Arms and the Dudes: How Three Stoners From Miami Beach Became the Most Unlikely Gunrunners in History

by Guy Lawson

  Bracing for the coming Times article, in March of 2008 the US military claimed it had conducted a full-scale investigation of AEY’s shipments to Afghanistan. The Army’s own investigation—as opposed to the DCIS investigation of Michael Mentavlos—discovered no complaints about the quality of AEY’s rounds, either officially or informally. But the Army wanted to be able to prove it had done its due diligence and issued forty-four shipping-deficiency reports on AEY. All of the reports were written at the same time, in March, months after the ammunition had been accepted and issued by the Army. None of the supposed deficiencies related to the quality of the rounds AEY had supplied. The reports were entirely revisionist: “Cardboard boxes are falling apart and cannot survive transportation,” the newly minted documents all said. “Reports from the field state that amounts do not reflect what was supposed to be in each box. Therefore it is impossible to know the actual amounts received without counting millions of rounds in each shipment.”

  The Army then announced that it was reforming its wartime-purchasing process to combat fraud. In mid-March, an Associated Press article appeared, potentially stealing some of the thunder from C. J. Chivers’s pending scoop. “The Army is ordering a major overhaul of the way it buys supplies for troops in combat zones,” the AP piece said.

  As a final piece of reporting, Chivers asked the Army to fully explain the vetting process used in awarding the contract to AEY. The reply said that contracting officers had checked the Army’s “excluded parties list” and found that AEY’s name didn’t appear there. Days before his article was to appear, Chivers wrote to the Army to say he was particularly interested in Henri Thomet, as he’d been told that Thomet’s name didn’t appear on lists of brokers barred from doing business with the Pentagon.

  “Are there any other processes to make sure that entities suspected of arms smuggling do not become brokers or subcontractors in American government business?” Chivers asked. “What assurances does the Department of Defense have that its contracts are not bringing business to international arms smugglers?”

  Chivers had reached the heart of the matter. The answer was simple: the Pentagon did nothing to vet subcontractors. But that wasn’t what the Army said.

  “After looking at your query, we’ve determined that your questions need to be answered by the Department of Defense and the State Department” was the reply to Chivers’s e-mail.

  The internal response from the Army instructed the officials responsible for replying to Chivers’s questions to end the paper trail: “Stop any work you were doing on them.”

  A high-level meeting was convened to discuss what would happen if AEY’s entire contract was canceled before the Times story ran—not just the Albanian “Chinese” AK-47 rounds but all of the other kinds of ammunition that was being legitimately delivered. Was there enough evidence to terminate the whole contract for default? Had AEY been given the opportunity to correct problems? How long would it take to get another contractor up and running to meet the most urgent demands?

  On March 18, AEY was notified that a portion of small-caliber ammo the company had shipped to Afghanistan had been found to be “unacceptable.” “The ammunition is not in serviceable condition,” the letter said. “Ammunition is corroded, rusted, and coated with oily material. This ammunition is not useable and poses a danger to those who have to work around it.”

  A photograph was attached. The rounds weren’t the “Chinese” ammo shipped from Albania but the Bulgarian ammo Diveroli had recently purchased sight unseen in an attempt to get rounds to Kabul, and it was indeed in bad condition. The Army demanded AEY take immediate corrective action.

  Diveroli panicked. The ammo was very evidently substandard—or “shit,” according to AEY’s internal communications. A plan was hatched to get the Bulgarians to send people to Kabul on the next flight to inspect every box, to determine what was good and what needed to be destroyed. AEY’s memorandum ended, “This is an ABSOLUTE EMERGENCY.”

  But time was up. Three days later, AEY received another letter from the Army, declaring that the company had been suspended from any further contracting with the federal government. The seven-page letter had sixteen attachments, detailing how Diveroli had signed false Certificates of Conformance regarding the “Chinese” AK-47 ammo coming from Albania. The certificates required Diveroli to state “Manufacturer (point of origin)” for each shipment. Diveroli had entered MEICO’s address in Albania on dozens of certificates. The disclosure was arguably true, in an artful way, but designed to deceive the Army.

