The US Treasury is looking at ways to recoup the $165 million paid out in retention bonuses to AIG employees based at the firm's financial products division, which has sites in London and Connecticut.

The bonuses were awarded to staff at a time when the insurance company is heavily reliant on taxpayer's money to stay afloat after it suffered vast losses. The division in question is thought to have been most culpable for the rapid deterioration of AIG.

The Department of the Treasury in Washington is currently working with the Department of Justice to work out ways to recoup the bonuses, paid on a contractual basis, from AIG and recover the funds on behalf of the taxpayers.

Following pressure from Treasury Secretary Tim Geithner AIG's chief executive officer Edward Liddy has committed to scrap the hundreds of millions of dollars in additional payments due this year and beyond on terms that are consistent with executive compensation guidelines.

A letter from Geithner to Nancy Pelosi, speaker of the US House of Representatives, which was published 17 March 2009, said: "I know that there is considerable outrage in the Senate, as there is throughout the country, about the bonuses awarded to employees of AIG's financial products division at a time when the company is reliant on significant taxpayer dollars. We are presently working with the Department of Justice to determine what avenues are available by which we can recoup the retention awards that have been paid.

"Going forward, future AIG bonuses will be subject to the strict executive compensation provisions enacted by Congress in the American Recovery and Reinvestment Act. We are currently developing the regulations to implement those provisions, which will apply broadly to AIG and other companies receiving assistance from the Treasury."

The chief executive of AIG has admitted that fundamental mistakes were made at the US insurance giant.
"Mistakes were made at AIG on a scale that few could have imagined possible," Edward Liddy will tell a Congressional hearing later on Wednesday.

Liddy is expected to admit that fundamental mistakes were made by AIG at a congressional hearing. AIG declined to comment.