Those who watched the series ‘Bad Boy Billionaire’ on Netflix, probably know about gory details of the Rs. 11,400 Crore financial fraud perpetrated by Nirav Modi. As someone that fights fraud, I was curious to know more about this very intriguing “Bad Boy.” Pavan C. Lall in his book “Flawed: The Rise and Fall of India’s Diamond Mogul Nirav Modi” does not fail you, with the front row almost ringside view in his blow-by-blow account. Let me share my super short one-sentence Blinkist version for the purpose of this post – Nirav Modi essentially pulled off India’s largest Bank fraud through LOUs raised by a rogue banker at Punjab National Bank’s Brady House branch, and used it to funnel money outside the country through his web of some 20 odd shell companies, while over-invoicing and round tripping a bunch of diamonds. The bank called it a ‘human failure, not a system failure’. Of course, there was bribery and corruption (and spades of it, no doubt) but it is also true that PNB’s SWIFT system was not integrated with the Core Banking System. We can talk about fraud prevention and controls another day.
From Modi’s perspective, fraudulent availing of funds aside, he was all the while running a very legit sounding business. For one, he was draining money like flood water into his namesake brand. He wanted to truly be India’s answer to American and European luxury labels in jewelry. As a jewelry lover myself, I could almost sense his passion and eye for detail in making masterpieces of jewelry that were no less than works of art. His Golconda Lotus Necklace (with a 12 carat rock) went under the hammer at a Christie’s auction for double digit crores. Note – He was the only Indian jeweler to pull that sort of thing off. He had reportedly spent months meticulously doing his homework on what goes into a Sotheby or a Christie’s catalogue. Indian jewelry aesthetic is generally very different from the western aesthetic. (We mostly wear tons of gold. Any Indian wedding venue carries enough gold to put a small country’s central bank to shame.) But Modi came across as a man with a very international aesthetic in his jewelry designs. Moreover, he had an enviable detail orientation. But most important of all – a passion for the diamonds business. It rings so true what Bryan Adams croons in his raspy voice in the bluesy track “If you wanna be bad, you gotta be good.” And Nirav Modi if anything, was good.
So now the question that arises is as follows. For someone who knew his market like a boss, and who came from India’s diamond elites, why did he even need to pull off a giant con like that. What was the motive. Did he just use the rocks to launder money out of the country to buy luxury apartments, fancy toys and splash around some money while it lasted. Or did he want to build out his business and brand but some day genuinely repay all the unsecured fraudulent loans and fund his growth with his big bang IPO (that never happened), until the business went sideways. Having worked in both accounting fraud and first party fraud a fair bit, I know one thing. No amount of data or analytics can model motive well. In first party fraud we often ask ourselves – is it a capability problem or a willingness issue. This question never has a clean answer.