{"id":31223,"date":"2018-10-27T12:35:51","date_gmt":"2018-10-27T07:05:51","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=31223"},"modified":"2018-10-27T12:35:51","modified_gmt":"2018-10-27T07:05:51","slug":"how-did-system-allow-pnb-fraud-asks-cvc","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/how-did-system-allow-pnb-fraud-asks-cvc\/","title":{"rendered":"How did system allow PNB fraud, asks CVC"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/news\/national\/how-did-system-allow-pnb-fraud-asks-cvc\/article22778169.ece\"><b>How did system allow PNB fraud, asks CVC<\/b><\/a><\/p>\n<p><b>Context:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The Central Vigilance Commission (CVC), India\u2019s apex body for checking corruption in the government, has summoned senior officials from the Reserve Bank of India, the Finance Ministry, along with the Chief Vigilance Officer of Punjab National Bank (PNB), early next week to assess how the <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500 crore frauds reported recently.<\/span><\/p>\n<p><b>Three-level audit:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Banks are audited at three levels : Apart from Internal audit, there is an external auditor and a statutory audit undertaken by the RBI.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The CVC is keen to understand how none of these audits picked up a red flag on the letters of undertaking that seem to have been issued bypassing the system.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The RBI blamed internal control failures for PNB\u2019s woes, terming the incident as a \u2018case of operational risk\u2019 due to \u2018delinquent behaviour\u2019 by one or more employees.<\/span><\/li>\n<\/ul>\n<p><b>What has happened?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Recently, PNB found that the SWIFT system had been misused by a junior-level branch officials, who had fraudulently issued letters of undertaking (LoUs) on behalf of some companies for availing buyers credit from overseas branches of Indian banks.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Preliminary investigation into the alleged fraudulent transactions worth <\/span><span style=\"font-weight: 400;\">\u20b9<\/span><span style=\"font-weight: 400;\">11,500 crore has revealed a complete breakdown of supervision and auditing mechanism in Punjab National Bank\u2019s Mumbai branch and overseas branches of the other banks concerned.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The transactions remained undetected for almost seven years, despite the fact that the bank conducts internal and external audits on a regular basis.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Overseas branches of the other banks, which released payments on the request for settlement of import bills, also did not flag the discrepancies for such a long period.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The bank has pinned the whole blame on the then Deputy Manager, Gokulnath Shetty, and a low-rank staffer for the fraudulent issuance of Letters of Undertaking (LoU) on behalf of the three firms associated with diamond merchant Nirav Modi and his family members.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is alleged that bills were also cleared for payments through PNB\u2019s Nostro accounts with other banks that deal in foreign currency<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">As per rules, those availing such a credit facility are required to repay the loan within 90 days of the issuance of an LoU.<\/span><\/li>\n<\/ul>\n<p><b>SWIFT system<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In the PNB case, the accused officials misused the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) system to verify the fraudulently issued LoUs, conforming to the overseas branches of several banks that they could extend foreign exchange credit to the beneficiaries.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The SWIFT system is mainly used for clearing international wire transfers.<\/span><\/li>\n<\/ul>\n<p><b>Accused book under Prevention of Corruption act:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Central Bureau of Investigation has booked one retired and one serving PNB employee so far.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Enforcement Directorate has registered a money laundering case in the matter.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It involves Mumbai-based billionaire diamond merchant Nirav Modi.<\/span><\/li>\n<\/ul>\n<p><b>RBI\u2019s stand:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI) said the failure of internal controls was the main reason for the Rs. 11,500 crore fraud that occurred in Punjab National Bank (PNB).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">RBI said it was assessing the situation and would take appropriate supervisory action.<\/span><\/li>\n<\/ul>\n<p><b>\u2018Operational risk\u2019<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The banking regulator, in its first reaction since the issue came to light described the fraud as a case of operational risk arising out of delinquent behaviour by the bank\u2019s employees.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>How did system allow PNB fraud, asks CVC Context: The Central Vigilance Commission (CVC), India\u2019s apex body for checking corruption in the government, has summoned senior officials from the Reserve Bank of India, the Finance Ministry, along with the Chief Vigilance Officer of Punjab National Bank (PNB), early next week to assess how the \u20b911,500&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/how-did-system-allow-pnb-fraud-asks-cvc\/\">Continue reading <span class=\"screen-reader-text\">How did system allow PNB fraud, asks CVC<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-31223","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704909221},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31223","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=31223"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31223\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=31223"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=31223"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=31223"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}