This newspaper has found that over eight months before the scam in the state-owned Punjab National Bank involving Nirav Modi became public, an investigation report prepared by the income tax department had red-flagged bogus purchases, huge overvaluation of stocks, suspicious payments by the diamond jeweller to relatives besides dubious loans. Yet the explosive contents of the probe report, which were finalised by the I-T department in June 2017, were not shared with other agencies such as the Central Bureau of Investigation, the Enforcement Directorate, the Directorate of Revenue Intelligence or the Serious Fraud Investigation Office, until February this year when the PNB scam was exposed.
Government agencies do share information but as this newspaper reported, the findings of the tax department were not shared with the Regional Economic Intelligence Council, which is a designated platform for sharing of information between various law enforcement agencies. Both the jewellers — Nirav Modi and Mehul Choksi — fled India in the first week of January this year, before the scam became public, leaving the government and its agencies red faced and to mount a late and desperate legal and diplomatic effort to get them to face trial along with another fugitive, the high-profile businessman, Vijay Mallya. The common thread running through in the cases of the three economic offenders is not just how they gamed the system, but also how brazen violations of rules and non-payment of statutory dues were flagged off by some of the agencies, yet the escape route was open. For instance, as early as 2015, the DRI had found out how Nirav Modi’s firms were indulging in overvaluation of diamonds and diverting diamonds meant for exports to the domestic market. A valuation done by government-approved valuers much after the scam became public, exposed the huge difference in value of these stocks. In the case of Choksi too, there were multiple cases which had been filed against him. Mallya had a string of cases registered against him including by the service tax department and was also fined by the income tax department for not depositing Tax Deducted at Source (TDS) from staffers with the government. The income tax department has, however, claimed that there was no “protocol” for sharing investigation reports with other agencies at that time, an argument which is unconvincing.
India’s investigation agencies and financial regulators need to work more closely and share information at an early stage without indulging in oneupmanship. The quality of economic investigation and regulation is a key factor in fostering an enabling environment for investment and for the emergence of a competitive industry. That would mean expending political capital on this. India’s agencies and regulators cannot be playing catch up all the time. The economic consequences will be severe as we have seen already.