The company, which has protected U.S. officials in Iraq and Afghanistan and is now known as Xe Services, had been accused of unauthorized weapons exports and "defense services" deals for end users in a number of countries.
The State Department said that with the deal, which was first reported by the New York Times, the company will no longer been deemed ineligible for future contracts with the U.S. government.
"The Department is satisfied that the company has taken the necessary steps to address the causes" of its export control violations, the State Department said in a statement, adding that $12 million of the penalty would be suspended to help make up for some of the company's compliance measures.
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"The Department has determined that the policy of denial is no longer necessary."
The privately held company, based in North Carolina, is up for sale.
The Times said that the violations included illegal weapons exports to Afghanistan, making unauthorized proposals to train troops in southern Sudan and providing sniper training for police in Taiwan.
The settlement does not resolve other legal troubles still facing the company and its former executives and other personnel, include the indictments of five former executives on weapons and obstruction charges, a federal probe into whether company officials tried to bribe Iraqi officials, and the arrest of two former Blackwater guards on federal murder charges in the killing of two Afghans.
A U.S. court has dismissed charges against Blackwater guards accused of killing 14 Iraqi civilians in Baghdad in 2007. A federal investigation into Blackwater's weapons shipments to Iraq brought guilty pleas from two former Blackwater employees.
The Times noted that the company lost its largest federal contract last year, providing diplomatic security for U.S. Embassy personnel in Baghdad, but it still has existing contracts to provide security for the State Department and CIA in Afghanistan.
(Reporting by Andrew Quinn; Editing by Cynthia Osterman)
