Scrutiny of AIG?s business dealings with offshore entities ? including Bermuda-based Richmond Insurance Company Limited ? won?t do the Island?s reputation as a financial services centre any good nor should it do it serious harm, according to a source who watches developments closely.

The official, close to both Washington and Bermuda, said the key focus was on AIG in the investigation ? not the jurisdictions in which it did business.

In addition, the source, who wished not to be named, said Bermuda was only one of several domiciles ? others included Barbados, Caymans and Ireland ? where US regulatory authorities were probing details of AIG financial transactions that may have served to ?smooth? earnings.

?It is not just Bermuda. This investigation ... it is not helpful for Bermuda, no question about that. But it goes primarily to AIG and not Bermuda. Yes, it is not helpful. Yes, AIG has a large presence in Bermuda. There will probably be investigators in Bermuda if they are not already, but I don?t look at it as a Bermuda problem per se. We will have to see where these investigations go,? the official said.

AIG beefed up security measures at its Bermuda-based operations at the weekend in a bid to protect documents that might be called on in the investigation.

A subpoena from the US Securities and Exchange Commission (SEC) on Friday is understood to have sought details of all offshore transactions.

As well, corporations under investigation since a wave of high-profile corporate scandals in recent years have prudently taken steps to preserve all documents, after then accounting giant Arthur Andersen faced criminal prosecution in its handling of Enron documents.

AIG Bermuda?s heightened security steps were revealed in a company memo leaked to on Mondayand were taken hours before a decision in New York to fire the company?s Bermuda-based legal counsel, Michael Murphy.

Mr. Murphy has been seen as a close ally of Bermuda throughout his 32-year career with AIG, helping the Government with its lobby efforts, including as an architect of the US/Bermuda tax treaty in the mid-1980s.

A US tax lawyer, Mr. Murphy is a naturalised Bermudian. He is understood to have been a close confidante of AIG?s recently ousted CEO, Maurice (Hank) Greenberg, and represented the group?s interests in Washington through the years.

Yesterday evening CEO of AIG?s Bermuda operations, George Cubbon, told that he could confirm ?to the best of my knowledge? that no other subpoenas from US authorities had been sent this week to Bermuda-based executives, after news reports on Monday that the SEC issued a further wave of new subpoenas to AIG executives.

Mr. Cubbon also ruled out speculation that US regulatory authorities were on the Island to probe records at AIG?s Bermuda offices. He said the the Bermuda AIG office had ?only spoken with AIG?s own counsel, as part of their fact-finding process?.

Meanwhile, while Mr. Murphy?s termination surprised and saddened many in Bermuda?s international business sector, his dismissal won?t undermine Government working with the private sector to diplomatic ends, Finance Minister Paula Cox said yesterday.

?Mr. Murphy is a highly regarded and experienced lawyer in the insurance field and his wise counsel will be missed. However, Government has forged a broad-based network of experienced industry leaders and specialist advisers to support its efforts in economic diplomacy in the US, UK and Europe. The strategy does not depend on any one individual because individuals do come and go.?

Ms Cox, who is currently off the Island, added: ?The value of partnerships with the private sector in this area is significant and it is certainly not diminished in any way by recent developments.

?Government will continue to develop its network of advisers on the basis that they add value to the management of Bermuda?s external economic relationships.?

For more than a week now, Bermuda?s name has appeared regularly in numerous international news reports on US investigators looking at deals AIG made with offshore companies it may have secretly controlled, including Richmond and wound-up company, Astral Reinsurance Co. Ltd.

Richmond ? a company that AIG has said in past regulatory filings it holds a 19.9 percent stake in ? is housed in AIG?s Bermuda offices on Richmond Road.

The scrutiny of AIG?s dealings with Richmond follows investigators recently probing numerous finite risk transactions by AIG to see if policies may have been used to favourably distort earnings.

Although Bermuda regulatory authorities said any approach it took in regards to AIG investigation would not be carried out in the ?public domain? that did not mean Island regulators were not doing their own due diligence.

Bermuda Monetary Authority (BMA) insurance supervisor Jeremy Cox told : ?We are not about to go and put out any sort of counter story to what has been stated because we do not feel the need to.

?But whether this situation or any other, where we believe a Bermuda company is not conducting itself in an appropriate manner or there is a hint of a Bermuda company not conducting itself in an appropriate manner we would either conduct some sort of review or enhance monitoring ourselves.

?That is not something that is in the public domain, that is something that any appropriate supervisor is going to do.?

Meanwhile, Government is understood to be keeping a close but quiet watch on how the investigation of AIG?s offshore business plays out with US legislators.

The official close to both Bermuda and Washington said Government was keen to track whether or not Congress had scheduled any hearings about reinsurance with offshore entities.

?The answer right now is no ... if people are going to talk on the record, it could undermine the investigation, so it is hard to have a hearing in this context. But it is not impossible for it to happen if someone wants to grandstand, but for it to be a meaningful hearing you would have to say what happened and should we make changes to federal law.

?Periodically you hear some members of Congress talk about having a federal insurance law but nothing is imminent.

?On the other hand, if these investigations turn up terrible wrongdoings, people might get more interested.

?We are at the stage now where nobody knows what these investigations are going to show.?

AIG has had a Bermuda presence since 1947 when founder Cornelius Vander Starr decided to headquarter the group?s non-US business here.

It later redomiciled some of that business back to the US, but the company continues to employ about 220 staff locally.

In 1951, AIG was the first Bermuda exempt company ? a company incorporated predominately by non-Bermudians for the purpose of conducting business outside Bermuda ? to receive special permission from the Government to own land.

It acted on that permission in 1970 with the opening of its Richmond Road headquarters.