The report submitted in the United States Bankruptcy Court in New York has highlighted how Nirav Modi's companies used funds raised from one bank to repay outstanding Letters of Undertaking (LoUs) from other banks in a vicious cycle that broke out only when the scam was exposed.
In a written reply in Rajya Sabha Finance Minister Arun Jaitley had disclosed that the Mumbai branch of Punjab National Bank had issued a total of 1,213 LoUs fraudulently to Nirav Modi group of companies since March 2011.
A case in point is his company Diamond R, which applied for $1.9 million loan (LoUs) from the Punjab National Bank to finance import of diamonds from American firm, A Jaffe, also a Nirav Modi firm. The money was used to pay off A Jaffe. Simultaneously, another Nirav Modi firm Firestar Diamond India applied for credit from Punjab National Bank and Vijaya Bank, which was then used to pay off Diamond R's outstanding LoU. Investigators say such round-tripping to use one LoUs funds to repay previous LoUs was going on on a regular basis for nearly 7 years.
For instance, once Firestar Diamond also got the credit from PNB and Vijaya Bank, those funds were routed to Diamond R to pay off its liability with PNB ($1.9 million) via another Nirav Modi company--Neeshal Merchandising.
The report found out that Nirav Modi set up over 20 shadow companies to conclude such loan money trail. These shadow entities were mostly set up in the UAE and Hong Kong. Interestingly, his Firestar Diamond employees were the owners of these shadow companies. The investigation report highlights how accountants, sorters, data-entry operators and administrative staff of Firestar doubled up as the owners of Nirav Modi shadow companies to round trip diamonds in the guise of legitimate business transactions.
For example, Divyesh Kumar, Naresh Gandhi, Sonu Mehta, all Firestar India employees, were owners of his shell companies, Auragem Company Ltd (Hong Kong. Bhavik Jayesh Shah, who was sorter at Firestar, was also made the owner at another shell firm Brilliant Diamonds Ltd. Similarly, Sandeep Mistry, an employee of Firestar India, was also the owner of World Diamond Distribution FZE, another shell firm.
After the mega scam was unearthed in February, these shadow companies, including Universal Fine Jewelry, Empire Gems, Unique Diamond Jewelry, operating out of UAE, were also shut down to cover up the fraud. Investigators have said that loans obtained through fraudulent LoUs, which are the PNB's import loan instruments, were used back and forth between Nirav Modi's companies through a number of shadow entities across Asia and the USA. For example, the examiner found $1.84 million from LoU of PNB's import finance deposited into Modi's Firestar Diamond Inc's account on March 8, 2011. The bank statement shows the money flows out the very next same day to his other shells companies.
This six-month investigation conducted by the US investigators interviewed 45 witnesses and analysed a massive amount of data in the form of emails, voice messages and documents linked to Nirav Modi's companies across the world. The probe determined that Nirav Modi used senior officials of his three American companies to transfer the PNB money from India to the United States via a complex web of shell companies, diamond round tripping and real estate transactions.
(Edited by Manoj Sharma)