Arms and the Dudes: How Three Stoners from Miami Beach Became the Most Unlikely Gunrunners in History (2015)
HELLO! IS THIS UKRSPETEKSPORT?
In 2006, Operation Mountain Thrust began in the south of Afghanistan. The intention was to confront the resurgent Taliban in Helmand Province and elsewhere. Thousands of American, Canadian, and British troops fought alongside the Afghan National Army, encountering a well-coordinated, disciplined, and deadly enemy in the Taliban. Despite the disparity in firepower, and the heavy aerial bombing, the Taliban inflicted large casualties on the foreigners. Worse, the death of more than one thousand Taliban fighters seemingly did nothing to harm their morale or diminish the apparently limitless number of jihadis willing to fight the infidels. According to the Army’s statistics, by the middle of 2006 the number of improvised explosive devices being deployed by the Taliban had more than doubled, direct attacks on American and Afghan soldiers had tripled, and suicide attacks had quintupled. Using sanctuaries in Pakistan, the Taliban and the Haqqani Network had increased their territorial holdings fourfold, according to classified intelligence estimates. As in Iraq, another war that had been prematurely imagined as a great and glorious victory was turning into a strategic disaster.
Something had to be done to turn the war around, the Bush administration decided. The United States had ceded “control” of the south of Afghanistan to the Canadians, but the level of violence only increased as the Taliban won battles for key territories. New thinking was required, it was decided, as the United States entered into a new compact to take control of military operations in Afghanistan. For years, the multinational alliance in Afghanistan had tried to equip and train hapless Afghans, but the effort had been a near-total failure. Corruption, narcotics, poor training, substandard equipment, terrible morale, and tribal animosity, not to mention language, cultural, and religious barriers, had made the Afghan problems as intractable as those in Iraq. With the United States focused on the surge in Iraq, transferring security arrangements to the Afghans had become the top priority—if it was even possible.
One of the most pressing issues for the Afghan security forces was a lack of ammunition. Like the Iraqis, the Afghans were used to nonstandard, Soviet Bloc weapons. Many formerly Communist countries were fighting alongside the Americans in Afghanistan—Bulgaria, Hungary, Lithuania, Poland, Romania, and Albania, to name a few. These countries all had large stockpiles of nonstandard ammo they could supply. Many were eager to assist the United States in any way they could. Like the Albanian government. The tiny Muslim nation, wedged between Italy and Greece on the Adriatic Sea, was one of the most pro-American countries on the planet. The formerly Communist country was preparing to join NATO at the time and had to get rid of decades’ worth of surplus ammunition, most of it donated in the 1960s by its then close ally China. The Albanians had offered to give the Americans millions of rounds of ammunition for free in Iraq. Surely the same offer would stand for Afghanistan.
But there was a problem. Under the policies and procedures that ruled the US military, agreements could not be entered into directly with foreign allies to supply munitions—no matter the strategic necessity. America couldn’t simply ask the Albanians for their ammunition, even if it was the ideal solution. The Army had to follow its own procurement procedure—however dysfunctional it might be. The letter of the law had to be followed, even if it made no sense in a time of war.
There was one huge difference in Afghanistan, however. The Bush administration appeared to have learned the hard logistical lessons of Iraq. Posting thousands of small contracts online had led to widespread chaos and fraud in Iraq. This time, the Pentagon wasn’t going to be foolhardy enough to use FedBizOpps to buy third-rate surplus from the Balkans via dodgy outfits like AEY; the practice of awarding contracts to the lowest bidder in an online lottery, thus virtually ensuring the lowest-possible-quality goods, was obviously flawed, as the unfolding disaster in Baghdad proved. This time the Americans would buy directly from one source, not use a daisy chain of brokers like Efraim Diveroli and his competitors. The military wouldn’t buy cheap surplus from Balkan bunkers—this time brand-new ammunition would be acquired.
So on May 22, 2006, an article appeared in the London Telegraph headlined “US Sets Up £215M Deal for Afghan Arms.” The defense correspondent for the Telegraph reported that American officials were going to purchase a “prodigious quantity” of ammunition from the Russian government’s military-export company, Rosoboron. The US Army would acquire the rounds on behalf of the Afghan security forces:
“Pentagon chiefs have asked the Russian arms supplier for a quote on a vast amount of ordnance, including more than 78 million rounds of AK-47 ammunition, 100,000 rocket-propelled grenades and 12,000 tank shells,” the Telegraph reported.
If true, the story had heady implications. After decades of hostility between America and the Soviet Union, the international equation was changing in new and unexpected ways. It appeared that the Cold War enemies were on a path toward becoming allies against the shared threat of Islamic extremism. The historical ironies of two longtime superpower enemies coming together in Afghanistan made it seem as if the reported transaction had to be a prank; the Soviet Union had been defeated in Afghanistan in the 1980s, in large measure because of a covert American operation to arm the mujahideen fighting the Communist invaders. Now the Americans were asking for Russian help as they faced defeat in the same mountains.
