How an Indian bank’s $1.8 billion fraud went unnoticed

The Punjab National Bank branch in south Mumbai sits just down the road from both the Bombay Stock Exchange and the Reserve Bank of India, at a physical center of one of the world’s fastest growing major economies.

The branch, clad in a stately colonial edifice, is now also at the heart of a fraud case linked to billionaire jeweler Nirav Modi that has shaken confidence in a state banking sector that accounts for some 70 percent of India’s banking assets.

It was here, according to accounts from Punjab National Bank executives and government investigators, that a lone middle-aged manager, later aided by his young subordinate, engineered fraudulent transactions totaling about $1.8 billion from 2011 to 2017.

The bank says it is still investigating how they were able to do so and go undetected for so long. The accounts given by current and former executives suggest an answer as simple as it is alarming: No one was paying attention.

The bank has since stepped up its controls on the use of SWIFT according to memos issued this month. The measures mean only PNB officers will be able to initiate messages on SWIFT, and limits have been placed on the amount that officers can generate.

The still unraveling story of how the fraud happened — which includes the alleged misuse of the SWIFT interbank messaging system and incomplete ledger entries — points to a breakdown in checks and balances, and standard banking practices, they said.

The apparent failure of anyone to notice the largest fraud in Indian banking history until this January reveals a “rot” in the state financial sector that goes beyond one lender, said Santosh Trivedi, who spent nearly four decades at Punjab National Bank before retiring in 2016 as a senior manager of audit and inspection in the New Delhi head office.

“Unless this rot is controlled at this stage, to the satisfaction of the international community, it is dangerous for the Indian system,” Trivedi said.

Jeweler to Hollywood stars

Last month, Punjab National Bank filed an initial criminal complaint with the country’s Central Bureau of Investigation accusing Modi and others of defrauding the bank and causing it a loss of 2.8 billion Indian rupees (more than $43 million).

The allegations against a man whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson generated a flurry of coverage across India’s TV screens and newspapers. Modi has not publicly commented on the case. He and his family left the country in early January, according to Indian officials, and a call on Sunday to a corporate spokesperson who has handled media for Modi in the past went unanswered. No charges have been filed against him.

But as more details surfaced about what is alleged to have happened at the state-run bank, which was founded in 1894, the stakes have gotten higher.

A review of bank and government documents related to the case — and interviews with current and former PNB executives, bank auditors and experts — points to a lack of accountability and standards in the country’s public banking system.

As of last September, those banks held about 87 percent of the Indian banking system’s 9.46 trillion rupees (about $147 billion) of soured loans that are nonperforming, restructured or rolled over.

A preliminary investigation by the nation’s tax authority said of the PNB fraud that “the hit Indian banks would take in the end may well exceed” $3 billion, according to an internal note seen by Reuters.

“Yes, there is a problem. We have recognized it,” bank Chief Executive Officer Sunil Mehta said during an investor call on Friday. “We are in the process of fixing it up. We’ll see wherever the loopholes are there. The people-related risk, we are going to mitigate.”

But despite that promise of action, one current senior executive at the bank’s headquarters in New Delhi said further problems could not be ruled out.

“In Indian banks, we don’t work under ideal situation,” the executive, who declined to be identified, said during an interview at his office. “We are in the business of risk, you can’t say there won’t be road accidents.”

Fraudulent guarantees

According to court documents filed on Saturday by the CBI, a deputy manager at the branch, Gokulnath Shetty, issued a series of fraudulent Letters of Undertaking — essentially guarantees sent to other banks so that they would provide loans to a customer, in this case a group of Indian jewelry companies.

These letters were sent to overseas branches of banks, thought to be almost all Indian, that would then lend money to the jewelry firms.

Shetty did so using the bank’s SWIFT system to log in with passwords that allowed him, and in at least some instances a more junior official, to serve as both the person who sent messages and as the person who reviewed them for approval, according to court documents and interviews with bank executives.

“The involvement and connivance of more staff members and outsiders at this stage cannot be ruled out,” said a CBI document submitted to the court in Mumbai.

Shetty is now in custody and he has not publicly responded to the allegations. Calls to a cell phone listed for his wife on court documents were not answered.

