US firms, controlled by Nirav Modi, have been found to be the recipients of at least $46 million (or over Rs 300 crore) in remittances from Punjab National Bank (PNB) since 2011, show findings of accounting firm BDO’s ongoing forensic investigation shared with an American court.

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If these funds were routed through the firms back to the now fugitive diamantaire without ever being used for the import of semiprecious or precious stones, they may complete the money trail behind India’s largest banking fraud that went undetected for seven long years.

The remittance money trail from PNB leads to Modi-controlled American firms, Firestar Diamond, Fantasy and A. Jaffe, which are currently seeking bankruptcy protection in the US. In the beginning of 2011, a few Modi entities — Firestar International, Firestar Diamond International, Solar Exports, Stellar Diamonds, and Diamond R US, began obtaining fraudulent LOUs (Letter of Undertakings) from the Brady House, Mumbai branch of PNB in connivance with some rogue bank employees.

In February 2018, PNB engaged BDO India LLP to conduct a forensic investigation into the fraud, which came to light in mid-January.

The ongoing probe by BDO has already uncovered significant connections between the US firms and the Modi entities and the fraud itself.

“BDO’s investigation to date has determined that the debtors (the US firms) have received a total of approximately $46 million remitted from PNB since 2011, when the fraud is believed to have commenced. Of this amount, at least $8.3 million was remitted to the debtors in the form of funds issued pursuant to LOUs. Four of the five debtor LOUs, totaling approximately $6.4 million, share the key indicia of LOUs that were fraudulently obtained by Modi and his affiliates,” PNB has informed the US court overseeing the bankruptcy cases.

In course of the investigation, BDO also identified certain suspicious entities that were beneficiaries of the LOUs.

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These appear as creditors in the books of the three Modi-controlled American firms. 

“Each of these entities bear two or more indicia of suspicious activity, including: i) sharing either current or former key management personnel with the Modi entities, ii) possessing bank statements that show deposits or withdrawals with other suspicious entities, iii) appearing on LOUs in which misuse has been observed in the fund trail, iv) lacking an AWB (air waybill) reference number or bill of entry in the customs database, and v) having an overdue bill of exports against the LOU importer,” Kartik Radia, partner & head - business advisory services, BDO India LLP said in a separate court filing.

PNB has also questioned certain transactions executed by Mihir Bhansali, a major shareholder in the

Modi companies tied to the fraud.

He has a long-standing history with Nirav Modi and his affiliated entities.

“In a very suspect transaction, Mihir Bhansali and his wife purchased apartment 24A at 50 Riverside Boulevard in New York City for approximately $7,100,000 on March 22, 2017, of which approximately $5.3 million was paid in cash. Given that Bhansali’s annual salary from the debtors was approximately $185,000, there are significant questions concerning the source of such a large amount of cash. Adding to the suspicious nature of the transaction is that only two days after the debtors filed for bankruptcy, Bhansali transferred his interests property to his wife, Rakhi Bhansali,” PNB said.

Meanwhile, the Ministry of Corporate Affairs and fraud-hit PNB have moved the US bankruptcy court seeking an adjournment of the hasty auction of the assets of Modi’s American firms. Criticizing the companies’ lack of transparency and haste in selling the assets, they have also indicated that A Jaffe’s assets are “commingled” with assets derived from fraudulent transactions tied to the Modi fraud.

All the three US companies filed Chapter 11 cases, soon after the fraud was discovered in India. The US court has also appointed an examiner to conduct an investigation of the firms and their management. But the examiner’s work has just started.

“PNB respectfully requests that this court deny the sale motion, or in the alternative adjourn any auction of A Jaffe Assets to the same date as any auction of Firestar/Fantasy assets, together with any other and further relief that this Court may deem just and necessary,” the PSU bank said.

By Kumar Shankar Roy, DNA Money