“Defense specialists said Russian arms chiefs at first ‘fell about laughing’ because they thought the order was a joke when it arrived this month,” the Telegraph reported.
But it wasn’t a stunt. Under the new paradigm, the Russians would supply brand-new matériel that would give the Afghans an advantage against the Taliban and their ancient Soviet surplus ordnance.
“This is completely refitting the Afghan army for the long term and it should stop a resurgence of the Taliban in its tracks,” a British arms expert was quoted as saying. “This deal makes sense if we are going to hand over military control to them.”
One small caveat was mentioned: no actual contract existed with the Russians. The US Army was only asking for a quote. But that appeared to be just a formality. No other company in the world was more capable of providing so much high-quality Eastern Bloc munitions, and Rosoboron’s prices were well known in the marketplace. Burying old grievances to forge a new future with the Russians looked to be a historic masterstroke.
However, yet another geopolitical goal trumped the need to arm the Afghans. Years earlier, the United States had imposed an arms embargo on Iran, supposedly to stop the Iranians from obtaining nuclear weapons. But the Iranian ban had reached far beyond its original intentions—all the way into the territory of unintended consequences.
Soon after the story about the Afghan contract appeared, Rosoboron agreed to repair and upgrade Iran’s long-range strike-force aircraft. The deal had nothing to do with Iran’s suspected program to manufacture weapons of mass destruction. But that didn’t matter to the Bush administration. The Iranian deal meant that the Russians had forfeited the opportunity to bid on the Afghan ammo contract. Indeed, the Russians were now banned from any arms deals with the US government.
As a result of the Iran embargo, the US government would have to do the same thing in Afghanistan that it had done in Iraq. The Pentagon wouldn’t pursue the obvious logistical solution to its problems for reasons that could be described as political but were better understood as ideological and confrontational. Rosoboron was out. FedBizOpps was in. Once again, Diveroli and Packouz and the other denizens of the federal arms-contracting world would search Eastern Europe for the cheapest surplus ammo they could find, a supply that was severely diminished after years of the fight against the insurgency in Iraq.
Thus, in one fell swoop the attempt to supply ammunition to the Afghan army became infinitely more difficult. Worse, according to a report in the Washington Post, the Russians considered the American ban tantamount to a declaration of war. The Russian quasi-governmental company Rosoboron was run by a former KGB agent who was a close personal associate of Vladimir Putin’s; the company was a central part of the country’s corporate oligarchy. The Russians retained many ways to express their displeasure and hinder American efforts in Afghanistan. To reach Kabul, suppliers such as AEY would need to obtain permission to fly over many countries that were formerly part of the Soviet Union—like Kyrgyzstan, Turkmenistan, and Kazakhstan. These nations all remained in the Russian sphere of influence. In due course, Putin would have his revenge.
So it came to pass that on the evening of July 28, 2006, David Packouz was driving his ancient Mazda Protégé along Interstate 195 in Miami on his way to dinner with his girlfriend. Normally he would’ve sparked a bowl at the end of another day on the job, but he tried to stay straight for his pregnant girlfriend.
Packouz had now been working with Diveroli for more than six months. He’d won a couple of small contracts and he’d learned a lot—how to calculate profit margins, how to source obscure Communist weapons, how to maneuver on FedBizOpps. But he’d yet to make any real money, and his patience was beginning to wear thin. Dealing with Diveroli was stressful and exhausting. Packouz was starting to wonder if he should go back to school and finish his degree.
As Packouz turned off the freeway, his cell phone rang. It was Diveroli. He was excited—really excited, Packouz recalled.
“Dude, I’ve found the perfect contract for us,” Diveroli said. “It’s enormous—far, far bigger than anything we’ve done before. Hundreds of millions of dollars. But it’s right up our alley.”
“What is it, dude?”
“An Afghanistan contract. It’s all ammo—no weapons. It’s all Russian caliber, so we’ve got the past performance to bid on this thing. But here’s the best part. There’s no age limit. Seriously. We can get Thomet to go through every old ammo dump in Eastern Europe and get rock-bottom prices.”
“Wow!” said Packouz. “Sounds perfect.”
“The solicitation only says that the ammo has to be serviceable without qualification. In my book, that means it goes bang and goes out the barrel.”
“You sure there’s no official definition of serviceable without qualification?”
“I looked. If there were specific quality requirements, it would have been posted in the solicitation. They say serviceable without qualification when they’re telling us not to deliver shit. That means no rust, no defective rounds. The ammo has to be in generally good condition.”
“Why wouldn’t the Army be more specific?”