Asked about the password sharing, the senior Punjab National Bank executive said it was not best practice, but in the everyday bustle of Indian banks it happens.

“When you are flooded with customers in the morning, with 101 demands, you look for shortcuts,” he said. “You do somebody else’s work, somebody else does your work. You are not working in an ideal situation.”

A second senior executive at the bank’s headquarters, who also asked that his name not be used, echoed that sentiment.

After entering the transactions on SWIFT, the CBI documents said, Shetty — who worked at the same branch from 2010 to 2017 despite the normal bank practice of initiating regular rotations — did not record them on the bank’s internal system.

Because PNB’s internal software system was not linked with SWIFT, employees were expected to manually log SWIFT activity. If that was not done, the transactions did not show up on the bank’s books.

All together, there were at least 150 such fraudulent Letters of Undertaking during a seven-year period, according to a CBI official.

In addition to detaining Shetty and the junior employee, the CBI has arrested a man who it described in court documents as both being “aware about the modus operandi of the entire scams” and serving as a director in “15 to 16 companies of Nirav Modi Group.”

An older brother of the man, Hemant Bhatt, said outside a courtroom on Saturday that he was innocent and the allegations were the result of a “media trial.” The brother did not give his name.

An uncle of the junior bank employee, Manoj Kharat, told a reporter outside the court that his nephew was “just following orders of superiors” and added “he wasn’t aware of what he is doing.”

All three are to be held in custody until March 3. No charges have so far been laid against them.

Police searched the bank’s south Mumbai branch on Sunday and have also questioned five more Punjab National officials, the CBI official said, taking the total number bank staff who have been questioned so far to 11.

Financial hit

A Feb. 12 note seen by Reuters, sent from PNB to other banks and marked “confidential,” said: “None of the transactions were routed through the CBS system” — the bank’s internal network — “thus avoiding early detection of fraudulent activity.”

The Reserve Bank of India did not respond to a request for comment about whether it had earlier detected any anomalies in Punjab National Bank’s operations or whether it would take additional action in auditing banks.

In a statement late on Friday the central bank called the fraud at PNB “a case of operational risk arising on account of delinquent behavior by one or more employees of the bank and failure of internal controls.” It also said the central bank “has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action.”

The CBI paperwork says the fraudulent Letters of Undertaking are likely to add up to “the vicinity of” 60 billion rupees, or more than $930 million. Bank executives say the amount tallied by working back through internal records is $1.77 billion.

With assets of about $120 billion as of December, according to bank filings, PNB will be able to cover any associated losses, though it is still a huge hit for a bank whose stock market value was only $6.1 billion before it revealed details of the alleged fraud last week. It has since seen $1.4 billion wiped off that market capitalization.

The mechanics of how the fraud happened, and what it says about the underlying industry culture, are worrying, said Abizer Diwanji, national leader for financial services in India at accounting firm Ernst & Young.

“Checks and balances are there in public banks as well but they are not followed earnestly,” said Diwanji, who has tracked India’s financial services industry for more than two decades.

“This is where the discipline, the culture is not there. I always believe that we don’t have the culture to manage risks, even operational risks. PNB is not an outlier in this.”

To control such risks, most private-sector banks require branches to route SWIFT messages through their central offices, Diwanji said. They also usually integrate their own software systems and SWIFT, meaning that activity such as a letter of undertaking being sent would get automatically recorded.

Neither is the case at PNB or most state-run banks in India, Diwanji said.

Representatives of two of the external audit firms listed on PNB’s annual report for the 2016-2017 fiscal year said they could not have known what happened.

“It was off-books, so auditors will not be in a position to detect it,” said Sudesh Punhani, a partner at Chhajed & Doshi.

Asked whether the bank’s failure to integrate its software system and SWIFT was a cause of concern, Neeraj Golas, a partner at R. Devendra Kumar & Associates, also an external auditor of the bank, said: “True, true — we have to really get into it and understand what all these things are.”

New unisex “Sakamichi Series” group announced, Yoshimotozaka46

A new group has been announced by Sakamichi Series called Yoshimotozaka46.

For those unfamiliar with Sakamichi Series, it’s a general term used to address the idol groups Nogizaka46 and Keyakizaka46, the sisters/rivals of the “48” groups.

