit score overview and world banking units.
“There was enough proof to indicate disasters,” the staff of 4 senior PNB investigators said in its report. “It was seen that blatant gadget violations/unethical practices/dereliction of duties led bank to the sort of disaster.”
FRAUD AT BRADY HOUSE
The epicentre of the fraud was PNB’s Brady House branch, housed in a building with a majestic colonial facade in downtown Mumbai. From there, deputy manager Gokulnath Shetty for years issued fraudulent credit score guarantees over the SWIFT interbank messaging network, the bank and prosecutors have alleged.
Using those guarantees, corporations controlled by way of Nirav Modi, whose jewellery creations have been once embellished by way of global celebrities, and Choksi, won credit score from banks in a foreign country to fraudulently fund their companies, PNB alleges.
Modi and Choksi, either one of whom left India prior to PNB filed its first police grievance on January 29, have denied any wrongdoing.
Shetty’s lawyer has said his consumer isn't responsible.
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All face charges of legal conspiracy and cheating, as well as allegations beneath the prevention of corruption law. A police supply informed Reuters on Monday the Central Bureau of Investigation (CBI) ultimate week asked the world police company Interpol to help find Modi and Choksi.
Calls and text messages to attorneys for Modi and Choksi went unanswered.
LACK OF INTEGRATION
Shetty escaped detection as a result of he did not log his SWIFT transactions at the bank’s interior device - one thing he was intended to do because the two methods were not built-in.
PNB investigators said the bank’s world banking division and the IT department had behind schedule the integration work. They had also not complied with central bank advisories in 2016 calling for a comprehensive audit of SWIFT methods in use.
But more merely, the fraud could have been detected if the branch did the fundamental day-to-day SWIFT reconciliation that, in line with interior regulations, required logs of transactions at the global payments network to be manually checked towards the bank’s interior gadget, the investigators said.
“Only one activity would have nailed the entire act at the incipient degree,” said the report.
The lapses, alternatively, prolonged beyond the branch.
As consistent with protocol, the day-to-day reconciliation stories must go back and forth up the chain to PNB’s headquarters in New Delhi. Along the best way, they might be signed off by way of the Brady House branch head and despatched each and every month to a Mumbai town regional workplace that may issue all-clear certificates for the branches it controls.
But despite receiving just two of the 12 monthly stories from the Brady House branch ultimate yr, the regional workplace signed off on a “false” compliance certificates, signalling a blank invoice of well being for the branch, the report said.
Moreover, despite a massive missing paper trail, none of the senior inspection officers, who performed 10 visits between 2010 and 2017 to the branch, reported anything “opposed”, PNB’s report stated.
MISSED MAJOR RED FLAG
The Mumbai town regional workplace also overlooked every other necessary purple flag - the Brady House branch was a celebrity performer, largely on account of its dealings with Modi companies, the PNB report said.
Its import and export transactions within the 12 months to March 2017 stood at $three.three billion, 50 consistent with cent upper than recorded two years prior. “The remarkable expansion must have been noticed,” the report said.
A former PNB interior audit authentic who declined to be identified but reviewed the expansion numbers mentioned within the report for Reuters, said: “This was sufficient to raise a reason of shock and the explanations thereof must have been investigated.”
Signs that audit practices at Brady House have been susceptible have been also flagged by way of the branch itself, in line with two interior PNB documents reviewed by way of Reuters.
In March 2012, the branch said in an interior memo that an almost 50 p.c of the observations flagged in its annual inspection report – mainly auditor queries - remained “un-replied/unattended to by way of respective concerned officers”, calling it a “essential situation”.
Four years later, in 2016, the branch’s assistant general manager issued an interior memo pronouncing around 18 observations — 5 described as zero-tolerance point problems — have been pending. The memo was signed by way of 10 bank officers, including Shetty.
LATE-NIGHT EMAILS
Shetty joined the forex department at Brady House in April 2010. In March 2011, the branch issued the first faux credit score guarantees of $15.5 million to Modi’s companies through SWIFT messages, bypassing the inner banking gadget, the PNB investigators said.
Over the approaching years, Shetty approved more than 1200 fraudulent credit score guarantees, the report said.