“The United States government wants to arm the Afghan army,” Diveroli said. “But they want to do it as cheaply as possible. I guess the US Army isn’t too worried about Afghan soldiers on the front lines.”
“Well, surplus is our specialty.”
“I need you at the office immediately.”
“I’m on my way to have dinner with my girlfriend.”
“Who gives a shit? You want to yakety-yak with your bitch, or you want to get rich?”
The next morning they met at Diveroli’s girlfriend’s apartment to parse the forty-four-page document posted on FedBizOpps titled “A Solicitation for Nonstandard Ammunition.” The contract looked like any other contract for screwdrivers or forklifts. It had blank spaces for names and telephone numbers and squares to be filled out for more detailed information. But the scope of the solicitation was astounding. Contracts on FedBizOpps were frequently worth millions of dollars for significant amounts of matériel. But this request for proposal—or RFP—was worth hundreds of millions of dollars and had vast geopolitical implications. The RFP called for 100 million rounds of ammunition for AK-47s—and that was just the start. Then there was the list of other munitions—millions of rounds for SVD Dragunov sniper rifles, thousands of GP-30 grenades, huge amounts of 82 mm mortars, aviation rockets, on and on it went.
One firm fixed-price award, on an all-or-none basis, will be made as a result of this solicitation, the tender offer said.
This meant that the contract was winner take all. One company would be entrusted with the epic responsibility of acquiring and shipping tons of ammunition to the mountains of Afghanistan. But who should bear such a heavy burden? Who could be relied upon to carry out a key component of America’s foreign policy? Who would win the contract?
Even though it was early in the morning, Packouz could see Diveroli was already stoned and scatterbrained.
“It’s going to be a lot of work to source all these items,” Diveroli said. “Frankly, I don’t have time to do it myself. I got to deliver on the Iraq contracts. I can get quotes from my regular guys, like Thomet. But you’ve got to be the guy scouring the Internet for new sources. You can’t leave any stone unturned.”
“Yes, sir, Mr. Diveroli,” Packouz said mockingly.
“I’m serious. This is your shot. The contract is going to be worth at least a few hundred million. This is going to make us both filthy fucking rich.”
Diveroli wanted to talk terms. With his trademark 9 percent margin, the profit on the contract could be as much as $30–$40 million. AEY was unlikely to win the deal, but the sums were so huge they needed to agree up front how they’d split the winnings. Their prior deal was to split profits fifty-fifty. But the Afghan deal was totally different, Diveroli said. There would be financing costs, plus a lot more risk. Diveroli proposed that if they won the contract Packouz would get 25 percent of the profits for any sales that came through sources he found online or through his own research. Diveroli would take 75 percent because he was providing the financing for the deal. It was a new structure but, given the size of the solicitation, a quarter of the profits would still be millions. Packouz readily agreed.
“Do Google searches and find companies that aren’t listed in the usual places,” Diveroli said. “Find the little companies in the Balkans and all over the former Soviet Union. E-mail ’em, fax ’em. Fly over there and give ’em a fucking blow job if you have to. You’re good at drafting official-sounding letters, so put that brain of yours to work. Just get their pricing, and make us some money.”
“I’m on it,” Packouz said, pushing aside thoughts of returning to school—and his uneasiness about being in business with Diveroli.
“Now, you want to hit this bong or what?” Diveroli asked.
For the next six weeks, Packouz was up all night, scouring the Web to find companies that sold Soviet Bloc ammunition. He slept on Diveroli’s couch, surviving on weed and adrenaline. Packouz discovered that the business mentality in Eastern Europe was less than desirable. Instead of trying to provide helpful service to a potential customer who might buy millions of dollars’ worth of goods, the officials he contacted treated him like a pest.
To gain their attention, Packouz told the companies that AEY already had won the contract with the Pentagon. To be taken seriously, he considered the lie a necessity. He also faxed AEY’s firearms license from the ATF, even though it had nothing to do with international arms dealing—it looked official, and he hoped it would impress the Eastern Europeans. Then he’d follow up with a phone call.
“Hello! Is this Ukrspeteksport?” a typical call from Packouz would begin, this one to Ukraine.
“Da” would come the reply.
“Do you speak English”
“English, English, USA, USA,” Packouz would say slowly, insistently.
Mumbled Ukrainian conversation could be heard in the background. Slam: the phone would be placed on a desk. Fifteen minutes would go by.
“Hello” would come a voice.
“Do you speak English?”
“English? One moment.”
Another ten minutes would elapse.
“What do you want?” a man would finally ask.
“I want to buy ammunition. I sent you a fax requesting a price. I haven’t heard back from your company.”
“What kind ammunition?”
“Automatica Kalashnikova,” Packouz would say, using the Russian pronunciation.
“Ah, good. Yes, very good. You buy?”
“Yes. Did you receive my fax?”
“You send fax?”
“Okay, I check.”
