As they fund the military and corporate giants like Halliburton in Iraq, U.S. taxpayers are also spending tens of millions of dollars for the services of Blackwater USA, a secretive army of private mercenaries that operates with virtually no government oversight and beyond civilian and military legal constraints.

In his New York Times bestseller, Blackwater: The Rise of the World’s Most Powerful Mercenary Army (Nation Books/Avalon), investigative reporter Jeremy Scahill unmasks this powerful, corporate armed force, founded by Erik Prince, a multimillionaire conservative with close ties to the religious right and the Republican Party. The book chronicles the reach of Blackwater from fighting—and dying—in Iraq, to policing the storm-ravaged streets of New Orleans in the immediate aftermath of Hurricane Katrina.

Scahill writes for The Nation and is a correspondent for Democracy Now! In testimony before the House Appropriations Subcommittee in May, Scahill urged Congress to investigate the private war contractors like Blackwater. He warned: “The privatization of war has both encouraged and enabled the growth and creation of companies who have benefited and stand to gain even more from an escalation of the war.”

Scahill recently discussed the Blackwater mercenaries and other Bush Administration efforts to privatize government functions with Real Change.

How would you describe Blackwater USA to a person who hasn’t heard of the company?

We are in the midst of the most radical privatization agenda in our history. It seeps its way into schools, prisons, and law enforcement, and now we see this radical privatization of war unfolding on the battlefields of Iraq.

Most Americans believe there are 145,000 U.S. troops [in Iraq], but almost never discussed are the 130,000 private personnel deployed alongside the U.S. armed forces. Some like KBR [Kellogg, Brown & Root] – a former Halliburton subsidiary – provide “logistical support services” to the military. They do the laundry, drive trucks, serve food to the troops.

But there are also tens of thousands of armed individuals who work for companies like Blackwater USA. It’s not the biggest, it’s not the most profitable, but it has the closest proximity to the throne in the United States. It’s a company with deep political connections to the Republican Party and the radical religious right. Whenever a State Department official moves from point A to B in Iraq, Blackwater is guarding [them]. Since 2004, they’ve been awarded three-quarters of a billion dollars in U.S. State Department contracts alone. Impressive for a company that didn’t exist a decade ago.

The military once guarded ambassadors and other U.S. officials. Why would the Administration choose to outsource this military function?

At the end of his term as Defense Secretary under George H.W. Bush, Dick Cheney commissioned a study from a division of Halliburton [on] outsourcing to the private sector the nonessential functions within the military bureaucracy [to] free up the active duty military to do the actual fighting.

Now, in Iraq, we see part of the combat function outsourced. The occupation would not be sustainable without this shadow army. The most disturbing thing is that no one is effectively paying attention to the actions of Blackwater or other private forces in the war zone, so you take the American people away from a system of accountability and oversight.

And Blackwater argues that it’s above the law and immune from lawsuits.

In the case of Blackwater, here is the basic story. In March 2004, four Blackwater operatives were ambushed and killed in the [Iraqi] city of Fallujah. Their bodies where dragged through the streets and hung on a bridge. This is when the war turned: the Bush Administration ordered a siege on the city of Fallujah, and basically destroyed it, and this inflamed the Iraqi resistance and led to attacks on US forces.

A few months after the ambush, in January 2005, the families of the four men killed in Fallujah sued Blackwater in a groundbreaking wrongful death lawsuit, charging that the company had sent their loved ones in jeeps instead of armored vehicles, short two men on the mission, and without heavy weaponry.

Blackwater responded by arguing [it] can’t be sued for wrongful death because, “We’re a part of the U.S. total force and therefore we should be entitled to the same immunity from civilian litigation enjoyed by the U.S. military.” At the same time, Blackwater’s PR specialists from the Alexander Strategy Group [a Republican lobbying firm] waxed poetic about how it would be inappropriate to place Blackwater under the Uniform Code of Military Justice, the court martial system.

Then, in Iraq, Paul Bremer’s thank you gift to Blackwater and other contractors when he left in June 2004 [as head of the Coalition Provisional Authority] was to [grant] sweeping immunity to all contractors from prosecution under Iraqi law. No military law has been effectively applied to these forces, no U.S. civilian law, and certainly no Iraqi law.

You write that Blackwater’s activities adversely affect military morale.

