Blackwater (temporarily known as Xe, now known as Academi) is a private security firm that won huge no-bid contracts from the Bush administration to work essentially as mercenaries in Iraq (at much higher pay than the United States Armed Forces), and as a private police force in post-Katrina New Orleans. Erik Prince, a wealthy supporter of fundamental conservative causes like Focus on the Family, is a co-owner of Blackwater, a fact that had absolutely no bearing on the company's success at "winning" lucrative contracts during the tenure of George W. Bush, who by sheer coincidence also professed to be a Christian in addition to being Decider for the free world. Their corporate logo looks like something rejected by a high school football team.
Murder and mayhem
The Iraqi government criticized Blackwater for a September 2007 incident in which Blackwater forces killed 17 civilians. Blackwater claims that their forces were fired upon; the Iraqi government denies this. Four people were convicted.
The whole incident led to an increase in attention to the use of "private security firms" for essential military functions in Iraq and other trouble spots. While the term "mercenary" is not used by the government, many people have argued that these firms act as soldiers for hire. In 2007, there were more "private contractors" in Iraq than regular troops (roughly 180,000 vs. 170,000). Moreover, some of these contractors have begun conducting intelligence work for the US as well. (Most of these private security operatives are Iraqi citizens.)
One defense that has been put forward for Blackwater is that it is often more efficient than US regular forces. For instance, during the emergency after Hurricane Katrina, Blackwater was on the ground before the National Guard or FEMA. At the same time, there have been allegations that Blackwater used excessive force in policing the area, even shooting unarmed civilians.
This use of mercenaries has several implications for the strength of the United States. No major power has had to rely on mercenaries in quite this fashion in roughly 200 years. Moreover, these mercenaries are not subject to the same US laws as the regular forces, which has led many to question how much control the US has over them. Some of the mercenary companies are even foreign-owned and -run (though Blackwater is itself a North Carolina company), which means that the US is relying on foreigners to bolster its ability to conduct foreign relations. To many, the US has granted some bit of its sovereignty away to foreign citizens. (However, you do not hear the same kind of protests from conservatives that you often hear about the United Nations.)
The true "coalition of the billing"
Also troubling from the perspective of other nations, many of the "private contractors" have come from nations that refused to participate in the "Coalition of the Willing." For instance, while the Chilean government specifically refused to send troops to help the US in the invasion, there are a large number of Chileans working for these "private contractors." This works to undermine the neutrality of sovereign states, as they can be accused of secretly abetting an aggressor, if their people join in the fighting.
Blackwater pulls out
As of 22 July 2008, Blackwater was planning to get out of the mercenary business. What they'll do with all that military style infrastructure back home is anyone's guess.
And is kicked out
"Iraq will not renew the licence of US security firm Blackwater..." 29 January, 2009. 
Well, not quite
"Federal prosecutors are considering filing weapons charges against former top officials of the Blackwater Worldwide private security company over allegations they illegally stockpiled automatic rifles at the company's North Carolina headquarters, ..."
Murder most foul
On August 3, 2009, a former Blackwater employee and an ex-Marine testified under oath that Erik Prince views himself as a latter-day Crusader on an unrealistic mission to eliminate Islam from the world. They also testified that, Sixth Commandment notwithstanding, Prince has had some annoying whistleblowers assassinated.
- Interesting book review (London Review of Books)
- As stated on NPR on 9/19/2007, if anyone has better documentation please add it
- Blackwater leaving security business
- BBC report
- Despite US gov't denials
- "Federal law prohibits private parties from buying fully automatic weapons registered after 1986, but does let law enforcement agencies have them." Associated Press