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AIG ACCOUNTING SCANDAL

HK

Hannah Kim

Transcript

AIG ACCOUNTING SCANDAL

Hannah Kim

Wednesday, March 30 , 2016

Vol XCIII, No. 311

Tax Havens in Bermuda Island

무 무An Accounting Fraud with Gen Re

Inflated contract with others

Prearranged False Reinsurance Contract

  • AIG made false contracts with other reinsurance companies which are based on Bermuda Island.
  • Bermuda Island is often used as a place where large companies evade taxes or launder their money.
  • AIG made the contracts with other companies to hide their loss by converting them into capital loss.
  • The chief officers of AIG had personal entities in which they had great amount of personal stakes.
  • These entities are considered to be used as a management tool of their earning.

How was it caught

What happened later

  • Took place in 2001, but was caught in February 2005
  • Main players: Executives of AIG including Hank Greenberg, Executives of Gen Re including Ron Ferguson
  • Executives of each company arranged an agreement about a reinsurance contract they made which states that Gen Re will pay AIG $500 million as an insurance premium; and for any accidents that take place, AIG will pay $500 million as the insurance benefit
  • Reinsurance contract is only established when there is a high possibility of loss, but the contract did not include any possible risk against AIG
  • The purpose of the contract was to mislead the finance supervisor, investor, and policyholders.
  • The former CEO of AIG was fired.
  • The company was settled with the SEC for the excess of $1.6 billion to fix claims related to inappropriate accounting.
  • In addition, AIG had to pay $800 million as well
  • The former CEO, Hank Greenberg's daughter-in-law revealed the internal situation to the SEC as she divorced with her husband
  • Back in 2005, SEC could ask for up to five years worth of accounting records, the fraud was revealed.
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