Nirav Modi´s and his company Firestar Diamonds

Per-Lukas Andersen

30 November 2020

Synopsis

Nirav Modi is an Indian businessman that founded Firestar diamonds, which sold luxuries jewellery. Firestar Diamond had store at the most coveted places in the world. Nirav Modi and his company Firestar Diamonds are involved in a huge fraud case against PNB, the second largest public sector bank in India (Dr. Sushil Pande, Mr. Ved Prakash) (Nirav and his company was doing this fraud with his uncle, however I am only looking at Nirav and his company). Firestar Diamonds with Nirav Modi and some executives at the firm, has for years got help from Bribed deputy managers Gokul Nath Shetty and Clerk Manoj Kharat at the Mumbai office (Netflix documentary). They helped Modi and his company to issuance unauthorised LOU also called a letter of undertaking, and with no intention of following procedures. This allowed Firestar Diamonds to get LOU to obtain loans from oversea banks, Where PNB was acting as liable for the loans, if there would be problems for Firestar Diamonds to pay back their loans. When one of their bribed deputy managers at PNB had retired from the bank, the company still requested LOU, where now the bank want 100% cash margin, that’s where the investigations started around Nirav Modi and Firestar Diamond inc, what contributed to the suspicions came from a whistle-blower which informed the bank, that two employees was involved with these fraudulent transactions. Over a period of around 6 years there is allegedly fraudulent transactions of around 2 billion dollars (Dr. Sushil Pande, Mr. Ved Prakash) (Dr. Meda Srinivasa Rao, Dr. B. Kishore Babu).

Details of the crime

It all came to light in January 2018 when PNB discovered that there has been fraudulent transactions worth of approximately 2 billion dollars at a branch of their office in Mumbai. The bank then has filed complaints to Central bureau of investigations, In the complaint the bank had included the firm and people that are in association with Nirav Modi, which they accused of being the mind behind the fraud, with help from the inside of the bank. It is assumed that the bank officials were bribed in forms of jewellery and other physical items to help Modi and Firestar diamonds to issue LoU´s and letter of credits to acquire loans from overseas branches and put the bank as a guarantee to get these loans of millions of dollars at each transaction, this enabled Firestar diamond to go under the raider of various security processes and avoid collateral security. The bank officials used SWIFT on moving the money, which is passed through CBS which oversee transactions that are made (Poseidon) He used the new LoU´s, he used to pay off the previous loan and it´s interest. This fraud has been going on for years and is a case of bribery of banking officials, fraud of Rs. 11.400 crorers and encouragement to corruption via bribery, this is some of the crimes that has been committed during this elaborate fraud against the PBN bank. They also had a lot of shell companies in different countries where they made transactions in order to launder money, before it was sent back to his main company (S. Gayathri).

The crimes are seen as individual crimes if one look at the 4 factors from James Gobert´s book which are:

  • The company is, or should have been, aware of the risk
  • The company has legal duty to prevent the offence
  • The company has the capacity to prevent the offence
  • The company fails to prevent the offence (James Gobert´s, Pascal)

Since these crimes has been committed by Nirav Modi, he controls Firestar diamonds which is a unit for Firestar international. Since he is the one that has been in contact with the bank officials and assumed to be the mastermind behind the banking fraud, Nirav is also the one that that controls the company, and therefore the one that are labial for the company’s wrong doings(S. Gayathri).The fact that Nirav is aware of all the wrong doings, this should be considered an individual crime. However, at the same time the company is also liable, since he controls the company and they share the same identity it might be consider a fault both for the company and Nirav as an individual, his company filed to bankruptcy in New York 2018 under chapter 11 (Steve Denning).

There has not been a trial for Nirav Modi yet in Indi as he a few days before the news of the fraud went out publicly, Nirav and his family fled the country in order to prevent his arrest in India for the crimes he has committed. His actions in flee the country made India to seek help for bringing him back to India, was on Interpol’s wanted list and other institutions were also investigating in the matter of where he was located. Nirav was later found in London and was arrested by the metropolitan police as a request from Indian authorities (Swati Gupta). In 2020 the trial about his extradition in the Crown court in London is still going on. The first leg of the trial of extradition was to establish what crimes Nirav has committed. The extradition trial is still going on today and there is no further information before, he is still in Wandsworth prison there is no further information about his extradition to Indian in this moment (The Hindu) (Netflix documentary).

Analysis of the case

The issue with this case is that India is a relatively new country without influences of the British, it hasn’t the same sophisticated banking security, is an easier to convey people in India than countries in the west due to lower salaries etc. The issue with this case is that the security at PNB and probably other banks in India is weak in overwatch their staff and suspicions transactions, this has put press at politicians In India to fight corruption. With this fraud other banks were affected, where banks stock was on a downward after the fraud was exposed, other state owned banks which had offered credits on the belief that PNB loU´s was real, the banks that was affected most was SBI, Axis Bank and PNB which was the bank that got exposed, with lowered stock prices and a financial loss (Poseidon). Nirav Modi and his company is not the first to fraud the bank, he is among many, but he is the most famous of them, this scandal can also be a start of uncovering cases that they don’t know about and bring a change in their management and security protocols, to minimize the chances of being exploited by businessmen (Netflix documentary). The have been discussion around how they could let Nirav leave Indian, despite PNB bank had issued worries towards CBI to keep track of him. This would argue that there is a deeper problem in India’s system of detecting frauds and investigations, this is not the first time a wealthy Indian businessman, successfully leave the country after committing crimes (Netflix documentary).

There has not been a trial yet but if there will be a trial, a trial would possible be around the relevant legislations that exist in India when dealing with corporate crimes. In Nirav Modi´s case it would be under the IPC that are protecting against dishonest etc and PCA and PLMA since he has committed crimes under these acts (Aditya Bhat, Rhea Mathew).

Possible solution

In present time advanced technology would be a solution for banks to cope with fraudulent actions against them, monitored by specialized people that knows what they are looking for. As an example there could implement a block chained system, which collect loads of data, which is monitored by cluster of computers, these computers are not owned by any entity, each data are connected to each other by using cryptographic principles, this could be a help for PNB to detect suspicious activities(Rishabha Sinha). Especially since this is not the first time this bank has been “robed” of assets. It seems strange that two deputy bank officials could have pulled this kind fraud with a strong leadership at the bank, the case must be that the leaders of the bank have not be aware enough of their large transactions and that they are being a guarantee for massive overseas loans. The issue must be dealt with in the higher instances, in forms of a leadership change and more elaborate education around fraud can be a start of changing the culture and how management are aware of suspicious activities and wrong doings.

References