Arms and the Dudes: How Three Stoners from Miami Beach Became the Most Unlikely Gunrunners in History (2015)

Chapter Three

CRASH AND BURN

Eurosatory was one of the world’s largest trade shows dedicated to the arms industry. Packouz and Diveroli flew to France in June of 2006 to walk the miles of booths inside the gigantic Paris Nord Villepinte exhibition center. The vast rooms were filled with arms dealers hawking the latest instruments of death—tanks, robots, drones. American generals and military officers from tin-pot dictatorships mingled at cocktail receptions, bedecked in medals, chatting with kaffiyeh-wearing sheikhs and South American colonels. Mixed into this group were the well-dressed, smooth-talking, amoral businessmen Diveroli most admired—international arms dealers who worked the space between legal and illegal arms deals, the “gray market.”

Billed as a trade show specializing in land and air defense, Eurosatory was in reality a biannual celebration of man’s endless desire to kill man. War was not only glorified in the halls of the conference center; it was institutionalized, commercialized, and monetized. Moët champagne and canapés and caviar were served in booths offering the latest inventions for death.

Entering the giant trade show, Packouz looked around with a mixture of excitement and horror, like a kid entering the Disneyland of death. Diveroli was enthralled. They were by far the youngest people there. They had dressed the part of international arms dealers—or how they imagined they should look. Each wore a suit, a dark shirt, and a striped tie. Inside their briefcases, the pair had photocopies of AEY’s licenses to deal in arms, along with copies of the contracts the company had completed in Iraq, to prove that they were serious players, not just a couple of kids.

“We were so young we had a very hard time convincing people that we were really doing deals,” Packouz recalled.

The pair were wowed watching live demonstrations of tanks jumping over sand dunes as if they were fighting a real war. They went to an exhibit where they could sit in a swivel seat and pretend to shoot heavy machine guns. But the AK-47 made the biggest impression on Packouz: the weapon was so perfectly designed, so simple, and yet so lethal.

Diveroli was swept up into the entire atmosphere. “Wait until I’m really in the big time,” Diveroli boasted as he strode the aisles. “I will own this fucking show.”

In Paris, Diveroli and Packouz found the booth of Henri Thomet, the Swiss arms dealer from whom Diveroli had been buying large amounts of weapons and ammunition for his Iraq contracts. Through Thomet, Diveroli had high-level contacts in Russia, Israel, Bulgaria, Ukraine, and throughout the Balkans. As a broker, Thomet had set up an array of shell companies and bank accounts in countries with financial-secrecy laws, like Cyprus and Switzerland. Packouz knew that Thomet had been behind much of Diveroli’s success as an arms dealer—but he didn’t know what really transpired between them.

Thomet’s main business with AEY was brokering deals for Soviet Bloc nonstandard weapons for Iraq. But at the show he was exhibiting a new robotic reconnaissance device, a small-dog-size machine that could scale walls and enable unmanned surveillance behind enemy lines. In person, Thomet was tall, handsome, suave. In his late thirties, he had dark brown hair, light blue eyes, and an eerily calm demeanor. He was impeccably dressed. He spoke perfect English with a slight German accent. He had the odd tic of saying okay at the beginning and end of every sentence (“Okay, so the price of the AKs is firm, okay”).

“Efraim told me that Henri could get body armor, machine guns, antiaircraft rockets—anything,” Packouz recalled. “He was one of the best middlemen in the business, a real-life Lord of War. Henri definitely looked like the kind of guy who’d sell arms to anyone.”

Packouz’s intuition was more accurate than he knew. Indeed, Thomet’s name was reportedly on the State Department’s “watch list” of individuals and companies suspected of participating in black-market arms transactions. State’s Directorate of Defense Trade Controls—the DDTC—was primarily charged with controlling arms exports to ensure America’s “adversaries” didn’t gain access to sensitive defense technology. Overseeing the $100 billion American international-arms business, the DDTC developed protocols for identifying people who were ineligible to receive export licenses or to contract with the federal government. Some eighty thousand names were on the watch list, which was continually reviewed based on intelligence reports, law-enforcement information, and open-source material.

