Blackwater USA denied any involvement in illegal weapons smuggling through Iraq to Kurdistan Workers' Party (PKK) terrorists in Turkey, responding to reports the private security contractor is a target of federal prosecutors.

  Officials with knowledge of the case told The Associated Press on Friday that the U.S. Attorney's Office in Raleigh, North Carolina, is handling the investigation with help from Pentagon and State Department auditors. While the officials said the case was in the early stage, they added the auditors have concluded there is enough evidence to file charges.

  George Holding, the U.S. attorney for the eastern district of North Carolina, has declined to comment, as have Pentagon and State Department spokesmen.

  Officials in Washington said the smuggling investigation grew from internal Pentagon and State Department inquiries into U.S. weapons that had gone missing in Iraq. Turkish authorities protested to the U.S. in July that they had seized American arms from the outlawed Kurdistan Workers' Party, or PKK, militants.

  The PKK is fighting for an independent Kurdistan and is banned in Turkey, which is considered a "foreign terrorist organization" by the State Department. That designation bars U.S. citizens or those in U.S. jurisdictions from supporting the group in any way.

  The officials spoke on condition of anonymity due to the sensitivity of the matter, which has heightened since 11 Iraqis were killed Sept. 16 in a shooting involving Blackwater contractors protecting a U.S. diplomatic convoy in Baghdad.

  Iraq's Interior Ministry said Saturday it had expanded its investigation into similar incidents involving Blackwater. Maj. Gen. Abdul-Karim Khalaf said the company has been implicated in six other incidents over the past seven months, including a Feb. 7 shooting outside Iraqi state television in Baghdad in which three building guards were fatally shot.

  Also Saturday, The News & Observer of Raleigh, citing unidentified sources, reported that federal investigators were looking at whether Blackwater had shipped automatic weapons and military goods to Iraq without a license.

  The paper said two former Blackwater employees - Kenneth Wayne Cashwell of Virginia Beach, Virginia, and William Ellsworth "Max" Grumiaux of Clemmons, North Carolina - are cooperating with federal investigators. According to court records, the men pleaded guilty in early 2007 to possession of stolen firearms that had been shipped in interstate or foreign commerce, and aided and abetted another in doing so.

  Blackwater said Saturday the company immediately fired the men after learning they were stealing from the company and invited the federal Bureau of Alcohol, Tobacco and Firearms to investigate. The company pointed to news coverage from 2005, in which a spokesman for the ATF's Charlotte office confirmed the company came forward to authorities and asked for help.

  The existence of a federal probe into Blackwater came this week, after State Department Inspector General Howard Krongard mentioned it while denying he had improperly blocked fraud and corruption probes in Iraq and Afghanistan.

  In a letter to Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee, Krongard denied that he had refused to cooperate with an investigation into alleged weapons smuggling by a large, unidentified State Department contractor.

  Krongard said in a statement that he "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."

  Blackwater is based in Moyock, North Carolina, and is the biggest of the State Department's three private security contractors. The others, Dyncorp and Triple Canopy, are based in Washington's northern Virginias suburbs, outside the jurisdiction of the federal prosecutors in North Carolina.

  Waxman has invited former Navy Seal Erik Prince, Blackwater's founder and chief executive, to testify at a hearing of his committee in October.