Financial Fraud

A Glittering MirageNirav Modi, a name once synonymous with opulence, ran a global luxury jewellery empire. Celebrities endorsed his brand, fashion shows flaunted his pieces, and high-end boutiques around the world showcased his creations. But behind the diamonds was a deception worth nearly $2 billion. His empire, built with his uncle Mehul Choksi, unraveled in 2018 when Punjab National Bank (PNB) exposed one of India’s largest banking frauds in history.How the Scam Worked: LoUs and Loopholes “Over 1,200 Letters of Undertaking were issued without recording them in the core banking system. That’s not oversight—it’s orchestration.” The fraud centered on Letters of Undertaking (LoUs)—bank guarantees issued by PNB promising repayment to overseas branches of Indian banks. Between 2011 and 2017, insiders like Gokulnath Shetty, a deputy manager at PNB’s Brady House branch, bypassed protocol. They issued LoUs: Without collateral Without internal approvals Without recording them in the Core Banking System (CBS)Meanwhile, they used SWIFT, the global financial messaging system, to authorize overseas credit—creating invisible liabilities.The Cracks Begin to ShowIn January 2018, after Shetty's retirement, a new official demanded proper documentation. The house of cards began to collapse when Nirav Modi’s representatives objected.An internal inquiry triggered an avalanche: PNB’s share prices nosedived RBI was informed The CBI initiated investigations Public trust in public sector banks was shattered “A fraud of this magnitude wasn’t just missed—it was enabled.”The Legal LabyrinthNirav Modi fled India just weeks before the fraud was detected. Arrested in London in 2019, his extradition remains stuck in a legal maze, reportedly involving a confidential asylum claim. Mehul Choksi gained Antiguan citizenship before disappearing in 2021 and was later found in Dominica. In a dramatic turn, he was arrested in Antwerp, Belgium in April 2025, with extradition proceedings now underway.Asset Recovery: The Long RoadThe Enforcement Directorate (ED) has attached assets worth over ₹2,500 crore. However, the real challenge lies in liquidation and actual recovery. So far, only a fraction of the defrauded amount has been reclaimed. “Chasing jewels across continents is easier than liquidating them under international law.”Lessons from a Fraud ExaminerInternal Controls Are Non-Negotiable Segregation of duties, mandatory rotation of sensitive roles, and strict collateral checks could have prevented the fraud.Technology Needs Governance SWIFT should never operate in isolation. Integration with CBS was mandated by RBI post-fraud, but should’ve been a standard practice.Audits Must Probe Deep Both internal and external audits failed to uncover discrepancies. Red flags were ignored or perhaps hidden.The Human Element is Key Ethical culture, whistleblower protection, and background checks must become the bedrock of hiring and promotion in financial institutions.Final ThoughtsThe Nirav Modi–PNB scam isn’t just a story of diamonds and deceit. It’s a textbook case on how systemic weaknesses, collusion, and technology gaps can destroy institutions. “Financial fraud isn’t just a crime. It’s a failure of governance, oversight, and culture.” As financial crimes evolve, so must our mechanisms to prevent them. This case must serve not only as a cautionary tale—but as a catalyst for reform.