KEY POINTS:
When historians assess the Bush Administration's scandals, there is one that - even by the era's exacting standards - will amaze with its sheer chutzpah. The figure in the spotlight is Efraim Diveroli, 22. His Miami-Dade Police Department mug shot depicts a rather dazed, tussle-haired youth who looks like he might have spent a night clubbing.
Instead, as the beneficiary of a US$298 million ($426 million) United States Army contract, Diveroli, president of Miami Beach's AEY Inc, was a vital cog in the US-lead War on Terror, supplying tens of millions of small arms cartridges, mostly acquired from Albania, to Nato's Afghan allies in the high-stakes Great Game against al Qaeda and the Taleban in Afghanistan.
The popular image of international arms dealers evokes shadowy figures such as Viktor Bout, the notorious Russian charged by the US with arming FARC, the Revolutionary Armed Forces of Colombia, a designated terrorist group. Diveroli may be the only munitions merchant who needed a fake driver's licence - overstating his age- to buy alcohol, who describes himself as a "super nice guy" on MySpace, and whose vice-president was a shaven-headed, goateed masseur.
"How did a company run by a 21-year-old president and a 25-year-old former masseur get a sensitive $300 million contract to supply ammunition to Afghan forces?" asked US Congressman Henry Waxman, the Bush administration's nemesis on official malfeasance claims, who is investigating AEY.
We may find out. On June 19 a federal grand jury in Miami brought fraud and conspiracy charges against Diveroli; David Packouz, the masseur; Alexander Podrizki, AEY's man in Albania; and Ralph Merrill, a business associate. Wire fraud charges were added by a superceding indictment.
"I know that my company does everything 100 per cent on the up-and-up, and that's all I'm concerned about," Diveroli said last year. He claimed AEY was a US$200 million-a-year business.
Maybe. Meanwhile, the US Army has suspended its contract.
They are accused of scheming "to unjustly enrich themselves" by illegally shipping ageing Chinese cartridges to Afghanistan. Prosecutors say US law prohibits "delivery of ammunition acquired, directly or indirectly, from a Communist Chinese military company." Diveroli allegedly swore that AEY shipments - the indictment lists 35, worth US$10.3 million, from June and October 2007 - originated at the Military Export and Import Company in Albania.
His lawyer, Howard Srebnick, says the ban applies to weaponry made after the 1989 Tiananmen Square Massacre. "There is no crime in selling pre-embargo ammunition to the US Army." He insists Diveroli never dealt with "anyone from China ... much less a Communist Chinese military company," and that the munitions dated from the 1960s and 1970s.
The defendants, free on bail, have pleaded not guilty.
The US Army's extraordinary deal became public in March, when the New York Times reported that AEY had bought over 100 million Chinese cartridges from Eastern European stockpiles, sparking a federal investigation. The paper painted an Alice in Wonderland picture of a young arms dealer out of his depth in a not-so-excellent adventure.
Bout can boast years of experience. Diveroli is a novice.
In a CBS interview last March, Michael Diveroli described his son as a "boy genius" who is "hard to control". Oddly, for a father who claimed "I would prefer he became a nice Jewish doctor or lawyer rather than an arms dealer", Diveroli senior incorporated AEY when Efraim was 13. When Efraim reached 18 he was given a 1 per cent stake in the company.
In 2005 Diveroli became AEY president. Operating from an unmarked Miami Beach office, the 19-year-old aggressively surfed a seller's market and quickly won US arms contracts for Bolivia, Pakistan and Iraq. But the company gleaned a reputation for unreliability. And the MySpace party boy who liked clubbing had a volatile side. Miami court and police records cite incidents in which he allegedly intimidated women and another episode, in December 2006, when he was charged with battery following a fight - that also involved David Packouz - with a parking valet. Diveroli was also charged with felony possession of a stolen or forged document: the fake driver's licence. Neither was convicted.
The fracas occurred when AEY was bidding for the Afghan contract. It came through in January last year. But Diveroli's luck was running out. In April last year, the indictment alleges, Podrizki emailed Packouz pictures of ammunition crates with Chinese markings. Packouz told Podrizki to lose the crates. The State Department confirmed Chinese munitions were illegal, without a presidential waiver.
A subsequent email from Merrill offered advice on how to clean markings off crates. In June, Diveroli "falsely certified" that the Chinese ammunition was made by Albania's Military Export and Import Company. The New York Times said AEY bought ammo via Evdin, a Cyprus shell company.
Kosta Trebicka, an Albanian subcontractor, did the repackaging. Srebnick says this cut weight and saved freight costs. "Anyone who looks at the ammunition knows it's Chinese-made. It's hardly reasonable to claim there was some way to conceal this."
