Wednesday, March 18, 2009

AIG Bonuses: Here's what happened

New York Attorney General Andrew Cuomo has sent a letter to House Financial Services Committee Chairman Barney Frank sketching out what his office has learned so far about the bonuses paid out to the thieves at AIG who (quote) brought the firm to its knees, forcing a taxpayer bailout.(unquote)

Attorney General
NEW YORK, NY 10271
March 17, 2009
(212) 416-8050

Honorable Barney Frank
Chairman, House Committee on Financial Services
United States House of Representatives
2129 Rayburn House Office Building Washington, DC 20515

Re: AIG 2008 Retention Bonuses

Dear Chairman Frank:

I am writing to provide you and your Committee with information regarding an ongoing investigation my Office has been conducting of executive compensation at American International Group (“AIG”). I hope this information will be useful to the Committee at its hearing on AIG tomorrow.

We learned over the weekend that AIG had, last Friday, distributed more than $160 million in retention payments to members of its Financial Products Subsidiary, the unit of AIG that was principally responsible for the firm’s meltdown. Last October, AIG agreed to my Office’s demand that no payments be made out of its $600 million Financial Products deferred compensation pool. While this was a positive step, we were dismayed to learn after the fact that AIG had made multi-million dollar payments out of its separate Financial Products retention plan on Friday.

AIG now claims that it had no choice but to pay these sums because of the unalterable terms of the plan. However, had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan. My Office has reviewed the legal opinion that AIG obtained from its own counsel, and it is not at all clear that these lawyers even considered the argument that it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money. I hope the Committee will take up this issue at its hearing tomorrow.

Furthermore, we know that AIG was able to bargain with its Financial Products employees since these employees have agreed to take salaries of $1 for 2009 in exchange for receiving their retention bonus packages. The fact that AIG engaged in this negotiation flies in the face of AIG’s assertion that it had no choice but to make these lavish multi-million dollar bonus payments. It appears that AIG had far more leverage than they now claim.

AIG also claims that retention of individuals at Financial Products was vital to unwinding the subsidiary’s business. However, to date, AIG has been unwilling to disclose the names of those who received these retention payments making it impossible to test their claim. Moreover, as detailed below, numerous individuals who received large “retention” bonuses are no longer at the firm. Until we obtain the names of these individuals, it is impossible to determine when and why they left the firm and how it is that they received these payments.

If AIG were confident in its claim that those who received these large bonuses were so vital to the orderly unwinding of the unit, one would expect them to freely provide the names and positions of those who got these bonuses. My Office will continue to seek an explanation for why each one of these individuals was so crucial to keep aboard that they were paid handsomely despite the unit’s disastrous performance.

As you may know, my Office yesterday subpoenaed AIG for the names of those who received these bonuses, and we plan to do everything necessary to enforce compliance. American taxpayers deserve to know where their money is going, and AIG’s intransigence and desire to obscure who received these payments should not be tolerated. Already my Office has determined that some of these bonuses were staggering in size. For example:

  • The top recipient received more than $6.4 million;
  • The top seven bonus recipients received more than $4 million each
  • The top ten bonus recipients received a combined $42 million;
  • 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
  • 73 individuals received bonuses of $1 million or more; and
  • Eleven of the individuals who received “retention” bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million;

Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome. I hope the Committee will address it head on.
We have also now obtained the contracts under which AIG decided to make these payments. The contracts shockingly contain a provision that required most individuals’ bonuses to be 100% of their 2007 bonuses. Thus, in the Spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My Office has thus begun to closely examine the circumstances under which the plan was created.

I look forward to continuing to cooperate with the Committee in any way possible to ensure that taxpayer funds are not misspent on unjustified bonuses or otherwise misused.

Andrew M. Cuomo, Attorney General of the State of New York

Sunday, March 15, 2009

Pakistan: A Bogus Threat

US soldiers with Alpha Company, 32nd Infantry Regiment walk in a line during a patrol at Mullagora village, close to the border with Pakistan in Kunar Province, February 24, 2009. Photo/REUTERS US soldiers with Alpha Company, 32nd Infantry Regiment walk in a line during a patrol
at Mullagora village, close to the border with Pakistan in Kunar
Province, February 24, 2009. Photo/REUTERS

By Scott Stewart and Kamran Bokhari

On March 5, the Saudi Embassy in Islamabad reportedly received threatening e-mails warning of attacks on Saudi interests in Pakistan. According to English-language Pakistani newspaper The Nation, the e-mails purportedly were sent by al Qaeda and threatened attacks on targets such as the Saudi Embassy and Saudi airline facilities in Pakistan.

