This article is more than 2 years old.

August 28, 2018 This article is more than 2 years old.

The biggest fraud in Indian banking history has links to US firms.

In February, the Punjab National Bank, the country’s second biggest state lender, reported that diamantaires Nirav Modi and Mehul Choksi had siphoned nearly $2 billion (over Rs13,000 crore) from its coffers.

Three bankrupt US companies owned by Modi— , A Jaffe, and Fantasy—are now proven to be directly involved in the fraud.

“…in addition to conducting their stated wholesale business, the debtors (the three firms) conducted transactions totaling hundreds of millions of dollars with the foreign shell companies alleged to have been created and secretly controlled by Modi for the purpose of furthering the fraudulent banking scheme,” John J Carney, an examiner appointed by the US bankruptcy court, has concluded in an over 100-page report submitted last week.

Earlier, these firms had denied any involvement in the PNB fraud case. They have been selling jewelry to major American retailers, including Costco Wholesale, JC Penny, Army/Navy Stores, Macy’s, and Zale.

On Feb. 26, two weeks after the fraud came to light, Modi’s three firms filed for bankruptcy protection through a voluntary petition, citing supply-chain disruption. The enforcement directorate in India had swung into action, freezing Modi’s assets in the country, and this had hit his global businesses.

The rot runs deep

Besides their involvement in the PNB scam, Carney has unearthed other irregularities, too, at these firms.

“…the examiner has identified numerous indicia of fraud involving the debtors’ financial reporting, inventory valuation, and operational practices surrounding these transactions,” the report said. It also notes that it is highly likely that the top management at these firms—Mihir Bhansali, CEO of Firestar and A Jaffe, and Ajay Gandhi, CFO of Firestar—was involved in perpetuating the fraud.

In May, the Central Bureau of Investigation (CBI) filed charges against Modi, Choksi, and some of their employees for conspiring against PNB. Efforts are on to bring back Modi who’s been on the run since the CBI filed a case on Jan. 31. The country’s top probe agency has already moved a request in the UK for this. Modi and Choksi have refused to return citing political persecution.

Now these latest findings may strengthen India’s case.