In January of 2007, three young stoners from Miami Beach were put in charge of a $300 million Department of Defense contract to supply ammunition to the Afghanistan military. Instead of fulfilling the order with high-quality arms, Efraim Diveroli, David Packouz, and Alex Podrizki (the dudes) bought cheap Communist-style surplus ammunition from Balkan gunrunners. The trio then secretly repackaged millions of rounds of shoddy Chinese ammunition and shipped it to Kabul—until they were caught by Pentagon investigators and the scandal turned up on the front page of The New York Times.
That’s the “official” story. The truth is far more explosive. For the first time, journalist Guy Lawson tells the thrilling true tale. It’s a trip that goes from a dive apartment in Miami Beach to mountain caves in Albania, the corridors of power in Washington, and the frontlines of Iraq and Afghanistan. Lawson’s account includes a shady Swiss gunrunner, Russian arms dealers, Albanian thugs, and a Pentagon investigation that caused ammunition shortages for the Afghanistan military. Lawson exposes the mysterious and murky world of global arms dealing, showing how the American military came to use private contractors like Diveroli, Packouz, and Podrizki as middlemen to secure weapons from illegal arms dealers—the same men who sell guns to dictators, warlords, and drug traffickers.
This is a story you were never meant to read.
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The e-mail confirmed it: the delivery was back on track, after weeks of maddening, inexplicable delays. It was May 24, 2007, and the e-mail said that a cargo plane had just lifted off from a military airstrip in Hungary and was banking east over the Black Sea toward Kyrgyzstan, some three thousand miles away. After stopping to refuel at an air base in Bishkek, the plane would carry on to Kabul, the capital of Afghanistan. Aboard the plane were eighty pallets loaded with 5 million rounds of AK-47 ammunition, for the Soviet Bloc weapons preferred by the Afghan National Army.
Reading the e-mail in his tiny office in Miami Beach, David Packouz breathed a sigh of relief. The shipment was part of the $300 million ammunition contract Packouz and his friends Efraim Diveroli and Alex Podrizki were attempting to fulfill for the Department of Defense. Packouz and his buddies were still in their early twenties, but they’d been contracted by the US Army to deliver a huge amount of munitions to the Afghanistan military. Bidding online, on the website where the Pentagon posted defense contracts for public competition, the stoner dudes had beat major corporations to win the Afghan contract. For weeks in the spring of 2007, Packouz had toiled tirelessly trying to obtain flyover permissions for the ammo from the countries between Hungary and Afghanistan—all formerly part of the Soviet Bloc. Working with nothing more than a cell phone, an Internet connection, and a steady supply of high-quality weed, he’d finally succeeded in getting the ammo en route to Kabul. But along the way Packouz had repeatedly encountered mysterious, invisible forces seemingly conspiring to stop him from delivering the ammo—the kind of political complications inherent in gunrunning.
Five thousand miles away, in the Balkan city of Tirana, Albania, Packouz’s friends Efraim Diveroli and Alex Podrizki were also dealing with menacing and mysterious forces as they tried to arrange for 100 million rounds of AK-47 ammo to be transported to Kabul. Alone in a notoriously lawless country, Diveroli and Podrizki were trying to negotiate with an Albanian mafioso taking kickbacks, as well as a Swiss gun dealer running the deal through a Cyprus company seemingly as a way to grease the palms of shadowy operators allegedly associated with the prime minister of Albania. Or so it appeared—knowing the underlying truth was often impossible in international arms dealing. As if those woes weren’t enough, Diveroli and Podrizki were also overseeing an operation to deceive the Pentagon by covertly repacking the AK-47 rounds into cardboard boxes to disguise that they had been manufactured decades earlier in China—a possible violation of American law.
Gunrunning, the three dudes were learning the hard way, was a tough business.
In Miami, David Packouz replied to the e-mail about the Kyrgyz ammo with excitement: the ammo was finally on its way. His workday at an end, he got in his new Audi A4 and drove home through the warm South Florida spring evening, windows open, U2’s “Beautiful Day” blasting on the stereo. What was happening was incredible to Packouz. He had no training as an international arms dealer, other than what he’d learned on the job from his friend, the twenty-one-year-old dynamo Efraim Diveroli. Packouz was only twenty-five years old, and his only postsecondary education was half a bachelor’s degree’s worth of chemistry credits, along with the diploma he’d earned from the Educating Hands School of Massage; until recently, he’d made his living as a masseur advertising his services on Craigslist. Now Packouz was a central player in the delivery of an entire arsenal to Afghanistan, responsible for chartering dozens of flights from all over Eastern Europe, obtaining flyover permissions from countries like Turkmenistan and Uzbekistan, and placating overwhelmed American soldiers on bombed-out tarmacs in Kabul trying to build the Afghan army in the midst of a hot war.