Things began to fall apart when Trebicka secretly recorded a June 11 phone conversation last year with Diveroli, passing it to US authorities. Diveroli complains about Albanian corruption. "It went up higher to the Prime Minister and his son. I can't fight this mafia. It got too big. The animals just got too out of control."
THERE were other warning signals. Last year the Czech government told the US that AEY was buying nine million cartridges from Petr Bernatik, accused of trafficking arms to the Congo Republic and Slovakia. Bernatik denies these claims and told the paper he fulfilled seven AEY shipments, allegedly with US approval, to Iraq.
The shell company and middlemen reportedly used by AEY are on a State Department watch list of 80,000 illicit arms traffickers. Despite US laws about disclosing such contacts, the Pentagon was exempt - a gaping hole ripe for exploitation as the US Army sought cartridges for Afghan soldiers, many of whom use AK-47s and other Soviet weapons.
"The procurement process at the Pentagon is dysfunctional," said Waxman, who chairs the House of Representatives Committee on Oversight and Government Reform, which is scrutinising AEY. "There was no apparent need for this US$300 million contract, no effective vetting of AEY's experience, and no consultation with the arms trafficker watch list. Given the massive failures in this case, I'm concerned that this is just the tip of the iceberg."
Given the post-9/11 arms bonanza, it might be a big iceberg. Even as the AEY case heads to court, reports surfaced that an US$80 million US military contract to supply jet fuel to bases in Afghanistan was awarded to a company owned by Gaith Pharaon, a Saudi indicted in the US for his alleged role in the Bank of Credit and Commerce International swindle and the US$1.7 billion CenTrust bank scandal.
An investor in George W. Bush's 1977 Texas oil company, Arbusto Energy, Pharaon has been linked by France to hawala, fiscal networks used by al Qaeda, and is an FBI fugitive.
The Bush administration's push to privatise war has sparked claims of crony capitalism, as big-ticket, no-bid contracts went to US corporations. Last month the Army official who managed the Pentagon's biggest Iraq contract was fired after he refused to pay US$1 billion in dubious charges to KBR, the Houston-based contractor and former subsidiary of Halliburton, once run by Vice-President Dick Cheney.
Whatever happens in Miami - the case is at the pre-trial stage - the AEY saga illuminates another murky aspect of US policy in the War on Terror: does the Pentagon exercise due diligence on provenance in a netherworld of arms deals?
Munitions are supposed to be rigorously tested and checked, and AEY was contracted to supply "serviceable and safe" ammunition. Yet a news photograph of AEY cartridges shows loose rounds, tinged with green corrosion. Over time, ammunition can become less accurate, reliable and powerful.
It can also become unstable when not kept in optimum conditions. In March an arms cache, outside Tirana, Albania's capital, exploded. The blasts killed at least 22 people, wounded over 300 and destroyed hundreds of homes.
But one Afghan officer told the New York Times, "It makes us worried, because too much of it is junk." Hardly a ringing endorsement as the Afghanistan war intensifies.
"The ammunition is of a quality that is less than desirable," a US inspector told the newspaper. "The munitions do not appear to meet the standards that many of us are used to." Some ammo, made in China between 1962 and 1974, arrived in Afghanistan in disintegrating cardboard boxes.
"Supplying substandard equipment to the Afghan security forces can only undermine our mission there," Ike Skelton, the Democrat chair of the US House of Representatives Armed Services Committee, said in March. "The use of networks of illegal arms dealers, if this in fact occurred, undermines US arms sales policy and our international reputation."
The AEY scandal snowballed on July 24 when, in a letter to the US envoy to Albania, John L. Withers II, Waxman said Major Larry Harrison, a US military aide, " ... had informed the Committee that you approved removing evidence of the illegal Chinese origins of ammunition being shipped from Albania to Afghanistan by a US contractor, AEY, Inc".
The letter said this cover-up, designed to hide Chinese ammunition from a Times reporter, took place "during a late night meeting with the Albanian Defence Minister on November 19, 2007". Harrison had told the Committee: "The Ambassador agreed this would alleviate the suspicion of wrongdoing."
Both Withers and Defence Minister Fatmir Mediu, who resigned after the Tirana explosion and has been accused of taking kickbacks, deny any wrongdoing.
The ambassador appeared before the grand jury and has been summoned by Waxman. A Committee spokeswoman says the ambassador has agreed he will "co-operate voluntarily".
No word from the Boy Genius, who faces up to five years' jail if convicted.
EFRAIM DIVEROLI
* 22-year-old president of AEY, a Miami-based firm run from an unmarked building.
* In November 2005, a woman sought a protection order from him citing domestic abuse. The case never went ahead, but in court papers the woman said their relationship ended, he stalked her and left threatening messages.
* Diveroli sought court delays on national security grounds, at one stage telling the judge: "My business is currently of great importance to the country as I am licensed Defence Contractor to the United States Government in the fight against terrorism."