This new group serves as a collaboration between Yoshimoto Kogyo and the mastermind behind the 46/48 groups Yasushi Akimoto. Yoshimoto Kogyo is one of the most prominent entertainment conglomerates in Japan with many Japanese entertainers belonging to them.

The entire concept of the group revolves around talents who belong to Yoshimoto Kogyo, they are the only ones who can audition and eventually become a member. There are no restrictions on age or sex, anyone can audition just as long as they belong to Yoshimoto Kogyo and have some sort of background in the Entertainment industry or are a performer. This ranges from idols, comedians, talents, dancers, athletes, and more.

Yoshimoto Kogyo currently represents over 6000 people who can qualify for the auditions.

In a press conference it was shared that the groups ultimate goal would be to hold a concert at Tokyo Dome, and participate in the annual Kohaku Uta Gassen.

Yoshimoto Kogyo’s talent pool mainly consists of comedians, with the most prominent being the cast members of Gaki no Tsukai which includes Downtown (Masatoshi Hamada & Hitoshi Matsumoto), Hosei Tsukitei, Naoki Tanaka, and Shozo Endo.


Malaysia police investigate rapper over Lunar New Year dog video

A rapper is under police investigation in Muslim-majority Malaysia for allegedly insulting Islam with a Lunar New Year video that features dancers wearing dog masks and performing suggestive moves, reports said Monday.

The video features controversial rapper Wee Meng Chee, known by his stage name Namewee, sitting on a chair in front of a domed building and mimicking barks of canines from around the world.

Several black-clad dancers wearing masks of dogs — an animal considered unclean in Islam — gyrate around him, with two of them mimicking a “doggy-style” sex move.

The video, which marks the start of the Year of the Dog currently being celebrated across Asia, generated accusations that it was filmed in front of a mosque in the administrative capital Putrajaya.

National police chief Mohamad Fuzi Harun reportedly said an investigation has been launched into the artist — who is from the country’s ethnic Chinese minority — for hurting religious feelings and “transmitting offensive communications.”

Namewee, who is reported to be abroad, faces up to a year in jail if found guilty.

In a YouTube video, the rapper denied having insulted Islam and said that the domed building visible in the background was the prime minister’s office, not a mosque.

“The reports saying I insulted Islam are not true,” he said. “We did not film the music video at any place of worship. It was done in an open area.”

The probe commenced after complaints from Muslim groups and public criticism from the deputy prime minister over the video, which has more than 700,000 views on YouTube since being released February 10.

Lunar New Year is a major celebration in Malaysia, where a quarter of the population are from the Chinese diaspora, but the Year of the Dog has proved sensitive.

Some shops have avoided displaying canine imagery in their decorations for fear of causing offense.

Namewee has repeatedly been at the center of controversy. In 2016, he was detained for several days for allegedly insulting Islam over a video partly filmed inside a mosque.

Malaysia generally practices a moderate form of Islam but religious tensions have escalated in recent years, with concerns growing over a rise in conservative Islamic attitudes.

The wonders of Japanese music scene – cali≠gari performs with Bed-In

Not the type of headline I thought I’d ever run into, but according to Natalie, it is true: visual kei mastodon cali≠gari (a band that just finished celebrating their 15th anniversary since releasing their first major single back in 2002) will join forces for a night of fun with Bed-In, a self-produced idol duo basking in the 80s aesthetics. The two very different bands will perform together in a two-man event called ‘One Night de Chau?’ that takes place in Shinjuku BLAZE on March 21st. Hopefully the live will turn out to be fruitful enough for future ventures to come out of it – how about a joint single release, perhaps?  If you happen to be traveling in Tokyo in March, this club live is definitely worth checking out.

Watch below the latest music videos from cali≠gari and Bed-In to compare their sound and visuals.

‘Sora wo Kakeru Yodaka’ to be adapted into a live-action series by Netflix

On Sunday it was announced that Shiki Kawabata‘s popular manga ‘Sora wo Kakeru Yodaka’ will be adapted into a Netflix original. The live-action adaptation will be double-led by Johnny’s West members Daiki Shigeoka and Tomohiro Kamiyama. Netflix will stream the six-episode drama later this year.