Winning the $300 million Afghan deal was changing Packouz’s life in myriad ways. He’d moved out of his dive studio apartment, into a condo in a flashy seaside building called the Flamingo. According to his calculations, he was about to become a multimillionaire. And that was just the beginning. Soon he was going to have enough money to kick-start his dream of a career as a rock musician. No more fending off the advances of massage clients who assumed he was a prostitute. No more self-doubt. No more existential angst. Soon he was going to be rich—and he was going to be famous.
Arriving home at his condo, Packouz packed the cone of his new Volcano electronic bong, took a deep hit, and felt the pressures of the day drift away into a clean, crisp high. Dinner was at Sushi Samba, a hipster Asian-Latino fusion joint. Packouz was exhausted but exhilarated—the improbable turn his life was taking was thrilling, even if it required extremely hard work. As his miso-marinated Chilean sea bass arrived, his cell phone rang.
The freight-forwarding agent they’d hired was calling from New York and he sounded panicked: “We’ve got a problem. The plane has been seized on the runway in Kyrgyzstan. The Kyrgyz secret service won’t let it take off for Kabul.”
“What are you talking about?” Packouz said, straining to hear over the restaurant’s pounding music.
“Local customs and security personnel—the local KGB—are fucking with us. They won’t explain anything. I need diplomatic intervention from the United States.”
“That’s bullshit!” Packouz shouted. “We worked for weeks to get the permits.”
“The Kyrgyz KGB is blackmailing us. They say you have to pay a three-hundred-thousand-dollar fine for every day the plane sits on the runway.”
Packouz was baffled, stoned, unable to grasp the implications of what he was being told. He had no idea that the ammo he was attempting to ship to Afghanistan was now a bargaining chip in a game of geopolitical brinksmanship between George W. Bush and Vladimir Putin. The Russian president didn’t like NATO expanding into Eastern Europe, nor did old-school Communist elements inside the Kyrgyz intelligence apparatus. The United States was also being extorted to pay a higher rent for its use of the Bishkek airport as a refueling and staging area—a vital strategic link for the war in Afghanistan. Then there was the recently imposed ban on Russian companies’ selling arms to the US government, denying the Russians the chance to compete for the huge Afghan ammunition contract. The Russians were orchestrating a tit-for-tat reaction, it appeared; it was known in global arms circles that the Afghans were running out of ammunition, so slowing the supply line was a devilish way to hurt American interests.
“It was surreal,” Packouz recalled. “Here I was dealing with matters of international security and I was half-baked. I didn’t know anything about the situation in that part of the world. But I was a central player in the Afghan War—and if our ammo didn’t make it to Kabul the entire strategy of building up the Afghanistan army was going to fail. It was totally killing my buzz. But I had to get my shit together. I had to put on my best arms-dealer face.”
Stepping outside the restaurant, Packouz cupped a hand over his cell phone to shut out the noise. “Tell the Kyrgyz KGB that ammo needs to get to Afghanistan right now,” he shouted into the phone. “This contract is part of a vital mission in the global war on terrorism. Tell them that if they fuck with us they’re fucking with the government of the United States!”
Hanging up, panicking, Packouz decided he needed to talk to Efraim Diveroli, the leader of their operation. Diveroli was asleep in his hotel in Tirana when Packouz reached him. Still groggy from a long night of carousing, Diveroli was sleeping next to a prostitute who’d been provided to him by an Albanian businessman hoping to ingratiate himself with the young American gunrunner.
“We have an emergency,” Packouz said.
“Dude, I’m sleeping,” Diveroli replied.
“Our plane got seized in Kyrgyzstan,” Packouz said.
“Our plane was seized?” Diveroli said. “What the fuck you talking about?”
“The Hungarian ammo. Kyrgyz intelligence is saying we don’t have the right paperwork to transit through their country. They say we’ll be fined three hundred grand for every day we’re stuck there.”
Diveroli was now fully awake.
“Three hundred thousand dollars a day?” Diveroli asked, shouting into the phone. “That’s insane. What the fuck is going on? Tell them this is a vital mission in the war on terror. Tell them that if they fuck with us they’re fucking with the United States of America.”
