Two officials of the US-led Coalition Provisional Authority in Baghdad and the Iraqi minister of communications are being investigated by the Pentagon over allegations of taking bribes.
Potentially lucrative licences to build and operate mobile phone networks in Iraq were announced last month by Haider al-Abadi, communications minister, in favour of three Middle-Eastern consortia - Orascom Iraq, Asia Cell and Atheer. The announcement was welcomed as an important milestone on the road to rebuilding Iraq. The CPA is to award contracts for Iraq's reconstruction worth about $18.5bn over the next four months or so.
But an administration official close to the CPA and someone close to the defence department say the Pentagon's inspector-general has launched an investigation into the Orascom contract, partly because of allegations from a rival bidder that failed to win one of the mobile licences.
A Pentagon spokesman confirmed that there was an "ongoing preliminary inquiry" into the contracts.
The administration official, however, says the Pentagon has advanced its inquiries beyond the very earliest stages. The inspector-general's office believes there is sufficient evidence to merit further inquiry. Each US government agency has an inspector-general appointed by the president serving as an independent investigator.
The CPA officials under investigation were involved in drawing up the telecoms bidding rules. They could not be reached for comment. Mr Abadi, the Iraqi minster, denies that he was in a position to influence the decision to award the licenses because he was appointed after the CPA selection committee made their recommendation. He says he was given five days to review the decision before making the announcement about the winning bidders.
At a White House meeting scheduled for on Friday morning, officials from the National Security Council and defence department were expected to discuss Mr Abadi's position.
The inspector-general is also investigating whether Ala al-Khawaja, a partner in the Orascom-led consortium, was involved in the payment of bribes. Mr al-Khawaja vehemently denied any wrongdoing. He said he had not been contacted by the Pentagon over an investigation. "I'm a financial partner [in the consortium]. I had nothing to do with technicality of the licence or the bid," he said. "I know no one in the CPA and never met any official in the Iraqi government."
Hatim El-Gammal, an Orascom spokesman, declined to comment on the Pentagon investigation. The company denies any wrongdoing.
Charles Heatly, CPA spokesman, said that he was unable to comment on reports of a Pentagon investigation.
The decision by the Pentagon inspector-general to launch an investigation comes amid increasing scrutiny of the reconstruction in Iraq. Congress has required Donald Rumsfeld, secretary of defence, to appoint the CPA with its own inspector-general to ensure the reconstruction is transparent and fair.