Another five minutes.
“We get no fax,” the man would say.
“I’ll send it again now. Please don’t hang up.”
Packouz would resend the fax. “Did you receive it?”
“One moment please.”
“We get fax. You buy this ammunition?”
“Yes. For United States government, for a contract in Afghanistan.”
“Okay. I show my deputy director.”
“Yes! Please show the deputy director. My contact information is on the fax.”
“Wait, wait! What’s your name?”
Weeks would pass and no prices would appear. Packouz would call again, this time sure to obtain a name at the beginning so he would have a contact to ask for when he inevitably had to call again and again.
“The first prices I got were ridiculously high,” Packouz said. “They insisted on meeting for drinks in Kiev or Sofia in order to have any discussions about lowering prices. I didn’t have the time or money to fly over to meet every shady arms dealer I was contacting. So I just kept moving along, hoping to find suppliers who were more business-friendly.”
Packouz’s efforts paid off. Over time, he accumulated an impressive collection of quotes from different countries in Eastern Europe. The best prices were for large-caliber items like grenades and mortar rounds that he sourced from a Bulgarian company. Packouz and Diveroli agreed that their prices were competitive—or at least it seemed so.
“We knew the big boys were also chasing prices,” Packouz said. “Giant companies like General Dynamics were going to bid on the deal. There were also other little companies like ours. We knew they had to be getting quotes from many of the same companies we were using.
“I knew actually winning the contract was a long shot. I didn’t talk about bidding on it with anyone else. I didn’t want to talk about pie-in-the-sky things. I thought we maybe had a chance. We had delivered this stuff before. And the contract was so vaguely worded. There was so much leeway in the solicitation.”
Packouz and Diveroli figured they could buy old ammo, as long as it wasn’t rusty or obviously exposed to the elements. The rounds had to look okay to pass muster by the receiving officer when they arrived on the tarmac in Kabul.
“If it looked like shit, the Army could refuse to accept it,” Packouz recalled. “That was all we cared about. The Army just wanted to get as much ammo into Afghanistan as quickly as they could. Our job was to accommodate them. It wasn’t like the ammo was for American soldiers. The Pentagon was buying ammo for Afghan soldiers. It seemed like the Army didn’t really care about quality or reliability—just speed and price.”
While Packouz spent all his waking hours hunting for suppliers, Diveroli continued to win other contracts. He didn’t care how the Americans were doing in Iraq or Afghanistan, as long as the contracts kept appearing online—and those only increased as the United States kept trying to solve its troubles by outsourcing.
Despite Diveroli’s indifference to politics, it had a way of intruding in the work of an arms dealer. Like the survey he received in an e-mail from the Army in the fall of 2006. The military wanted to know if AEY had sourced any weapons or ammunition or other war-related equipment from China or Chinese military companies?
Unaware of the purpose of the question, Diveroli replied that he hadn’t purchased matériel from the Chinese. Unwittingly, he wasn’t being entirely accurate. The year before, Diveroli had purchased $300,000 worth of old AK-47 ammunition from an Albanian company for a small FedBizOpps contract. The ammo had been manufactured in China in the 1960s and then shipped to Albania, where it had sat for decades in caves in the mountains outside Tirana. Henri Thomet had brokered the deal, failing to tell Diveroli that the rounds had actually been made in China. At the time, it was irrelevant. The important thing was that the ammo got to the Special Forces in Germany for them to use to train with Kalashnikovs. The deal had gone so well that the Army had written AEY a thank-you letter.
But the geopolitical equation had changed again. In 1989, a ban on selling arms to China had been imposed in the aftermath of the Tiananmen Square crackdown on pro-democracy student protesters in Beijing. The embargo against selling weapons to China had been challenged in 2004, when France and many other European countries advocated lifting the “anachronistic” ban.I The Americans had maintained the ban, justifying the move as a way to protect against the transfer of high-technology weapons. But the reelection of George W. Bush at the end of 2004 had emboldened a faction in the military-industrial complex to lobby for a more belligerent policy toward China. Neoconservatives, triumphant from the campaign, believed China had to be treated as an enemy, even though it had become America’s largest trading partner. “How Would We Fight China” was the cover story in the Atlantic by the influential military writer Robert Kaplan. “The American military contest with China in the Pacific will define the 21st century,” Kaplan wrote. The accumulation of wealth in China, and the concentration of that money in the hands of a small elite, convinced American hawks that any military or territorial ambitions the country held needed to be squashed—by coercion, if necessary.
