Global Policy Forum

By Adam Zagorin and Brian Bennett

Regardless of the outcome of various legal proceedings against Blackwater, the controversial security firm potentially faces a massive business setback this coming May. That's when its State Department contract to protect U.S. diplomats in Iraq comes up for renewal, and its hundreds of millions of dollars in revenue for the company are no longer a sure thing in light of the legal and political repercussions of two recent incidents in which Blackwater guards allegedly killed Iraqis.

A Washington, D.C., grand jury is currently hearing evidence involving one of the episodes. And if the U.S. were to bring criminal indictments against Blackwater personnel, many observers believe it could jeopardize the contract's renewal and further undermine the company's already shaky status in Iraq.

The first of the two incidents occurred on Christmas Eve 2006, when a reportedly drunk Blackwater staffer allegedly killed an Iraqi guard inside Baghdad's Green Zone. The second occurred on Sept. 16, 2007, when Blackwater guards protecting a vehicle convoy may have killed as many as 17 Iraqis in a firefight. That bloody episode has strained relations between Washington and Baghdad and caused elements within the Iraqi government to demand that Blackwater be expelled from the country.

Major obstacles stand in the way of indictments, however. In the case of the Christmas Eve shooting, a senior law enforcement official told TIME that Justice Department prosecutors are having difficulty finding a legal basis to prosecute former Blackwater contractor Andrew Moonen, who was fired by Blackwater and flown out of Iraq the day after the shooting."Its a legal mess," says the official, citing uncertainty about the application of U.S. law for an alleged crime committed in Iraq, as well as the status of an Iraqi statute promulgated soon after the U.S. invasion designed to shelter contractors from prosecution.

Moonen's lawyer said he believed investigators were still gathering evidence in the case despite the legal hurdles. Prosecutions in the September 16 case would face similar obstacles, in addition to having to overcome the limited immunity granted by the State Department to Blackwater staff soon after the incident.

The possibility that few or none of the Blackwater personnel involved in the killings will be prosecuted has aroused the ire of critics. Human Rights First, a Washington advocacy group, has released a report citing "scores of well-documented reports of serious abuse by private contractors in Iraq and Afghanistan," none of which has been prosecuted. It further contended that the Bush Administration lacks the political will to bring criminal cases and, as a result, is creating a "culture of impunity."

Still, in the September 16 incident, there may also be substantial evidentiary problems that could block an indictment. The Iraqi government has claimed that a convoy including 19 Backwater guards opened fire on Iraqis, but the firm says its staff were merely responding to an attack mounted by insurgents dressed as policemen. One observer close to the investigation told TIME that U.S. authorities have examined a log from a command post, or Tactical Operations Center (TOC), showing that Blackwater guards radioed repeatedly that they were under attack from persons wearing police uniforms. Photographic evidence of Kalashnikov shells scattered around the site of the shooting could also suggest that the Blackwater convoy did come under hostile fire. Blackwater itself has said that a number of vehicles in the convoy were damaged, and it has photographs showing bullet damage, although the fact that those pictures are undated makes it difficult to be certain when the damage was inflicted.

Two weeks ago, the Associated Press reported that Blackwater had repainted and repaired vehicles soon after the attack, making it even harder to know what damage had occurred. But Blackwater President Gary Jackson told TIME that all the vehicles belonged to the U.S. government and that they were repaired on government instruction "after the State Department conducted its review of the incident, and after pictures were taken of the damaged vehicles."

Blackwater is contractually obliged to follow State Department rules and procedures before firing weapons in Iraq, and it may be possible that some of those rules were violated in the chaos of the September 16 firefight in Baghdad. Breaking State Department rules, however, may not constitute a criminal offense, particularly if other evidence suggests that the Blackwater convoy was, in fact, engaged by the enemy. But that will be for a grand jury to decide.