PNB fraud: Is it a case of multi-level failure?

Developments indicate that there was complicity of senior officials and the bank’s information technology department

Some arrested bank officials revealed they had provided their account details and passwords to Nirav Modi’s staff. Image source: Reuters

With every passing day, some new revelations are coming to the fore in the PNB fraud case. The internal lapses seem to have taken place at multiple levels. These include the failure to detect a fraud that had allegedly continued for 7 years, and the flaws in the system that have allowed ‘rogue employees’ to send SWIFT instructions bypassing the bank’s Core Banking System (CBS) in Nirav Modi case.

Developments indicate that there was complicity of senior officials and the bank’s information technology department.

Investigations indicate that the usual practice of sending SWIFT instructions through a three-stage process of making, verifying and authorising seems to have been bypassed, raising a question that whether our banks going through adequate scrutiny to ensure transparency in the system.

According to a Business Standard report, 2 detained Punjab National Bank (PNB) officials in the Central Bureau of Investigation’s (CBI’s) custody said Nirav Modi’s team was given “unauthorised access” to PNB’s computer systems for a “commission” on every letter of undertaking (LoU) issued.

The CBI yesterday arrested three people, including PNB’s former deputy manager Gokulnath Shetty, the bank’s single-window operator Manoj Kharat, and Hemant Bhat, authorised signatory for Nirav Modi’s firms.

A special court remanded the 3 accused in 14 days’ CBI custody.

During interrogation, the arrested bank officials that revealed they had provided their account details and passwords to Modi’s staff, who would log into the SWIFT system illegally as PNB officials and gain access to the systems.

Times Now reportedly accessed documents seized by investigators from the offices of Nirav Modi which are allegedly ledger entries and invoice records maintained by him for his high-value clients.

Certain transactions (of jewellery), were allegedly made by Anita Singhvi, the wife of senior Congress leader Abhishek Manu Singhvi.
The Congress leader, however, denied any knowledge of the transactions.

The alleged Rs 11,400-crore fraud has triggered concern in the top echelons of the government over apparent supervisory failures at the levels of both banks as well as the banking sector regulator, the Reserve Bank of India (RBI).

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