Probe does not concern insurance operation in Britain or elsewhere

The Serious Fraud Office is investigating the UK operations of AIG Financial Products Corp (AIGFP), a subsidiary of AIG.

The Serious Fraud Office (SFO) admitted it was looking into the possibility of fraudulent activity, but would not comment further.

But a source close to the investigation said the SFO would be looking at how AIGFP invested its financial instruments: “They were writing billions of dollars in collateralised debt obligations ... the SFO is looking into these, where the money flowed to and if it was all legitimate.”

The source added: “As it was not core to AIG’s business and because the division was 3,000 miles away, then perhaps the controls needed may not have been exercised.”

The inquiry does not involve the insurance operations of AIG in the UK or elsewhere.

The SFO is working with US authorities who are running a separate investigation. The American authorities are also working with the FSA on the probe into the conduct of AIGFP.

“It is right for us to determine if there has been criminal conduct,” said Richard Alderman, director at the SFO.

“We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company’s operations.”

Meanwhile, AIG Financial Products Corp has said that it is co-operating with the SFO.

AIG began unwinding certain AIGFP businesses and portfolios, including those in the UK, late last year.

The source added that the investigation should take about a month.

The SFO refused to confirm the timescale.

The source said the investigation into AIGFP could result in fines or prosecution if there was any wrong-doing.