In the first US corruption conviction relating to the occupation of Iraq, a former official pleaded guilty yesterday to stealing more than $2m (£1.13m) of reconstruction funds and taking more than $1m worth of contract kickbacks under a deal with an American businessman.

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.