US Firms Suspected of Bilking Iraq Funds.

Millions Missing From Program For Rebuilding.

American contractors swindled hundreds of millions of dollars in Iraqi funds, but so far there is no way for Iraq's government to recoup the money, according to US investigators and civil attorneys tracking fraud claims against contractors. Courts in the United States are beginning to force contractors to repay reconstruction funds stolen from the American government. But legal roadblocks have prevented Iraq from recovering funds that were seized from the Iraqi government by the US-led coalition and then paid to contractors who failed to do the work. A US law that allows citizens to recover money from dishonest contractors protects only the US government, not foreign governments. In addition, an Iraqi law created by the Coalition Provisional Authority days before it ceded sovereignty to Iraq in June 2004 gives American contractors immunity from prosecution in Iraq. ''In effect, it makes Iraq into a 'free-fraud zone,' " said Alan Grayson, a Virginia attorney who is suing the private security firm Custer Battles in a whistle-blower lawsuit filed by former employees. A federal jury last month found the Rhode Island-based company liable for $3 million in fraudulent billings in Iraq. Even the United Nations panel set up to monitor the use of Iraq's seized assets has no power to prosecute wrongdoers. ''The Iraqi people are out of luck, the way it stands right now," said Patrick Burns, spokesman for Taxpayers Against Fraud, a watchdog group that helps US citizens file cases such as the Custer Battles action.