WASHINGTON ( CNN ) -- Allegations that Blackwater USA -- whose operations were suspended after 20 Iraqi civilians were shot to death last weekend -- was `` in any way associated or complicit in unlawful arms activities are baseless , '' the company asserted Saturday . Blackwater employees patrol Baghdad by air in a February 2005 photograph . Federal prosecutors are investigating allegations that employees of Blackwater illegally purchased weapons and sold them in Iraq , according to U.S. government sources . A U.S. government official has said the U.S. attorney 's office in Raleigh , North Carolina , is in the early stages of an investigation that focuses on individual company employees , and not the firm . Blackwater , which is based in Moyock , North Carolina , is a security firm hired by the State Department to guard U.S. staff in Iraq . `` The company has no knowledge of any employee improperly exporting weapons , '' the Blackwater statement said . `` When it was uncovered internally that two employees were stealing from the company , Blackwater immediately fired them and invited the ATF to conduct a thorough investigation . '' Watch a report on Blackwater 's response to the allegations » . The first public hint that an investigation was under way came earlier this week in a statement from State Department Inspector General Howard Krongard after he was accused of blocking fraud investigations in Afghanistan and Iraq . Krongard said the State Department has been cooperating with the prosecutors in the Blackwater probe . `` In particular , I made one of my best investigators available to help assistant U.S. attorneys in North Carolina in their investigation into alleged smuggling of weapons into Iraq by a contractor , '' Krongard 's statement said . Blackwater resumed normal security operations in Iraq on Friday , the State Department said , after a brief hiatus following the lethal incident last Sunday . The Iraqi government was outraged by the shootings and disputes the U.S. and Blackwater 's claim that the guards were responding to an attack . E-mail to a friend . CNN 's Elise Labott and Kelli Arena contributed to this report .
Two employees bought , sold weapons on their own , company says . Company fired workers , turned them in to ATF , says source . Source : Blackwater in spotlight after shootings last weekend that killed 20 Iraqis .