The absence of a permanent government in Iraq, since elections were held last January helped stalling critical reconstruction projects and added to the war-torn country's security woes.

On Sunday, The Boston Globe wrote that American investigators and civil attorneys probing fraud allegations raised against U.S. contractors, found that American contractors swindled hundreds of millions of dollars in Iraqi funds.

However, there’s no way for the Iraqi government to retrieve this money, the report added.

Although American courts started to force contractors implicated in fraud allegations to repay the money, represented in stolen funds from the U.S. government, legal roadblocks prevented Iraq from retrieving funds taken from the Iraqi government by the U.S.-led occupation and then paid to contractors who failed to deliver projects handed to them.

''In effect, it makes Iraq into a 'free-fraud zone,' “said Virginia attorney, Alan Grayson, who is suing Rhode Island-based company Custer Battles.

Last month, a federal jury found the private security company liable for $3 million in fraudulent billings in Iraq, The Globe added.

Also a United Nations panel hired to monitor the use of Iraq's seized assets doesn’t have the authority to prosecute those implicated in the fraud cases.

''The Iraqi people are out of luck, the way it stands right now," said Patrick Burns, spokesman for Taxpayers Against Fraud, a watchdog group responsible for aiding Americans file cases against contractors.

Even officials at the Iraqi government, currently busy solving deadlocked negotiations over the formation of a new government, have failed to file any official complaint about funds that were paid out to dishonest contractors, although recovering the stolen money has become more critical at this time, given the budget shortfall of billions of dollars.

Fraud cases date back to the early stages of March 2003 Iraq occupation.

After the (CPA) Coalition Provisional Authority was handed control of the city following the fall of Baghdad in April 2004, it seized Iraq's oil revenues, money found in bank accounts and in the palaces of the toppled Iraqi leader Saddam Hussein, and the balance from the UN's oil-for-food program. The occupation authority had control over more than $20.7 billion in Iraqi funds, deposited into an account under the name of the Development Fund for Iraq (DFI) set up, in the words of the U.S. administrator at the time, L. Paul Bremer III, ''for the benefit of the Iraqi people."

It's noteworthy that the U.S. law which permits recovering money from dishonest contractors protects only the American government, not foreign governments.

Also under the Iraqi law set by the Coalition Provisional Authority shortly before it was handed sovereignty to Iraq in June 2004, American contractors enjoy immunity from prosecution in Iraq.

A series of audits issued in 2005 and 2006 by the Special Inspector General for Iraq Reconstruction, a temporary office set up by Congress to oversee the use of reconstruction funds, found that the Coalition Provisional Authority has failed to keep track of the billions in Iraqi money it handed contractors.

Sometimes contractors were paid twice for the same job. And in some cases they were paid for projects they never delivered.

Last month, a federal judge in Virginia ruled that the U.S. law only protects the American government from fraud.

The U.S. economy has suffered no direct loss from fraud cases involving Iraqi funds.

A draft by a U.S. audit released in August 2004 showed that at least $8.8 billion in Iraqi funds handed to Iraqi ministries by the former U.S.-led authority there cannot be accounted for.

The audit by the Coalition Provisional Authority’s own inspector general blamed the authority for “not providing adequate stewardship” of at least $8.8 billion from the Development Fund for Iraq that was given to Iraqi ministries.

“The CPA apparently transferred this staggering sum of money with no written rules or guidelines for ensuring adequate managerial, financial or contractual controls over the funds”, said a letter by three Democratic senators; Ron Wyden of Oregon, Tom Harkin of Iowa and Byron Dorgan of North Dakota; who demanded an explanation from Defense Secretary Donald Rumsfeld over the use of the funds.

“Such enormous discrepancies raise very serious questions about potential fraud, waste and abuse”.

Failing to deal with stolen Iraqi funds has led to a notable surge in violence in the war torn country, Alan Grayson said.

''The DFI was essentially treated as a 'slush fund' for various quasi-military projects, run by U.S. contractors over whom Iraqis had no control," he added. ''Like a colonial power, the Bush administration took Iraq's oil money, and wasted it. The Iraqis well know that. That's one reason why they're shooting at U.S. soldiers." Source: Aljazeera.com