Opposition Leader Grant Gibbons has called on Government to initiate damage control after a story in yesterday?s Wall Street Journal painted the Island as being ?lightly regulated? and charged that Bermuda allowed itself to be molded by American International Group Inc. into the insurance giant?s own ?custom-built corporate haven?.

In a front page story: ?Trouble in Paradise: In Bermuda, AIG Helped Shape A Legendary Corporate Haven?, the Journal alleges that former AIG Bermuda executive L. Michael Murphy helped Bermuda write its insurance laws, lobbied on its behalf in Washington D.C and helped broker the Island?s tax treaty with the US ? ?all to AIG?s advantage?.

A tax specialist, Mr. Murphy, 62, was fired by AIG on March 27 for refusing to cooperate with a wide regulatory investigation led by New York Attorney General Eliot Spitzer. He continues to work out of the Front Street offices of Starr International Co., a privately-held company that controls 12 percent of AIG?s stock, and is run by former AIG chief Maurice Greenberg.

Dr. Gibbons, in a telephone interview last night, said that a stand must be taken to ?balance out? this kind of journalism, calling the Journal story the latest example of Bermuda being bad-mouthed, without reason, in the international media.

?We need to be explaining what Bermuda is all about, how our insurance sector will be an important part of covering Katrina?s costs, and the important role we play as a source of risk transfer for US businesses.?

The Journal?s focus on AIG?s Bermuda history, and the deeper questions it raised on the Island?s growth as an insurance sector, follows months of scrutiny by US regulators into AIG?s offshore dealings.

At issue has been whether AIG hid some of its business activities from regulators, investors and even some board members, through a complex offshore structure that some say was created largely by Mr. Murphy.

Since the early months of this year, New York Attorney General Eliot Spitzer and staff have been poring over several years of evidence as part of a broad investigation that also looked at the company?s use of finite risk, a non-traditional type of insurance regulators think can be used to mask losses.

Mr. Spitzer filed a civil suit against AIG and two former management in May.

In his suit, he alleged that AIG improperly used affiliates in Bermuda and Barbados to burnish its financial results, and broke laws by not properly disclosing offshore relationships to US regulators.

The Journal story yesterday raised the question of ?whether (AIG), even after helping to create a business nirvana (Bermuda), crossed the line of legality to obscure its activities? on the Island.

And it questions whether AIG was the only company to be able to sweep things out of view of US regulators through Bermuda operations.

?The history of AIG?s Bermuda operation illuminates how entwined the island is with the insurer?s broader accounting troubles,? the story said. ?This history also raises questions about whether the lightly regulated offshore-insurance industry facilitates abuses. Both state and federal regulators are looking at whether other insurers, as well as AIG, have misstated relationships with offshore affiliates.?

Dr. Gibbons called on Finance Minister Paula Cox to write a letter to the editor to the Wall Street Journal to make it clear that Bermuda is not ?lightly? regulated, or the puppet of any insurance company it is host to.

?Bermuda cannot take these hits on a continual basis and not see a negative impact as a jurisdiction,? he said, citing the Wall Street Journal?s solid reputation. ?People will take this at face value.?

But Finance Minister Paula Cox said she was confident the Island?s regulatory regime, under the Bermuda Monetary Authority, was well-regarded, and that the Island works hard to maintain that reputation.

She added that BMA chairman Cheryl-Ann Lister and other regulatory officials were visibly active in industry conferences and in the National Association of Insurance Supervisors.

?We within the Ministry of Finance work in tandem with our independent regulator and are committed to doing our job to best position Bermuda,? Ms Cox said.

Government has generally adopted a policy of not publicly responding to damaging media reports, she said.

?The better view is that you continue to assess and revise and raise the bar in terms of our regulatory framework,? rather than go head-to-head with the media, Ms Cox said in an e-mail last night.

She added: ?You identify the media opportunities that are most beneficial and also continue to use the myriad of opportunities that range from quiet diplomacy, conference speeches, meetings and involvement on key regulatory standard-setting bodies.?

But Dr. Gibbons said he felt the record must be corrected because the Journal?s story amounted to ?a selective presentation of facts? that give the wrong impression, and makes Bermuda appear as if it was ?complicit in the abuses alleged (against AIG)?.

For example, Dr. Gibbons said the Wall Street Journal cites AIG?s 50-year history in Bermuda as such a landmark that it ?required passage of a special law: the American International Co. Ltd. Act of 1947?.

Dr. Gibbons pointed out that all companies, at that time, were incorporated through Private Act legislation.

As well, he said the Journal?s assertion that AIG was exempted from taxes on income from outside Bermuda, is unremarkable because there were no taxes for any Bermuda company.

Deborah Middleton, chief executive officer of the Bermuda International Business Association said it was ?misleading? for the Journal to call into question the Island?s regulatory regime.

?Bermuda has always been at the forefront of sensible regulation across its financial sectors and has met with approval from every international oversight body, including the OECD, FATF and IMF,? she said.

She added: ?To imply that our government favours any company over another is spurious. ?

BIBA plays a key role in marketing Bermuda as a business centre overseas, in partnership with the Island?s service providers, including the law and accounting firms working with international companies.

?Articles of this nature only reinforce the need for more aggressive and ambitious international marketing efforts that will preserve Bermuda?s standing in the international business world,? Ms Middleton said.