Blackwater Might Lose License to Work in Iraq

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The State Department faces serious challenges protecting U.S. diplomats in Iraq and may no longer be able to rely on Blackwater Worldwide to do the job, according to an internal report.

A report from the department's inspector general says the agency must deal with the prospect that Blackwater -- its main private security contractor in Iraq -- could lose its license to work in Iraq. Officials say that means preparing alternative arrangements.

''The department faces the real possibility that one of its primary worldwide personal protective services contractors in Iraq -- Blackwater (Worldwide) -- will not receive a license to continue operating in Iraq,'' the recently completely report says.

A copy of the 42-page report, labeled ''sensitive but unclassified,'' was obtained by The Associated Press on Wednesday.

Officials said the report is a prelude to a decision on whether to renew Blackwater's Iraq contract, which expires next year. A recommendation on that is expected after an investigation is completed into last September's incident in Baghdad's Nisoor Square in which Blackwater guards killed 17 Iraqis, they said, requesting anonymity because the report is not public.

Five Blackwater guards have been indicted by a U.S. federal grand jury on manslaughter and other charges stemming from that incident. The company was not charged.

The State Department had no immediate comment on the report itself, but deputy spokesman Robert Wood said that after the Nisoor Square probe is finished, officials would look at ''whether the continued use of Blackwater in Iraq is consistent with the U.S. government's goals and objectives.''

A decision on how U.S. diplomats in Iraq are to be protected will be left to the Obama administration, which will be in place when Blackwater's contract comes up for renewal in spring.

Sen. John Kerry, D-Mass., the incoming chairman of the Senate Foreign Relations Committee and a longtime critic of Blackwater and the use of private security companies, welcomed the report and said, ''The era of Blackwater must finally end.''

''It will benefit the incoming administration to have reassurance from the State Department that Blackwater's contract should be seriously questioned, but it's disheartening that it took 15 months from a tragedy in Baghdad for the Bush administration to reach an overdue conclusion,'' Kerry said.

Sen. Bob Casey, D-Pa., a member of the Foreign Relations committee, said that without preparing for the possibility of Blackwater losing its license, ''our overreliance on this one company for protective services in Iraq will place our diplomats in a difficult position.''

It is not clear how the State Department would replace Blackwater. The department relies heavily on contractors to protect its diplomats in Iraq, as it does not have the manpower or equipment to do so. No other private security contractor has the North Carolina-based firm's range of resources, particularly its fleet of helicopters and planes.

The report suggests that one way to fill the void would be for the State Department's Diplomatic Security Service to beef up its presence in Iraq.

Secretary of State Condoleezza Rice ordered a review of the department's use of private security firms after the Nisoor Square incident. The inspector general's report is an analysis of how recommendations in that review have been implemented.

Blackwater spokeswoman Anne Tyrrell declined to comment, saying the company has not yet seen the report. The company has said in the past, though, that it plans to largely get out of the security contracting business to concentrate on training and other projects.

Blackwater has won more than $1 billion in government contracts under the Bush administration, a large portion of which has been for work in Iraq, where its duties include guarding diplomats based at the U.S. Embassy in Baghdad.

Separately, the State Department on Wednesday issued new regulations to boost its monitoring of how Blackwater exports sensitive equipment, such as guns and ammunition. The new rules force Blackwater and its affiliates to file extra paperwork and progress reports.

The department said the oversight, which took effect earlier this month, is necessary to ensure that Blackwater ''is both capable and willing'' to comply with U.S. export laws. Blackwater has acknowledged that it made numerous mistakes with exports over the years and has established a panel of experts to ensure it follows the law.

Federal prosecutors have probed how Blackwater handled its arms shipments to Iraq. The company has denied accusations it is smuggling guns and argues that most of its violations have been failures of paperwork and timeliness.