The Wall Street Journal reports that Starr International Co., a Panamanian firm led by former AIG head Maurice Greenberg, has prevailed in litigation against AIG.
A little background is necessary. Over several decades, Greenberg helped convert AIG from a sleepy insurance company with origins in pre-revolutionary China into a world-threatening leviathan, which expanded into insuring collateralized debt obligations via credit default swaps. The firm became too interconnected to fail, and when the value of the underlying mortgage-backed securities it was insuring went south, AIG ended up owing money to all sorts of counterparties all over the U.S. and global economies. Greenberg was also deeply involved in policy matters, serving as midwife to the WTO's Financial Services Agreement.
Now U.S. taxpayers, as the primary shareholders in AIG (Greenberg's SICO is the second largest) are trying to get capital back on the firm's books so that the firm and its counterparties can begin to return to health and the taxpayers can get their money back, with some return.
And, then there's the interesting part...
As we reported in March, under Greenberg, AIG maintained affiliations with a variety of offshore entities, including Panama's SICO, often to provide reinsurance and other services. Part of SICO's role in the division of labor was to operate a compensation pool for top AIG staff, who would get rewarded for good behavior with AIG stock held by SICO. As the WSJ reported:
The trial was basically a dispute over tens of millions of shares in AIG held by Starr but used for decades when Mr. Greenberg was AIG's chief executive to fund a long-term compensation plan for AIG employees. Mr. Greenberg left AIG in 2005 while it was under investigation for its accounting. When he left, the program ended and Starr later sold off some of the shares; AIG maintains it should control the shares.
The verdict is a setback for the insurer, which has been hungry for funds to repay a federal bailout in September that rescued the storied firm from the brink of bankruptcy. The government has made as much as $173.3 billion in aid available to AIG.
Greenberg's victory not only pushes AIG (and us, as its owners) farther away from financial health, it also shows the power that a Panama-registered company can wield in the U.S. court system, in a case against a government-owned company.
Just imagine what such a firm might be able to do if it had even greater rights under the Panama FTA. Earlier this year, we asked you to contact your member of Congress and let them know that these foreign investor rights should be stripped from U.S. trade and investment agreements. With Greenberg's latest success against U.S. companies and taxpayers, now's a good time to let them know that this issue hasn't gone away! Congress should "just say no" to the Panama FTA, and "just say yes" to positive trade legislation like the TRADE Act.
We'll continue to follow the AIG-SICO story, which is not yet over. AIG is suing the U.S. taxpayers for back taxes it owed related to its (and SICO's) Panamanian operations. And, will AIG and other mega corporations continue to push for the Panama FTA, which grants them rights that go beyond U.S. law? Stay tuned.