Iraqi government may ban Blackwater, report says

WASHINGTON — The State Department's inspector-general has warned in a new report that Blackwater Worldwide, the security contractor, may not be licensed by the Iraqi government to continue to protect U.S. diplomats in Baghdad next year, forcing the Obama administration to make new security arrangements.

The report says that if State Department contractors lose their immunity from criminal prosecution under Iraqi law, as many officials expect, employees of Blackwater and other contractors may choose to leave Iraq or demand higher pay. Five Blackwater guards were indicted this month in a 2007 shooting in Baghdad that killed at least 17 Iraqis.

Unlike some American contractors in Iraq, Blackwater does not have a license, but it has applied for one. Iraqi authorities have allowed it to operate while officials consider the application.

The inspector-general's findings were first reported Wednesday by The Associated Press, and The New York Times obtained a copy of the report.

The report says the State Department "faces a real possibility" that no license will be granted and that the Iraqi government will ban Blackwater. The U.S. Embassy in Baghdad would then face a major challenge; officials said Blackwater's services would not be easily replaced.

State Department officials have said they will decide whether to renew Blackwater's contract in April only after the FBI completes its inquiry into the contractor's role in the shooting.

The report by Harold W. Geisel, the acting inspector-general, finds that changes since the 2007 shooting "have resulted in a more professional security operation and the curtailment of overly aggressive actions" by contractors toward Iraqi civilians.

In response to its findings, Sen. John Kerry, D-Mass., who will become chairman of the Foreign Relations Committee next month, again urged the State Department to drop Blackwater as an Iraq contractor.

A Blackwater spokeswoman, Anne E. Tyrrell, declined to comment because the report had not been officially released.