The State Department wanted to pursue a more balanced and conciliatory policy, but Defense used bare-knuckle tactics to try to impose an alarmist view of China’s rise. The infighting delayed the release of the annual report to Congress on the military power of China. During the internal dispute, Secretary Rumsfeld issued a “sharp rebuke” to China about its increased military spending—even though the increase in American military spending from 2001 to 2003 in the United States was more than the entire military budget of China.II
By the time Packouz and Diveroli were sourcing the Afghanistan contract in 2006, the hard-line forces in the Pentagon had won the day. The Russians had just been banned from selling to the military for ideological reasons—in that case, American policy toward Iran. China was likewise selling arms to Iran. So now it was China’s turn: the National Defense Authorization Act of 2006 included a new ban on Chinese arms. The 1989 ban that had restricted selling weapons to China was no longer enough; this ban made it against the law for the US government to buy weapons from the Chinese. The original intention of the 1989 embargo was to stop arms deals with China that might involve the acquisition of sophisticated Western technology and systems. Now the intention was purely punitive: the Chinese wouldn’t be able to enrich themselves by selling arms to the Pentagon.
As the law was drafted, it took a strange, even perverse, turn. Instead of referring to weapons of mass destruction or high-tech secrets, it was now stated that the federal government couldn’t acquire any munitions, “directly or indirectly,” from a “Communist Chinese military company.”
The ban apparently included Chinese-made Kalashnikovs, heavy machine guns, grenade launchers—the kinds of arms the Army urgently needed in Iraq and Afghanistan. The ban also included ammunition for those weapons. At least that was what was said in an e-mail the Army sent to the dudes. The notice came in the middle of the bidding for the Afghan contract. AEY and its competitors were scouring the globe, looking for nonstandard ammo to get to Kabul. The e-mail from the procurement office in Rock Island, Illinois, said that none of the munitions could come from China—period.
Earlier in the process, the Army had specifically been asked by one of AEY’s competitors if Chinese ammunition qualified for the contract. The Army had replied that the solicitation didn’t rule out China, provided the munitions met the stated technical specifications. For all the Army knew, or cared, that company had developed its bidding strategy based on Chinese ammunition. But fairness had nothing to do with the process. Nor did the rule of law—not when the government decided the law. One day Chinese munitions were allowed; the next they weren’t.
Sitting in Miami Beach, the dudes didn’t know or care about any of these fine legal questions. They read the Army e-mails and shrugged—at least the rule explained the earlier e-mail they’d received about acquiring Chinese munitions. As it happened, Packouz had sought a couple of quotes from Chinese companies, but nothing had come of the queries. Packouz and Diveroli quickly moved on. Russia was out. Now China was out. Whatever. Packouz amended his standard-form e-mail to Henri Thomet and other potential suppliers to state that Chinese ammunition was now unacceptable.
As the weeks passed and the deadline loomed, Packouz continued to search for sources for huge quantities of twelve-gauge slugs, GP-30 impact grenades, 82 mm mortar rounds, 57 mm rockets—an entire arsenal. But what most concerned the pair was the single largest component of the solicitation—100 million rounds of 7.62x39 mm and 7.62x54 mm AK-47 ammunition. The Kalashnikov ammo order wasn’t the biggest element in terms of dollars—grenades and RPGs were much more expensive and represented a larger portion of the contract, moneywise. But in terms of sourcing and transportation, 100 million rounds of AK-47 ammo was the greatest logistical challenge. The small-arms ammo was also crucial to how the war would actually be fought on the ground. Soldiers and police officers in Afghanistan relied on nothing more than their personal AK-47. They needed ammo in huge volumes, because the Afghans lacked fire discipline and were notorious for shooting at anything that moved. “Spray and pray” was the best way to describe how the Kalashnikovs were used in combat by the Afghans, according to the American trainers embedded with the units.
Hunting for quotes, Packouz got low prices on surplus AK-47 rounds from suppliers in Hungary and Bulgaria. But none could satisfy the entire order of 100 million rounds because of a worldwide shortage of the ammunition. Ironically, the US military’s insatiable demand for AK-47 ammo for Iraq had drained caches in Eastern Europe—at the very moment demand in Afghanistan was at its greatest.
The result was skyrocketing prices. New rounds were selling for as much as thirty-five cents each. For decades, new AK-47 ammo had sold for around ten cents, with even the highest-quality rounds going for less than twenty cents. With both Russia and China banned from selling to the US government, the cost of supplying new ammo would be prohibitive, the dudes knew.
Old, surplus cartridges could be had much cheaper—the cheaper and older, the better. But finding such a huge stockpile seemed impossible. AEY would have to laboriously piece together different sources—10 million rounds from one supplier, 5 million from another. How could the tiny company hire enough staff in time to deal with the logistical problems of managing so many suppliers and airfreight companies? AEY’s bid had to be submitted within weeks.
As ever, Henri Thomet had a brilliant answer. Thomet said he could get AEY the entire order in surplus ammo from one source. Even better, Thomet’s price was four cents a round—barely one-tenth the cost of new AK-47 rounds. If the ammo was good enough quality—if it was serviceable without qualification; if it went bang and traveled out of the barrel—it was possible that AEY would be able to seriously underbid the competition.
Thomet’s supplier for all of the 100 million rounds was MEICO, the Military Export Import Company, the Albanian government’s arms-dealing company. The dudes knew about MEICO. The year before, AEY had brokered a deal with MEICO for a relatively small amount of AK-47 ammo for American Special Forces stationed in Germany.
Explaining how he was able to get such a great price, Thomet said that he was extremely well connected in Albania, being friendly with the prime minister, as well as the defense minister and the official in charge of MEICO. Thomet had “bound” the ammo in Albania—he was the exclusive agent for one of the biggest stockpiles on the planet. That meant that Thomet could give AEY an exclusive, which was another fantastic advantage over the other bidders.
The structure Thomet proposed was classic for shady arms deals. His shell company in Cyprus, Evdin, would purchase the ammo from MEICO, instead of AEY, to ensure that Thomet wasn’t cut out of the deal. At least, that was the express rationale. But it also meant that Thomet didn’t have to disclose the real price he was paying MEICO for the ammo, so Diveroli wouldn’t know Thomet’s true profit margin. Likewise, Diveroli wouldn’t disclose to Thomet the price he was going to charge the Pentagon.
In reality, Thomet was paying the Albanians 2.2 cents per round, or barely half of what AEY was paying. An obvious implication for such a huge gap between the price Thomet was paying the Albanians and what he was charging AEY—nearly double the amount—was that money from Evdin could be used to pay kickbacks and bribes to Albanian military officers and politicians. Doing business in notoriously corrupt countries like Albania almost inevitably included bribes and kickbacks. Thomet could handle this matter discreetly, which was especially important at that moment, as Albania was slated to be admitted to NATO in 2007 and scandal had to be avoided at all costs. Evdin also provided a degree of insulation for AEY: the dudes wouldn’t have to directly grease palms in Albania, which would violate foreign-corrupt-practices laws in the United States. AEY’s involvement, in turn, provided a layer of protection for the Pentagon—though Packouz and Diveroli didn’t fathom that they might be part of a much larger game.
To calculate its final bid, AEY needed to figure out the cost of transportation—a particularly hard number to determine because of changes in the price of oil. Often the cost of flying weapons to a war zone was greater than the price of the arms themselves. Delivery of the AK-47 ammo from Albania was going to require dozens of flights, along with scores of flights from Hungary and Bulgaria, where AEY had sourced other munitions. Finding freight airlines, obtaining the necessary overflight permissions, getting proper end-user certificates, complying with regulations on moving hazardous materials like ammunition—the logistics presented an immense challenge.
Thomet had an answer for that, too. To tend to the logistics of flying a mountain of ammunition to Afghanistan, Thomet had teamed up with a veteran Israeli soldier named Sammy Avivi—a decorated war veteran who’d been injured in combat multiple times.III To enable AEY to bid on the Afghan deal, Avivi was put in charge of coming up with a price for airfreight. After weeks of research, Avivi said it would cost $63,000 for every flight from Tirana to Kabul. This seemed like another good price—although the dudes had no way of knowing what quotes their competitors were getting.
Sitting in AEY’s tiny office, Packouz and Diveroli put the airfreight and cost of the AK-47 ammo into a spreadsheet they called the Final Afghan Price Matrix. They’d priced out all of the elements—howitzer shells, Mossberg riot-shotgun ammo, grenades, T-62 tank rounds, and so on. But their numbers disguised the uncertainty lurking beneath the surface. Like Thomet’s price for 122 mm HE shells. New, the shells cost $240, but Thomet said he could get 80,000 surplus shells for only $60 each. The cheaper shells were enough to cover what the contract required for the first year of the two-year deal. But Thomet didn’t have a large enough cache to satisfy the demand for another 150,000 in the second year of the contract.
Trying to trim every dollar possible, Diveroli decided to use the lower price on the 120 mm shells for both years, reasoning that he could bid millions less for the overall contract that way. If he wasn’t able to supply the shells in the second year at the lower price—well, they’d drive off that bridge when they got to it.
The deadline had arrived. The final number was Diveroli’s decision. He paced day and night, a cloud over his head as he smoked joint after joint, muttering, worrying, cursing.
Diveroli was conflicted about whether to use a 9 percent or a 10 percent profit margin. The difference between the two percentage points was around $3 million in profit. He figured everyone else was going to go with 10 percent. But he didn’t know the prices the other bidders had been able to find.
“How could we be sure our prices were better than what others had been able to source?” Packouz recalled. “Diveroli was worried that another bidder had figured out his 9 percent trick and would use it, too. So maybe he should go with 8 percent. But then he might be leaving money on the table—God forbid!”
