After the US bailed out the insurance conglomerate AIG in 2008, the company’s employees kept to business as usual—which included setting up complex tax structures to avoid taxes in Europe and Japan.
In 2008, the company was on the brink of a bankruptcy that would have created huge losses throughout the financial system when the US kept it alive with an $85 billion capital injection. (No good deed goes unpunished: former CEO Maurice “Hank” Greenberg, who ran the company from 1968 to 2005, is suing the government for $25 billion, arguing that it failed to adequately compensate shareholders like himself when it rescued the failing firm.)
Until the government exited that investment in 2012, the Treasury Department controlled nearly 80% of the company’s stock, giving it the power to elect all of its directors and weigh in on major corporate decisions. During this time, some of its intricate web of holding companies—AIG’s list of affiliated entities (pdf) runs to 96 pages—entered into tax agreements in Luxembourg that allowed them to avoid taxes in other countries; four agreements related to AIG were part of a trove of documents leaked by the International Consortium of Investigative Journalists.
The transactions are all related to AIG’s efforts to manage real-estate investments; like many insurers, a large part of the company’s business is using its premium cash flows wisely to ensure it can pay out on claims. Real estate can play an important part in this effort, whether that’s selling insurance on bundles of subprime mortgages or investing directly.
The Luxembourg deals are designed to minimize tax revenue on direct investments: One relies on a Japanese corporate structure called a Tokumei Kumiai, which allows silent partners to invest in assets and collect funds without being tax resident in Japan. Another describes how the proceeds from the sale of a real-estate investment in Italy, funded by interest-free loans, should be returned to Luxembourg without paying withholding taxes; a similar transaction involved the development of a former freight warehouse in Hamburg, Germany, that now includes luxury condos.
The final document appears to seek approval to use interest-free loans from two other related entities, one a Cyprus holding company, to finance real estate investments through a Luxembourg firm.
None of these deals is illegal on its face, of course: That would require evidence that the transactions between the subsidiaries weren’t governed by arms-length principles, or that the operating subsidiaries misrepresented the deals. And even if we assume that none of these deals, in the tens of millions or hundreds of millions of dollars, reached the level of the board, it’s still pretty amazing that even as the Obama administration pushed policies that would crackdown on corporate structures used to aggressively avoid taxes, the biggest company it owned was doing just that.