In early February 2002, AIB sensationally disclosed that trader John Rusnak, unsupervised for seven years at its old Allfirst unit in Baltimore, cost the bank $691m in foreign exchange trading losses. A year later, in a Manhattan court, AIB launched a huge suit against Bank of America (BofA) and Citibank, alleging that, in their dealings on the forex markets with Rusnak, they knew about and helped the rogue trader hide his losses from Allfirst bosses.

For the past five years, prominent US judges Deborah Batts and, more recently, Gabriel Gorenstein of the Southern District New York State Court have heard legal arguments from both sides and from third parties, including former AIB Irish auditors and advisers PricewaterhouseCoopers (PwC).

Based close to Wall Street, the high-rise Pearl Street court buildings hear many of the big US financial cases. Earlier this summer, Judge Batts allowed author JD Salinger to block the US publication of a book "derived" from his classic, The Catcher in the Rye, while Gorenstein, during the trial of Bernie Madoff, controversially allowed Madoff to stay under nightly arrest in a luxury Manhattan apartment home.

AIB is seeking $480m in damages from the American banks, making it Ireland's largest corporate law suit of its type. Documents from the New York court in recent weeks make clear that the case is now heading to some sort of climax. Neither side seems prepared to blink. It will go to full trial in the coming months or be settled at a late stage. The Sunday Tribune has learned about a flurry of legal activity in the case in recent weeks on both sides of the Atlantic.

For AIB, an earlier ruling of the court threatens to open the whole Rusnak controversy anew, potentially affecting former and existing senior executives at the bank.

It is believed that about 45 expert witnesses, current and former employees of AIB, Citibank, and BofA, including former advisers, have been subpoenaed or have voluntarily agreed to give evidence for an upcoming trial. The discovery order extends to thousands and thousands of documents and emails collected by Eugene Ludwig, the "independent" investigator AIB appointed in February 2002 to probe the scandal.

Ludwig's published report ran to only 62 pages, but the US banks will also gain access to all the documents, the telephone logs and computerised trading records and emails collected by law firm Wachtell Lipton Rosen and Katz and AIB staff who worked alongside Ludwig at the time. Most significantly, the US banks defending the AIB law suit will also have access to the documents collected by PwC, the AIB auditors at the time, who separately produced a report for the AIB board. That report was never published.

When BofA and Citibank failed, in January 2006, to get the case thrown out, many believed that AIB was coasting to an out-of-court settlement. Judge Batts ruled that the US banks, despite AIB's having admitted to a breakdown of its inadequate controls at Allfirst, should answer AIB's complaint for damages.

But a year later the US banks won a significant victory when Judge Gorenstein ruled that BofA and Citibank should see the documents of all the investigations AIB conducted into the scandal in 2002.

Half a billion dollars, which is what AIB is seeking in damages, is a large sum at the best of times. These days it is potentially worth even more to AIB – equivalent to the annual interest payment the bank must pay the government for the €3.5bn in bailout cash it received from Irish taxpayers. For AIB, Gorenstein's ruling threatens to throw light on a scandal that it hoped was long buried.

In her ruling in 2006, Judge Deborah Batts succinctly summarised AIB's lawsuit in a few lines. From 1997 until September 2002, AIB owned Allfirst in Maryland outright. Until February 2002, Allfirst foreign exchange trader John Rusnak "orchestrated a rogue-trading scheme" that cost AIB $691m. Earlier, in 2000, BofA and Citibank offered so-called prime-brokerage facilities to its clients, including Allfirst, that allowed Rusnak from September 2000 to bet on the direction of "large volumes" of foreign exchange.

The judge said AIB claims that Rusnak requested BofA and Citibank to stop sending daily reports of his trading activity to Allfirst. Instead, reports were submitted in a format that Rusnak himself designed, helping him to "misrepresent the risks and results" of his trading to Allfirst.

By February 2001, a year before the discovery of the scandal, AIB claims Rusnak persuaded BofA and Citibank to lend him $200m through foreign exchange options. Because the options allowed Rusnak "to purchase yen at a rate strikingly lower than the current market rate" they were effectively "lose-lose situations for Allfirst".

AIB also claims that, by the time Allfirst finally discovered Rusnak's rogue scheme in February 2002, it had lost approximately $691m. AIB's case, said the judge, was that "most of the losses occurred after the defendants allegedly began assisting Rusnak, and included more than $400m on prime brokerage trades and more than $80m on disguised funding transactions". She ruled against BofA and Citibank's motions to have AIB's claims thrown out.

A year later, in January 2007, Judge Gorenstein threw a cat among the pigeons, as far as AIB was concerned. AIB had argued against allowing BofA and Citibank access to the hundreds of documents and testimony assembled by its investigators in 2002.

Five years after the fraud was detected, Judge Gorenstein allowed BofA and Citibank access to the Ludwig background notes, the Wachtell Lipton Rosen and Katz documents and the PwC investigations. AIB had failed to show that these documents are protected by lawyer-client privilege, Gorenstein ruled.

Allowing access, the judge said that legal arguments about a remarkably similar case at Kidder Peabody were "particularly instructive". Its rogue trader, Joe Jett, cost the bank hundreds of millions of dollars in losses. Kidder at the time engaged a law firm to represent it in expected litigation and also asked the firm to investigate the fraud and prepare a report. The judge said Kidder made public pronouncements that it had done so, focusing on the fact that it had hired "independent" counsel to investigate.

"Kidder, like AIB, ultimately released the report to the public," Judge Gorenstein said.

In June last year, Gorenstein threw out PwC's bid to keep private its 2002 investigations into Rusnak on behalf of AIB. It too will have to show its unpublished findings to BofA and Citibank.

This year, the pace of activity picked up. Court documents show that, on 16 July, transcripts of the latest testimony were read into court. Interim pre-trial conferences were held. Other court documents show that Judge Gorenstein was told in April that discovery orders had been issued and a so-called fact discovery deadline set for early summer.

Last summer, Gorenstein wrote to the Irish High Court requesting it facilitate a former BofA employee, Kieran White, to give evidence by video tape on behalf of BofA.

Meanwhile, the rogue trader himself was released from a US prison in January. Though he has kept his silence, speculation has been raised that both AIB and the defendants, BofA and Citibank, have sought Rusnak's testimony.