Britain's private army in Iraq

Baghdad is a city where there is no safety and no law, but the five Britons - a computer consultant and his four-man security detail - would have been entitled to feel relatively secure inside the Finance Ministry.

The building was heavily guarded by uniformed Iraqi police and paramilitaries. It was a Tuesday morning, and Palestine Street was busy, with more people venturing out since the US-led security "surge" damped down the violence in the centre of the Iraqi capital.

Yet in broad daylight, a convoy of vehicles with up to 40 men, some in the camouflage uniforms of special police commandos, was able to drive up to the ministry and pass through the gate. The men headed straight for where the Britons were working, took them without a struggle and drove off. Even by the standards of the most dangerous city in the world, it was an especially brazen kidnapping. Nothing has been heard of the victims since.

The search for them has focused on Sadr City, the giant Shia slum on the outskirts of Baghdad that is the stronghold of Moqtada al- Sadr's Mahdi Army. Not only did witnesses say that the convoy headed in that direction after leaving the ministry, but the militia is thought to be one of the few groups with the contacts inside the Iraqi government to carry out the operation.

Hoshyar Zebari, the foreign minister, said last week that the Palestine Street area was in the Mahdi Army's "field of operations", adding: "It has been known for some time that the Interior Ministry police, security units and forces are corrupt, are penetrated." According to British officials, the kidnappers would never have got through the gate if the guards had been Sunnis or Kurdish. A senior Mahdi Army figure has denied that the militia was involved.

But if the circumstances are mysterious, the abduction has cast light on the way Iraq's bloody chaos has given birth to an entire private security industry, one in which British companies are among the leaders. The irony is that a decreasing proportion of their employees, and clients, are British. If the kidnapping was aimed at Britain, as some believe, to avenge the death of a senior Mahdi Army commander in Basra recently at the hands of British troops, those who carried it out would have had to be especially well informed, because neither the consultant nor his protectors was working for British employers.

The IT consultant was hired by BearingPoint, a well-connected US management consultancy. The four security men worked for GardaWorld, a Canadian company which guards airports in its home country and recently branched out into the Iraq security business when it took over two US companies with operations there.

But GardaWorld is dwarfed by the largest private security operations, several of which - such as ArmorGroup, Aegis, Control Risks, Erinys and Olive Group - are British. Their executives argue that experience gained during the 1990s stood them in good stead when the Iraq invasion created a huge demand for security services. Tim Spicer, for example, operated in Sierra Leone with his former company Sand-line. A former lieutenant colonel, he is now chief executive of Aegis. Former SAS members, as well as British ex- soldiers and policemen, are in demand, the companies say, because they are less trigger-happy and trained to work to far tighter rules of engagement than their US counterparts. But given that the torrent of reconstruction money poured into Iraq was mainly American, US companies have come into the business. "The Americans never had a private security industry previously, but they do now, thanks to Iraq," said one British executive.

Estimates suggest that there are roughly 40,000 private security employees in Iraq carrying out a variety of duties, from close protection work to "static protection" of premises such as embassies, and escorting supply convoys. But the vast majority of those are Iraqis: there are reckoned to be only 5,000 "First World" nationals - Britons, Americans and Commonwealth citizens - and about twice that number of "third country" nationals. Some are Gurkhas and Fijians trained in the British Army, but an increasing proportion comes from countries which were or are conflict zones, such as Colombia or Serbia.

"Third country" personnel, willing to accept lower pay and, in many cases, higher risks, are often replacing pricier British or American private security operators as competition gets tougher. Reconstruction has all but halted in the welter of violence and there has been a wave of consolidation. Some British employees of Control Risks in Iraq threatened to strike last year when their pay was cut by up to 20 per cent, but soon found that no one else was hiring. Mr Spicer recently said that business in Iraq was like "a slowly deflating balloon".

Many critics believe that is a good thing. They accuse some security companies of being little more than mercenaries - private armies that can operate with virtual impunity in Iraq. A notorious video posted on the web last year appeared to show Aegis employees shooting up civilian cars, with Elvis Presley's "Mystery Train" on the soundtrack. "We know of hundreds of cases reported of random shooting at civilians in cars," John Hilary, director of campaigns and policy at War on Want, told MPs last month. Anecdotes circulate, including one of a South African machine gunner at the back of an escort vehicle who fell asleep. He woke up with a start, found a car close behind and opened fire, killing the driver and the rest of his family. The security men stopped, but on finding all the occupants of the car were dead, they drove off.