Bloom's guilty plea on bribery and money-laundering charges is the latest development in a widening corruption scandal centred on a network of US civilians and military officials who worked out of a coalition outpost in the south-central Iraqi town of Hillah.

Under the plea agreement, Bloom must pay $US3.6 million in restitution and forfeit $US3.6 million in assets. His guilty plea "sends a message to Iraqis that US oversight will track down, arrest and prosecute American citizens who committed crimes in Iraq involving Iraqi money", said Stuart Bowen, who heads the office of the Special Inspector-General for Iraq Reconstruction.

The scheme began in January 2004, when Bloom began paying bribes to Robert Stein, a civilian contractor who controlled $US82 million in reconstruction funds as the comptroller for the coalition's headquarters in Hillah.

Stein, who had a previous conviction for fraud when he was hired, pleaded guilty to accepting bribes in February. He funnelled money and favours from Bloom to other officials in Hillah, all of whom helped direct contracts to a group of companies controlled by Bloom, court documents say.

Two officers in the US Army Reserve, Lieutenant-Colonel Michael Wheeler and Lieutenant-Colonel Debra Harrison, have already been arrested in connection with the case and more arrests are expected, investigators said.

From January to June 2004, when the coalition government was replaced, Bloom provided Stein and officers with first-class air tickets, real estate lots, weapons, new four-wheel-drive vehicles, cigars, designer watches, alcohol, prostitutes at Bloom's Baghdad villa and cash bribes.

In return, Bloom's company, Global Business Group, received $US8.6 million in contracts to refurbish a police academy in Hillah, a library in Karbala and other reconstruction projects. In some cases the work was never done, and in others it was shoddy, audits by the inspector-general reveal.

The contracts were paid with Iraqi funds held in the Development Fund for Iraq, which has been at the centre of many of the corruption scandals in Iraq.