A car torched in protest at the site where 17 Iraqis were killed by a Blackwater security escort in Baghdad in 2007. Photograph: Ali Yussef/AFP/Getty Images

Iraqi officials and relatives of 17 Iraqis who were killed in a crowded Baghdad square in September 2007 in an allegedly unprovoked shooting spree by Blackwater private security guards reacted with fury today to the decision by a US federal judge to dismiss all charges against five of the guards.

A spokesman for the Iraqi government said the collapse of the case in the US courts would lead to an intensified criminal prosecution of Blackwater through the Iraqi legal system. Ali al-Dabbagh said the criminal suit was already well advanced against the firm, which would not be allowed to restart its private military work in the country.

"The government will monitor proceedings against Blackwater in Iraqi courts to prosecute the company and will preserve the rights of Iraqi citizens, of the victims and their families affected by this crime," he said.

Abdul Wahab Abdul Kader, 35, who was shot in the arm, said he was bitterly disappointed. ""I call for the government to stop all foreign security companies working in Iraq. Their work here has been full of dangers for us and has caused real peril."

Haitham Ahmed, whose wife and son were killed, said the dismissal of the case cast doubt on the integrity of the US justice system. He told Associated Press: "The whole thing has been a farce. The rights of our victims and the rights of the innocent people should not be wasted."

The shooting, on 16 September 2007, caused outrage around the world and strained relations between the US and Iraq. A series of congressional hearings was held, and militant groups leapt on the bloodshed as evidence of US brutality.

Blackwater was expelled from most of its key contracts in Iraq and forced into a major damage-limitation exercise that included rebranding itself Xe Ltd.

The incident began when a heavily armed Blackwater convoy moved into a busy square in Baghdad, after breaking an order to stay in the US-controlled green zone of the city, prosecutors allege. The five were accused of opening fire with automatic weapons and grenade launchers on unarmed civilians, killing children, women and men attempting to flee in their cars. One victim was alleged to have been shot in the chest while standing with his hands in the air. Defence lawyers said they had been responding to an earlier car bombing and were attacked by Iraqis they believed to be enemy insurgents.

In his 90-page ruling, Judge Ricardo Urbina made no comment on the legality or otherwise of the shooting. He dismissed the case on the grounds that the five had had their constitutional rights violated by the way confession statements they had made had been used by the prosecution.

The statements were made when the men were under threat of losing their jobs if they did not cooperate with investigators. The US government had promised that their statements would not be used against them in a criminal case.

Urbina said that despite this immunity deal, the statements had been used, thus tainting the investigation. He said the government's case had been "contradictory, unbelievable and lacking in credibility".

If convicted, the five guards, all of whom were former US military personnel, would have faced a 30-year sentence.

"It feels like the weight of the world has been lifted off his shoulders," said Steven McCool, a lawyer for one of the five, Donald Ball. "Here's a guy that's a decorated war hero who we maintain should never have been charged in the first place."

The legal fate of a sixth guard, Jeremy Ridgeway, is now unclear. He pleaded guilty to killing one Iraqi and wounding another, and gave evidence against his five former Blackwater colleagues.

Xe said that the dismissal of the case meant "we can move forward and continue to assist the US in its mission to help the people of Iraq and Afghanistan find a peaceful, democratic future".

However, relatives have lodged civil charges against the five in the Virginian courts. Tareq Harb, an Iraqi lawyer, said of the US federal court: "They did not call local witnesses, or victims, or officials who responded to the scene. The guards were protected under Bremer's law [US administrator in Iraq before 2004]. There was no due process, or natural justice."

By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, December 16, 2009; A01

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.

"The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts."

Treasury officials said the most recent change was part of a broader decision initially made last year to shelter companies that accepted federal aid under the Troubled Assets Relief Program from the normal consequences of such an investment. Officials also said the ruling benefited taxpayers because it made shares in Citigroup more valuable and asserted that without the ruling, Citigroup could not have repaid the government at this time.

"This rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks," Treasury spokeswoman Nayyera Haq said. "And it was certainly not written to prevent the government from selling its shares for a profit."

Congress, concerned that Treasury was rewriting tax laws, passed legislation earlier this year that reversed the ruling that benefited Wells Fargo and restricted the ability of the IRS to make further changes. A Democratic aide to the Senate Finance Committee, which oversees federal tax policy, said the Obama administration had the legal authority to issue the new exception, but Republican aides to the committee said they were reviewing the issue.

A senior Republican staffer also questioned the government's rationale. "You're manipulating tax rules so that the market value of the stock is higher than it would be under current law," said the aide, speaking on the condition of anonymity. "It inflates the returns that they're showing from TARP and that looks good for them."

The administration and some of the nation's largest banks have hastened to part company in recent weeks. Bank of America, followed by Citigroup and Wells Fargo, agreed to repay federal aid. While the healthiest banks escaped earlier this year, the new round of departures involves banks still facing serious financial problems.

The banks say the strings attached to the bailout, including limits on executive compensation, have restricted their ability to compete and return to health. Executives also have chafed under the stigma of living on the federal dole. President Obama chided bankers at the White House on Monday for not trying hard enough to make small-business loans.

The Obama administration also is eager to wind down a program that has become one of its largest political liabilities. Officials defend the program as necessary and effective, but the president has acknowledged that the bailout is "wildly unpopular" and officials have been at pains to say they do not enjoy helping banks.

Federal regulators initially told Citigroup and other troubled banks that they would be required to hold on to the federal aid for some time as they return to health. But in recent months, the government switched to pushing the companies to repay the money as soon as possible. All nine firms that took federal money last October now have approved plans to pay it back.

This urgency has come despite the lingering concerns of many financial experts about the companies' health. These analysts said they worry that the firms could face rising losses next year as high unemployment and economic weakness continue to drive great numbers of borrowers into default.

"They are rolling the dice big time," said Christopher Whalen, a financial analyst with Institutional Risk Analytics. "My fear is that the banks will definitely have to raise a lot more capital next year. The question is from whom and on what terms."

The Citigroup repayment deal required significant sacrifices by both sides, underscoring the mutual determination to get it done. Citigroup was required to replace its federal aid with an equal amount of money from private investors, more than any other bank. The government concluded that Citigroup needed the IRS ruling because a reduction in the value of its tax breaks would have eroded its capital, forcing the company to raise more money, officials said.

Federal tax law lets companies reduce taxable income in a good year by the amount of losses in bad years. But the law limits the transfer of those benefits to new ownership as a way of preventing profitable companies from buying losers to avoid taxes. Under the law, the government's sale of its 34 percent stake in Citigroup, combined with the company's recent sales of stock to raise money, qualified as a change in ownership.

The IRS notice issued Friday saves Citigroup from the consequences by stipulating that the government's share sale does not count toward the definition of an ownership change. The company, which pushed for the ruling, did not return calls for comment.

At the end of the third quarter, Citigroup said that the value of its past losses was about $38 billion, allowing it to avoid taxes on its next $38 billion in profits. Under normal IRS rules, a change in control would sharply reduce the amount of profits that Citigroup could shelter from taxes in any given year, making it much more difficult for Citigroup to realize the entire benefit before the tax breaks expired.

The precise value of the IRS ruling depends on Citigroup's future profitability and other factors, but two accounting experts said it was fair to estimate that Citigroup would save at least several billion dollars as a result.

Treasury acknowledged that the tax break was significant, but a senior official said the benefit was unavoidable. Either the government changed the rules and parted ways with Citigroup or the company kept the government as a shareholder and kept the tax break anyway.

"The choice is whether Treasury sells or doesn't sell," the official said.

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121504534_pf.html

hahaha!