India's Punjab National Bank (PNB) has revealed a massive US$1.7 billion fraud linked to celebrity jeweller Nirav Modi.

The case bears marked similarities with the Winsome Diamond Group scam which emerged five years ago and which was substantially based on letter of credit (L/C) fraud.

New case

Details of the PNB-Modi case are still unclear. It appears to centre on the approach made by several firms connected with Modi and his family who presented PNP with a set of import documents and on the basis of these requested a buyer's credit to make payments to overseas suppliers.

The bank agreed and extended credit to the firms. As there was no sanctioned credit limit on the firms, the amount of credit extended burgeoned to US$1.7 billion and this has not been repaid.

L/C fraud

The case is reminiscent of the Winsome case when several banks in India opened standby L/Cs for gold imports by Winsome Diamond Jewellery and Forever Precious Jewellery. Gold shipped to them in India was then was re-exported to 13 UAE-based buyers.

But the buyers failed to meet their L/C obligations, forcing the Indian banks to make payments to foreign banks (DC World News, 12 April 2017). PNB had the highest exposure of US$271 million.

Modi is a luxury diamond jewellery designer who was ranked 57 in the Forbes list of India's billionaires in 2017.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.