The controversy surrounding American International Group Inc's bonuses to employees could make the process of winding down the insurer's financial products unit more costly for taxpayers, the Wall Street Journal cited the unit head Gerry Pasciucco as saying.

Pasciucco told the paper that the controversy hurt morale and stunned people such that our wind-down has slowed down.

Taxpayers probably have been damaged, Pasciucco told the Journal, adding that 20 of the unit's 370 employees quit amid the controversy.

AIG, which has received an estimated $180 billion of U.S. government bailouts since September, prompted a nationwide outrage last month for paying $165 million of bonuses tied to the money-losing financial products unit that was the cause of its near collapse last year.

In February, Pasciucco, a former Morgan Stanley executive, had told Reuters that he expected the financial products unit to be wound down by the end of the year.

AIG, once the world's biggest insurer, is winding down the financial products unit after posting $42.5 billion in losses over the past year, largely as a result of bets that the unit took on toxic mortgage debt.

(Reporting by Amitha Rajan in Bangalore; Editing by Erica Billingham)