  On March 27, 2008, the day before the Times story was to appear, the Pentagon issued a press release saying it had suspended AEY: the company had lost its Afghan contract because it had supplied “Chinese” ammo and failed to follow “best commercial practices” in packaging the ammunition. No issues were related to the quality of the ammunition, the release said. Nor would the cancellation of the contract deny the Afghans sufficient ammo. “There’s no shortage of ammunition already in Afghanistan,” the Army’s spokesperson said, despite the fact that this statement was patently untrue, according to the repeated pleas of Army officers in Afghanistan. “This will have no impact.”

  Chapter Thirteen

  THE FRAME

  “Supplier Under Scrutiny on Arms for Afghans,” read the headline on the front page of the New York Times on March 28, 2008. A large photograph of a jumble of small-caliber ammunition showed rusty, discolored, substandard rounds. The caption said that AEY had supplied the ammunition, which was true, but the image was misleading. The substance of the story was about the millions of rounds of ancient “Chinese” Albanian ammo AEY had sold to the Army. But the photograph wasn’t of the rounds from Albania—it was from the small amount of Bulgarian ammo AEY had shipped to Afghanistan, ammo the Army had rejected. The Bulgarian rounds amounted to thirty thousand of the tens of millions of rounds AEY transported to Kabul, less than .0001% of the total. But that didn’t matter: the strong inference was that the faulty Bulgarian ammo was a representative example of the quality of rounds AEY had sold to the Army.

  Looking at the Times article, David Packouz’s heart sank. Accompanying the story were photographs of him and Efraim Diveroli. They weren’t ordinary pictures, though: the newspaper had published mug shots of the duo, taken more than a year earlier on the night they got into a fight with the valet at the Flamingo. The Times rarely published mug shots, generally reserving such prejudicial images for stories about convicted criminals or fugitives. Packouz and Diveroli had been convicted of nothing; they hadn’t even been indicted. But the pair stared balefully through bloodshot eyes in the pages of the Times.

  “Diveroli and I looked like hardened criminals in the mug shots,” Packouz recalled. “I knew that was a very bad sign.”

  In the first few sentences, Chivers described how dependent the Afghans were on the US military for logistics and munitions in the war against the Taliban and Al Qaeda. “But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur,” the Times reported. “With the award of a federal contract worth as much as $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.”

  Packouz felt a growing sense of dread. Chivers quoted military and government officials questioning how “Diveroli and a small group of men principally in their twenties and without extensive military or procurement experiences landed so much vital government work.” According to Chivers, AEY was an “immature company” allowed to “enter the murky world of international arms dealing on the Pentagon’s behalf—and do so with minimal vetting and through a vaguely written contract with few restrictions.” The Times said that the problems could have been avoided “if the Army had written the contracts and examined bidders more carefully.”

  Chivers noted that much of
the ammunition AEY had shipped from Albania to Afghanistan was forty years old and had been manufactured in China, making its procurement a possible violation of American law. To illustrate the poor quality of the ammunition AEY had supplied, Chivers quoted an Afghan colonel saying much of it was “junk.” Chivers also quoted a munitions expert saying Albania’s stockpile was “substandard for sure,” along with an Army press spokesperson in Kabul who said that “while there were no reports of ammunition misfiring, some of it was in such poor condition the military decided not to issue it.”

  Chivers contrasted the Army’s contract and AEY’s performance with NATO and Russian standards for handling munitions, which required methodical ballistics testing and measures to protect ammunition against aging, humidity, and environmental conditions. “But when the Army wrote its Afghan contract, it did not enforce either NATO or Russian standards,” Chivers wrote—as if the lax requirements had been a matter of negligence by the Army, not a deliberate policy.

