Nirav Modi Scandal Gets Deeper: LoUs Worth 25,000 Issued Fraudulently To His Companies, Finds Audit Report

A forensic audit commissioned by the Punjab National Bank (PNB), after it reported the infamous Nirav Modi scandal, has revealed a new depth and scale of the scam and how all the fraudulent practices were carried out systematically with ease by his chain of companies, reports Financial Express.

Belgian auditor BDO after its investigations learned that as many as 1,561 Letters of Undertakings (LoUs), worth Rs 28,000 crore, were issued by the bank to the Nirav Modi group. Of those, the auditor described 1,381 LoUs valued at Rs 25,000 as being “fraudulently issued”. According to the audit report, 21 of 23 exporters in whose names the LoUs were issued were “controlled” by Modi. LoUs worth 6,000 crore were also “mis-utilised” by Modi’s companies for making payments to the bank, the forensic report said.

PNB had sought BDO’s assistance in February, 2018 days after having lodged complaint to the Central Bureau of Investigation (CBI) against the diamantaire.

The auditor’s 329-page forensic report submitted to PNB was given to the International Consortium of Investigative Journalism (IICJ) by a whistleblower, which has partnered with The Indian Express for a series of reports on the findings of the forensic team.

Hence, Swarajya does not verify the findings of the report, which has gone beyond the findings of government investigating agencies such as CBI and Enforcement Directorate (ED) in measuring the scale of the fraud.

The report has also listed as many as 20 “non-charged” properties owned by Nirav Modi and his family members, which have never been used as security for transactions, 15 charged properties in India and 13 immovable properties outside the country.

Among the other key findings of the BDO team in the report are:

• That the frauds were committed by Nirav Modi by exploiting what is described as the “systemic loopholes” in the systems of the PNB. This included loopholes in their system integration, concurrent audit, early warning signals and data analytics.
• That the fraud was possible only due to collusion with the staff of PNB. For instance, it has been shown that 92 per cent or 1,448 LoUs were issued to Nirav Modi group companies by Gokulnath Shetty, then Deputy Manager, Foreign Exchange. In all, 97 per cent of the fraudulent LoUs were approved by him. He was arrested by CBI in February 2018.
• It has been concluded that 99.93 of the LoU beneficiaries were controlled directly or indirectly by the Nirav Modi group and that 74 per cent of the global sales of his subsidiary company FIL (Firestar International Limited) was also to Nirav Modi-controlled entities.
• There is a full section in the draft report on how the Nirav Modi group inflated their financials (both revenue and receivables) for enhancing “drawing power”. The auditor has revealed how payroll information, organisational structure and so on of the partnership firms were not commensurate with projected business size and scale of the business.