The White Paper explaining why AIG had to pay the retention bonuses contains the following:

Departures also have regulatory ramifications. As an example, the resignation of the senior managers of AIGFP’s Banque AIG subsidiary would allow the Commission Bancaire, the French banking regulator, to appoint its own designee to step in and manage Banque AIG. Such an appointment would constitute an event of default under Banque AIG’s derivative and structured transactions, including the regulatory capital CDS book ($234 billion notional amount as of December 31, 2008), and potentially cost tens of billions of dollars in unwind costs.

Guess who’s resigning. The WSJ reports that two of Banque AIG’s top managers have resigned. I think we can assume that this isn’t an accident. Do you think they got big bonuses? Reuters reports that some of the top recipients were, according to Andrew Cuomo, “outside the jurisdiction”. Nicely timed, Banque AIG guys, fits right in with whiny Jake DeSantis.

But, just maybe, these Banque AIG guys heard the Gendarmes coming. It turns out the whole Banque AIG deal was only possible because of slippery tactics to evade regulation. The London Independent tells us that AIGFP was not regulated by England’s Financial Services Authority, not the most strict regulator, but better than the Office of Thrift Supervision. The parent, AIG, was “regulated” by the OTS, because it owned a small federal savings bank. That allowed it to form Banque AIG with the approval of the French Commission Bancaire. That enabled AIG to open a branch of Banque AIG in London, because of a rule in the European Union that if one regulator approves a company, the other countries have to accept it. The London branch ran up the enormous losses that brought AIG down.

AIG’s auditors reported in the 2007 AIG 10-K that a "material weakness in internal control over financial reporting related to the AIGFP super senior credit default swap portfolio valuation process and oversight thereof existed" at December 31, 2007. This report was filed at the same time as the Retention Plan went into effect.

What did the runaway executives know about all this, I wonder.