When we heard the reports of this threat, our initial reaction was to dismiss it. While al Qaeda has sometimes made vague threats before executing an attack, it does not provide a list of precise targets in advance. Prior to the June 2008 bombing of the Danish Embassy in Islamabad, al Qaeda leaders repeatedly threatened to attack European (and Danish) targets in retaliation for a series of cartoons published in Denmark in 2005 that satirized the Prophet Mohammed. When the issue was reignited in early 2008 with the release of a film critical of Islam called “Fitna,” by Dutch parliamentarian Geert Wilders, Osama bin Laden himself issued a statement in March 2008 in which he threatened strikes against European targets in retaliation. However, in all of these threats, al Qaeda never specified that it was going to strike the Danish Embassy in Islamabad. In addition to being out of character for al Qaeda, it is foolish to issue such a specific threat if one really wants to strike a target.

While we were able to discount the most recent e-mail threat reportedly sent to the Saudi Embassy in Islamabad, it generated a robust discussion among our analytical staff about Saudi counterterrorism and anti-jihadist activities in Pakistan and Afghanistan, the large number of threatening statements senior al Qaeda members have made against the Saudis and the very real possibility of an attack against Saudi interests in Pakistan.

Threats Against the Saudis

Beginning with some of bin Laden’s early public writings, such as his August 1996 “Declaration of War against the Americans Occupying the Land of the Two Holy Places,” al Qaeda leaders have spoken harshly against the Saudi royal family. Bin Laden and others have accused the Saudis of collaboration with the “Zionist-Crusaders alliance” that bin Laden claimed was using military force to impose “iniquity and injustice” on the people of Islam.

However, the verbal threats directed against the Saudi royal family have escalated in recent years in the wake of a string of attacks launched inside Saudi Arabia by the Saudi al Qaeda franchise in 2003 and 2004, and as the Saudi government has conducted an aggressive campaign to crush the Saudi franchise and combat the wider phenomenon of jihadism.

In fact, it is rare to see any statement from a senior al Qaeda leader that does not condemn the Saudi government specifically or in more general terms. In a July 28, 2008, video message, al Qaeda ideologue Abu Yahya al-Libi called on Muslims to act quickly and decisively to kill the Saudi king, reminding them that “killing this reckless tyrant, who has declared himself the chief imam of atheism, will be one of the greatest qurubat” (an act of devotion bringing man closer to God). In a May 2008 message, al-Libi also had urged Saudi clerics to lead uprisings against the Saudi monarchy similar to the July 2007 uprisings at the Red Mosque in Islamabad. Al-Libi never mentioned Saudi King Abdullah by nam e in that message, preferring to call him the “lunatic apostate” because of the king’s call for a dialogue among Islam, Christianity and Judaism. Commenting on this interfaith dialogue in the July 2008 message, al-Libi also said, “By God, if you don’t resist heroically against this wanton tyrant … the day will come when church bells will ring in the heart of the Arabian Peninsula.”

In March 2008, al Qaeda No. 2 Ayman al-Zawahiri said the Saudi monarchy was part of a “satanic alliance” formed by the United States and Israel to blockade the Hamas-controlled Gaza Strip. In a January 2009 message, al-Zawahiri said: “Oh lions of Islam everywhere, the leaders of Muslim countries are the guards of the American-Zionist interests. They are the ones who have given up Palestine and recognized Israel … Abdallah Bin Abd-al-Aziz has invented the interfaith dialogue and met Peres in New York, paving the way for the complete recognition of Israel.” Al-Zawahiri continued, “Thwart the efforts of those traitors by striking the interests of the enemies of Islam.” In a February 2009 audio statement, al-Zawahiri declared, “The Muslim nation must, with all its energy and skills, move to remove these corrupt, corrupting and traitorous rulers.”

After a January 2009 video by jihadists in Yemen announcing the formation of al Qaeda in the Arabian Peninsula, al-Zawahiri proclaimed in a February statement that the new organization “is the awakening, which aims to liberate the Arabian Peninsula from the Crusader invaders and their treacherous agents. It is escalating and flourishing, with God’s help and guidance, despite all the campaigns of repression, misleading, and deception, and despite all the obstacles, difficulties and hindrances.”

Focus on the Saudis

All these threats raise an obvious question: Why is al Qaeda so fixated on the Saudis? One obvious reason is that, since the launching of a disastrous offensive by the Saudi al Qaeda node, the Saudi government — which previously had turned a blind eye to many of al Qaeda’s activities — has launched a full-court press against the organization. Al-Zawahiri acknowledged this in a December 2005 message entitled “Impediments to Jihad,” in which he said the Saudi franchise in the kingdom had been defeated by collaborators. The Saudi offensive against al Qaeda also played a significant part in the Anbar Awakening in Iraq. Saudi cajoling (and money) helped persuade Iraqi tribal leaders to cooperate with the coalition forces.

