Robert Stein, 50, a contractor working for the now disbanded Coalition Provisional Authority, had a criminal record for fraud. He acknowledged his role in the scam in a statement to a federal court in Washington.

He admitted guilt on five felony counts, of conspiracy, money-laundering, bribery and the illegal possession of a machine-gun and a handgun.

The businessman, a US citizen identified as Philip Bloom, also faces federal conspiracy and money laundering charges. Mr Bloom was not named in the indictment or in Mr Stein's statement, but is understood to be in custody here ahead of his own likely trial. Five US Army reserve officers are also implicated, two of whom have been arrested.

The case paints an astonishing picture of incompetence and carelessness in the running of the CPA, which administered Iraq between mid-2003 and June 2004. The misdeeds in question mostly took place in the al-Hillah region south of Baghdad, where Mr Stein was in charge of administering $82m of reconstruction funds. Instead - his criminal past undiscovered by whatever background checks were carried out - he became the central figure in an imbroglio of bid-rigging and kickbacks.

Mr Stein not only took money from Mr Bloom in return for steering some $9m of contracts in his direction. He also pilfered $2m of earmarked aid for reconstruction, consisting of US taxpayers' money and funds confiscated from the former regime of Saddam Hussein.

The ill-gotten gains financed a lavish spending spree. Mr Stein used them to buy - among other things - Lexus and Porsche cars, a Cessna light aircraft, watches, jewels, guns and grenade launchers as well as two plots of land in his native North Carolina. For his part, Mr Bloom is said to have provided his benefactors with money, first-class air tickets, and sexual favours provided by women kept in a villa in Baghdad.

Among the contracts won by Mr Bloom's companies were a new police academy for al-Hillah and the renovation of a public library in nearby Karbala. His dealings with Mr Stein generated some colourful e-mail correspondence. "I love to give you money," the latter wrote after approving a $200,000 contract for the academy in January 2004.

In another exchange, the former CPA official apologizes for being "businesslike," and warns Mr Bloom to avoid using the same company name when submitting his various contract bids, to avoid arousing suspicion. Mr Bloom seems to have had no problem with that. "Since we are paid in cash," he replied, "it really doesn't matter, tax-wise." As long ago as 1996, Mr Stein had been convicted of fraud and jailed for eight months. But he was later hired by S&K Technologies, which had won a contract to supply experts to the CPA. A spokesman said S&K believed he was a construction specialist.

Meanwhile, in Iraq yesterday, two bombings 20 minutes apart killed at least 11 Iraqis and the US military announced five more Americans had died. The attacks occurred amid sluggish efforts to form a government, widely seen as the best hope for defusing the insurgency.

A pre-dawn US helicopter rocket attack in Baghdad's Shia stronghold of Sadr City killed a woman and enraged Shia across the country, who called the attack provocative. A shepherd also made a grisly discovery near Sadr City - 16 blindfolded and bound men who had been shot and buried in an open area. The men, all wearing civilian clothes were the latest victims in a string of apparent execution-style sectarian attacks.

The bloodshed, coupled with attacks yesterday on an oil processing plant in Kirkuk, underscored the difficulties coalition forces and Iraqi authorities are having to curb the raging violence.