The Underlying Technologies That Failed To Prevent PNB’s Cross Border Fraudulent Money Transfers


New Delhi: Punjab National Bank recently detected fraudulent transactions worth Rs 11,300 crore at its Brady House branch in Mumbai. The PNB in its cautionary note to other public and private sector banks said that the suspected fraud was carried out by the perpetrators in collusion with the staff.

It went on to explain the modus operandi of the scam and said: "It was found through SWIFT trail that one junior level branch official unauthorisedly and fraudulently issued Letters of Undertaking (LoU) on behalf of some companies belonging to NiravModi Group for availing buyers' credit from overseas branches of Indian Banks."

 It further said that none of the transactions were routed through the Core Banking Solution or CBS system, thus avoiding early detection of fraudulent activity.  So, what is the CBS that the bank official bypassed to issue fake LoU by using SWIFT.

Here is a look at some of the underlying technologies that enable such cross border money transfers.


SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications, a messaging system used by banks the world over to send information and instructions in an encrypted format through a secure channel.

It is a messaging system, and does not hold money or manage accounts.Modifying an Investopedia example, this is how it works:

Suppose a customer of say, a State Bank of India branch in New Delhi wants to send money to her friend who has an account at a Citibank branch in London.

The person in New Delhi needs to provide the SBI branch with his friend’s account number and Citibank’s unique SWIFT code for its London branch. SBI will send a payment transfer SWIFT message to the Citibank branch over the secure SWIFT network.

Once Citibank receives the SWIFT message about the incoming payment, it will clear and credit the money to the London friend’s account.

What is CBS? 

CBS refers to Core Banking System where all branches are inter-connected to ensure that the bank customers - regardless of their home branch - are able to operate their account and transact in any of the member branch located anywhere in the world. After the advent of this system, a customer is no more customer of a branch, but s/he becomes customer of bank.

All the transactions are updated real-time. So, if you are wondering why the PNB couldn't detect the fraud earlier, it is because the PNB official did not rout the transactions through CBS, which would have given real-time data on transacted business. 

What is LoU?

Letter of Undertaking is a bank guarantee and is issued for overseas import payments. A bank, while issuing LoUs for a client (here NiravModi), agrees to repay the principal and interest on the client's loan unconditionally.

When anLoU is issued it involves an issuing bank, a receiving bank, an importer and a beneficiary entity overseas.

PNB officials allegedly used their access to SWIFT messaging system (used for overseas transaction) and verified guarantees given on LoUs without taking necessary sanctions. As a result, overseas branches of many Indian banks gave forex credit. 




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