WASHINGTON--The special inspector general for the Troubled Asset Relief Program has initiated an audit of American International Group Inc.'s counterparty transactions in response to a congressional request.

Rep. Elijah Cummings, D-Md., and 26 colleagues in late March sent a letter to Neil M. Barofsky, the TARP special inspector general, seeking an audit.

"We would like to know if assessments were made of the health and total exposure risks of counterparties, such as Goldman Sachs (which, for example, claimed it had no material exposure to AIG), Barclays, Deutsche Bank and others," the letter stated. "If such assessments were made, by whom were they made and what were the criteria guiding the assessments?

"Further, was any attempt made to renegotiate and close out these contracts with 'haircuts?' If not, why not?...In essence, we would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers who provided the funding and in the best interests of re-establishing long-term economic stability," the members of Congress wrote.

A haircut means payments to counterparties would be less than 100% of face value.

In a letter dated April 3, Mr. Barofsky said he was "pleased to report that, yesterday, my office initiated an audit based on the request."

He said one of the audit's objectives is to determine the extent to which AIG paid counterparty claims at 100% of face value "and was any attempt made to renegotiate and close out those claims with 'haircuts?"' The other objective is to determine to what extent "were assessments conducted of the health of and total exposure of risks to the counterparties."

Rep. Cummings responded with a statement saying he "was very pleased to receive a response from Mr. Barofsky informing me that his office has opened an audit to further investigate this situation.

"AIG has been the largest recipient of taxpayer assistance during the current economic crisis, and the American people now essentially own this company, holding nearly 80% of its equity," said Rep. Cummings in his statement. "As such, it is critical that we ensure that AIG is spending this money with taxpayers' best interests at heart. The American people deserve to know how their money is being spent."

A representative for AIG declined to comment.