If Thomet’s name was on the DDTC watch list it didn’t necessarily disqualify him from dealing with the government. The list was primarily informational, providing officials involved in arms deals with warnings about investigations and suspicious activity. If Thomet’s name was on the list, though, it would indicate the government should use increased scrutiny in any dealings with him. But Thomet was openly doing business with the Pentagon through AEY; there was no attempt to hide his name, or the documents with his company’s name on them. The munitions Thomet sourced from the Balkans routinely arrived in Baghdad with bills of lading saying they’d come from his company, which was also reportedly on the list. For the past year Thomet had sourced millions of dollars’ worth of matériel for Diveroli and other American companies. All of the arms had gratefully been accepted by the US Army.

Thomet wasn’t the only questionable arms dealer doing business with the United States in Iraq. The most notorious gun smuggler alive was a Russian named Viktor Bout, who was at that time using his fleet of cargo planes to deliver weapons to Baghdad. The planes were the same ones used to fly guns to men like Charles Taylor of Liberia, a war criminal responsible for the murder of thousands of innocent civilians. But in Baghdad no attempt was made to ensure that the American military wasn’t transacting with men like Bout. The Army didn’t care who its contractors hired as subcontractors—even if they were known to be responsible for supplying arms that resulted in mass murder.

The apparent lack of controls wasn’t an oversight. The DDTC system was designed to make coordination between government departments easy and reliable. But the Army didn’t want to coordinate its efforts; the Army was fighting a war and needed to act with dispatch. Procurement officers in Iraq weren’t consulting State’s watch list, because they weren’t required to.

The legal exemption was accomplished by the use of a term deceptive for its seeming simplicity. When Congress authorized the Pentagon to set up new systems for training and equipping foreign forces in Iraq and Afghanistan, the law began with a preamble stating, “Notwithstanding any other provision of law.” Page upon page of detailed regulations followed, all appearing like any other complex and legally binding act of Congress. But the words “notwithstanding any other provision of law” worked the magic of exempting the Department of Defense from responsibility to follow any other laws—including human rights laws, international treaties, and the State Department’s foreign-military sales regime. The provision made the regulations a self-contained reality, subject to no outside legal authority or scrutiny. The sweep of the exclusion was as broad as imaginable—and it went completely unremarked upon in the press, and in Congress.

There was a further legal loophole created for the Pentagon, and this was equally audacious—and achieved by omission. Under the State Department’s regulations, companies doing business with the US government had to name all subcontractors. So if AEY’s contracts were ruled by State’s laws, the company would be required to disclose that it was doing business with Henri Thomet and his name would be checked against the DDTC watch list. But the Pentagon’s system had no such requirement. The trick was accomplished by a simple omission of the word “subcontractor,” an elision invisible to the untrained eye that enabled the Pentagon to deal indirectly with even the most corrupt warlords and gunrunners.^I

Although it would never be fully reported in the press, the Pentagon, in effect, had enabled itself to legally deal with anyone it pleased, including arms dealers like Thomet, by using proxies like Diveroli and Packouz. In truth, AEY was in effect a front for the real transaction between Thomet and the Pentagon. Officially, AEY’s contracts were governed by the Defense Federal Acquisition Regulation Supplement, or DFARS, as it was known in the trade. To the layman, the DFARS, looked like a complex mesh of laws intended to closely regulate the Pentagon’s weapons purchasing. But beneath the surface of the extremely legalistic regulations lurked a darker reality. The Pentagon had set up a parallel system for buying arms that bypassed State’s protocols and watch lists designed to avoid the US government’s doing business with—and enriching—illegal arms dealers.

