Authorities in India have asked Interpol to help catch two diamond traders who fled abroad after being charged under the Prevention of Money Laundering Act.
The two men, diamond trader Nirav Modi and his uncle Mehul Choksi, are alleged to have been involved in a US$2 billion scam involving the Punjab National Bank.
Interpol has now asked for more information from India’s Enforcement Directorate, which has asked the international agency to issue Red Notices on the two men, according to the Press Trust of India.
According to Interpol, a Red Notice is a request to locate and provisionally arrest an individual pending extradition. It is issued by Interpol’s General Secretariat at the request of a member country or an international tribunal based on a valid national arrest warrant. It is not an international arrest warrant.
The Indian agency sought Interpol’s help against the two diamond traders based on non-bailable warrants against them issued by a Mumbai court in a case filed under the Prevention of Money Laundering Act.
India’s finance ministry has revealed that the Punjab National Bank had issued 41,178 Letters of Undertaking (LoUs) since 2011, of which 1,590 were issued to Modi, Choksi and their associates.
It is alleged the two traders used fake LoUs issued by a bank official to defraud the bank. After the fake LoUs were discovered, India’s central bank, the Reserve Bank of India, stopped banks from issuing LoUs as well as Letters of Comfort used to finance trading.
After these restrictions were introduced, gems and jewelry businesses and other importers were forced to use more costlier ways of funding, such as Letters of Credit or making payments upfront. Letters of Credit cost about 1% more than LoUs. This has resulted in a shortage of credit and a liquidity crunch in the sector.