  Chivers noted the importance of the State Department’s watch list, “used to prevent American dealers from engaging suspicious traders in their business, in part to prevent legal arms companies from enriching or legitimizing black-market networks.” Chivers’s reporting questioned whether the Pentagon was adequately vetting business done in its name.

  “Put very simply, many of the people involved in smuggling arms to Africa are also exactly the same as those involved in Pentagon-supported deals, like AEY’s shipments to Afghanistan and Iraq,” Chivers quoted the arms researcher Hugh Griffiths as saying.

  The explosion in Gërdec was mentioned, but only as an illustration of how shoddy and dangerous Albania’s stockpile was. Instead, the story focused much of its attention on the “personal problems” of Efraim Diveroli. Chivers detailed Diveroli’s record of misdeeds, from the fight with the valet at the Flamingo to the argument with his girlfriend that resulted in a call to the police; Diveroli had “stalked her and left threatening messages,” the Times reported. Chivers recounted how Diveroli had once supposedly shoved another girlfriend to the ground and turned up at her house drunk and banging on windows and doors—“allegations that were never ruled on.” The cumulative effect was a portrait of Diveroli as a violent, out-of-control fraudster and con man, with Packouz as his comically unqualified partner.

  “There were so many factual errors in the article,” Packouz maintained. “Like the picture of Bulgarian ammo on the front page. The Times took the absolute-worst rounds, using ammo that had been rejected, as if it was typical of what we shipped. It seemed to me like Chivers was trying to discredit us. How could the government award such a huge contract to a kid and his masseur vice president?”

  In his book The Gun, Chivers wrote eloquently about the durability and reliability of the Kalashnikov, noting that ancient weapons from the 1950s and 1960s could still be found in use in the mountains of Afghanistan. “The wooden stocks of these aged AK-47s showed dents and dings,” Chivers wrote of the ancient Afghan guns. “Otherwise most of these rifles appeared to be in excellent order, ready to fire for decades more.”

  But Chivers didn’t apply the same standards to the “Chinese” AK-47 rounds. The ammo was old and it wasn’t pristine, like the new rounds issued to NATO soldiers. But it worked—millions upon millions of rounds had been accepted by the Army and fired by Afghan soldiers in combat, with no documented reports of misfirings or issues related to quality.

  “Chivers made no mention of the fact that the vast majority of the ammo we supplied was fully functional, including the ‘Chinese’ rounds from Albania,” Packouz said. “The Times was right. The surplus ammo was old, and we hadn’t done rigorous ballistics testing, but the contract didn’t require those things. Chivers focused on making the government look incompetent, instead of realizing that the government had made a calculated decision to get the cheapest possible ammo to the Afghans as quickly as possible.

  “In truth, we were being paid to do what the Army couldn’t do for itself. It was impossible to send American soldiers to Tirana to buy the AK-47 ammo. They’d get caught up in the corruption for sure—just like we did. But Chivers never wrote about that or put the story in the larger context of what the Army was doing standing up armies in Afghanistan and Iraq—how they were using private companies like ours to be gunrunners on their behalf.”

  / / / / /

  The reaction to the Times story was swift. The time difference between New York and Tirana was six hours. The AEY article was posted at midnight, 6:00 a.m. in Tirana. At precisely 6:06, the regional security officer in the US Embassy in Albania circulated an e-mail to the power players in the embassy. The officer had speed-read the Times piece and had great news to report:

  “No mention of embassy involvement—thank God!”

  The dudes were no longer the only dudes. In the days that followed, it would emerge that the true dudes were now prosecutors and investigators and diplomats and military officers taking deep, heady hits on the bong of power. The Justice Department was now hell-bent on bringing indictments against as many of those involved as possible. The Pentagon was determined to defend its honor and avoid looking foolish, even as it dissembled and hid the more damning truth that AEY wasn’t an aberration but a good representation of how the procurement system operated. The Army also hid the fact that there were serious ammunition shortages because of the prosecution. Likewise, the State Department was terrified that its long-standing knowledge of what AEY was doing in Albania would emerge, along with evidence of possible American complicity in Gërdec. In effect, the Times story’s most proximate consequence was a series of byzantine overlapping and self-contradicting attempts inside the government to shift blame, bury evidence, and feign innocence—like teenagers afraid their stash of weed would be found.

