"Allegations that Blackwater was in any way associated or complicit in unlawful arms activities are baseless. The company has no knowledge of any employee improperly exporting weapons," the company said.

Two former Blackwater employees have pleaded guilty to weapons charges and are co-operating with the investigation, The News & Observer of Raleigh, North Carolina reported.

Blackwater said it immediately fired the two employees when it was uncovered internally that they were stealing from the company and invited authorities to conduct an investigation.

'Criminal' incident
 
Nuri al-Maliki, the Iraq prime minister, has said the US embassy should stop using Blackwater after a shooting incident last Sunday in which 10 Iraqi civilians and a police officer were killed while the firm was escorting an American embassy convoy through Baghdad.
 
Iraqi officials called the incident "criminal" and initially ordered Blackwater's expulsion from the country.
 
Its activities were temporarily suspended and the US ordered a "full and complete review" of the private security firms.

The US embassy in Iraq resumed convoys under the protection of Blackwater contractors on Friday.
 
The Washington Post newspaper reported on Saturday that the Iraqi government's investigation into last Sunday's shootings has expanded to include allegations about Blackwater's involvement in six other violent incidents this year that left at least 10 Iraqis dead.
 
The newspaper quoted a spokesman for the Iraqi interior ministry as saying that the additional alleged incidents included the killing of three guards at a state-run media complex and the death of an Iraqi journalist outside the ministry of foreign affairs.
 
The initial shootings exposed Blackwater to criticism, but the company, as a contractor with the US state department, is exempt from prosecution under Iraqi law.
 
Diplomatic security

Condoleezza Rice, US secretary of state, said that she had directed the state department to examine "how we are providing security to our diplomats".
 
But al-Maliki's government is moving to pass new legislation that will mean private security firms must be accountable to the Iraqi government.
 
Blackwater, based in Moyock, North Carolina, employs around 1,000 contractors to protect the US mission in Iraq and its diplomats from attack.
 
The US attorney's office in North Carolina, where Blackwater is based, is handling the investigation alongside auditors from the defence and state departments.
 
The North Carolina investigation was first brought to light by General Howard Krongard, a state department inspector, who mentioned it this week in a letter denying he had improperly blocked fraud and corruption probes in Iraq and Afghanistan.

"You impeded efforts by your investigators to co-operate with a justice department probe into allegations that a large private security contractor was smuggling weapons into Iraq," Waxman wrote in a letter dated September 18.
   
Waxman's letter did not name Blackwater.

The US justice department has declined comment on the investigation.