Iraqi civilian deaths unlikely to hurt Blackwater

NEW YORK (Fortune) -- In Baghdad, you can always pick out the Blackwater security guys. They're the burly Americans wearing dark green fatigues, wrap-around Oakleys and enough weaponry to take over a small country. They keep to themselves, throw big parties and are universally despised - and sometimes genuinely feared - by their rival security contractors.

So it didn't surprise many in Baghdad yesterday when Blackwater guards were accused of shooting to death at least eight Iraqi civilians Sunday while protecting a U.S. State Department motorcade. "It's just business as usual for them," says one rival security contractor. "They always shoot first and ask questions later. When we're out in country, we often fear Blackwater more than the Iraqis."

That's why the Iraqi government has moved so quickly to condemn the attacks and cancel Blackwater's license, as well as announce a review of all local and foreign security firms. "They've made many mistakes resulting in other deaths, but this is the last and the biggest mistake," says Brig. Gen. Abdul-Karim Khalaf, a spokesman for the Iraqi Interior Ministry. "Security contracts do not allow them to shoot people randomly. They are here to protect personnel, not shoot people without reason." (Blackwater, for its part, says its guards responded appropriately to an ambush.)

But few believe much will happen to them - or rival private security companies - as they are so ingrained into the U.S. mission in Iraq that it's difficult to imagine operating without them. The war effort in Iraq relies heavily on private security companies; at least 28 U.S. firms have received government contracts to work in the region, worth a total of at least $4 billion. Blackwater, based in North Carolina, is one of the largest U.S. firms, along with Triple Canopy and DynCorp (Charts).

The U.S. State Department uses Blackwater for almost all of its security needs: from protecting Ambassador Ryan Crocker to visiting congressional delegations to most Embassy officials out in the field. They fly the helicopters, they provide the armored vehicles and, in many cases, end up dictating where American diplomats can and can't go outside the Green Zone.

U.S. Embassy officials wouldn't comment on how the Iraqi government's decision might affect their work with Blackwater. But Secretary of State Condoleezza Rice phoned Iraqi Prime Minister Nouri Maliki on Monday night to express regret over the shootings and promised a full investigation.

Maliki, for his part, has said the Blackwater employees will be prosecuted. That's unlikely. Private security companies like Blackwater fall in a legal gray area. Under a law signed in 2003 by Paul Bremer, then the head of the Coalition Provisional Authority, contractors have blanket immunity from local jurisdiction. So far no American security contractor has been prosecuted in the United States or Iraq.

One danger for American contractors is if the Iraqi officials actually repeal that law, CPA Order 17. But even if that happens, the State Department has long held that Blackwater doesn't need a license from the Iraqi government to protect American officials since its contract is directly with the U.S. authorities. "They're the Embassy's private army," says another rival contractor.

There are as many as 50,000 private security guards in Iraq, according to a report by the International Contractors Association, a private trade group. They guard the Green Zone, military bases and protect U.S. civilians in the field. While Blackwater USA, isn't the largest with about 1,000 people in Iraq, it's certainly the most infamous.

The killing of four Blackwater employees in March 2004 in Fallouja triggered the U.S. Marine crackdown on the Sunni Arab city that April. In that incident, a mob attacked the guards, burned the bodies and dragged them through the streets before two were strung up on a bridge over the Euphrates River. Since then, there have been several fatal shootings involving Blackwater guards including one last Christmas Eve when a drunk Blackwater employee walking in the Green Zone reportedly fatally shot an Iraqi guard for Vice President Adel Abdul Mehdi.

Spend any time hanging out with private security contractors in Iraq and invariably everybody has a favorite Blackwater story. A few weeks ago, a British security contractor showed me a bullet hole on the windshield of his armored Chevy Suburban. He said it happened one evening when Blackwater guards shot at him while he was driving in the Green Zone. "While they were armed and shooting in the Green Zone remains the mystery to me," he says. "But frankly, nothing surprises me about them anymore. I'm just glad I had bulletproof glass."