The New York Times says three South Korean military officers have been convicted of leading an extortion and bribery scheme in a reconstruction program in northern Iraq.

The report said Tuesday that the case has generated tensions in the South Korea-U.S. alliance.

According to the report, the Korean Defense Ministry insists that the convicted officers did not steal American money because the shakedowns happened after the contracts were awarded.

But a senior U.S. official say that the scheme involved kickbacks and bribes with the contract money, adding the recent incident was a clear case of extortion between the Kurds and the Koreans.

The three Koreans officials of the Zaytun Unit were convicted in a military court in Seoul last month. The daily said the convictions are the first sign that the 50 billion dollar American-financed reconstruction program was effectively being robbed by American allies in the war.

The paper quoted a senior American official as saying that the inquiry was widening to include the possible involvement of Kurdish-American translators and Kurdish government officials.