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

Chapter Twelve

GËRDEC

On January 22, 2008, Solicitation W52P1J-08-R-0044 appeared on FedBizOpps. This contract to supply ammunition to Afghanistan called for 1,480,000 rounds of 12.7x108 mm ammo for the NSV heavy machine gun, along with 370,000 tracer cartridges of the same caliber, which produced a streak of light when shot and were usually used for training. The Russian-designed NSV operated from a variety of mounts and was ideal for battles in mountainous regions like Afghanistan. An amendment to the regulations now required that the ammunition be no more than twenty years old—a clause inserted in response to AEY’s shipping ancient rounds from Albania.

David Packouz, the sole operator of Dynacore Industries, was sitting in his underwear on a couch in an apartment in Miami’s Little Havana when he saw the solicitation. His daughter was on a blanket on the floor with her toys, while her mother was at work in a local spa doing hair extensions. Every morning, Packouz would wake, make coffee, and then fire up his Toshiba laptop and begin scanning FedBizOpps, looking for new deals to bid on. Working harder as his money began to run short, he’d scan as many as one hundred contracts in a day, solicitations for items like tanks, mattresses, and socks for soldiers. He picked the deals he thought he had a chance of winning with the first criterion to find products he’d sourced when he was working with Diveroli, which largely meant military equipment.

In the months since he’d left AEY, Packouz had failed to win any of the contracts, but he wasn’t discouraged. In that time he’d married his girlfriend, Sara, and moved out of the Flamingo into his wife’s place. He was also working as a masseur once again, but mostly he was in charge of child care while his wife was the main breadwinner.

The moment Packouz saw the solicitation for millions of rounds of 12.7x108, he knew exactly whom to contact to supply and transport the ammo. Packouz figured that Diveroli would bid on the contract, too. The former partners were now rivals, but Packouz had the advantage of knowing Diveroli’s tricks. Packouz e-mailed Henri Thomet in Europe to get a price quote. Thomet was more than happy to do business with Packouz, as were the other suppliers he’d dealt with while at AEY; Packouz was considered the sane, decent arms dealer at AEY; many suppliers had long ago stopped talking to Diveroli. Packouz then wrote to Yugoimport, the Serbian arms company, an arms manufacturer in Hungary, and a broker from Ukraine whom he’d met in Abu Dhabi when he’d traveled there after AEY had won the Afghan contract. The quotes Packouz received were for new-production ammo, not surplus, apart from the Ukrainian, who had access to a cache of old rounds that fell within the twenty-year age limit. The Ukrainian was the cheapest by far, as surplus ammo was much less expensive than new munitions. But Packouz was struggling with the amount he should bid using the Ukrainian quote, given Diveroli’s usual 9 percent profit margin; Packouz was thinking of using 8 percent, or perhaps a lower percentage.

Packouz’s proposal had to be in by February 26. He’d remained in contact with some of the people he’d worked with at AEY, including the Haitian man who was the office manager. Packouz happened to talk to him the day before he had to submit his price, and the Haitian told him that Diveroli was up to his usual antics: screaming and yelling and driving everyone at AEY crazy. The Haitian said that a bid for an Afghan ammo deal was due the next day, and Diveroli was furious that all the prices were for new rounds, not surplus.

A lightbulb went off: Packouz instantly recognized the importance of this information. The deal the Haitian was referring to had to be the same one Packouz was about to bid on: there was only one Afghan ammo deal up the next day. Packouz also knew that Diveroli had excellent contacts all over Eastern Europe. If Diveroli hadn’t been able to find surplus ammo—if he was forced to bid using prices for new rounds—Packouz figured no one else had either.

“Diveroli didn’t know my Ukraine source because I’d met him by myself,” Packouz recalled. “That meant there was a very good chance I was the only who’d been able to source surplus cartridges.”

This was very exciting news. If he was right, Packouz realized he had a lot of leeway with his bid, because the Ukrainian surplus rounds were far less expensive than new ammunition. Then there was the cost of transportation. After the debacle with Thomet’s airfreight prices on the Afghan deal, Packouz no longer trusted any quotes for chartering flights. The Ukrainian wanted $660,000 for the ammo, and Packouz estimated he’d need seven flights at a cost of $130,000 each, for a total cost of $1.57 million. Normally he would have tacked on a modest return. But now he calculated that everyone else was bidding using the cost of new-production ammunition, so he averaged the prices he’d been quoted for new rounds as the basis for his bid. To be extremely conservative Packouz left out the cost of transportation as well as any profit margin. The other bids would have to be in excess of $5 million, more if the cost of air transportation was included. A bid of $4 million was sure to win. To play it safe—to not get greedy—Packouz bid $3.5 million. If accepted, his profit margin was nearly $2 million—a thought that made him giddy.