As a mid-level worker, Shetty must most effective have been able to approve transactions of as much as Rs 25 lakh ($37,000) with out sign-off from more senior officers. But he have been given limitless approval powers, the investigators said with out explaining how this happened.
In the few weeks prior to his retirement in May ultimate yr, Shetty used his personal Yahoo email address to send 22 e-mails — 18 at around middle of the night — to reconcile huge forex transactions involving the Modi group. The use of personal email was “overpassed” by way of the bank’s treasury division, the report said.
Under PNB policy, no officer must stay in the similar workplace for more than three years, but Shetty retired after serving in Brady House for seven years. Three transfer orders have been issued for him right through his tenure, but he was by no means moved, the investigators found.
The report said that it's “incomprehensible” that branch staff did not understand the fraud being dedicated.
PNB, second-biggest state-controlled lender, has up to now alleged that a handful of staff at a single Mumbai branch issued faux bank guarantees over several years to help two jewellery teams - controlled by way of Indian diamond multi-millionaire Nirav Modi and his uncle Mehul Choksi - carry billions of dollars in foreign credit score and commit India’s biggest-ever bank fraud.
The bank’s CEO Sunil Mehta informed Reuters in April he had suspended 21 officers and “will not spare” others found all in favour of lapses, but he also described the fraud as a “small turmoil”.
However, a 162-page interior report, produced by way of PNB officers tasked with probing the fraud, lays bare lapses that move some distance beyond a few branch officers. The report, a duplicate of which was reviewed by way of Reuters, lays out how failings by way of 54 PNB officers - starting from clerks to foreign exchange managers, and auditors to heads of regional offices, allowed the fraud to be perpetrated. Eight of the 54 are amongst those who have been charged by way of the police for his or her roles within the scandal.
The report, which the PNB officers introduced to the bank’s fraud risk control arm on April 5, at the side of dozens of pages of annexed bank records and interior e-mails, is also part of the proof submitted by way of the federal police in its court docket case towards those allegedly involved within the fraud. The report’s findings have not up to now been made public.
DAMNING CONCLUSIONS
The unearthing of the fraud in January has not most effective uncovered shortcomings within the control of PNB, but has also undermined confidence in India’s state-run banking sector, which controls over two-thirds of the nation’s bank property.
The damning conclusions of the report stand in contrast to the loss of regulatory action taken by way of the government for the reason that fraud was reported.
No penalty has been imposed on PNB as a result of the fraud and there has been no senior control shake-up.
A PNB spokesman informed Reuters the bank “can not share details on a sub-judice case”. He added: “We must reiterate that we will be able to not spare any one who is found responsible without reference to the level or place within the bank,” he said.
PNB did not reply to a query about what action was taken towards the “erring” officers mentioned within the report.
The Reserve Bank of India (RBI) and the banking secretary, Rajiv Kumar, didn’t reply to requests for comment.
The report does not say whether the PNB investigators imagine those involved within the tracking disasters have been aware of the fraud.
Significantly, they said one of the causes the fraud went undetected for years was on account of lapses inside of one of the crucial bank’s essential spaces at its New Delhi headquarters, equivalent to its credit score overview and world banking units.
“There was enough proof to indicate disasters,” the staff of 4 senior PNB investigators said in its report. “It was seen that blatant gadget violations/unethical practices/dereliction of duties led bank to the sort of disaster.”
FRAUD AT BRADY HOUSE
The epicentre of the fraud was PNB’s Brady House branch, housed in a building with a majestic colonial facade in downtown Mumbai. From there, deputy manager Gokulnath Shetty for years issued fraudulent credit score guarantees over the SWIFT interbank messaging network, the bank and prosecutors have alleged.
Using those guarantees, corporations controlled by way of Nirav Modi, whose jewellery creations have been once embellished by way of global celebrities, and Choksi, won credit score from banks in a foreign country to fraudulently fund their companies, PNB alleges.
Modi and Choksi, either one of whom left India prior to PNB filed its first police grievance on January 29, have denied any wrongdoing.
Shetty’s lawyer has said his consumer isn't responsible.