‘Sora wo Kakeru Yodaka’ tells the story of Ayumi Kohinata (played by Kaya Kiyohara; ‘Yurigokoro’, ‘Setoutsumi’), a high school student, who has just started going out with her first boyfriend. However, when her classmate Zenko (Miu Tomita; ‘Sunny: Tsuyoi Kimochi, Tsuyoi Ai’) jumps off a rooftop, Ayumi soon wakes up in the hospital – in Zenko’s body.

Shigeoka commented his character, Shunpei Kaga: “He is the type of guy I wanted to be when I was in high school, so I intend to play him like I’m revisiting my youth”. Kamiyama, then again, considered something good to come out of the meeting of the fiery character of Shigeoka and his cool character.

For the boys, this isn’t the first outing as a Netflix star. At the end of last year, Netflix released ‘Blazing Transfer Students’, which also featured Johnny’s West members.

Kawabata’s manga ran in ‘Bessatsu Margaret’ magazine from 2014 to 2015. Shueisha has compiled it into three volumes.

(Via Natalie)

“Long Vacation” stars Kimura Takuya and Yamaguchi Tomoko reunite after 22 years

Fans of the classic Jdrama Long Vacation will have something to celebrate as it was announced that actress Yamaguchi Tomoko will co-star with Kimura Takuya. This is after 22 long years since their popular drama in 1996, which recorded an average rating of  29.6%. Yamaguchi will appear in TV Asahi’s currently airing drama “BG: Personal Bodyguard” for episodes 6 and 7 and will play the role of the former wife of Kimura’s character.

And since Johnys lifted the ban on not just online press conference photos, but also profile photos and Jweb photos, we get to enjoy a lovely two-shot of Kimura and Yamaguchi. When they were reunited during costume fiiting, Kimura opened his arms to give her a hug and lifted her like their characters in “Long Vacation”. Yamaguchi said, “It was a magical feeling and the memories to that time rolled back in an instant. I can’t believe it has been 22 years, it feels like only 22 seconds have past”.

When Yamaguchi visited TV Asahi for costume fitting, Kimura said “I was in the waiting room next to the studio and I could see her appearance from the other side of the glass. I was frozen when I saw her. I felt happy with the reunion but 0.5 seconds later I noticed everyone from the drama staff were looking from the studio and the hallways, I came back to reality at once (laughs).”

Look forward to the drama’s broadcast on episode 6 (Feb 22) and episode 7 (March 7)!

(via Oricon)

Yuzuru Hanyu Wins at Winter Olympics, Shoma Uno Places 2nd

From February 9 – 23, the figure skating portion of the 2018 Winter Olympics will take place. Japan’s team is composed of Yuzuru Hanyu, Shoma Uno, Keiji Tanaka, Satoko Miyahara, Kaori Sakamoto, Miu Suzaki & Ryuichi Kihara, and Kana Muramoto & Chris Reed. On February 17, Yuzuru Hanyu won the men’s portion of the event, with Shoma Uno taking second. This is the first time Japan has ever won multiple medals in a single figure skating portion at the Olympics.

Yuzuru Hanyu won the men’s portion of the Winter Olympics with a total score of 317.85, a new Olympic record. His back to back Olympic wins make him the first man to achieve this feat since American Dick Button won the 1948 and 1952 Olympic titles. Two other men have achieved this as well, Sweden’s Gillis Grafstrom (1920, 1924, 1928) and Austria’s Karl Schafer (1932 and 1936). After taking three months off due to injury, Yuzuru came back to give Japan their first gold medal of these Olympics.

Yuzuru’s short program received a score of 111.68, putting him in first place, and also setting a new Olympic record. He opened with a quad salchow, followed by a triple axel, and finished with a quad toe loop / triple toe loop combination.

“I just felt happy to skate,” he said afterwards. “I just felt satisfied with my every element. I am really happy because I was really feeling the music, too, and the ice.” When asked about his comeback post-injury,  Yuzuru said, “Just doing my best. I wanted to say to everyone that I am back here. And I am really happy today. I just want to say thank you for cheering and I am back.” Asked about the possibility of winning a consecutive gold medal at the Olympics, he said, “It doesn’t matter. I don’t think about it. I am just focusing on myself. I’m very happy that there are a lot of (Japanese) in the audience, but I couldn’t perform for the last three months, so I am very happy to be back.”