“Yeah, yeah, I said that. I’m going to call the American embassy when it’s morning there.”
“You got to fix this. We can’t afford this kind of shit. This is unfuckingacceptable. Call the State Department, call the Pentagon—call anyone you can think of. Go over to Kyrgyzstan and give those mobsters a fucking blow job if you have to. Do whatever it takes to get this resolved—and I mean whatever it takes.”
“I’m on it,” Packouz said.
“You know I can’t help from here—I got enough troubles dealing with the fucking Albanian mafia.”
“I’ll get to the Kyrgyz.”
“Now if you’ll excuse me, I’m going to get back to fucking this hooker,” Diveroli concluded.
/ / / / /
To observe that these kids from Miami Beach—still in their early twenties—were in over their heads would be an understatement.
Despite their youth, all three of the dudes were highly capable, in their different ways. Efraim Diveroli was little short of a genius when it came to bidding on federal contracts and mastering the intricacies of dealing with the Pentagon’s bureaucracy. David Packouz was inventive and steady under stress. Alex Podrizki, the only one with a college degree and a modicum of military experience, was taciturn, cautious, determined to ensure that none of the ammo they shipped to Afghanistan was substandard.
But they had no real experience, training, or preparation to fulfill a contract as complex and vital as the $300 million Afghanistan deal. Giant international conglomerates had entire departments staffed by military veterans designed to fulfill contracts like the one the dudes were working on. The Pentagon had established the Defense Acquisition University in the 1990s and trained thousands of specialists in the arcane world of military procurements, an industry rife with the perils of fraud and political intrigue. Scores of small companies were also competing for the Army’s contracts in Afghanistan and Iraq, almost all run by men in their forties and fifties with arms-dealing experience and connections inside the military. To their rivals, the kids had been a joke at first, but then they’d become a major threat because of their uncanny ability to win contracts by underbidding the competition.
The story of how the three dudes exploded onto the international arms-dealing scene began three years earlier, in the summer of 2004. At the tender age of eighteen, Efraim Diveroli had resolved improbably—but with true fervor—to turn himself into a gunrunner. Diveroli and his pals David Packouz and Alex Podrizki had met as teenagers at a yeshiva in Miami Beach, where they routinely skipped prayers to smoke dope in a nearby abandoned house. They belonged to a posse of Orthodox Jewish kids who styled themselves as grunge punks. Chasing around the Art Deco hotels of Miami, their gang rejected the strictures of religious life for the pleasures and distractions of modern American youth. Until the youngest of their gang, Efraim Diveroli, stumbled onto the idea of making money from America’s wars in Iraq and Afghanistan—and drew his friends into the nascent arms business he was going to construct.
“When I started working with Efraim, I knew nothing about war,” David Packouz recalled. “I knew about the so-called global war on terror. But I’m talking about the business of war—because that’s what it was, a business. It turned out that I had a great teacher in Efraim. He was only a kid, but arms dealing came naturally to him. He had an uncle who dealt arms, so the business was kind of in his family, but nothing like the level he took it to. Efraim was born to be a gunrunner.”
At the time, the eighteen-year-old Diveroli was living near the beach in a back-room studio apartment he rented from a Hispanic family. Wake and bake was his daily ritual. The buzz from a couple of hits on the bong he kept on the kitchen table helped him focus as he spent the morning scanning the website Federal Business Opportunities, or FedBizOpps, as it was known in the arms-dealing trade. Here the US government publicly posted contracts for goods and services that were open to online bidding, including billions of dollars’ worth of weapons. At lunchtime, Diveroli would take a walk to smoke a joint, then return to hunt for his first arms deal—one he might actually have a chance of winning. For months he worked deep into the night, searching, smoking, searching, smoking. Once a week or so, he’d meet up with Packouz and Podrizki and their other friends to hit the nightclubs along the beach to blow off steam, downing shots of Grey Goose, snorting lines of coke, hoping to get lucky.
To the outside world, the Miami Beach kids might have looked like any other rabble of layabouts. But Efraim Diveroli wasn’t an ordinary rebellious teenager; he was an incredibly talented businessman. What Diveroli possessed—and what possessed him—was a single-minded ambition. He didn’t regard FedBizOpps as a way to make money, though getting rich was supremely important to him. The website represented a deeper desire. The contracts posted on FedBizOpps were for rivets and forklifts and generators, but also for guns, grenades, and rocket launchers. Contracts were referred to as opportunities, but the term hardly captured their significance for Diveroli. Underneath the tedious-looking technical specifications and bureaucratic boilerplate, he saw the chance to live out his dream to become an international arms dealer.