The two young partners didn’t know it—couldn’t imagine it—but they were in the middle of a huge chess game and they were the pawns. The Army knew it couldn’t send jarheads into the Balkans to buy AK-47s from Serbian and Croatian and Albanian gunrunners. The chances of corruption and scandal were far too high. A bureaucracy like the Pentagon wasn’t capable of dealing with the many and varied demands of acquiring millions of dollars’ worth of surplus munitions—like paying off politicians or petty officials or killers. Arms dealing was an inherently dirty business, infused with Swiss bank accounts, prostitutes, double-dealing, and the willingness to do anything to get the job done—legal or illegal. American soldiers wouldn’t have a clue how to navigate such treacherous waters.

The US government needed companies like AEY to get to men like Thomet. Like the others bidding on contracts on FedBizOpps, Diveroli and Packouz were being used by the Army. Likewise, Thomet was using Diveroli and Packouz as a conduit for dealing with the Pentagon. For all Diveroli’s bravado, in truth the two young men were the monkeys in the middle. Or the fall guys, should things go wrong.

David Packouz understood none of this as Thomet’s beautiful young assistant handed him a glass of Veuve Clicquot in Paris. Packouz kept silent as Thomet suggested to Diveroli that AEY should diversify and start selling Balkan AK-47 ammo in the huge American domestic market. Gun nuts all over the United States loved firing AK-47s and were willing to pay well for the thrill.

On the surface, Thomet’s idea sounded perfectly reasonable. But it, too, contained an element of deception. The Army was running the procurement process in Baghdad, but the State Department was still in charge of the importation of arms into the United States. Thomet had to know there was a real probability that he was on the State watch list. Shipping ammo to the United States under his company’s name could put his goods at risk. But if Diveroli bought the rounds and they came into America under AEY’s name, there would be no reason to stop the shipment. None of this was spoken. Thomet’s manipulative powers could be glimpsed in the way Diveroli was convinced he was the mastermind of the deal—not the other way around.

“Even when he was dealing with someone as obviously sophisticated and experienced as Henri Thomet, Diveroli always thought he was smarter and tougher than the other guy,” Packouz said. “He told me he wanted to cut Thomet out of the deals he was doing. He wanted to buy directly from the contacts Thomet had so he could get more profit for himself.”

Walking the show later that day, Diveroli noticed the booth for a company called Yugoimport. He recognized the name from some of the deals he’d done with Thomet. The company was the state military exporter for the Serbian government. Diveroli approached the men in the booth—burly, Balkan tough guys in their forties and fifties, with gray hair. Diveroli was twenty years old. But he showed them his Iraq contracts and they recognized the name AEY. Suddenly he was “Mr. Diveroli.” They sent a woman to fetch coffee and invited Diveroli and Packouz into a private room in the back of their booth.

“Diveroli asked if they had an exclusive relationship with Thomet,” Packouz recalled. “They said no—no, no, no. Arms dealing really was cutthroat. Literally. Diveroli didn’t care about any personal relationships or loyalty. If he could fuck Thomet, he would. Diveroli really was ruthless—like I imagined Thomet to be.”

Diveroli now had more in common with Thomet than he knew. On June 26, Diveroli flew back to Miami. When he arrived at the airport, he was stopped by customs. His luggage and documents were searched by law enforcement. The agents had no particular reason to seize Diveroli’s personal effects; they were looking for anything suspicious—documents, contracts, business cards. Diveroli had no idea at the time, but the reason he’d been detained at the airport was that his name was on the State Department’s watch list, like Thomet’s. Because the list was classified, he had no way of knowing he was the subject of a federal criminal investigation. In more ways than he realized, Diveroli really was an international arms dealer, just as he’d dreamed—even if he was a particularly naive one.

Diveroli was oblivious of—or indifferent to—the increasing peril. He was making millions of dollars, but the riches only fueled his ambition to make more. Back in Miami, Diveroli was finding it impossible to keep up with himself. He’d win Iraq contracts for helmets and AK-47s, but instead of focusing on fulfilling the orders he’d won, he’d race like a maniac back to FedBizOpps to find other deals to bid on. Deals mounted on deals as Diveroli became responsible for a significant amount of matériel arriving at the airport in Baghdad—and thus an ever larger part of the war effort.

