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During the five years that the United States has occupied Iraq, the Bush administration has created a state with a number of notable features: A venal, dysfunctional government. A terrorist haven and training ground. A nation so violent and dangerous that 10 percent of the population has fled.

Add to that a new hallmark: nearly the most corrupt nation on Earth.

Only two states out of 180, Somalia and Burma, outrank Iraq in Transparency International's latest worldwide corruption index. They are tied for last place. But Iraq has plummeted through the rankings since 2004, when it was near the middle of the pack, and is now within a hair's width of crashing to the bottom.

Along the way, American officials say, Iraqi government officers, from Prime Minster Nouri al-Maliki on down, have embezzled not only uncounted billions of dollars from their own treasury - but also $18 billion in American aid.

That's about equal to the annual budget for the state of Colorado. Radhi al-Radhi, an Iraqi judge who provided that figure, was the state's chief anti-corruption official, until death threats forced him to flee last year. He called the theft among the largest in modern history.

In recent months, several American government reports have detailed the problem, and Congress has held hearings. The conclusion: Not only has the United States provided much of the money Iraqi officials have purloined, American officials have actually aided the theft.

The State Department, particularly, has seemed eager to obfuscate and cover up the thievery - afraid, it seems, of tarnishing the Iraqi government's reputation. Last summer, U.S. Embassy officials in Baghdad researched a 70-page internal but unclassified report that detailed the plundering of the nation's wealth. The pillage was so widespread, the report said, that it threatened the Iraqi government's very survival.

A few months later, when Congress requested a copy of the report, the State Department retroactively classified it and demanded that any officials called to testify would do so in a classified session. All this for corruption in a foreign government. Since when is that a state secret?

State Department officials have long suffered from what detractors call "client-itis" - too close identification with the nations they serve. But allowing that proclivity to hide larceny of this scale stretches client-itis verges on criminality.

Asked about this, over and over, the department has refused to explain its actions and instead falls back on bromides. "We are very concerned about corruption in Iraq," State Department deputy spokesman Tom Casey said last week.

At the same time, another State Department office with different political priorities issued the 2008 Human Rights Report a few weeks ago and said "large-scale corruption pervaded the government at all levels."

Certainly Saddam Hussein's Iraq was corrupt. Who can forget the $656 million in cash discovered behind a wall in one of his palaces? But the United States set up the new government with accountability in mind and, among other steps, mandated that one central office manage contracting for the entire government. The al-Maliki government repealed that law so that dozens of individual agencies could let contracts - freeing them to demand kickbacks. Various ministries also forbade corruption investigators from entering their buildings. That, plus the assassinations of 31 corruption investigators, convinced al-Radhi to flee. Among the recommendations he and others offered:

-- Iraqi ministers should make annual income declarations. They have refused.

-- Oil terminals should be metered so a record can be kept of the barrels sold. The Oil Ministry objected.

The United Nations urged Iraq to implement the U.N. Convention against Corruption. Al-Maliki has demurred and instead appointed a new head of the anti-corruption office who, three weeks earlier, had been arrested and sent to jail on corruption charges. He was out on bail.

No one has yet documented theft by al-Maliki. But suspicions abound because he has worked aggressively to stymie corruption investigations. In fact, al-Radhi said al-Maliki issued a secret order saying he was not allowed to investigate the prime minister or anyone in his Cabinet.

James Mattil, a former State Department anti-corruption official, said he told the U.S. Embassy about all of this. Still, asked about it during a congressional hearing, Secretary of State Condoleezza Rice professed ignorance, adding: "I will have to get back to you." Congress is still waiting.

Joel Brinkley is a professor of journalism at Stanford University and a former foreign policy correspondent for the New York Times. E-mail him at brinkley@foreign-matters.com. Contact us at insight@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/08/INQ1112FDA.DTL

This article appeared on page G - 8 of the San Francisco Chronicle