“That was the kind of money you could make on FedBizOpps if you knew what you were doing,” Packouz said.

The ploy worked. Packouz was at home, his infant daughter on his lap, when he received an e-mail from the Army telling him that they were doing a pre-award audit on Dynacore; they had a list of questions they wanted answered. Despite Packouz’s fear, they didn’t mention AEY, the Albanian “Chinese” ammo, or the federal fraud investigation of the Afghanistan contract. To his amazement, the procurement officers in Rock Island, Illinois, didn’t make the connection—or have any system to effectively vet contractors, even ones subject to a major fraud investigation.

“I felt great,” Packouz recalled. “After months of failed bids I’d landed a big one. I was going to make a lot of money, which would enable me to bid on bigger arms deals. I was proving that I really didn’t need Diveroli to win contracts. It was incredible to know that I could do it by myself—that I could beat Diveroli at his own game. I’d even set up a deal to finance the contract with Wells Fargo, using the same guy who’d done Diveroli’s deals. He was excited to do business with me. It was a serious, complicated arms deal, and I’d put all the pieces together. I was ready to go to Kiev to inspect the stuff. I was thrilled.”

While Packouz was riding high, Alex Podrizki wasn’t so fortunate. After he returned to Miami, he’d enrolled in college to study Arabic, but his legal bills left him broke and he wasn’t able to find part-time work. In the evenings, Podrizki often met with Packouz at his place to drink beer and discuss their legal situation.

The pair were paranoid about the government’s having them under surveillance. They wished the government would see that the repacking wasn’t all about the money—it was also about doing what was necessary to complete the contract. The Army had accepted the rounds without a single complaint about their quality.

“The whole case against us didn’t make sense, but that didn’t seem to matter,” Podrizki recalled. “David and I agreed that if we were going to be sent to prison for more than two years, then escaping the country would be a real option. David apologized to me, but I told him I’d made my own decisions and only had myself to blame. It seemed to me that our biggest mistake was not being politically savvy. I’d tried to tell Diveroli to build political connections to protect us, but he didn’t listen.”

The dudes didn’t know it, but the AEY affair contained yet another layer of absurdity and deception—only this variety of venality would prove lethal. As soon as Alex Podrizki had discovered MEICO was selling them “Chinese” rounds, in April of 2007, he’d asked them to supply Albanian ammunition instead. He’d been told that it was impossible to fulfill the contract using Albanian ammo because it was scattered all over the country and thus too hard to truck to Tirana. Podrizki had strongly suspected he was being lied to—and he was correct. Ylli Pinari of MEICO didn’t want to supply Albanian-made ammunition to AEY for a simple reason: he was selling it to someone else.

For the past year, an American company called Southern Ammunition had been demilitarizing millions of Albanian-manufactured AK-47 rounds at a small military base on the edge of the village of Gërdec. The whole “Chinese” Albanian supply fiasco could have been avoided if Pinari had allowed AEY to ship these rounds to Afghanistan. But the Albanians didn’t want to sell those rounds to AEY because they had brass casings, not the steel jackets like most of the “Chinese” cartridges. The brass was worth half a million dollars to the Albanians if they sold the rounds to Southern Ammunition for scrap metal—money they wouldn’t make if the cartridges were sold to AEY.

Greed was the dark truth at the heart of the arms-dealing world. Efraim Diveroli’s greed had led to Kosta Trebicka’s blood vendetta, just as Henri Thomet’s greed had helped lead AEY into buying “Chinese” ammo in the first place. Now the greed of the Albanians, killing AEY’s deal for 100 million rounds to make an extra five hundred grand, was about to cause new and disturbing consequences.

By the end of 2007, Southern Ammunition’s demilitarization operation was at an end, as the supplies of brass-cased AK-47 ammo had run out. But Defense Minister Mediu had plans for Albania’s remaining stockpiles. Trying to squeeze every dollar from the nation’s stockpile, the Albanians decided to take apart large-caliber ammunition to salvage the brass casings.

Safely demilitarizing large-caliber ammunition was highly skilled work—and very different from taking apart AK-47 ammo. Sophisticated equipment was required to disarm explosives. Strict protocols needed to be followed, overseen by experts. A complex web of treaties and international laws and practices had to be adhered to.