On the day the bid was due, Diveroli was frantic. He needed to make up his mind. He took a deep breath and decided to be aggressive. Eight percent it was. Fortune favors the brave. He wrote the number in: $290,544,398.
Time was up. The final bid had to be submitted by mail, postmarked to show it had been sent on time. The two friends leaped into Diveroli’s car and sped through the streets of Miami Beach, making it to the post office with only minutes to spare.
Packouz and Diveroli didn’t spend the weeks that followed worrying about the Afghanistan contract. Fretting about the outcome was pointless, Diveroli explained, as he started searching for new solicitations the next day. Packouz was exhausted by the work he’d put into the bid. But he could see that his efforts were paying off. He’d developed contacts with arms manufacturers all over the former Communist world. He was beginning to truly grasp Diveroli’s business model—how it was possible to be daring on FedBizOpps.
Diveroli and Packouz held AEY’s annual board of directors meeting as the end of 2006 neared—an event consisting of the two of them sitting at a desk together. The minutes recorded their desire to continue to pursue “major contracts,” like the Afghanistan deal. The company would move to a larger office, but they would keep staffing to a minimum, and, instead, “hire independent contractors and consultants to work on assignments for a limited duration, thus keeping costs down and profits up.”
The pair had cause to be optimistic. The early signs on the Afghanistan solicitation were promising, if somewhat mixed. AEY was clearly in the running, but the Army was suspicious about AEY’s pricing on the 122 mm HE shells. Diveroli had deliberately underpriced the shells to present an artificially low bid. The practice was known as “buying in” in the defense-contracting industry, shorthand for getting the government to sign a contract and then gradually altering the terms in your favor. Purposefully underpricing a contract and then encountering massive cost overruns was known as “gold plating” and was a routine way large companies rigged the system.
The Army sent an e-mail asking AEY to double-check the 122 mm shells quote as it seemed unreasonably low. Packouz and Diveroli freaked out: Did the Pentagon know what they’d done? They decided to revise the estimate to include the higher price for the second year.
“We should have used new production pricing for the second year since there is no assurance that surplus goods will still be available in a year’s time,” AEY wrote. “Our revised pricing is included. We could withdraw our bid, or continue forward as revised. This would be your call, if the bid is still interesting to you.”
The new number was $298,004,398—an increase of $8 million.
The sly deception worked. In the weeks that followed, the Army had a series of picayune questions and concerns. The dudes sent a letter listing the suppliers they’d worked with—an impressive array of munitions companies in the former Yugoslavia and Romania and Bulgaria and Albania. They said they couldn’t disclose the precise nature of the transactions they’d completed because of nondisclosure agreements. “Confidentiality is a common inclusion in most contracts of this kind,” they wrote. “We wish to express our confidence that with our resources and expertise, in addition to our valued suppliers, and the strong relationships we have with these companies, we can fulfill all aspects of this ammunition tender in a seamless and timely manner.”
Two months had passed and waiting was now excruciating. Packouz tried not to think about the fortune he stood to make from the Afghan deal. If they won the contract, he figured he’d make $8 million personally. The money was more than enough to enable him to record the album of songs he was completing. He’d be able to hire top session musicians and a high-end producer. The record would be slick, professional, sure to attract the attention of a major label. Packouz was going to back his dream by investing $1 million of his own money in promotion. Within a year or two, he’d be rich and he’d be famous.
Trying not to obsess over the outcome, Packouz and Diveroli attended a trade show in Florida for companies specializing in electronic surveillance. Walking the aisles, they ran into a senior procurement executive for General Dynamics, the giant arms company. Joe Pileggi was middle-aged, stocky, with close-cropped, graying black hair. Despite the vast disparity in size with AEY, General Dynamics was a rival for the Afghan contract, the dudes knew, which should have made both sides wary. But Pileggi was friendly, acting as if they were colleagues, not brutal competitors. Pileggi asked if they had a minute to talk. They all took a booth in the food court.
“You guys sure seem pretty busy,” Pileggi said, as Packouz recounted.
“We work hard,” Diveroli said.
“We’re kinda like you guys,” Pileggi said. “General Dynamics is huge, but we’ve only got twenty-five guys in our department. We do foreign sourcing and logistics. But we have the General Dynamics name behind us, which helps a lot.”
“We’re just two guys,” Diveroli said, staring blankly.
Everyone else at the trade show was middle-aged, nearly all ex-military or law enforcement, and in that circumstance Diveroli and Packouz looked comically out of place.
“You’re making quite a splash in the industry. A lot of guys at the office won’t believe how young you guys are when I tell them.”
“We’re old at heart,” said Diveroli. “How can we help you, sir?”
“I know we bid on some of the same contracts. But that doesn’t mean we can’t do business.”
“What do you got, what do you want?” Diveroli asked.
