$1m bonuses paid to AIG's Mayfair toxic debts team

That is despite the AIG Financial Products division losing $40.5 billion (£28.6 billion) last year, triggering the collapse of the insurer and a subsequent bailout by the American taxpayer.

Documentation forced into the open by the US Congress reveals that at least seven executives are picking up more than $3 million at the division of what was once the world's biggest insurance company.

AIG, which has received $150 billion from the US government since September last year, is making payments of $450 million to 400 staffers.

Those payments are going to employees in AIG Financial Products, the part of the insurer that crippled the company by making huge losses on the toxic derivatives that have brought the world financial system to its knees.

Rather than calling the payouts bonuses, the insurer - which posted a record fourth-quarter loss of $61.7 billion on 2 March - is labelling them "retention" payments.

In London, AIG Financial Products worked in the heart of the Mayfair hedge-fund industry, sharing an impressive building with GLG Partners, London's biggest independent hedge-fund manager.

AIG's Mayfair office specialised in trading derivatives known as credit default swaps, the insurance that lenders take out to make sure their debts do not go bad, but the market imploded in the credit crunch, leaving AIG with liabilities of tens of billions of dollars.

The Mayfair operation was run by controversial financier Joe Cassano, whose departure from AIG's London office a year ago heralded the division's collapse. Recipients of the big bonuses in London could include directors of AIG's operations in Curzon Street.

They include British banker Andy Forster, reckoned to be a long-time right-hand man of Cassano in London and head of global credit trading.

Two years ago, Forster, now 38, was hailed by Cassano as having "done an amazing job of managing our portfolio [to] survive the trying times we are working in".

In that year, Forster insisted that AIG's credit derivatives business would in the worst scenario lose a "manageable" $600 million.

Others named as directors after last year's departure of Cassano are Mauro Gabriele, a 45-year-old Italian and some-time head of Banque AIG who has in the past kept an address in Belgravia's smartest square. Another director is named as American Bruce McCoy, 50.

News of the staff payouts has caused a storm in the US, where Treasury Secretary Timothy Geithner was so appalled by the payments that he attempted to have them blocked. The US government is in effect 80% owner of AIG.

President Obama's chief economics adviser, Larry Summers, said: "There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous. [But] we are a country of law. The government cannot just abrogate contracts."

The White House was told the payments were contractual, drawn up before the scale of AIG's losses were known. AIG argues they are being made to staff being retained to unravel its liabilities.

AIG's new chief executive, Edward Liddy, who is receiving $1 salary for 2008-9, told Geithner in a letter: "I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed."