The Blackwater story continues to be splashed across the world’s front pages, but now the story has taken a very interesting twist…and it’s not a good one for the NC-based PMC.

A while ago I remarked that getting Blackwater OFF the front pages of the world press was paramount to the Bush noise machine, because further scrutiny into Blackwater and the tens of thousands of PMC troops America employs would only spell bad, bad news for the Bushies.

Indeed, four days after getting the boot, the firm resumed work in Baghdad.

The security firm Blackwater USA today resumed limited escorts of American personnel in the Iraqi capital after an incident in which eight civilians died, the US embassy in Iraq said.

As Blackwater guards returned to the streets of Baghdad after a three-day suspension, the Iraqi interior ministry said it planned to end immunity from prosecution for security contractors.

The interior ministry spokesman Major General Abdul-Kareem Khalaf said the ministry had drafted legislation giving it tighter control over contractors and calling for “severe punishment for those who fail to adhere to the … guidelines”.

Iraq has said it will review the status of all security firms after what it called a flagrant assault by Blackwater contractors in which at least eight people were killed while the firm was escorting a US embassy convoy through Baghdad on Sunday.

The US and Iraq are planning a joint inquiry amid conflicting accounts of what happened. Blackwater said its staff acted “lawfully and appropriately” after coming under attack. But the Iraqi government insisted Blackwater had opened fire on innocent civilians.

It looks like the US has been able to strongarm the Iraqis into letting Blackwater stay…for now.  The Iraqis still want Blackwater to face justice, and they plan to end PMC immunity in the country, but of course now it’s a “joint Iraqi-US investigation” meaning the Iraqis will be told what to do like good little Quislings once again.  After all, power in any “democracy” comes from the barrel of a gun, and both Blackwater and the US have plenty of those.

But here’s where our story gets very odd.  I mentioned back in part one that I didn’t see any way out for the Bushies unless they threw Blackwater to the wolves.  At the same time, they weren’t going to let the Iraqis prosecute the company.  That leaves of course the option of the US prosecuting the firm…but that wouldn’t happen.

Or would it?

Federal prosecutors are investigating allegations that employees of Blackwater — the security firm accused of shooting dead up to 20 Iraqi civilians — illegally smuggled weapons into Iraq, according to U.S. government sources.

Security operations by North Carolina-based Blackwater USA, which is hired by the U.S. State Department to guard U.S. staff in Iraq, were suspended this week amid concerns by Iraqi and U.S. government officials over the shootings in Baghdad last weekend. Normal operations resumed Friday, the State Department said.

One U.S. government official said the U.S. attorney’s office in Raleigh, North Carolina, is in the early stages of an investigation that so far focuses on individual Blackwater employees and not the company.

Another senior U.S. government official said the State Department had been cooperating with the prosecutors in the probe.

The first public hint that an investigation was under way came earlier this week in a statement from State Department Inspector General Howard Krongard in response to allegations that he blocked fraud investigations in Afghanistan and Iraq.

 “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.

Neither the U.S. attorney nor Blackwater officials had been reached for comment by Friday evening.

The flow of illegal weapons in Iraq has been a major concern in recent months.

Now hold the phone here.  If Blackwater really was doing this, they were doing it with the tacit blessing of the US.  Arming the Iraqis as bribes has been part of our “surge” strategy for months now.  The US military recently “misplaced” hundreds of thousands of weapons and of course nobody bats an eye, but if Blackwater does it…and let’s keep in mind PMCs are there to do the dirty work our men and women in uniform can’t get caught doing…it’s news.

The question is why is this news?  Is it an effort by the US to perform a “controlled burn” on Blackwater, by involving it in an investigation it can measure the pace of, one that doesn’t involve killing civilians all over the front page and doesn’t involve the Iraqi government?  If so, it’s looking like this is going to be another example of the Abu Ghraib Defense:  it was a few bad apples all along.  Blackwater chiefs and most importantly the US government walk away from this.

Or is this an effort to “pile on” the already damaged company by those who are opposed to the next phase of Bush’s war?  After all, the media attention on PMCs in Iraq has now shifted to the next phase:  “What ELSE are these companies up to?”  People are asking questions, and those are questions the Bush Administration can’t afford right now.  When people start asking questions, the answers bring up bigger questions.  Either way, the Blackwater story just grew a whole new set of legs.

McClatchy has more.

Two former Blackwater employees have pleaded guilty in Greenville, N.C., to weapons charges and are cooperating with federal officials who are investigating Blackwater, which is based in the tiny town of Moyock in the northeastern corner of North Carolina.

Two sources familiar with the investigation said that prosecutors are looking at whether Blackwater lacked permits for dozens of automatic weapons used at its training grounds in Moyock. The investigation is also looking into whether Blackwater was shipping weapons, night-vision scopes, armor, gun kits and other military goods to Iraq without the required permits.

A former Blackwater employee, who spoke on condition of anonymity, said the investigation includes a look at whether Blackwater shipped weapons from its Moyock headquarters to Iraq hidden in pallets wrapped tightly in shrink wrap.

Meanwhile, evidence in the original incident involving the deaths of 20 civilians continues to grow, enough so that the Iraqi government is preparing a possible case.

Iraq’s Interior Ministry has completed its investigation of last weekend’s shooting incident involving Blackwater USA security guards and has referred the case to a magistrate to determine whether criminal charges should be filed, a spokesman said Friday.

Abdel Karim Khalaf, the ministry spokesman, said the evidence collected in the case, in which 11 people died and 12 were wounded, includes videotape from nearby cameras. That tape indicates that the Blackwater guards fired first and weren’t responding to an attack, as Blackwater has claimed, Khalaf said.

It’s unclear what would happen if the magistrate decided to press charges in an Iraqi criminal court. Khalaf said the Interior Ministry would push to have the Blackwater guards face charges in Iraq, but current law exempts foreign security companies and their employees from Iraqi jurisdiction.

The Interior Ministry report also may be trumped by a U.S.-Iraqi commission charged with investigating the case. That commission is headed jointly by Iraq’s defense minister, Abdel Qadr al Obaidi, a Sunni Muslim, and Patricia Butenis, the No. 2 diplomat at the U.S. Embassy.

Granted, the Blackwater probe turned into a Friday Night News Dump(tm).  But that doesn’t mean the news has gone away.  This story isn’t over by a long shot.

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