Investigations into the Punjab National Bank fraud have found that some employees had created assets and maintained bank accounts abroad which the management and investigators suspect could be related to the Nirav Modi scam at the state-run lender, four people close to the development told ET.
PNB is considering initiating legal proceedings against errant employees to recover any money that they would have made illegally and parked abroad, they said.
“While only a few employees have been named till now, more employees could be involved in the fraud. The bank has been intimated about the development,” one of the people said.
The bank has sought legal opinion as to how it could go about in this issue. “Investigating agencies like CBI and ED do not have jurisdiction outside India and may not be able to recover the money. A legal strategy is being put in place as to how to deal with the employee situation,” another person involved in the discussions said.
PNB didn’t respond until press time Tuesday to an email seeking comment.
The bank has mandated accounting firm BDO India to conduct a forensic audit in the Nirav Modi case, where the diamond merchant is accused of defrauding PNB of Rs 13,600 crore.
It had asked BDO to trace the assets not just of Nirav Modi, but also of its employees, said a banker. “Most of the work is being done by the investigative agencies and lawyers. A civil proceeding against errant employees is a thought for now,” the banker added.
But recovering the money won’t be easy. “It would be tough to recover these assets as in most instances people don’t create assets in their own name outside India. PNB will have to eventually prove in the court of law that a conspiracy was hatched by their employees against the bank and that the bank is a victim,” said Memon.
Investigators also suspect some former employees of Nirav Modi helped the others in round-tripping the money siphoned off from the bank through fake letters of undertaking.
“Former employees in India suddenly go outside the country, set up another company and become customers of the domestic company,” said an official with knowledge of the matter. “This foreign company now not only places huge orders, but mandates that they would pay only when they are able to actually sell the product to the customer.”
Investigators have also discovered that in several instances, suppliers to the Indian entity of Nirav Modi were also listed as creditors to the companies he owned in the US. This, say people in the know, raises suspicion of round-tripping.
ET had, on March 7, reported that the bankruptcy declarations by Nirav Modi’s companies — Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc — may offer some clues to where the money went in the fraud, when compared with the FIR filed by the CBI.
“This (round-tripping) would not have been possible without active involvement of PNB officials. I don’t believe in the narrative that the scam was the doing of some middle-level employees and no senior level executive of PNB was aware of this,” an officialinvestigating the case told ET.