  Against the limitless resources of the US government, Packouz, Diveroli, Podrizki, and Ralph Merrill didn’t stand a chance. AEY’s woes had always been as much political as legal. If Diveroli had invested in a high-end Washington lobbyist or attorney, the company would likely have found a solution to its Albanian problem long ago. Now the situation was overtly political, in myriad ways, including as a means for the Democratic majority in the House of Representatives to attack the Bush administration. Thus, on the day the Times article appeared the chairman of the House Oversight Committee, Henry Waxman, announced that he would be conducting an extensive investigation into the AEY affair.

  The Army likewise mounted a political campaign. The Times had claimed that the quality of the AK-47 rounds was poor. This key assertion was belied by the facts, the Army said in a press release:

  “Safety and performance are the Army’s top priorities when it comes to ammunition, for both our allies and our own armed forces. First, is the ammunition safe? Second, does the ammunition work? To date, we have not received any reports, from our units in the field or our customers, the Afghan army, concerning the safety or performance of the ammunition provided through this contract.”

  On the same day, federal investigators working on the AEY case received a letter from the National Ground Intelligence Center (NGIC) in Virginia regarding the quality of AEY’s Albanian “Chinese” ammunition. Investigators had sent the agency one hundred rounds of the AK-47 ammo to assess for quality.

  The NGIC report stated that age wasn’t the crucial question when it came to quality. “The NGIC has encountered ammunition from combat theaters that proved effective (in that it fired from a weapon) despite manufacturing dates as far back as the 1950’s.” The report said that packing was essential to the longevity of ammunition. “The rounds sent to NGIC displayed every indication of suitable storage (casings were clean, showed no signs of corrosion).”

  The NGIC noted that the Albanian ammo had been stored in the best possible manner—triple-layered, first in waxed-paper wrappings, then in hermetically sealed metal tins, and finally inside crates. The NGIC wasn’t asked to test-fire the ammunition—normally a routine part of providing an opinion about the quality
of munitions—but testing the ammo would risk its being found to be perfectly functional.

  Federal law enforcement and the Army were directly contradicting each other. Caught in the middle, Diveroli tried to resist the onslaught. Over his head, now to the point of drowning, Diveroli set out to counter the central thesis of the Times article when he hired a company called HP White Laboratory Inc. to test-fire the ammo AEY had purchased in Albania. The results were conclusive: the “Chinese” ammunition AEY had been selling to the Army was serviceable without qualification.

  But what was the view of the US Army in Kabul and, through it, the Afghan army and police? Chivers had quoted one Afghan soldier, but nothing indicated that the reporter had questioned the people who might know best—senior officials in the Combined Security Transition Command.

  After the Times story appeared, the Army asked Colonel Howard Davis, director of logistics in Afghanistan, to report on the “status” of the ammo AEY had delivered.

  “The ammunition from AEY has been of good quality,” Colonel Davis replied. “When queried, the senior mentors in each Afghanistan region reported that they have not received any complaints from the ANA or ANP concerning the quality of the ammunition received.”

  Sitting in his office in Bountiful, Utah, the Mormon businessman Ralph Merrill read the Times article in dismay. Like the three dudes in Miami Beach, Merrill feared that he would be indicted, particularly after reading the piece. The story was written in a highly prejudicial manner, Merrill believed.

  “The fact of the matter was that the Army kept ordering, using, reordering, and paying for the ammo for months after the raid on AEY’s offices and it found the e-mails about Chinese rounds,” Merrill recalled. “The Department of Defense was happy and satisfied with the matériel, and they were very reluctant to terminate the contract—an act which cost the government millions of dollars and caused serious damage on the battlefield in Afghanistan.”