Mr Martin's report
46 Mr Martin expressed the opinion, among others, that the examples of banker/customer communications that I have referred to, illustrated, on the part of each of the three banks, failures by them to take appropriate steps to verify the identity of their customer, both at the commencement of their relationships and at various times thereafter. He opined that the material before each of the banks would have put a prudent and competent banker in a position of suspecting that Mr Sridhar and Sunshine "… were concerned in some sort of money laundering with a view to concealing their involvement in a fraud or other crime". Mr Martin opined that each bank appeared to have failed to act on what he characterised as the suspicious information provided by Mr Sridhar. He said that the banks failed both to ensure that appropriate identification procedures had been followed and to take further steps to verify the source of the funds in the accounts apparently controlled by Mr Sridhar.
47 He concluded that each of the banks failed to take those steps, not merely as a matter of imprudence but also that they deliberately refused further to investigate Mr Sridhar and the source of the moneys in the accounts under his control, when the circumstances warranted such an investigation. His principal reasons for those conclusions were set out by him as follows:
"24. Although below I deal with individual issues asked of me by the solicitors for the Suzlon Parties, the factors that I have identified which give rise to these conclusions are:
(a) the use by Sridhar of a pseudonym "Rodney Marsh";
(b) the lack of any inquiry at all as to the use of that name by Sridhar;
(c) the use of Sridhar and [Sunshine] of an internet mail account;
(d) the high value of the transactions;
(e) allowing Sridhar and [Sunshine] to 'self-verify' transactions;
(f) not using a trusted third party to verify identities or information;
(g) at least in the case of LB Swiss:
(i) opening an account in the name of Rodney Marsh; and
(ii) tipping off Sridhar as to German and Swiss government investigations into dealings with [Sunshine] and transactions on its account."
48 Mr Martin observed that on the material to which he had had access, it did not appear that LB (Swiss) had been provided with any document supporting the use of the name Rodney Marsh that justified its opening an account in that name. He said that, of itself, Mr Sridhar's request to open an account in a false name, would have raised serious concerns that he was engaged in some illegal or fraudulent activity. Mr Martin opined that such a request would indicate to a reputable and prudent banker that Mr Sridhar intended to use the false name in dealings with third parties and wished to transact on an account in a false name. Mr Martin observed that a bank account could be used by individuals as a source of their own identification because it was often assumed that banks out carried out identification checks of their own customers.
49 He noted that, at the inception of the relationship with each bank, Mr Sridhar had been using the name "Rodney Marsh" in emails with the bank. Mr Martin said that such a name could have been used in any signature line, fax or the like sent by remote communication. He said that providing Mr Sridhar with:
"… a bank account in a false name gives to the identity Rodney Marsh the supposed verification of the bank of that identity.
It is extraordinary that any reputable bank would facilitate this conduct by opening an account in a false name."
50 Mr Martin also observed each of Merrill Lynch and Credit Suisse had made no apparent inquiry, as to the use of the Rodney Marsh name, who he was and, unless the bank knew it was a pseudonym for Mr Sridhar, how, in subsequent transactions an email from Rodney Marsh's email address could be discerned from an email from Mr Sridhar. In Credit Suisse's case, Mr Sridhar's email of 27 February 2009 to it appeared to remove any doubt that he was using the Rodney Marsh email account as his personal email.
51 Mr Martin noted that although Mr Sridhar had provided a passport giving his true name, there was no reference, in the material in evidence, to a passport for Rodney Marsh, let alone any other business documents that identified that person. Mr Martin observed that no information appeared to have been provided to any of the banks to support Mr Sridhar's use of the name Rodney Marsh. He opined that a reputable bank would thus have been seriously concerned, first, that Mr Sridhar was using a pseudonym in his communications with third parties, secondly, whether identity fraud was occurring and, thirdly, about the possible criminal or fraudulent use of the pseudonym. Mr Martin also opined that Mr Sridhar appeared to be using other identity masking practices, including an internet email account maintained with Yahoo that did not provide, or require, any identity checks. In addition, the email username "sunshineintertrade" was different from that of Sunshine Trade Services, in circumstances where according to Mr Martin's instructions, the username "Sunshine Trade Services" was available from Yahoo in both the yahoo.com.au and yahoo.com domains.
52 Mr Martin also pointed to Mr Sridhar's use of an email address within the ".com.au" section level and country level domains. He opined that this suggested a lack of any apparent connection to Australia for the purposes of that company given that Sunshine was a Marshall Islands company and Mr Sridhar resided in India. Mr Martin opined that, in Merrill Lynch's case, there was additional identity masking in respect of Mr Sridhar's use of Sunstar and Bluewind because he was able to establish accounts for both those companies despite not being a shareholder or director.
