The investigation in Raleigh, North Carolina, follows a November report by The New York Times that said executives at the North Carolina-based company authorized about $1 million in payments to Iraqi officials in 2007. Blackwater had been the source of tremendous anti-American sentiment in Iraq after the shooting deaths of 17 Iraqis in a crowded intersection.
A person close to the investigation, speaking on condition of anonymity because he was not authorized to discuss the case, said the Justice Department's Fraud Section is working with federal prosecutors in North Carolina to investigate whether Blackwater, now known as Xe Services, violated U.S. laws prohibiting bribery of foreign officials.
The Times first reported existence of the investigation Monday.
Justice Department spokeswoman Laura Sweeney declined to comment. There was no immediate comment from the company.
In November, the newspaper cited unidentified sources who said Blackwater's then-president, Gary Jackson, approved the payments. The Times' sources said Blackwater vice chairman Cofer Black, a former top CIA and State Department official, learned of the plan while in Baghdad discussing compensation with U.S. Embassy officials and confronted company CEO Erik Prince.
Black himself has denied the account. He told The Associated Press that Blackwater was directed "to provide some financial compensation to relatives of those Iraqi victims." He said he never confronted Prince or anyone else at Blackwater and was unaware of any plot to bribe Iraqi officials.
Similarly, Iraqi lawyer Jaafar al-Mousawi told the Times that he worked with top Blackwater officials to spend up to $1 million to compensate the families of victims. He said that he was unaware of any bribery efforts and believed that news reports misinterpreted the victim compensation as bribes.
The Times said Monday that present and former officials agreed to talk to the paper only on grounds their identities not be publicly divulged. The activities of the company then known as Blackwater have remained under scrutiny in the years since the shootings in Baghdad's Nisour Square.
Last week, Vice President Joe Biden, during a visit to Iraq, announced that the Obama administration will appeal a federal court decision in the United States that dismissed manslaughter charges against five guards who worked for Blackwater Worldwide.
His announcement came after a meeting in Baghdad with President Jalal Talabani.
The U.S. government initially turned aside Iraqi demands that the American contract employees face trial in the Iraqi court system. But after a lengthy investigation in this country, U.S. prosecutors did decide to charge five of the contractors with manslaughter, and they accepted a guilty plea from a sixth defendant.
But the case collapsed on Dec. 31 when U.S. District Judge Ricardo Urbina in Washington dismissed the case, ruling that the Justice Department had mishandled evidence and violated the guards' constitutional rights.
By Associated Press Writer Matt Apuzzo