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Setting Alarms In Banks To Catch Nirav Modis

AT last Nirav Modi the fugitive diamond merchant, who is accused of defrauding India’s commercial banks of more than Rs 11,000 crore in collusions with bank officials, has been arrested in London. Indian law enforcement officials should be thankful to the teller at Metro Bank in London who called the police when Modi approached him to open an account. Obviously, Nirav Modi’s notoriety had been circulating in the banking institutions in the UK. The police, who arrested him, charged him with “conspiracy to commit fraud and conspiracy to conceal criminal property.” The district judge refused to grant him bail and remanded him in custody till March 29, when he will appear for a preliminary hearing before chief magistrate Emma Arbuthnot, the same judge who oversaw the Vijay Mallya trial.

Alas, all the façade he had created of an honest businessman in London since he fled India fell apart. He had bought property with ‘legal’ money, got a licence to open a diamond store in a high-end commercial district of London, was paying his council tax and had even got a National Insurance number. He had even applied to the election authorities of the UK for registration as a voter. He was living and socializing openly. He was not hiding from the media or social media. He had a valid residential address at Centre Point, one of the swankiest districts of London, for over a year. In short, he had built up a ‘solid’ ground in anticipation of being caught some day to prove to the court that he had authorized and licensed presence in London, hardly the kind that would flee the country. However, the district judge rejected these pleadings and sent him to custody for interrogation.

Nirav Modi is now in a position from where he cannot escape trial. It is hardly surprising that the news of his arrest has been welcomed in India. It is painful to see though that Nirav Modi has become a subject of political one-upmanship between the BJP and the Congress. Both the parties should admit that it was not their ministers or leaders who were involved in the fraud Nirav Modi committed or in the flight to London he succeeded in. It is silly for the two parties to fling mud at each other. The reality is that Nirav Modi committed the gigantic fraud in conspiracy with certain officials of the Punjab National Bank and other banks. Leaders of both the parties, instead of blaming each other, should work for creating an environment in which firstly, Nirav Modi is brought back to India to face trial, and secondly, enough safeguards are placed in the banking system where such fraud can be flagged off at the nascent stage itself. If you look at it realistically, the second measure is more important than the first one, because we do not know how many Nirav Modis (and Vijay Mallyas) are already in the making.

Strong safeguards and alarm systems are absolutely necessary to protect the banking system in the country. The system was so full of holes until Nirav Modi and Vijay Mallya milked it that you would wonder why many more Nirav Modis and Vijaya Mallyas did not loot the banks while maintaining a high-profile lifestyle. The whole Nirav Modi siphoning of over 11,000 crore happened because there was no supervision and auditing worth any standards in Punjab National Bank’s Mumbai branch and overseas branches of the other banks from where he drew money. He allegedly had one deputy manager and one lower-rank official of the bank to help him. His fraudulent transactions in conspiracy with the two bank officials went ‘undetected’ by the whole hierarchy of officers of the bank in the branch and the region, undetected by the well-qualified, professional firms of auditors that conducted regular internal and external audits! Overseas branches of the other banks, which released payments on the request for settlement of import bills, also did not flag the discrepancies for seven years. It is hard to believe that a lot many bank officials were not involved. Bank officials issued Letters of Undertaking (LoUs) for imports without entering the LoUs in the bank’s central database to evade detection. They transmitted messages to the overseas branches of other Indian banks to honour the ‘fake’ LoUs for settlement of import bills on Nirav Modi’s behalf. According to the rules, the beneficiary of LoUs is required to repay the loan within 90 days of the issuance of the LoU. Before the expiry of the validity period, the conspiring officials issued Modi another LoU for a higher amount that included the pending loan of the earlier LoUs. All the political parties must work to create a system in which such leakages are made impossible.

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