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Wednesday, November 29, 2023
NEW YORK, Dec 19 2008 (IPS) - The U.S. will invest 40 billion dollars in American International Group (AIG), and will provide credit lines that could bring federal funding up to 144 billion dollars. It's the largest subsidy that a U.S. corporation has ever received.
In exchange, the U.S. gets nearly 80 percent of AIG stock.
This puts the U.S. in a unique position to investigate the internal operations of a giant corporation with a reputation for using the offshore system for tax evasion.
What accountants could learn would help U.S. President-elect Barack Obama – who has denounced offshore tax evasion – stop scams run by AIG and draft laws to prevent other insurance companies from doing the same.
U.S. authorities could begin their investigations with a look into a very curious practice that was revealed 15 years ago in a case that was never exposed by the mainstream press and which insurance insiders say is endemic.
In 1993, Terry Mills, who worked for a large insurance agency in Wilmington, Delaware, was tasked to get to the bottom of a messy insurance problem. The NVF Corporation, a Delaware holding company which owned a vulcanised fibre factory, was being reorganised after a federal court order stripped control of the company from its owner Victor Posner, a notorious crook.
He had been charged by the U.S. Securities and Exchange Commission (SEC) in 1988 for participating in a fraudulent takeover scheme concocted with Wall Street crooks Michael Milken and Ivan Boesky. The SEC banned him from serving as officer or director of any publicly-held company.
It wasn't the first time he'd broken the law. In 1977, the SEC had filed a complaint against Posner and his companies for overstating earnings and treating assets of public corporations as private property, charging the companies for houses, servants, vacations and even groceries.
In 1987, he had been fined 7 million dollars for evading more than 1.2 million dollars in taxes. A year later, he was a defendant in an SEC complaint about a "stock parking" scheme to gain control of a corporation, that cheated investors of about 4 million dollars.
So Posner was notorious. Even so, Mills was astonished when he examined the insurance books. He discovered that NVF had been paying National Union Fire of Pittsburgh, a subsidiary of the insurance giant AIG, substantially over market for workmen's compensation insurance.
Mills told the director of the Delaware Insurance Department's bureau of examination that when he went to buy a policy for NVG from another insurance firm, he found the price was only half what the company had paid the year before.
Mills told IPS, "The fronting company was AIG. And the broker on the deal was Alexander and Alexander… one of the biggest brokers in the world." He said, "The senior management really didn't have a handle on what the costs were." Posner, who died in 2002, had ordered the deal, and the managers went along.
This is how the scam worked. Insurance companies normally insure themselves by laying off part of their risk to reinsurance companies, so if a claim comes in above a certain amount, the reinsurance company will pay it.
AIG had reinsured the NVF policy through Chesapeake Insurance, a reinsurance company Posner owned in Bermuda – an offshore tax and secrecy haven whose books were safe from the eyes of U.S. regulators and tax authorities.
AIG would keep a portion of the inflated NVF premium and send the rest to Chesapeake. AIG would have a higher commission. Posner would write off the entire amount as a business expense and enjoy the extra cash in Bermuda, tax free.
A former insurance regulator told IPS, "Say the normal premium was 1 million dollars.(If I ran the company,) AIG could charge me 2 million dollars and then send a premium of 900,000 dollars over to a reinsurance company that it has set up for me in Bermuda. I never have to pay any claims, so I get to keep the 900,000 dollars tax-free offshore."
The company and bank records are private, so there is no way for outsiders to know how much tax money was actually diverted.
*This is the first of a two-part series on how AIG helped clients cheat on taxes. New York journalist Lucy Komisar reported on the AIG story as part of her continuing investigation of the offshore bank and corporate secrecy system. Her past articles appear on thekomisarscoop.com/.
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