The grand jury investigation in North Carolina began after two Blackwater employees were arrested on charges of selling stolen guns. The pair pleaded guilty and agreed to cooperate with federal prosecutors.
Blackwater, which has contracts to protect U.S. State Department employees in Iraq, became notorious in 2004 when four of its employees were ambushed and killed in Fallujah. A grand jury in Washington is investigating a 2007 shootout in Baghdad that killed 17 Iraqi civilians.
Anne Tyrell, a Blackwater spokeswoman, said that the company has used dog food sacks to ship weapons to Iraq. But she said that was done to protect them in transit, not to hide them.
Two former employees told ABC that the company sent small items, including silencers, inside bags of food for bomb-sniffing dogs. Larger items like M-4 assault rifles, they said, were placed on pallets, hidden by dog food, with the entire pallet covered in shrink wrap.
State department regulations ban Blackwater from using assault weapons or silencers in Iraq.