The knife is a unused weapon in-game but can be visible by the use of console commands.
It's possible this weapon got changed with the monkey wrench, who can damage (close attack) and be use as a key (open the entrance to the sewels).
Knife's visible in recluits, characters who are close with the protagonist and the last named clothes.
Hidden one hit/critic damage Edit
While you're carring the knife go close a enemy and clic/still on him. It will damage instantly. Heavy enemies too. (3+ clicks/+3+ seconds still).