THE government has condemned a depiction of Dublin as the “Wild West of European finance” and has moved to counter a growing international perception that lax regulation has allowed a global insurance scandal to flourish in the Irish Financial Services Centre (IFSC).

“We were not enamoured of this kind of language to say the least,” the Department of Finance said, referring to a report on the IFSC’s role in the affair in Friday’s New York Times. “Since the mid-1980s there has been an extensive and progressive extension and modernisation of the regulatory framework for financial services in Ireland, culminating in the establishment of a single financial regulator in 2003 . . . Ireland now has a modern and effective regulatory system.”

The complex web of intrigue stretching from Australia to Germany to America has already caused several high- profile chief executives to fall on their swords in these countries and it has even drawn in the financial guru Warren Buffett, who has been summonsed by the New York attorney-general Eliot Spitzer’s office to answer questions on April 11. Buffett himself is not thought to be under investigation.

Spitzer’s office and the American Securities and Exchange Commission (SEC) are investigating the use of an arcane reinsurance product that can make an insurer’s balance sheet appear stronger than it really is. This in turn could make a company’s shares more attractive to investors.

The probe is focusing on several deals between General Re, an affiliate of Buffett’s Berkshire Hathaway group, and AIG, the biggest insurance company in the world. International investigators have tracked the source of many of the transactions to a division of General Re based in the IFSC, including a deal in 2000 that artificially inflated AIG’s reserves by $500m (€387m). AIG admitted on Wednesday that this particular transaction was improper.

The Department of Finance said European Union regulation to be introduced next year would pertain specifically to this area of the insurance market. It had not been implemented to date only because the area was regarded as a business-to-business matter that did not affect consumers directly.

Neil Whoriskey, a spokesman for the Irish Financial Services Regulatory Authority (Ifsra) said it would be inaccurate to characterise the watchdog as toothless in dealing with recent banking scandals.

“The Wild West image is completely untrue and it would be wrong to say we haven’t used our powers to good effect,” he said.

Whoriskey pointed out that the Ifsra was not granted retrospective powers when it was established in 2003. This meant it was not in a position to mete out any penalties on financial institutions found to have broken the rules prior to this.

“We have been sanctioned powers since August 2004 and we wouldn’t hesitate to use them now or in the future as and when they are merited,” he said.