IMPEACH BUSH

WASHINGTON (Reuters) - Federal prosecutors are looking into whether private U.S. security contractor Blackwater USA has shipped unlicensed automatic weapons and military goods into Iraq, a newspaper reported on Saturday.

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

Federal prosecutors in North Carolina are handling the case, the News & Observer reported.

Blackwater, based in Moyock, North Carolina, employs around 1,000 contractors to protect the U.S. mission in Iraq and its diplomats from attack.

The newspaper quoted two unnamed sources as saying prosecutors are probing whether Blackwater was shipping weapons, night-vision scopes, armor, gun kits and other military goods to Iraq without the required permits.

The News & Observer also reported that prosecutors are probing whether Blackwater lacked permits for dozens of automatic weapons used at its training grounds in Moyock.

Iraqi Prime Minister Nuri al-Maliki has suggested the U.S. Embassy stop using Blackwater after what Iraq called a flagrant assault by the firm's contractors in which 11 people were killed on Sunday while the firm was escorting an embassy convoy through Baghdad. The probe by federal prosecutors began well before that incident.

The Washington Post reported in Saturday's edition that the Iraqi government's investigation into 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 in an interview that those additional incidents included the killing of three guards at state-run media complex and the shooting death of an Iraqi journalist outside the Ministry of Foreign Affairs.

Earlier on Friday, the State Department said it would thoroughly examine the use of private security contractors to protect American diplomats in Iraq after last weekend's deadly shooting involving Blackwater.

Secretary of State Condoleezza Rice said she had ordered a "full and complete review of how we are conducting our security details" but said dangerous diplomatic missions in Iraq had to go on because they were critical to U.S. goals in the country.

The issue of alleged weapons smuggling by a U.S. contractor in Iraq surfaced earlier in the week in a letter from an influential congressional committee chairman, Democratic Rep. Henry Waxman of California, to Howard Krongard, the inspector general for the State Department.

Waxman accused Krongard of interfering with investigations into waste, fraud and abuse in Iraq as well as Afghanistan.

"You impeded efforts by your investigators to cooperate with a Justice Department probe into allegations that a large private security contractor was smuggling weapons into Iraq," Waxman told Krongard in a letter dated September 18.

Waxman's letter did not specifically name Blackwater.

The News & Observer reported that prosecutors obtained guilty pleas from two former Blackwater employees, Kenneth Wayne Cashwell and William Ellsworth "Max" Grumiaux. It said the two pleaded guilty to possessing stolen firearms shipped in interstate or foreign commerce, but that their sentencing has been delayed because of the help they are providing in the ongoing investigation.

U.S. Justice Department officials were not immediately available to comment.