A New Bank Fraud: After PNB, City Union Bank Hit By Fraud

Just like the fraud at Punjab National Bank (PNB), no entries of remittances were made in the ledgers of City Union Bank and transfers were pushed through the SWIFT financial platform.

"During our reconciliation process on February 7, it was found out that 3 fraudulent remittances had gone through our SWIFT system to our corespondent banks which were not initiated from our bank's end. We immediately alerted the correspondent banks to recall the funds," City Union Bank said in a regulatory filing on stock exchanges.

Of the 3 fraudulent remittance, one remittance was made through Standard Chartered Bank, New York, to a Dubai based bank for USD 5,00,000 which was blocked immediately and was returned to City Union Bank, it said.

Chennai-based City Union Bank said the transfers had been made through correspondent banks even though it had not requested the transfers.

A second transfer of 300,000 euros (USD 372,150) was routed through a Standard Chartered Bank account in Frankfurt to a Turkish account, while a third totalling USD 1 million was sent through a Bank of America account in New York to a China-based bank.

The bank said it was working with the Ministry of External Affairs and officials in Turkey and China to repatriate the funds.

"With the help of Ministry of External Affairs through Consulate General of Shanghai and Istanbul and office of the National Cyber Security Council (PMO) all possible efforts through diplomatic and legal channels are being taken to repatriate the money," it said.

The recent episode raises question mark on the efficiency of the SWIFT network as how secure it is.

The PNB fraud pertains to issuance of fake Letters of Understanding (LoUs) to companies associated with billionaire jeweller Nirav Modi by errant PNB employees which enabled these companies to raise buyers credit from international branches of other Indian lenders.

Last week, PNB had lodged an FIR with CBI stating that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16. At the time, PNB had said it was digging into records to examine the magnitude of the fraud.

In the complaint, PNB had named three diamond firms -- Diamonds R Us, Solar Exports and Stellar Diamonds -- saying they had approached it on January 16 with a request for buyers credit for making payment to overseas suppliers.

The bank sought 100 per cent cash margins for issuing LoUs for raising buyers credit, which was contested by the firms saying they had availed of the facility from as early as 2010.

Nirav Modi, his wife Ami, brother Nishal and uncle Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which have shops in foreign locations such as Hong Kong, Dubai, and New York.