RBS 2007 Annual Report Download - page 203

RBS Group • Annual Report and Accounts 2007 201
Financial statements
Regulatory enquiries and investigations
In the normal course of business the Group and its subsidiaries
co-operate with regulatory authorities in various jurisdictions
in their enquiries or investigations into alleged or possible
breaches of regulations.
As previously disclosed by ABN AMRO, the United States
Department of Justice has been conducting a criminal
investigation into ABN AMRO’s dollar clearing activities, Office
of Foreign Assets Control compliance procedures and other
Bank Secrecy Act compliance matters. ABN AMRO has
cooperated and continues to cooperate fully with the
investigation. Prior to the acquisition by the Group, ABN AMRO
had reached an agreement in principle with the Department of
Justice that would resolve all presently known aspects of the
ongoing investigation by way of a Deferred Prosecution
Agreement in return for a settlement payment by ABN AMRO
of US$500 million (which amount was accrued by ABN AMRO
in its interim financial statements for the six months ended 30
June 2007). Negotiations are continuing to enable a written
agreement to be concluded.
Certain of the Group’s subsidiaries have received requests for
information from various US governmental agencies and self-
regulatory organisations including in connection with sub-prime
mortgages and securitisations, collateralised debt obligations
and synthetic products related to sub-prime mortgages. The
Group and its subsidiaries are cooperating with these various
requests for information and investigations.
Trustee and other fiduciary activities
In its capacity as trustee or other fiduciary role, the Group
may hold or place assets on behalf of individuals, trusts,
companies, pension schemes and others. The assets and their
income are not included in the Group’s financial statements.
The Group earned fee income of £695 million (2006 – £472
million; 2005 – £366 million) from these activities.
Litigation
Proceedings, including consolidated class actions on behalf of
former Enron securities holders, have been brought in the
United States against a large number of defendants, including
the Group, following the collapse of Enron. The claims against
the Group could be significant; the class plaintiff’s position is
that each defendant is responsible for an entire aggregate
damage amount less settlements – they have not quantified
claimed damages against the Group in particular. The Group
considers that it has substantial and credible legal and factual
defences to these claims and will continue to defend them
vigorously. Recent Supreme Court and Fifth Circuit decisions
provide further support for the Group’s position. The Group is
unable reliably to estimate the liability, if any, that might arise or
its effect on the Group’s consolidated net assets, its operating
results or cash flows in any particular period.
On 27 July 2007, following discussions between the Office of
Fair Trading (‘OFT’), the Financial Ombudsman Service, the
Financial Services Authority and all the major UK banks
(including the Group) in the first half of 2007, the OFT issued
proceedings in a test case against the banks including the
Group to determine the legal status and enforceability of
certain charges relating to unauthorised overdrafts. The
hearing of the test case commenced on 17 January 2008. The
Group maintains that its charges are fair and enforceable and
is defending its position vigorously. It cannot, however, at this
stage predict with any certainty the outcome of the test case
and is unable reliably to estimate the liability, if any, that may
arise or its effect on the Group’s consolidated net assets,
operating results or cash flows in any particular period.
Members of the Group are engaged in other litigation in the
United Kingdom and a number of overseas jurisdictions,
including the United States, involving claims by and against
them arising in the ordinary course of business. The Group has
reviewed these other actual, threatened and known potential
claims and proceedings and, after consulting with its legal
advisers, does not expect that the outcome of these other
claims and proceedings will have a material adverse effect on
its consolidated net assets, operating results or cash flows in
any particular period.
Additional contingent liabilities arise in the normal course of
the Group’s business. It is not anticipated that any material loss
will arise from these transactions.