Reinsurance giant General Re moved a massive $500 million (€387 million) fraud to Dublin because Ireland has lax financial reporting and was a country "without too much regulatory oversight", US prosecutors have said in court papers lodged in Virginia.
They also allege that General Re's former chief financial officer, Elizabeth Monrad, said that such illegal transactions were "like morphine" because they become so financially addictive, while the head of its Dublin subsidiary, Cologne Re Dublin, assured his bosses that there was no way the transaction would show up on public documents in Dublin.
Later, the company's legal counsel is alleged to have boasted that nobody would be able to "connect the dots" between General Re's client, AIG, and the illegal transactions in Dublin.
General Re, a subsidiary of billionaire Warren Buffet's Berkshire Hathaway group, is alleged to have created $500 million of false insurance reserves to falsely boost AIG's financial health.
Federal prosecutors in Virginia released details of the indictment of former General Re chief executive Ronald Ferguson and his co-accused after a judge ruled that Mr Ferguson could move his trial to Connecticut because most of the alleged fraud took place in Connecticut and Dublin and not in Virginia.
The Ferguson case throws further light on the alleged conspiracy, and purports to show how General Re chose Dublin as the ideal location because of its lack of government oversight and to avoid tight regulation in the US.
"Because Cologne Re Dublin was not subject to the US regulatory oversight and the same financial reporting requirements as Gen Re and its domestic subsidiaries, using Cologne Re Dublin as a party further helped conceal the secret, unwritten side agreement," the indictment states.
John Houldsworth, the former head of General Re's Irish subsidiary, Cologne Re Dublin, has already pleaded guilty in Virginia to fraud charges along with Richard Napier, a former General Re senior vice-president.
The latest case includes charges against Mr Ferguson, Ms Monrad, former legal counsel Robert Graham and the former head of AIG's reinsurance operations, Christian Milton, all of whom have pleaded not guilty and deny any wrongdoing.
Mr Ferguson retired from General Re in 2001. In 2005 the company's parent, Berkshire Hathaway, fired him as a consultant because he refused to co-operate in the US government's investigation.
The Ferguson indictment alleges that on October 31st, 2000 Mr Napier discussed using the Dublin subsidiary so that the transaction could "stay away from the US" and, in November 2000, Ms Monrad and Mr Napier allegedly observed that Cologne Re Dublin "did not report to anyone" and so avoided the "North American problem" of financial regulation.
On November 14th, 2000, Houldsworth had a phone conversation with an unnamed General Re conspirator in which he said that Ms Monrad was looking for a General Re subsidiary that had "$500 million in reserves outside the States without too much regulatory oversight that would cause, you know, those sort of problems."
On November 15th, Houldsworth e-mailed Ms Monrad and Mr Napier to say that "clearly there are massive pitfalls in how the client, AIG, manages to deal with the accounting".
Ms Monrad and Mr Napier allegedly replied that the Dublin contract would pass an auditor's "smell test" and would not be detected.
Ms Monrad also allegedly commented that "these deals are a little bit like morphine. It's very hard to come off of them".
On November 20th, 2000, legal counsel Mr Graham e-mailed Mr Napier and Ms Monrad proposing a structure that would buffer General Re from illegal Dublin operations so that "any reviewer of the AIG US entity's statements wouldn't be able to connect the dots to Cologne Re Dublin and beyond".
On March 7th, 2001, Mr Graham and Houldsworth had a conversation after General Re decided to temporarily hold back funds from AIG. Houldsworth allegedly suggested that AIG were in no position to make loud noises about the delay. "If AIG turn around and start . . . kicking up a fuss, I don't think they really want this made public, this transaction," he allegedly says.
