In September, 17 Iraqi civilians died in a hail of bullets from members of a US private military company, Blackwater. Kim Sengupta witnessed the angry aftermath in Baghdad. Here, he reports on the quest for a legal framework to stop security contractors operating with impunity

rivate military companies have been much in the news recently with their activities and limits to accountability particularly brought into focus after guards from the American company, Blackwater, mowed down men, women and children on a street in Baghdad.

I was in Nisoor Square, in Mansour district, on the afternoon of 16 September when the 17 civilians were killed, and saw the outpouring of anger which followed among Iraqis along with vociferous demands that Western private armies acting violently, but immune from scrutiny or prosecution, should face justice.

But there was always the underlying feeling that this was, after all, Iraq, where violent deaths are hardly unusual. Blackwater is also the favoured security firm for the US government, guarding American diplomats, and considered to be untouchable. The Iraqi government of Nouri al-Maliki declared that it would expel Blackwater only to back down three days later, showing its impotence in standing up to their American sponsors.

Surprisingly, however, what happened at Nisoor Square has not just faded away. Following pressure from Congress, a new agreement between the Pentagon and the State Department was signed last Wednesday to give the military in Iraq more control over Blackwater and other private security contractors. The agreement also says contractors will be accountable for criminal acts under US law a step towards taking away the immunity given to private companies in Iraq by the former American proconsul, Paul Bremer. Meanwhile the Iraqi government is bringing in its own legislation on the issue.

In Afghanistan, another front in the war on terror, in which private armies proliferate, the government of Hamid Karzai has banned two companies and said 10 others may be shut down.

The Blackwater shooting and its aftermath has also given added impetus to efforts to establish a legal framework for the private security industry. The International Committee of the Red Cross (ICRC) has long been campaigning on this issue and the Swiss government has recently proposed an international dialogue to establish where exactly responsibility lies over the actions of contractors.

The ICRC and the British Red Cross are putting together a package for the security companies encompassing, they say, their essential legal obligations. "We are not saying the industry is illegal and it is indeed the case that their role may well grow in the future," says Simon Brooks, the head of the ICRC in the UK. "What we are saying is that their work in some situations, say in Iraq and Afghanistan, will bring them into situations where International Humanitarian Law applies and it is important that they are aware of that.

"We have been holding talks with the leading companies in the industry and we are also talking to the British government. There is a realisation that something needs to be done. But it is a complex matter and we have to find the right solution."

Emanuela-Chiara Gillard, legal advisor to the ICRC, explains the importance of international law. "For the ICRC it is clear that in situations of armed conflict there is a body of law that applies, namely International Humanitarian law, that regulates both the activities of the PMCs and PSCs (private military companies and private security companies) and the responsibilities of the states that hire them."

Blackwater maintains the guards were acting in self-defence after being shot at, and has remained defiant despite a welter of testimony contradicting their version of what happened. Last month it pulled out of an umbrella body for private security organisations, the International Peace Operators Association which had ordered a review of whether the company complied with its code of conduct.

Others in the industry, however, are much more circumspect, acknowledging that new rules are necessary and the process of self-regulation may no longer be enough. They are keen to stress that not all security contractors behave in the same way. Blackwater, in particular, had built up a reputation for being gung-ho. It was the incursion of four of their guards into Fallujah and their subsequent lynching which set in train the events which led to the bloody siege of the town by American forces. More recently, one of their employees was fired and flown out of the country before he could be arrested after getting drunk and shooting dead a bodyguard of the Iraqi vice-president. Iraqi officials were furious, as they wanted to charge the man with murder.

Two days after the Mansour shooting I went to the British embassy in Baghdad which is guarded by a long established UK-based company. One of their guards, a former soldier, gave his withering view on Blackwater: "They are always, always aggressive, they don't understand the word tact. What they do makes life difficult for the rest of us."

The large international firms say they try to weed out unstable characters. Even Blackwater has sacked several dozen employees. The stakes are very high. According to research carried out by ArmorGroup, one of the leading players, the market internationally is worth $2.6bn a year, of which $1.4bn comes from Iraq. Just four years ago the respective figures were $900m and $400m. Before 2003 there were between eight to 10 big companies, last year there were 170 operators in Iraq alone and dozens more in Afghanistan. The money earned by the contractors varies. At one stage, in Iraq in particular, they could clear $1,000 a day, although this is now said to have fallen between $450 and $700 for most.

But the really big money comes when there are open commercial relationships between security firms and Western states. Private firms guard embassies and diplomats, provide security for aid workers and carry out hostage rescue missions. In Afghanistan, USAID spends $1m a year in protection for one of its employees, and the highly controversial opium poppy eradication scheme is overseen by DyneCorps which was also involved, on behalf of the American government, in another contentious anti-drugs programme, on cocaine in Colombia.

Andy Bearpark, director general of the British Association of Private Security Companies, stresses: "Our Association is a check within the industry, it has a charter that members must adhere to and there is a disciplinary procedure. But there are parts of the industry which is in a pretty unregulated environment. It's very, very difficult to control what these people actually do."

Simon Brooks, of the ICRC, says: "Self-regulation is fine in the absence of something else. But that needs to change. What we need to do is to work out a proper legal framework which is enforceable. This problem is not going to go away."