India's PNB adopts strict SWIFT controls after mega fraud case

Gitanjali Gems

21/02/2018 20:24

* PNB to allow officers, not clerks, to use SWIFT system 
    * SWIFT messages to be verified, approved by 3 people 
    * Limits on amount officers can approve based on grades 
 
 (Adds SWIFT comment) 
    By Rajendra Jadhav and Krishna N. Das 
    MUMBAI, Feb 22 (Reuters) - India's state-run Punjab National 
Bank  PNBK.NS  has stepped up its controls on the use of global 
payments network SWIFT following an alleged $1.77 billion fraud, 
according to memos issued this month and seen by Reuters. 
    India's second biggest state lender this month revealed the 
country's biggest loan fraud, which it alleges was committed by 
two junior officials at a Mumbai branch, who issued unauthorised 
"letters of undertaking" (LOU) via SWIFT, for firms linked to a 
billionaire jeweller Nirav Modi and his uncle Mehul Choksi. 
    The undertakings, which PNB says were issued between 2011 
and 2017 with incomplete ledger entries by the two officials, 
were used by Modi and Choksi's firms to obtain credit from the 
overseas branches of mostly Indian lenders.  urn:newsml:reuters.com:*:nL4N1Q91TV 
    A lawyer for Modi has denied his client was involved in any 
fraud. Choksi has not commented but his firm, Gitanjali Gems 
 GTGM.NS , has also denied involvement in the alleged fraud. 
    The new measures mean only PNB officers will be able to 
initiate messages on SWIFT, taking away the authority of clerks 
to do so. Several new limits have been placed on the amount that 
officers can generate depending on their seniority in the bank 
hierarchy. 
    The note sent by the bank's head office in New Delhi to all 
regional offices on Feb. 17 also stated any SWIFT message will 
have to be created, verified and authorised by three different 
officers, starting Thursday. Previously only two individuals 
were needed for the process. 
    "In continuation of efforts to strengthen SWIFT operation 
and deploy additional measures to ensure more effective control, 
it has been decided to set up SWIFT user base limits," the note 
went on to say. 
    A SWIFT spokeswoman in Brussels said it was aware of the 
reports around PNB but that it could not comment on individual 
customers. 
    "When a case of potential fraud is reported to us, we offer 
our assistance to the affected user to help secure its 
environment," Natasha de Terán said. "SWIFT can reassure 
customers that there is no indication the SWIFT network has been 
compromised." 
         
    NEW DIVISION 
    PNB has also created a unit called "Treasury Division 
Mumbai" for re-authorisation of most messages sent over SWIFT by 
branches. The messages include those meant for LOUs, according 
to a separate circular the bank sent to all its offices on Feb. 
12. 
    "The designated officer at SWIFT Centre, Treasury division, 
will cross-check the credentials of (the) message in Finacle," 
said the note, referencing the lender's core banking software 
that was allegedly bypassed to pull off the scam, whose scale 
PNB only disclosed last week.  
    Any rejection due to any mismatch will be "kept on record 
for audit by auditors", the note added. 
    The alleged fraud occurred as one PNB deputy manager, with 
the assistance of one or more colleagues, issued more than 100 
fraudulent LOUs for firms linked to Modi and Choksi. 
    India's federal police have arrested some half a dozen bank 
officials, including the two junior Mumbai officials, as well as 
employees of companies controlled by Modi and Choksi. Lawyers 
and families of the accused officials have denied any 
wrongdoing. 
    The Central Bureau of Investigation says Modi and Choksi 
left the country last month before the issue came to light. 
    Since PNB disclosed the fraud last week the bank, auditors 
and the Reserve Bank of India have been under scrutiny over how 
they could have failed to detect a scam of such proportions. 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
India's $1.77 billion bank fraud    http://tmsnrt.rs/2C9xTKf 
INSIGHT-Eyes wide shut - the $1.8 bln Indian bank fraud that 
went unnoticed - Reuters News     urn:newsml:reuters.com:*:nL4N1Q91TV 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Reporting by Rajendra Jadhav and Krishna N. Das; Editing by 
Euan Rocha and Alison Williams) 
 ((Krishna.Das@tr.com; +91-98711-18314,  +91 11 4954 8026; 
Reuters Messaging: Krishna.Das.thomsonreuters.com@reuters.net, 
Twitter: https://twitter.com/krishnadas56)) 
 
Keywords: PUNJAB NATL BANK FRAUD/SWIFT (PIX, UPDATE 1, EXCLU