The Senate Judiciary Committee is scheduled to vote on James Cole’s nomination for Deputy Attorney General tomorrow – Tuesday, July 20th. Serious doubts remain, however, about Cole’s role at AIG before, during and after the company’s financial collapse in September 2008. I posed him some questions prior to Cole’s hearing last month on GAP’s YouTube channel.

Over the past two weeks, a number of Senators have posed written questions to Cole about his role at AIG. His answers are troubling – particularly those he provided to Senator Charles Grassley.

First, Grassley asked whether Cole allowed AIG management to review the reports he was to produce independently for the Justice Department (DOJ) and the SEC, as part of the 2004 and 2006 deferred prosecution agreements that resulted from AIG’s involvement in fraudulent financial activities. Cole responded:

It is standard practice in the private sector for a corporation’s internal audit and compliance committees to review annual reports by external auditors prior to the reports’ release. In the public sector, the General Accounting Office and Inspectors General at federal agencies typically engage in a similar process. Such review provides the external auditor with useful input on a range of issues, including the facts underlying a particular finding. The external auditor, however, is under no obligation to make the changes requested and is free to reject all of the input from the audited entity. While I followed this standard practice, I was under no obligation to accept any input from AIG, and I routinely rejected revisions suggested by AIG.

In this extensive answer, Cole avoids saying that he allowed AIG to revise his reports to DOJ and the SEC. Instead, he claims he “routinely” rejected AIG’s revisions – he does not actually deny that he allowed revisions.

Further, although it is standard practice for external auditors to allow internal review of their annual reports, Cole was not an external auditor at AIG conducting routine reviews like that. On the contrary, he was a unique monitor: an independent consultant, stationed at AIG by DOJ and the SEC under an agreement designed to allow the United States government to observe the financial activities of a recidivistic corporation responsible for massive fraud. In other words, it was ridiculous for Cole to have adopted the same assumption of corporate rectitude in allowing his reports to be reviewed by AIG that an external auditor would attribute to an average corporate client.

While it is also true that GAO (which is actually the Government Accountability Office) and Inspectors General allow federal agencies to review their reports, at the end of the review process, the agencies’ comments are attached as addenda to GAO and IG reports. They are not seamlessly incorporated into the final document without attribution. Cole goes on to say that he routinely rejected AIG revisions, but we have no way of knowing this because only his final reports were submitted to DOJ and the SEC, and AIG revisions are not identified as such.

Grassley then asked Cole if he became concerned that AIG’s Financial Products Division (AIG-FP) continued to employ the fraudulent practices that resulted in the deferred prosecution agreement of 2004. Cole responded that his reports about transactions at AIG-FP are under seal in District Court. But Grassley’s question was carefully worded to elicit a meaningful answer: he did not ask about the reports, which he, of course, knew to be under seal. He asked instead whether Cole became concerned about AIG-FP’s practices – a simple yes or no would do, but Cole instead produced an evasive bit of bureaucratic doublespeak.

Next Grassley asked if Cole was ever denied access to witnesses or documents by AIG, and Cole replies that he was not. GAP, however, has witness’ statements that Suzanne Folsom, the Chief Compliance Officer at AIG in 2008 and 2009, would not allow her staff to meet with Cole unmonitored by her or her designee. Witnesses say that Cole agreed to this procedure, effectively allowing the silencing of whistleblowers or exposing them to retaliation. This practice was often used by Folsom in her previous position at the World Bank.

Finally, Grassley asked why Cole allowed AIG-FP derivative transactions to be exempted from independent review by the Derivatives Committee. In his response, Cole simply explains that AIG-FP:

[H]ad to develop a robust automated system to match and evaluate the thousands of transactions it entered into each year in order to qualify for hedge accounting. This could not be done manually. It would have taken years for a Derivatives Committee to review AIG-FP’s derivative transactions for hedge accounting purposes.

The Derivatives Committee, however, could have sampled AIG-FP’s transactions, just as the Internal Revenue Service auditors sample tax returns for fraud.  If Cole had insisted that samples of derivative transactions in all subsidiaries be reviewed outside the division in which they originated, AIG-FP’s unmanageable risk and debt would have been identified much earlier than it was.

In short, Cole’s answers to Senator Grassley’s questions are misleading, unresponsive and disingenuous, hardly the posture that would be suitable for a senior official at the Justice Department.

Bea Edwards is the International Reform Director for the Government Accountability Project, the nation’s leading whistleblower advocacy organization.