Extradition of Nirav Modi in PNB case-U.K. nod

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Context

The U.K.’s Home Department has approved the extradition of diamond merchant Nirav Modi to India in connection with the 13,758 crores Punjab National Bank (PNB) fraud, about two months after the Westminster Magistrates’ Court in London ruled that a prima facie case was made out against him.

Sufficient grounds for trial

  • The accused now has the legal recourse of approaching the U.K. High Court within 14 days to seek permission for moving an appeal against the Secretary of State’s decision.
  •  Unless there is an appeal, a requested person must be extradited within 28 days of the Secretary of State’s decision to order extradition (subject to any appeal).
  •  The Westminster Magistrates’ Court found sufficient grounds warranting Modi’s trial in India.
  • It also took on record the evidence furnished by the Central Bureau of Investigation and the Enforcement Directorate, alleging that he had conspired to destroy the proof against him and intimidate witnesses.

Background of the events 

  • The businessman had fled the country on January 1, 2018. On India’s request, he was arrested in London on March 19, 2019, and he has since then been in judicial custody there.
  •  The CBI had registered the first case against the diamond merchant and others on January 31, 2018, alleging that they cheated the PNB of about ₹6,498 crore by getting Letters of Undertaking (LoUs) issued fraudulently to overseas banks for securing buyer’s credit in favour of his three firms.
  •  Based on the CBI case, the ED also carried out a money laundering probe and attached assets worth hundreds of crores in India and abroad.
U.K. nod for extradition of Nirav Modi - INSIGHTSIAS

BIASA BASICS

PNB Banking Fraud Case

  • One of the branches of State-owned Punjab National Bank (PNB) had detected fraudulent transactions worth over Rs 11,000 crores in 2018.
  •  PNB had alleged that two of its employees had “fraudulently” issued LoUs and transmitted SWIFT instructions to the overseas branches of Indian Banks.
  • This was done to raise buyer’s credit for the firm of a diamond merchant without making entries in the bank system.
  •  These LoUs were mostly issued to two Hong Kong branches of Indian Banks and was for the aforesaid diamond merchant.

Letter of Understanding (LoUs)?

  •  LoU is an assurance given by one bank to another to meet a liability on behalf of a customer.
  •  It is similar to a letter of credit or a guarantee.
  •  It is used for overseas import remittances and involves four parties - an issuing bank, a receiving bank, an importer and a beneficiary entity overseas.
  •  According to norms, they are usually valid for 180 days.
  •  LoUs are conveyed from bank to bank through “Society for Worldwide Interbank Financial Telecommunication” (SWIFT) instructions.
  •  Notably, till now, there is no record of a breach in SWIFT instructions anywhere in the world.

which are the Confiscated properties?

  •  In 2020, assets worth Rs. 329.66 crore of the Punjab National Bank (PNB) fraud mastermind Nirav Modi have been confiscated under Section 12(2) and (8) of the Fugitive Economic Offenders Act, 2018.
  •  In this money laundering case, the Enforcement Directorate (ED) has so far attached properties valued at Rs. 2,348 crore.
  •  The properties were earlier attached under the Prevention of Money Laundering Act, (PMLA) 2002.

Fugitive Economic Offenders Act, 2018

  •  It seeks to confiscate properties of economic offenders who have left the country to avoid facing criminal prosecution or refuse to return to the country to face prosecution.
  •  Fugitive economic offender: A person against whom an arrest warrant has been issued for committing an offence listed in the Act and the value of the offence is at least Rs. 100 crore.
  •  Some of the offences listed in the act are:

○ Counterfeiting government stamps or currency.

○ Cheque dishonour.

○ Money laundering.

○ Transactions defrauding creditors.

Legal framework in India to deal with Money Laundering

  •  It forms the core of the legal framework put in place by India to combat Money Laundering.
  • The provisions of this act are applicable to all financial institutions, banks (Including RBI), mutual funds, insurance companies, and their financial intermediaries.
  • PMLA (Amendment) Act, 2012

○ Adds the concept of ‘reporting entity’ which would include a banking company, financial institution, intermediary etc.

○ PMLA, 2002 levied a fine up to Rs 5 lakh, but the amendment act has removed this upper limit.

○ It has provided for provisional attachment and confiscation of property of any person involved in such activities.

Fraud Oversight Wing

  •  The Reserve Bank of India (RBI) is in the process of putting together an exclusive wing for banking fraud oversight.
  • This wing will have teams for meta-data processing and analysis, artificial intelligence analysis units, as well as proactive risk assessment cells.
  •  The banking fraud oversight wing may comprise up to 600 officers along with experts from the private sector.
  •  The RBI would hire fresh people, including industry veterans to lead the teams.
  •  Experts from the private sector working in all these domains will be brought in to train the new members in the fraud oversight wing.
  •  These training sessions will be repeated every year in the initial years.
  • These new teams will also be given training in the latest technologies, so that they can also prevent another Yes Bank kind of event.

SOURCE: THE HINDU 

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