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I didn't know that contractors could work on high security projects like the embassy for the US in Baghdad without being affiliated with the US government somehow.
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Yes, they can and they do. It's common for embassies to be built by local labor.
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Dude, the fact that this contractor has people working AT the embassy in Baghdad proves there is an affiliation. How much more proof do you need?
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What is your suggestion? You want us to invade Kuwait now an oust their government just to create some labor laws that you approve of? It's a Kuwaiti company - if you have a problem take it up with Kuwait.