May 12th, 2014
Royal Bank of Scotland is, once again, discovering that it is unable to operate above the law.
On Friday, a U.S. judge ordered the Edinburgh-based bank to stop using a software program that underpins its trade finance division, after finding the bank had been infringing the system’s copyright for six years.
U.S. District Judge Katherine Forrest imposed a permanent injunction on RBS, requiring it to completely stop using the BankTrade software within a year, and not to use the software to process any new transactions from July. In last Friday’s ruling, Judge Forrest said the bank’s ABN Amro NV arm (part of the Dutch bank that RBS acquired in October 2007) had committed “six years of uninterrupted infringement”. A hearing over damages is due to take place on June 5.
“ABN may not continue benefiting from its blatant and ongoing infringement simply because stopping that infringement will be disruptive to its business,” Forrest wrote in a decision that found in favour of New Jersey-based Complex Systems Inc., which produces the software and which has been fighting to get the bank stopped from using it without a license for six years.
The courtroom victory for Complex Systems, which is a small firm with a turnover of just $20m, comes as a severe blow for the Edinburgh-based bank. Its trade finance business generated £295m of income in 2013, and may now have to be closed down. Complex Systems’ BankTrade software allows financial institutions to process and facilitate transactions, including letters of credit, loans, guarantees and fund transfers, according to Complex’s initial complaint filed in 2008.
In an article published in the Financial Times last December, banking editor Patrick Jenkins explained:
“Trade finance is one of RBS’s core businesses, generating revenue of £226m in the first nine months of 2013. The removal of the software that underpins it could cause chaos with thousands of clients whose loans are hosted on it.”
In court, RBS characterized the BankTrade software as a “core” part of its technological platform and argued that removing it would be like cutting out the system’s heart. But Gad Janay, chief executive of New Jersey-based Complex Systems, welcomed the ruling, saying “the most important thing is they should stop using the system.”
In a letter sent by in-house lawyer Michael Swartz to the judge late on Friday, RBS said it will appeal the ruling. In his letter Swartz asked her to delay its implementation. But Jeffrey Kaplan, a lawyer for Complex Systems, opposed that request in a letter reminding Judge Forrest that her ruling already includes a delay.
The development is further damaging fallout from RBS’s ill-conceived and ultimately catastrophic €71 billion takeover of the Dutch bank ABN Amro in October 2007. In a “poison pill” defense before RBS and partners made their initial bid, ABN Amro craftily sold its US arm, Chicago-based LaSalle Bank, to Bank of America for $21 billion. As part of that deal, BofA gained ownership of ABN Amro’s North American information technology unit, which holds the license for BankTrade from Complex Systems.
RBS, whose incompetence as a banking institution has become legion, failed to secure a transfer of the license from LaSalle’s new owners Bank of America, but decided to just carry on using it anyway. A now-outdated version of BankTrade had become a deeply embedded in the Scottish bank’s trade finance platform, and this is being used in 22 countries by more than 2,600 clients, processing thousands of transactions a week.
The case is Complex Systems Inc v. ABN Amro Bank NV, U.S. District Court, Southern District of New York, No. 08-07497
Ian Fraser’s book, Shredded: Inside RBS, the Bank That Broke Britain, is published by Birlinn next month.