Here are the main findings from Punjab National Bank’s internal investigation into the $2 billion Nirav Modi scam

In February 2018, it came to light that celebrity diamantaire Nirav Modi and his uncle Mehul Choksi had defrauded Punjab National Bank (PNB), India’s second-largest state-owned bank, of more than ₹130 billion ($2 billion).

By using illegal letters of guarantee procured through PNB’s Brady House branch in Mumbai, the pair and their affiliates had taken loans from the overseas branches of a number of Indian banks since 2011 and had subsequently defaulted on them.

In the ensuing months, the country’s top investigative agencies, such as the Central Bureau of Investigation (CBI), filed chargesheets against Modi and Choksi and also accused a number of senior officials at the concerned banks, including the former CEO of PNB, Usha Ananthasubramanian, of being complicit.

Concurrently, PNB conducted its own investigation into the matter which concluded recently. The 162-page internal report, which has been reviewed by Reuters, revealed the extent to which the fraud touched most of the branch’s operations and found a lot more officials guilty of negligence and/or facilitating the transactions. Here are its main findings:-

Over 1,200 credit guarantees were approved

Gokulnath Shetty, the deputy general manager of the branch at Brady House, allegedly approved more than 1,200 letters of guarantee over the period in question - 2011 to 2017. He was reportedly supposed to be transferred to another branch but was kept at the branch on the insistence of senior officials.

After joining the Brady House branch in 2010 as a foreign exchange officer, Shetty became responsible for authorising transactions over the SWIFT network. However, despite the fact that he was only allowed to approve transactions of ₹2.5 million or less, he did not log the transactions on the bank’s internal systems. This enabled him to authorise larger credit sums without detection.

An audit of the bank’s SWIFT system was supposed to take place in 2016

As per instructions from the Reserve Bank of India (RBI), PNB was supposed to undertake a review of its SWIFT financial communication systems in lieu of a possible upgrade. However, the audit did not take place. The bank’s systems were extremely outdated. The bank’s officials had failed to the integrate the bank’s SWIFT platform with its internal software for recording transactions.

The fraud involved people at several levels in several branches

While it's easy to pin the blame on the people at the helm of PNB, in reality, the fraud was facilitated by people at multiple levels of the bank - senior executives, deputy managers, assistant managers, inspection officers and even clerks.

While it may have been orchestrated by a few people, a number of a monitoring and compliance lapses prevented the transactions from being identified sooner. And it extended to other branches as well. For example, the New Delhi office was responsible for the reconciliation and verification of international banking and foreign exchange transactions.

Furthermore, a number of discrepancies were flagged in annual inspection reports and memos, but no one acted on them. Even a dubious 50% surge in transactions in the year ended March 2017 did not prompt an investigation.

All in all, 54 people were named in the internal report. This likely includes the 21 officers who were suspended in April, pending the conclusion of the inquiry. At the time, PNB’s CEO Sunil Mehta alluded to the possibility that more people would be suspended.

The internal report has been handed over to the police and relevant authorities as part of the evidence they’re building in the case against Nirav Modi. It will likely result in a lot more additions to the chargesheet. Meanwhile, Modi is still said to be travelling freely. A lot of people will go down as a result of the case, but the big whale still proves elusive for the time being.