WASHINGTON (CNN) -- The Democrats' top investigator in Congress reacted angrily Friday to a report that the former Blackwater USA employee accused of killing an Iraqi vice presidential guard was hired by another U.S. contractor weeks later.
Rep. Henry Waxman says the State Department is covering up "an epidemic of corruption" in Iraq.
The report comes alongside Rep. Henry Waxman's warning of a "confrontation" with Secretary of State Condoleezza Rice over how much Americans should be able to learn about corruption in Iraq.
In a sharply worded letter, Waxman demanded Rice turn over a long list of documents related to the contractor, Andrew Moonen.
"Serious questions now exist about whether the State Department may have withheld from the U.S. Defense Department facts about this Blackwater contractor's shooting of the Iraqi guard that should have prevented his hiring to work on another contract in support of the Iraq War," wrote Waxman, chairman of the House Committee on Oversight and Government Reform.
Moonen is accused of fatally shooting an Iraqi guard and fleeing the scene, according to a Congressional memo describing the investigation report. He was fined, fired and flown home from Iraq, and the company later paid $20,000 in compensation to the victim's family.
Moonen returned to the United States within a few days of the incident, his attorney said, but in February he returned to Kuwait working for Combat Support Associates (CSA), a company spokesman said.
CNN reported Thursday night that CSA said it was unaware of the December incident when it hired Moonen, because the State Department and Blackwater kept the incident quiet and out of Moonen's personnel records.
Waxman wrote it is "hard to reconcile this development" with previous assertions State Department officials have made in recent days.
Waxman earlier accused Rice and the State Department of a cover-up of what he called "an epidemic of corruption" in Iraq in general.
He branded the State Department's anti-corruption efforts "dysfunctional, under-funded and a low priority."
Waxman further blasted the department for trying to keep secret details of corruption in Iraq, especially relating to Iraqi Prime Minister Nuri al-Maliki.
"Corruption is increasing in Iraq, and the State Department can't keep us from knowing that -- can't censor that -- just because it might embarrass or hurt our relationship with [al-]Maliki," Waxman said at the House committee hearing. Watch Waxman ask why negative comments must be said behind closed doors »
Deputy Secretary of State Larry Butler repeatedly refused to answer questions from Waxman about Iraqi corruption but offered full disclosure if his testimony would be kept secret.
Asked if he believes the Iraqi government has the political will or the capability to root out corruption, Butler responded, "Mr. Chairman, questions which go to the broad nature of our bilateral relationship with Iraq are best answered in a classified setting."
But he was more forthcoming when talking about efforts that al-Maliki has taken to improve matters, commending the prime minister for dispatching Iraqi forces to surround a refinery to ensure oil did not end up on the black market.
But Waxman appeared unmoved.
"Why can you talk about the positive things and not the negative things?" he asked. "Shouldn't we have the whole picture?"
"I'd be very pleased to answer those questions in an appropriate setting," Butler replied.
Waxman laughed and asked, "An appropriate setting for positive things is a congressional hearing, but for negative things, it must be behind closed doors?"
"As you know, this goes to the very heart of diplomatic relations and national security," Butler said.
"It goes to the very heart of propaganda," Waxman said, putting funding for anti-corruption activities through June 15, 2006, at $65 million, "or less than 0.003 percent of the total" spent by the Iraqi Relief and Reconstruction Fund.
The State Department said details of anti-corruption efforts must be secret to protect investigators and Iraqi allies.
In a letter to Rice last week, Waxman called the department's position "ludicrous."
Fellow Democratic Rep. John Yarmuth of Kentucky agreed. "It's pretty clear that the administration just wants to muzzle any comments that reflect negatively on the [al-]Maliki government," he said.
Earlier, the former head of the Iraqi Commission on Public Integrity, Judge Radhi Hamza al-Radhi, told the hearing that al-Maliki had protected family members from corruption investigations, citing Salam al-Maliki, Iraq's former transportation minister and the prime minister's cousin.
Al-Radhi resigned last month and fled Iraq after he and his family were attacked and 31 of his anti-corruption employees were killed. He said corruption has affected "virtually every agency and ministry, including some of the most powerful officials in Iraq."
"Corruption has stopped possible advances by the government on the political level, on economic reconstruction, on basic services, amenities and infrastructure and on the rule of law," he told the committee, estimating the total lost to corruption at $18 billion.
In Baghdad, Iraqi government spokesman Ali al-Dabbagh acknowledged his country is plagued with a "high level" of corruption, but he said officials are trying to rein in the problem.
U.S. Comptroller General David Walker, head of the Government Accountability Office, said there appeared to be no U.S. plan for countering the corruption. He urged Congress to consider conditioning future appropriations on such a plan "so we can achieve some results rather than have just more efforts."
Waxman questioned whether Iraq's government was "too corrupt to succeed." If so, he added, "We need to ask if we could, in good conscience, continue to ... prop up his regime." E-mail to a friend
CNN's Bob Constantini contributed to this report.