MPs demand tighter controls on security companies in Iraq

Foreign Office inquiry praised ArmorGroup shortly before one of its employees shot dead two others

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A Foreign Office inquiry exonerated a British security company's vetting and weapons-safety procedures just before one of its private soldiers with a criminal record and history of mental illness shot dead two colleagues during a drunken row in Baghdad last month.

MPs yesterday criticised the way the Foreign & Commonwealth Office (FCO) handled the inquiry into ArmorGroup and called for proper regulation of the private security industry. Armor has earned £68m since 2007 from government contracts in Iraq and Afghanistan – more than any other British security company.

Phyllis Starkey, Labour MP for Milton Keynes South West, who represents one British whistleblower, said: "[The inquiry] clearly wasn't adequate given the latest troubles for Armor that have just come to light in Iraq with Danny Fitzsimons."

The former Parachute Regiment sniper faces a possible death sentence in Iraq if convicted of premeditated murder. Fitzsimons, 29, had a string of criminal convictions, suffered from a combat-related adjustment disorder, was kicked out of the Army after failing a drug test and had been sacked from two security firms in Iraq before Armor recruited him.

The disclosure comes as a separate group of whistleblowers working for Armor in Afghanistan last week sparked a US government investigation into allegations that staff guarding its embassy had engaged in drunken and sexually "deviant" behaviour and went on unauthorised, armed undercover missions in Kabul.

The FCO minister Lord Malloch-Brown ordered the inquiry in January 2008 after Ms Starkey and Jeffrey Donaldson, Democratic Unionist Party MP for Lagan Valley, sent him a dossier. It contained allegations of negligence and malpractice from former British police officers working on a £23m contract awarded to Armor in June 2004 for training a new Iraqi police service.

Armor is historically very close to the FCO, having guarded its embassies and protected British oil interests since the Eighties, when it was called Defence Systems Limited. It is now owned by Group4Securicor and has close links with the military, intelligence and political establishment.

The Police Mentoring Project in Iraq is regarded by the government as key to resolving the security situation there. However, the dossier accused the firm of inadequate vetting and training of police mentors, poor equipment, over-charging for staff and expenses and damaging morale through oppressive management which affected contract performance.

It was also alleged that police trainers were told not to co-operate with their American counterparts or pass intelligence from Iraqi police sources of corruption and terrorist activity to the British Army.

Lord Malloch-Brown sent the two MPs extracts of the report with a covering letter on 16 July. The inquiry, he wrote, found no oversight failures by the FCO and no breaches of contract by Armor.

It concluded that Armor's "current procedures are satisfactory". Three weeks later, on 9 August, Fitzsimons shot dead Paul McGuigan, a former Royal Marine, and Darren Hoare, an Australian. The three men were armed and drinking at 4am in the Green Zone. A similar fatal shooting involving three Armor employees had occurred in 2004.

Armor denied in the report that it had knowingly employed anyone with a criminal conviction and said it conducts vetting and reference checks.

Despite Armor's full co-operation, the minister said a number of allegations were "impossible to corroborate due to the passage of time, change of key personnel and lack of conclusive evidence". One such allegation involved weapons storage. Armor and the FCO did concede that weapons storage facilities were not adequate at the early stages of the contract, which meant that trainers permanently carried their guns.

Mr Donaldson, who represents the main whistleblower, said he was "not convinced that the investigation has been sufficiently robust". It has emerged that Armor's contract was renewed well before the inquiry concluded and none of the whistleblowers was interviewed.

Armor said it had "responded in full to these allegations and pointed out that to the FCO's stated satisfaction no breach of contract took place".

The MPs are calling on the Foreign Secretary, David Miliband, to release a full copy of the report for parliamentary scrutiny. "There is a shortcoming of oversight in terms of contractors in Iraq," Mr Donaldson added.

The criticisms come as Mr Miliband signalled a preference for self-regulation of British private military and security companies operating abroad.

Ms Starkey said: "Self-regulation of the industry hasn't worked in this country, where there is a civil society and robust laws, so I think it is highly unlikely it will work in... Iraq."