Yuzuru’s free skate was the second best of the event, with a score of 206.17, 8.91 points behind American Nathan Chen. Yuzuru opened his program with a quad salchow, followed by a quad toe loop, and then a triple flip. After a combination spin and step sequence, Yuzuru executed a quad salchow / triple toe loop combination. The lone error came when he did only the first jump, a quad toe loop, in a planned three jump combination. He later did a triple axel / single loop / triple salchow combo, a triple loop, and a triple lutz. Yuzuru closed with a sit spin, choreographic sequence, and a combination spin.

After the score of Shoma Uno, the final skater, was posted, Yuzuru began to cry, knowing that he had won. “I have no words, right now. I am overwhelmed. This is the best day of my skating life. My tears were from my heart. I can find one word and that is ‘happy.’ ” After some time to take it all in, Yuzuru attended the post-event news conference. “Since I was injured, I am very fortunate to skate here at the Olympics,” he said. “I am indeed very happy to win the Olympic gold medal.” He added, “I am truly proud of this achievement. I had to do what I could do at this moment.”

Dick Button was watching Yuzuru skate at his home in North Salem, New York. The 88 year old former skater congratulated Yuzuru via Twitter, writing, “Bravo Hanyu, records are made to be tied.” About Yuzuru’s short program, Dick tweeted, “Great choice of music. Beautiful edging in and out,” and “Marvelous triple axel and forward edge. Music supports his skating, and skating supports music.” He ended his comments on Yuzuru’s short program with “Beautiful program, beautiful choreography. It looks like its raining teddy bears.” Dick also tweeted about Yuzuru’s free skate, writing, “Quad salchow, beautiful, easy, light,” and “Hanyu — Gorgeous. Beautifully choreographed with the music. Terrific theatre!”

Prime Minister Shinzo Abe also congratulated Yuzuru via Twitter, writing, “Huge congratulations to Mr. Yuzuru Hanyu on capturing a second consecutive Olympic gold, despite overcoming an injury,” He added, “Your stunning performance on the ice was truly moving. Thank you for touching our hearts!”

Shoma Uno finished in second place with a total score of 306.90. His short program ranked third, with a score of 104.17, 3.41 points behind Spain’s Javier Fernandez. Shoma opened a quad flip, followed by a quad toe loop / triple toe loop combination, and then a triple axel. He also received level-fours on all of his spins and a level-three for his step sequence.

“I’m happy I could skate clean,” Shoma said after his skate. “That why did the ‘guts pose’ when I finished.” He continued, “For this competition, I have been practicing as usual, so I did not do anything too different to prepare. I didn’t do anything special just because it was the Olympics. My practices here have been shaky, but that’s pretty much the usual for me.”

Shoma’s free skate was also ranked third, with a score of 202.73. He fell on his opening quad loop, but landed a quad flip and two quad toe loops. In typical Shoma fashion, his reaction to getting the silver medal was understated. “There was no special feeling right now. I was just focused on my performance. The goal was to pull off what I had prepared.” Talking about his fall on the quad loop, he said, “I missed the first jump, but the rest of the program was fine. I stayed calm after the mistake and was able to give a good performance. I tried to skate like in practice.”

Dick also had praise for Shoma, a skater he has admired for a while. “Quad flip, great deep edging, soft knees,” he tweeted about Shoma’s short program. “Great theatre — Marvelous tight spinning in the air. Doesn’t have the elegance of Hanyu, but a very strong secure program.” Of Shoma’s free skate, Dick wrote, “A powerful sparkplug.”

Keiji Tanaka finished in 18th place with a total score of 244.83.

The team event of the 2018 Winter Olympics took place February 9 – 12. Team Japan, which included everyone but Yuzuru, finished in fifth place, with a total score of 50 points. Canada won the gold in the team event with a total score of 73 points.

The pairs event took place February 14 – 15. The pair of Miu Suzaki & Ryuichi Kihara had a short program score of 57.74, putting them in 21st place. There were unable to move on to the free skate.

Kana Muramoto & Chris Reed will compete in the ice dancing event February 19 – 20, while Satoko Miyahara and Kaori Sakamoto will compete in the ladies’ event February 21 – 23.

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