One way the Saudis have really hurt al Qaeda is by damaging its ability to raise funds. For example, in March 2008, the top Saudi cleric, Grand Mufti Sheikh Abdul-Aziz bin Abdullah al-Sheikh, cautioned Saudis against giving money to charities or organizations that finance “evil groups” who are known for harming Islam and its followers — a clear reference to al Qaeda and other jihadist organizations. We have repeatedly seen appeals for more funds for the jihad, and in a Jan. 14, 2009, message by bin Laden, he noted that the jihadists were under financial “distress” and that it was the duty of the Muslim ummah to support the jihadists “with all their soul and money.”

Perhaps one of the greatest threats the Saudis pose to al Qaeda is the threat to its ideological base. As STRATFOR has long argued, there are two different battlespaces in the war against jihadism — the physical and the ideological. For an ideological organization such as al Qaeda that preaches persecution and martyrdom, losses on the physical battlefield are expected and glorified. The biggest threat to the jihadists, therefore, is not a Hellfire missile being dropped on their heads, but an ideological broadside that undercuts their legitimacy and ideological appeal.

Many Saudi clerics have condemned jihadism as a “deviance from Islam.” Even prominent Saudi clerics who have criticized the Saudi government, such as Salman al-Awdah, have sent open letters to bin Laden condemning violence against innocents and claiming that al Qaeda was hurting Muslim charities through its purported ties to them.

The sting of the ideological attacks is being felt. In a May 2008 speech, al-Libi addressed the ideological assault when he said, “and because they knew that the key to their success in this plan of theirs is to turn the people away from jihad and mujahidin and to eliminate them militarily and intellectually.” Al-Libi recognized that without new recruits and funding, the jihad will wither on the vine.

In addition to financial and ideological threats against the organization, the Saudi assault has also gone after al Qaeda where it lives — in Pakistan.

Deep Connections

Saudi Arabia has long had a strong relationship with Pakistan, based on shared perspectives toward regional and international matters. A key common sphere of influence for the two sides over the past four decades has been Afghanistan. This close Saudi-Pakistani relationship was well-illustrated by the pairing up of Saudi petrodollar wealth with Pakistani logistics (along with U.S. weapons and intelligence) to support the Islamist uprising that followed the Soviet invasion of Afghanistan.

After the Soviet military withdrawal from Afghanistan, the Saudis and the Pakistanis continued to cooperate. Even though the world at large refused to accept the Taliban regime after it took power in 1996, Saudi Arabia, Pakistan and the United Arab Emirates recognized the Taliban as the legitimate rulers of Afghanistan. (These three were the only countries to do so.) However, while enjoying support from Riyadh and Islamabad, the Taliban also established relations with the transnational jihadist forces led by al Qaeda.

The Saudi and Pakistani relationship with the Taliban was shattered by the events of 9/11. In spite of aggressive negotiations with the Taliban, neither the Saudis nor the Pakistanis could convince Mullah Omar to surrender bin Laden and the al Qaeda leadership to the Americans. Because of this, the two countries were forced to end their overt relationship with the Taliban as the Americans invaded Afghanistan, though they obviously have maintained some contact with members of the Taliban leadership.

The U.S. response to 9/11 placed the Saudis and the Pakistanis into a very difficult position, where they were forced to fight jihadists on one hand and try to maintain control and influence over them on the other. As previously discussed, the Saudis possessed the resources to effectively clamp down on the al Qaeda franchise in the kingdom, but Pakistan, which is weaker both financially and politically — and which has become the center of the jihadist universe on the physical battlefield — has been hit much harder by the U.S.-jihadist war.

This situation, along with the ground reality in Afghanistan, has forced the United States to begin working on a political strategy to bring closure to the U.S.-jihadist war that involves negotiating with the Taliban if they part ways with al Qaeda and the transnational jihadists.

Hence the recent visit by Taliban officials to Saudi Arabia and the trips made by Riyadh’s intelligence chief, Prince Muqrin bin Abdel-Aziz, to Pakistan and Afghanistan. The Saudi monarch, King Abdullah, is also rumored to be personally involved behind the scenes in efforts to pressure Taliban leaders to break free from al Qaeda. But as in the past, the Saudis need help from their allies in Islamabad and Rawalpindi, and here is where they are running into problems. A weak and threatened Pakistani state means that before working with the Pakistanis on the Afghan Taliban, Riyadh has to help Pakistan combat its own Taliban problem, which the Saudis currently are attempting. The Saudis obviously have much to offer the Pakistanis, in terms of both cash and experience. They also have the religious cachet that other Pakistan allies, such as the Americans and the British, lack, giving them the ability to broach ideological subjects. However, as is the case with the Afghan Ta liban, the Saudis will have to get the Pakistani Taliban to part ways with al Qaeda and are working hard to drive a wedge between Pakistani militants and their foreign guests.