“Small ammo,” Pileggi said. “Large-caliber munitions. Let’s compare prices. Maybe we’ll work something out.”
“So I know you guys bid on the Afghan contract,” Diveroli said, a sneaky grin forming on his face. “How you feeling about that?”
“We worked hard on that. Lots of man-hours. Tight margins—pretty damn tight, I’ll tell you. So we’re fairly confident. I’ve got to admit, it would kill me if we lost a contract that big. We really gave it our all.”
“Yeah, us, too,” Diveroli said. “Now if you’ll excuse us, we’ve got another meeting.”
The pair left abruptly.
“Another meeting?” Packouz asked.
“He’s just wasting our time,” Diveroli said. “He was fishing for information on what we bid on the Afghan deal—trying to hear our prices. How obvious can you get? Fuck him. He thinks he’s hot shit because he works for General fucking Dynamics. But you see how he’s scared shitless of us? He knows we’re going to eat them alive.”
“We’re going to eat General Dynamics alive?” Packouz asked, incredulous.
“You and me, buddy, we’re going places,” Diveroli said, strutting past a booth displaying high-tech surveillance cameras.
December 20, 2006, was Efraim Diveroli’s twenty-first birthday. The gunrunner was finally old enough to legally drink alcohol. Of course, he’d been sneaking into bars for years, always equipped with excellent fake ID. But now that he was of age the dudes decided to hit the clubs to celebrate legitimately. Diveroli’s apartment building had valet parking, but he was on poor terms with the man tasked with fetching cars. When they reached the parking lot, Diveroli decided he wanted to get his car himself, instead of dealing with the middle-aged Cuban valet, who obviously didn’t like Diveroli and his brash manners. Diveroli had already snorted a few lines of coke, so he was feeling feisty. He sneaked into the valet’s cubby and snatched his keys. As he turned to leave, he saw the valet coming toward him at a run.
“Get out of there!” the valet shouted.
“I just want my keys,” Diveroli said.
“You can’t go in there,” the valet yelled, trying to grab the keys back.
Diveroli and the valet began to argue. A security guard on duty came over, drawn by the screaming. When Diveroli looked away for a second, the valet punched him in the head. Diveroli turned and the valet punched him again as the pair began to wrestle and choke each other. Packouz instinctively grabbed the valet. The security guard pulled Diveroli off the valet.
Panting and bent over to catch his breath, Diveroli was a mess, his shirt torn apart, his face swollen. “I’m calling the cops,” he screamed at the valet. “I’m getting you arrested. I’m getting you deported.”
Diveroli and Packouz went back up to Diveroli’s apartment and called the police. Diveroli said he’d been attacked and wanted to press charges. Hanging up, he remembered that he was carrying a packet of cocaine for the night’s festivities. He told Packouz he couldn’t have the drug on him when he talked to the police. He asked Packouz to hold the coke.
“I was stupid enough to take it,” Packouz recalled. “I stuck it in my sock to be safe. When we got downstairs, there were three cruisers with their lights on in front of the building. They came over and put us both under arrest. We couldn’t believe it.”
The Miami Beach police began to question Diveroli and Packouz. When they took Diveroli’s wallet, they discovered that he was carrying fake ID showing that he was older than his true age. Diveroli, eager to disassociate himself from the ID, told the police he was officially twenty-one years old, so it was no longer relevant. The police thought otherwise. Instead of filing a victim statement, as he’d anticipated, Diveroli was charged with carrying a false identification. Both Packouz and Diveroli were also placed under arrest for the altercation with the valet. Driving in the cruiser to the police station, Packouz remembered he had Diveroli’s cocaine in his sock.
Packouz and Diveroli were put in different holding cells. When Packouz was searched, the officer told him to take off his shoes and socks but failed to notice the baggie of cocaine—a complete fluke.
“I was scared shitless,” Packouz recalled. “It was a miracle, but he didn’t find the baggie crumpled up inside my sock.”
Afterward, Diveroli didn’t apologize to Packouz about the fight or the cocaine. He was angry at the valet and the security guard and the police, as if he were the victim, ignoring what Packouz had been through.
“I didn’t bother telling him how I felt—how I could have been caught with his coke,” Packouz said. “I knew he didn’t care. I knew I was being forewarned. Things could go wrong very quickly with Efraim. But I was blinded by the possibility of getting rich. I was waiting to see if the Afghanistan contract came through. I’d been bitten by the money bug. I had it bad.”
I. Leaked cables in 2011 would reveal the fragility of the ban on China: http://euobserver.com/china/32658.
II. William D. Hartung, Prophets of War (Nation, 2011), 7.
III. Avivi had been the military attaché to Israel’s embassy in Switzerland. To gain access to Israel’s lucrative arms business, Thomet recruited Avivi by giving him an expensive Land Rover and making payments that would later end in the war hero’s conviction in an Israeli court.