ADVERTISING
All face charges of legal conspiracy and cheating, as well as allegations beneath the prevention of corruption law. A police supply informed Reuters on Monday the Central Bureau of Investigation (CBI) ultimate week asked the world police company Interpol to help find Modi and Choksi.
Calls and text messages to attorneys for Modi and Choksi went unanswered.
LACK OF INTEGRATION
Shetty escaped detection as a result of he did not log his SWIFT transactions at the bank’s interior device - one thing he was intended to do because the two methods were not built-in.
PNB investigators said the bank’s world banking division and the IT department had behind schedule the integration work. They had also not complied with central bank advisories in 2016 calling for a comprehensive audit of SWIFT methods in use.
But more merely, the fraud could have been detected if the branch did the fundamental day-to-day SWIFT reconciliation that, in line with interior regulations, required logs of transactions at the global payments network to be manually checked towards the bank’s interior gadget, the investigators said.
“Only one activity would have nailed the entire act at the incipient degree,” said the report.
The lapses, alternatively, prolonged beyond the branch.
As consistent with protocol, the day-to-day reconciliation stories must go back and forth up the chain to PNB’s headquarters in New Delhi. Along the best way, they might be signed off by way of the Brady House branch head and despatched each and every month to a Mumbai town regional workplace that may issue all-clear certificates for the branches it controls.
But despite receiving just two of the 12 monthly stories from the Brady House branch ultimate yr, the regional workplace signed off on a “false” compliance certificates, signalling a blank invoice of well being for the branch, the report said.
Moreover, despite a massive missing paper trail, none of the senior inspection officers, who performed 10 visits between 2010 and 2017 to the branch, reported anything “opposed”, PNB’s report stated.
MISSED MAJOR RED FLAG
The Mumbai town regional workplace also overlooked every other necessary purple flag - the Brady House branch was a celebrity performer, largely on account of its dealings with Modi companies, the PNB report said.
Its import and export transactions within the 12 months to March 2017 stood at $three.three billion, 50 consistent with cent upper than recorded two years prior. “The remarkable expansion must have been noticed,” the report said.
A former PNB interior audit authentic who declined to be identified but reviewed the expansion numbers mentioned within the report for Reuters, said: “This was sufficient to raise a reason of shock and the explanations thereof must have been investigated.”
Signs that audit practices at Brady House have been susceptible have been also flagged by way of the branch itself, in line with two interior PNB documents reviewed by way of Reuters.
In March 2012, the branch said in an interior memo that an almost 50 p.c of the observations flagged in its annual inspection report – mainly auditor queries - remained “un-replied/unattended to by way of respective concerned officers”, calling it a “essential situation”.
Four years later, in 2016, the branch’s assistant general manager issued an interior memo pronouncing around 18 observations — 5 described as zero-tolerance point problems — have been pending. The memo was signed by way of 10 bank officers, including Shetty.
LATE-NIGHT EMAILS
Shetty joined the forex department at Brady House in April 2010. In March 2011, the branch issued the first faux credit score guarantees of $15.5 million to Modi’s companies through SWIFT messages, bypassing the inner banking gadget, the PNB investigators said.
Over the approaching years, Shetty approved more than 1200 fraudulent credit score guarantees, the report said.
As a mid-level worker, Shetty must most effective have been able to approve transactions of as much as Rs 25 lakh ($37,000) with out sign-off from more senior officers. But he have been given limitless approval powers, the investigators said with out explaining how this happened.
In the few weeks prior to his retirement in May ultimate yr, Shetty used his personal Yahoo email address to send 22 e-mails — 18 at around middle of the night — to reconcile huge forex transactions involving the Modi group. The use of personal email was “overpassed” by way of the bank’s treasury division, the report said.
Under PNB policy, no officer must stay in the similar workplace for more than three years, but Shetty retired after serving in Brady House for seven years. Three transfer orders have been issued for him right through his tenure, but he was by no means moved, the investigators found.
The report said that it's “incomprehensible” that branch staff did not understand the fraud being dedicated.
54 'failed' officials, late night e-mails, missed red flags: Report on PNB fraud
![54 'failed' officials, late night e-mails, missed red flags: Report on PNB fraud]()
Reviewed by Kailash
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June 20, 2018
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