The Pentagon didn’t know that a young and unlikely arms dealer was playing such a prominent role. Simply coping with the reality on the ground in Iraq during the summer of 2006 was more than the US military could handle. In Baghdad, beheadings and massacres were occurring daily. The bombing of the Al-Askari Mosque fomented yet more violence and resulted in more than a thousand deaths. The launch of Operation Together Forward failed to lessen the level of violence in Sadr City, the Shiite quarter of the city. Then a fourteen-year-old girl was gang-raped by American soldiers, her parents and six-year-old sister murdered before the girl’s body was set on fire—a crime that only increased the desire of the vast majority of Iraqis for the invaders to leave. In those desperate days, the Army had no ability to monitor contractors—or, often, even to know if contracts had been fulfilled at all.

Logistical problems were inevitable for any company doing what Diveroli was doing in Iraq, let alone a tiny start-up like AEY. Packouz was busy looking for his own deals, and he wasn’t being paid to work on the ones Diveroli won; their agreement stipulated that Packouz was only paid on contracts he found and won. So in effect Diveroli was single-handedly managing the delivery of Glocks from Italy, AK-47s from Bosnia, and helmets from Korea—not to mention the many other deals he pursued with lunatic enthusiasm.

Overburdened and understaffed, Diveroli had defaulted on seven contracts in Iraq out of the dozens he’d won. The record wasn’t stellar, but it also wasn’t terrible, at least compared with that of the other contractors, who were also routinely facing logistical nightmares finding surplus nonstandard weapons and chartering flights into Baghdad. Locating airlines and pilots willing to dare to land in Iraq was a challenge, a reality Viktor Bout exploited while the US government looked the other way.

Despite an increase in expenditures in Iraq of more than 600 percent in 2006, the Pentagon continued to decrease the number of personnel assigned to supervise private contracting. Billions were being squandered on outsourcing, it was widely understood, but next to nothing was being done about it as the war consumed all the attention and energy of the US military.

But AEY wouldn’t benefit from such lenient treatment. For some reason the company seemed to receive the special ire of the American officers in Baghdad. Why Diveroli had been singled out remained a mystery until Thomet explained it one day on the phone. Thomet didn’t only sell to AEY; he often did business with Diveroli’s competitors as well. Thomet was familiar with how rival companies were setting out to destroy the competition. He revealed that AEY’s competitors had sent executives to Baghdad to lavish money on the American officers responsible for awarding the contracts, buying drinks and dinner in the Green Zone as they whispered rumors about Diveroli’s being a coke dealer and an illegal gunrunner. Thomet said that AEY was systematically being slandered by its competitors in Baghdad, as a way to destroy the business.

Diveroli could do nothing, short of traveling to Baghdad—and he had no intention of doing that. To help cope with the logistics of all the deals he’d already won, Diveroli decided he needed administrative assistance. When his aunt heard that her nephew was looking to hire someone, she offered to help. Diveroli’s father’s sister was older than the dudes and friendly at first, but she soon came to disapprove of Packouz and the way the two buddies smoked dope all day. Like her nephew, Diveroli’s aunt was strong-willed and outspoken. She and Diveroli were soon regularly having screaming arguments. While Diveroli told her to shut up, she shouted that he was out of control—his ambitions, his appetites, his business. She talked openly about Diveroli on the phone with his mother as if he weren’t present.

“Mark my words,” she told Diveroli’s mother repeatedly, “your son is going to crash and burn.”

“Shut up,” Diveroli shouted back, the cold-blooded arms dealer turning into a pissed-off teenager. “You don’t know what you’re talking about. I made millions last year.”

“Crash and burn. Mark my words—crash and burn.”

I. Colby Goodman, “Dealing with Arms Intermediaries: The Pentagon’s Missing Controls on Contractors Engaged in Arms Transfers” (Amnesty International, 2009).