These efforts to divide the Taliban from the global jihadists are happening not only during the plush, Saudi-sponsored trips for Taliban members to conduct Hajj and Umrah in the kingdom. Following a strategy similar to what they did in Iraq, the Saudis and their agents are meeting with Taliban commanders on the ground in Pakistan and Afghanistan to twist arms and offer cash. They also are coordinating very closely with the Pakistani and Afghan authorities who are leading the campaign against the jihadists. For example, Rehman Malik, the Pakistani adviser to the prime minister on the interior (Pakistan’s de facto terrorism czar), traveled to Saudi Arabia in January at the invitation of Saudi Interior Minister Prince Naif bin Abdul-Aziz to discuss improving counterterrorism cooperation between the two countries. Many of the 85 most-wanted militants on the list recently released by the Saudi government are believed to be in Pakistan, and the Saudis are working with Malik an d the Pakistanis to arrest those militants and return them to Saudi Arabia.

A Clear and Present Danger

Bin Laden, al-Zawahiri, et al., are well aware of these Saudi moves, which they see as a threat to their very existence. When asked in a November 2008 interview what he thought of the Saudi efforts to mediate between Afghan President Hamid Karzai and the Taliban, al-Zawahiri responded that the Saudi efforts pointed out “the historical role of saboteur played by the House of Saud in ruining the causes of the Muslim ummah, and how they represent the agents whom the Crusader West uses to disperse the ummah’s energy.”

The al Qaeda leadership has nowhere to go if circumstances become untenable for them in Pakistan and Afghanistan. Caught between U.S., Pakistani and Saudi forces, the last thing al Qaeda wants is to lose local support from the Taliban. In other words, Pakistan is their final battleground, and any threat to their continued haven in Pakistan poses a clear and present danger to the organization — especially if the Saudis can play a pivotal role in persuading the Taliban in Afghanistan also to turn against them.

Leveraging its successes against the al Qaeda franchises in Saudi Arabia and Iraq, Riyadh also is working closely with governments to combat the jihadists in places like Yemen as well as Pakistan and Afghanistan. It is, in effect, a global Saudi campaign against jihadism, and we believe al Qaeda has no choice but to attempt to derail the Saudi effort in Pakistan and Afghanistan. There is not much al Qaeda can do to counter Saudi financial tools, but the militant group is in a position to hit back hard on the ideological front in order to counter any Saudi attempt to moderate and rehabilitate jihadists. As noted above, we have seen al Qaeda launch a sustained stream of ideological attacks in an attempt to undercut the Islamic credentials of the Saudi monarch and the Saudi clerical establishment.

Another avenue that al Qaeda can take to interfere with the Saudi charm offensive is to strike Saudi targets — not only to punish the Saudis, but also to try to drive a wedge between the Saudis and the Pakistanis. Al Qaeda’s military capabilities have been greatly degraded since 2001, and with the remnant of its Saudi franchise fleeing to Yemen, it likely has very little ability to make a meaningful strike inside the kingdom. However, the one place where the al Qaeda core has shown the ability to strike in recent years is Pakistan. Mustafa Abu al-Yazid, the group’s operational commander in Afghanistan and Pakistan, has claimed responsibility for the bombing of the Danish Embassy in Islamabad and for the assassination of former Pakistani Prime Minister Benazir Bhutto, and we have no reason to doubt his claims.

Also, an attack against a diplomatic mission in Pakistan that represents a regime considered an enemy of the jihadists is not unprecedented. In addition to the Danish Embassy bombing and several attacks against U.S. diplomatic facilities and personnel in Pakistan, al Qaeda also bombed the Egyptian Embassy in Islamabad in November 1995. According to al-Zawahiri, the Egyptian Embassy was targeted because it “was not only running a campaign for chasing Arabs in Pakistan but also spying on the Arab Mujahedeen.”

Based on the totality of these circumstances — Saudi activities against al Qaeda in South Asia and elsewhere, the al Qaeda perception of the Saudis as a threat and al Qaeda’s operational ability in Pakistan — we believe there is a very real threat that Saudi interests in Pakistan might be attacked in the near future.

Reposted by permission from