The High Court of Justice in London rejected last week a fresh bail application from Nirav Modi, the Indian-born diamond merchant accused of orchestrating one of India's largest banking frauds where fraudulent letters of undertaking (LoUs) and foreign letters of credit (L/Cs) were central to the US$1.6 billion PNB Bank fraud.

This marks the tenth time Modi has been denied bail since his arrest in the UK in March 2019. He remains detained in prison while contesting extradition to India, where he faces charges related to the fraud case.

Fraudulent LoUs and L/Cs

The fraud, uncovered in 2018, involved Modi and his uncle, Mehul Choksi, allegedly colluding with PNB officials to obtain fraudulent LoUs and foreign L/Cs.

These instruments were used to secure credit from overseas branches of Indian banks without proper collateral. The LoUs and foreign L/Cs were issued via the SWIFT interbank messaging system, bypassing PNB's core banking system, which allowed the transactions to go undetected for several years.

Significant banking vulnerabilities

The misuse of these financial instruments enabled Modi's firms to access substantial funds, which were then allegedly siphoned off and laundered through a network of shell companies across various jurisdictions, including the UK.

This complex scheme not only defrauded PNB but also exposed significant vulnerabilities in the banking system's oversight mechanisms.

Legal proceedings and extradition Efforts

Modi's repeated bail applications have been consistently denied by UK courts, citing the substantial risk of flight and the severity of the allegations.

The Indian government has been actively pursuing his extradition, with the UK High Court having already approved the request. However, Modi has sought political asylum in the UK, delaying the extradition process.

Far reaching implications

Meanwhile, Indian authorities have been working to recover assets linked to the fraud. As of now, properties and assets worth over ₹1,000 crore have been attached or seized, with efforts ongoing to restore funds to the victim banks.

The case has had far-reaching implications, prompting regulatory reforms in India's banking sector, particularly concerning the issuance and monitoring of LoUs and foreign L/Cs.

It has also underscored the importance of robust international cooperation in tackling complex financial crimes.

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