There’s a real morale crisis on the ground in Iraq. If you’re a rank-and-file soldier, you see these [Blackwater] guys stroll [like] rock stars with better body armor in many cases, better vehicles, better weapons, and no fear of being prosecuted for any crimes, and they’re getting paid much more than you. Blackwater pays its men between $450 and $650 a day. Some of these guys make more than the Secretary of Defense or the commanding generals.

The other problem for the U.S. military is a blowback factor. When contractors shoot up Iraqis with no provocation, [they’re] viewed as the Americans, and so [there’s] a blowback effect: troops are attacked in revenge for something the contractors did.

Brig. Gen. Karl Horst, the deputy commander of the 3rd Infantry Division around Baghdad, got so outraged he tracked contractor violence. In just 60 days, he documented 12 instances of contractors firing at Iraqi civilians, resulting in six deaths and three injuries. That’s just one general paying attention for two months, so you replicate that and you have a disturbing situation that could have disastrous consequences for active duty U.S. troops.

And you note that many Blackwater employees are not American citizens.

Blackwater has hired scores of Chilean, Colombian, Fijian, Polish, Bulgarian mercenaries—the list goes on and on. This keeps a draft off the table, and you no longer have to depend on your citizenry to staff your military. Ultimately, it means that the military has endless offensive possibilities limited only by the amount of money an administration allocates for the purchase of armies.

Do we know how much taxpayers have paid for the services of Blackwater?

Just with the State Department, Blackwater has a contract for $750 million in so-called diplomatic security services. That doesn’t count the work for the U.S. military, for covert intelligence agencies, for other private companies or for domestic work. It made tens of millions of dollars on its Hurricane Katrina deployment, and does a steady business in training state, local and federal law enforcement.

This company’s activities are totally shrouded in secrecy. Leading members in Congress are unable to get detailed information about it despite the fact that they are on the U.S. government payroll.

You were the first to report on Blackwater’s work in New Orleans after Hurricane Katrina. Can you discuss their domestic operations?

Blackwater showed up within hours of the hurricane hitting the U.S. Gulf [Coast]. A big amount of its work was for the Department of Homeland Security, Federal Protective Service. I encountered Blackwater operatives on the streets of New Orleans with M-4 rifles and pistols strapped to their legs. The guys on the ground told me that they were there to confront criminals and stop looters [and were] authorized to use lethal force if necessary. One guy was complaining that there wasn’t enough action on the streets of New Orleans—a chilling statement.

The Blackwater guys told me they were making $350 a day plus per diem. I got Blackwater’s contract with the federal government: they billed taxpayers $950 per man, per day, and raked in $240,000 per day for its Katrina operations.

Now Blackwater is starting a new domestic operations division. They’ve just recently opened a new training facility [in] Illinois they call Blackwater North, [but] there’s growing resistance to Blackwater in that community. And in Potrero, Calif., just outside of San Diego, Blackwater is fighting fierce, local resistance to a new camp they want to call Blackwater West. About half of the residents have signed a petition against Blackwater. People are waking up to [Blackwater’s] activities, and they don’t want guns fired in their community, a lot of heavy traffic, helipads, and gun enthusiasts.

You’ve been disappointed by the lack of oversight of Blackwater in Congress. Is that changing?

Now several influential Congressional committees are taking up this issue. Leading the charge is Rep. Henry Waxman (D-Calif.) who, within a month of the new Congress taking power, began holding hearings on contractors.

This issue will be impossible for the Congress to ignore because of the extent this war has been privatized, the way the active duty military is treated versus the private sector, the tremendous cost to U.S. taxpayers and the unaccountability of the forces acting in the name of this country. This will outrage people from across the political system. If you ignore contractors like Blackwater, you ignore half the occupation force, so this has to be a central part of the debate on Iraq policy.

What can average citizens do to assure oversight of war contractors?

The best thing people can do is encourage their representatives to join members of Congress whose eyes are opening to this system. The heads of the top 20 war contractors in Iraq should be called in front of Congress to account for the money they’ve spent and the actions they’ve engaged in—in the names of the people of this country. Let’s bring this out in the open and see if the American people believe this system is in the spirit of democracy, open government and international diplomacy.

Robin Lindley is a Seattle attorney and writer. In 2006, he chaired the World Peace through Law Section of the Washington State Bar Association.