Nirav Modi was heading up ponzi-like scheme: UK court

Wanted diamond merchant Nirav Modi is responsible for overseeing a "ponzi-like scheme" that caused enormous fraud to India’s Punjab National Bank (PNB), the UK court hearing final submissions in the extradition case was told on Friday.

The Crown Prosecution Service (CPS), arguing on behalf of the Indian authorities, focussed on laying out the prima facie case of fraud, money laundering and perverting the course of justice against the 49-year-old jeweller, who followed the proceedings on the second day of a two-day hearing via videolink from a room at Wandsworth Prison in south-west London.

District Judge Samuel Goozee was taken through evidence already presented before Westminster Magistrates’ Court in London during the course of several hearings last year in order to wrap up the extradition hearing this week.

“The simple and stark fact is that he (Nirav Modi) used his three partnership companies to acquire billions of dollars worth of credit which was entirely unsecured and LoUs (letters of undertaking) were issued for wholly bogus trade,” said CPS barrister Helen Malcolm, appearing via videolink for the part-remote court proceedings due to the coronavirus lockdown.

“While the defence claims this is a mere commercial dispute, there is a plethora of evidence to point to a ponzi-like scheme where new LoUs were used to repay old ones,” she said.

A ponzi scheme typically refers to an investment scam which generates funds for earlier investors with money taken from later investors and the CPS sought to establish that Modi used his firms – Diamonds R Us, Solar Exports and Stellar Diamonds – to make fraudulent use of PNB’s LoUs in a conspiracy with banking officials.

Malcolm's arguments also reiterated previous evidence of a video by a former employee claiming to have received death threats from Modi and dummy directors of shell companies being forced to leave India to evade the investigations launched by the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED).

“These directors were pressured to get them further out of the way from the Indian investigation,” noted Malcolm.

Drawing Justice Goozee’s attention to “genuine and bona fide charges” filed against Modi in India, she stressed that the judge need only to satisfy himself on whether there is a prima facie case against him to be extradited to stand trial on the charges.

Modi’s defence team, led by barrister Clare Montgomery, in her counter-arguments has challenged that premise because it would approach the case with an “extremely broad brush”.

“It requires proper analysis as to why the offences cannot amount to an allegation of bank fraud, as there is no case of operative deception,” said Montgomery, referring to expert evidence on Indian law given by former Indian High Court Judge Abhay Thipsay last year.

The hearing on Friday is expected to conclude the final submissions in the case and leave the judge to set a timeline for his judgment.

On Thursday, he heard detailed arguments from both sides about why Modi's “deteriorating” mental health condition does or does not meet the Section 91 threshold of the Extradition Act 2003 – which has most recently been used in the UK to block the extradition of Wikileaks founder Julian Assange on the grounds of it being “unjust and oppressive” as he is a high suicide risk.

“As in the Assange case, the issues here evidentially are the same – the mental condition of Modi and the treatment he would receive given the prison conditions in India,” said Montgomery, pointing to her client’s severe depression and risk of suicide due to his lengthy incarceration since March 2019 and called for his discharge.

The CPS challenged the defence stance to say that the two cases were of a “completely different nature” and instead sought an adjournment in the event that Section 91 was to be engaged, to allow an independent evaluation of medical records by a consultant psychiatrist and appropriate assurances be acquired in terms of his care in India.

Modi is the subject of two sets of criminal proceedings, with the CBI case relating to a large-scale fraud upon PNB through the fraudulent obtaining of LoUs or loan agreements, and the ED case relating to the laundering of the proceeds of that fraud. He also faces two additional charges of "causing the disappearance of evidence" and intimidating witnesses or “criminal intimidation to cause death” added to the CBI case.

The jeweller has been in prison since he was arrested on March 19, 2019, on an extradition warrant executed by Scotland Yard and his attempts at seeking bail have been repeatedly turned down.