The New York Times says quoting former top executives at Blackwater Worldwide that the US security contractor sent about $1 million to its Iraq office.
The intention was to pay off officials in the country who were angry about the fatal shootings of 17 civilians by Blackwater employees in September 2007, the newspaper said in its web edition on Tuesday.
Four former executives of the North Carolina-based company, now known as Xe Corp, described the plan under the condition of anonymity, the newspaper said.
The former executives told the Times that the payments were approved by Gary Jackson, the company's then president. They did not know if he came up with the idea.
It is also not clear whether the payments were actually delivered, or which Iraqi officials were intended to receive them.
Mark Corallo, an Xe spokesman, said the company disputes "these baseless allegations" and had no comment on former employees.
Xe and the US attorney's office did not immediately return calls seeking comment by The Associated Press news agency.
Any payments would have been illegal under the US Foreign Corrupt Practices Act, which bans bribes to foreign officials.
The company has paid legitimate compensation to several victims of the shootings, the New York Times reported.
Two of the former executives said they were directly involved in discussions about paying Iraqi officials, and the other two said they were told about the discussions by others at Blackwater.
|Blackwater had been banned from operating from Iraq in January
Jackson, who resigned as president of Blackwater early this year, criticised the newspaper when reached by phone and said: "I don't care what you write."
Iraqis had long complained about ground operations by Blackwater.
Then the shooting by Blackwater guards in Baghdad's Nisoor Square left 17 civilians dead, further strained relations between Baghdad and Washington and led US prosecutors to bring charges against the Blackwater contractors involved.
The state department has since turned to DynCorp and another private security firm, Triple Canopy, to handle diplomatic protective services in Iraq.
But Xe continues to provide security for diplomats in other nations, most notably in Afghanistan.
The plan to pay Iraqi officials caused a rift within the company, the former executives said.
Five Blackwater guards involved in the Nisoor Square shooting are scheduled to face trial on federal manslaughter charges in February in Washington.
A sixth guard pleaded guilty in December.
Blackwater's founder, Erik Prince, is being sued in a US civil court by the families of the shooting victims for alleged war crimes and extrajudicial killings.
However Prince's lawyers argue that he and the company are legally immune under laws that bar suits against government employees for any actions committed on behalf of the government.
The Iraqi government suspended the firm's licence after the shooting and demanded that Blackwater be expelled from the country within six months.