United States Defence Secretary Robert Gates is to review allegations of misconduct in Afghanistan by the security company formerly known as Blackwater.
The review comes after a leading Democrat said the Pentagon should consider barring it from applying for a contract to train Afghan police.
The Pentagon said it could not bar the company from applying for the billion-dollar police training contract.
The company, now called Xe, said it welcomed the review. Xe says it has an excellent record of training security personnel in Afghanistan.
However, in a letter to Mr Gates at the end of February, the chairman of the Senate Armed Services Committee, Carl Levin, cited allegations of misconduct against the firm made before the committee.
He said there was evidence of misconduct in a previous subcontract awarded to a Blackwater affiliate to conduct weapons training for the Afghan National Army.
Pentagon spokesperson Geoff Morrell said of Mr Gates' response: "He is looking into it and he takes it seriously. He shares [Mr Levin's] concerns."
But he said it was not possible to bar the company without following strict regulations.
The Blackwater company began its work protecting US government personnel in Iraq following the invasion in 2003.
Anti-American sentiment in Iraq was stoked in December after a US judge threw out manslaughter charges against five Blackwater guards over the 2007 killing of 17 Iraqis in Baghdad.
The activities of foreign security firms in Iraq have been curbed since then.