53 Mr Martin explained that application of the banking principle "know your customer" would cause concern to a prudent banker in a position of the three banks. This was because Sunshine had been the recipient of many millions of United States dollars and euros in circumstances where Mr Sridhar claimed that it was engaged in various business activities yet, was dealing with the banks, first, using a free internet email service with a username, "sunshineintertrade", different from its corporate name and, secondly, he was using the pseudonym, "Rodney Marsh" when dealing with third parties.
54 Mr Martin noted that Merrill Lynch and Credit Suisse had been asked to act on transfers from another Swiss bank (LB (Swiss) or Merrill Lynch, with which one of the entities Mr Sridhar appeared to control held an account. Mr Martin said that the use of a Marshall Islands company, Sunshine, was a further factor to raise concern in a prudent and competent banker. He said that that jurisdiction was known to have low corporate governance controls, and was susceptible to money laundering and other criminal activities. He cautioned, however, that the association of Sunshine with that jurisdiction was not enough, in itself, to raise concerns. Nonetheless, when this was coupled with the other matters to which Mr Martin referred, he considered that the fact that a customer was based in, or conducted business through, such a jurisdiction would not allay the concerns raised by the other factors he noted and was consistent with all those factors being present for illegitimate reasons.
55 Mr Martin's opinion was that a prudent, competent banker, would want to establish without question the true identity and bona fides of its prospective client or customer regardless of the value or nature of the relationship being contemplated. This would include the banker obtaining original, or properly certified, supporting documentation to establish the bona fides of Mr Sridhar as user of the name Rodney Marsh and an explanation for the other matters to which Mr Martin had referred. He also stated that the relationships which each bank was considering and those established with Mr Sridhar and his companies were both very complex and potentially very large in value. Mr Martin opined that these considerations made it all the more imperative for each bank to satisfy itself of the identity of its proposed or actual customer in order to avoid any fraudulent situation arising in which that customer may be involved.
56 Mr Martin concluded that each bank should have required Mr Sridhar to establish the nature and legitimacy of Sunshine's business. He observed that in LB (Swiss)'s case, there were evident matters of concern. In particular, Mr Frehner, first, had accepted Mr Sridhar's assertion that the transfer of €750,000 to BIP Holdings on 22 April 2008 was for "agency fees" for the first quarter of 2008 and, secondly, he had accepted Mr Sridhar's statement on 15 January 2009 that payments were being made "… to both the companies for business purposes against supplies being made to [Sunshine]". Mr Martin also referred to Mr Frehner having requested further information from Mr Sridhar on 13 March 2009 because LB (Swiss)'s "compliance officer" was seeking this and his acceptance of Mr Sridhar's explanation that payments received from Jiangsu Jixin Wind Energy were "agency fees".
57 Mr Martin opined that because the last two requests had been made by Mr Frehner expressly due to concerns about "compliance", Mr Frehner appeared to have already formed a concern over the legitimacy of those payments in light of LB (Swiss)'s own obligations under relevant anti-money-laundering legislation. He said that in any event, even if Mr Frehner had not formed such concerns, a prudent banker would have.
58 Additionally, Mr Martin referred to Mr Frehner's request to Mr Sridhar of 20 July 2009, arising out of an apparent discrepancy between Mr Ahn's signature in a transaction compared with that held on its files. Mr Martin said that it was "most imprudent" of Mr Frehner to seek and accept only an assurance from Mr Sridhar by email that Blue Ocean and Sunshine were beneficially owned by the same person. He opined that those responses and assurances could not have satisfied a prudent banker. In Mr Martin's opinion, if such a banker failed to make further inquiries, that banker must have deliberately chosen not to inquire further because those circumstances called for investigation. In addition, he considered that Mr Frehner's conduct, in "tipping off" Mr Sridhar about the Swiss government's inquiries in January 2009, was imprudent and against the spirit of anti-money-laundering regulations.
59 Similarly, Mr Martin reasoned that a banker in the position of Merrill Lynch and Credit Suisse must deliberately have refrained from making any inquiries, since the facts of which they were aware on the material to which he had referred in his report, required them, first, to know more about Sunshine's business and, secondly, to seek evidence that it was a legitimate trading business. He said that a banker could request a customer to provide information on a confidential basis, such as the actual contracts under which the agency fees were paid, website information, public records of the business' transactions and authorisation for the banker to contact the counterparties to its customer's dealings. After assuming that none of those inquiries was made by a prudent and competent banker, Mr Martin concluded that the decision to refrain from doing so would be deliberate.
60 Mr Martin said that communications between the bankers and Mr Sridhar and the companies with which he was associated were inconsistent with international banking practices. Mr Martin opined that a customer's instructions sent by email that did not include an authentication process, either by means of code words or internet banking challenge to the responses, were not a sufficient means of authenticating the instructions as having come from the customer.