The original plan—the official plan—had been for the United States and other NATO countries to assist the Albanians in ridding the country of its stockpile of a hundred tons of large-caliber ammunition. But now the Albanians were going to do it on their own. There was a catch: the operation was in violation of Albanian law and had to be kept secret.

In January of 2008, Mediu issued secret orders commanding that all of Albania’s large-caliber, brass-cased rounds be transported to a military base in the village of Gërdec. Trucks were soon rumbling toward the village carrying rocket warheads and artillery shells and sea mines. Like the small-caliber ammo AEY had bought, the ammunition represented a serious danger to civilians in Albania. In 1997, when it emerged that the financial system in Albania was a vast Ponzi scheme and civilians lost more than $1 billion in investments in a matter of days, a rebellion resulted in the looting of the country’s stockpiles of weapons; 656,000 weapons of various types had been stolen, along with 1.5 billion rounds of ammunition and 3.5 million grenades. More than two thousand people died in the ensuing chaos.

Getting rid of Albania’s ammunition was a strategic necessity—but not in the manner planned by politicians aiming to personally profit from the operation. Instead of following standard precautions, the demilitarization project was done with heedless abandon; workers had no training and there was none of the proper equipment for the volatile munitions. Then there was the pace of the work: the Albanians were racing against the clock to salvage as much brass as possible before the country joined NATO and new, strict rules would govern the military.

The village of Gërdec was the perfect place to secretly take apart ammunition for salvage. Only ten miles from Tirana, the obscure settlement was tucked away in the countryside, both centrally located and far from prying eyes. During the winter of 2008, every morning scores of locals gathered at the gate of the base and clamored to be chosen to work by the overseer. Pay was $20 per day, decent money in Albania. Women and teenage girls were mostly chosen, as their hands were small and thus better for the finicky work.

Saturday, March 15, 2008, was a beautiful spring day in Albania, the blue sky flecked with clouds and the air warmed by a gentle Adriatic breeze. But at noon there was a terrifying sight—a fire racing across the ground on the military base. The fire was small, maybe six inches high, but it was moving like lightning toward the large shed where thousands of tons of large-caliber ammo were stored. Dozens of sacks of gunpowder were also in the shed, making it literally a powder keg.

Hundreds of peasant workers began to flee as smoke rose and the pop-pop of smaller rounds going off drowned their screams. No one knew what started the fire—a spark, a cigarette, sabotage. Spontaneous combustion was a real possibility, given the degraded and unstable nature of the ammunition.

Then the main shed exploded, sending debris flying like a scene in a Hollywood action movie. The explosion injured many and buried others alive under the rubble. Those who were unhurt took refuge in the hills, while a few braver souls returned to the base and tried to help the wounded and trapped. Single rounds of ammo continued to fire randomly, pow-pow. The worst was over, it seemed.

Fifteen minutes passed.

The second explosion was an almighty blast with murderous, apocalyptic force. Missile warheads, large-caliber artillery shells, tons and tons of gunpowder—the mother lode went off all at once. The concussive cataclysm sent dozens of people flying hundreds of feet into the air. A bloodred fireball shot skyward, followed by a Hiroshima-like black mushroom cloud. It was one of the largest non-nuclear explosions since World War Two. The sound could be heard a hundred miles away, and windows shattered in the capital city.

Twenty-six people died in Gërdec. Many were women and children. Like eight-year-old Erison Durdaj, who’d been sent to take his mother lunch and who was standing at the gate when the second explosion hurtled him through the air. Three hundred more were injured. More than four thousand homes and businesses were damaged or destroyed.

The catastrophe in Gërdec caused an outrage in Albania. Defense Minister Fatmir Mediu was forced to resign. Ylli Pinari and Mihail Delijorgji of Alb-Demil were cast as the villains. An independent prosecutor drafted a five-hundred-page indictment. It seemed as if the truth would emerge. But the investigation soon faltered. The world media hardly bothered to cover the story—the 2008 primary battle between Barack Obama and Hillary Clinton was crowding the headlines, along with the insurgencies in Afghanistan and Iraq. The explosion soon vanished from world news.

But the explosion in Gërdec and AEY were directly linked. The same Albanian politicians and officials were involved. It seemed likely that the New York Times would make the connection between AEY and Gërdec—as well as possibly reveal the knowledge of officials in the US Embassy in Tirana and the Pentagon.

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.”