Like most any teenage dude living on his own, Diveroli’s home was a sty, with dishes piled in the sink, dirty laundry tossed everywhere, and nothing in the fridge apart from beer and leftover take-out food. He dressed like a slob, wearing the cheapest jeans and T-shirts he could find. His shock of brown hair was always messy, framing a face with dark brows, a large nose, peach fuzz on his cheeks and chin, and an expression that combined class-clown humor with punk defiance.
All day every day, Diveroli parsed the Pentagon’s website looking for a way to obtain deals. The bidding on FedBizOpps was winner take all, so there was no consolation for coming close. Diveroli knew winning even one competition would require patience and persistence. But it cost nothing but time to bid on federal solicitations—and he had plenty of time on his hands. To Diveroli, competing on FedBizOpps was like rolling the dice in a vast game of craps.
One morning in the summer of 2004, Diveroli came across a posting for a contract for nine hundred thousand rounds of .223-caliber, fifty-five-gram ball ammunition to supply the Army’s Special Operations Command in Fort Bragg, North Carolina. Reading the terms of the offer, Diveroli had only a tenuous grasp of the mechanics of defense contracting. Single source, the posting said, which meant there would be only one winner of the contract. The term combined synopsis solicitation indicated that the government had specifically allocated funds for the purchase.
Diveroli thought that the contract was so small, in the context of Pentagon procurements, it might just fall through the cracks and not come to the attention of the large corporations who dominated the business. Two-two-three ammo, as the .223 rounds were called, were extremely commonplace bullets. It would be a matter of competing on price, Diveroli reasoned.
To get more information, Diveroli called the Army contracting officer listed online—Jerry was his name. Diveroli adopted a deep baritone to try to sound older. But his boyish enthusiasm was infectious as he asked Jerry about the specifications of bidding for the ammo deal. Jerry seemed impressed by Diveroli’s youth and obvious desire to learn. The Bush administration had recently created rules to favor small businesses in federal contracts—and what company could be smaller than a one-man operation apparently run by a kid?
Jerry explained that bidding on federal contracts wasn’t like a normal business-to-business transaction. FedBizOpps had a vast array of rules, regulations, and laws. Dealing with the Pentagon presented logistical and practical considerations, like performance. The term referred to the record the government kept of how private contractors fulfilled the terms of the contracts—the quality, quantity, and timeliness of deliveries were all closely monitored. If a company failed to perform, Jerry explained, it would be noted in Diveroli’s record, and it could even lead to disqualification from future government deals.
As Diveroli listened to Jerry, he had some slight experience to call upon. When he’d been kicked out of school in Miami in the ninth grade, his parents had sent him to work for his uncle BK in Los Angeles. Diveroli had been caught selling cigarettes and was running with David Packouz and Alex Podrizki and their crowd of delinquent Orthodox Jewish kids who smoked dope around the beachfront. In LA, Diveroli would be expected to live by BK’s strict religious rules. For decades, BK had run a successful arms company called Botach, which sold guns and paramilitary paraphernalia to law-enforcement agencies across the country. Diveroli’s father also had a company that bid on police-supply contracts, though not for lethal weapons, so in a way government contracting and arms dealing were the family business.
At first the fourteen-year-old Diveroli had been a laborer in Botach’s warehouse, but within months he’d risen to become a salesman. By the time he was sixteen, he’d begun trading handguns like Glocks and Sig Sauers seized from criminals by police. Diveroli obtained the weapons from law enforcement, then resold them on “gunboard” websites like subguns.com, where collectors traded their wares. Diveroli wasn’t just good at his job—he was obsessed.
“From the beginning I was addicted to business,” Diveroli recalled. “When I was working for my uncle, I had my own office and a couple of Mexican guys working for me, receiving and shipping the orders that I was bringing in. I was selling everything from guns and boots to flashlights to police all over the country. I was spending hours every day in my uncle’s walk-in vault, where he kept a lot of machine guns, silencers, pistols.”
Then Diveroli came across the FedBizOpps website and clicked through the government contracts posted there. The contracts were called solicitations or requests for proposals. They were for billions upon billions in goods and services the federal government was buying every day. The biggest customer by far was the Department of Defense, which posted hundreds of billions of dollars’ worth of contracts. Toilet seats, screwdrivers, rocket-propelled grenades, tanks—the list seemed to never end. The website offered new opportunities every day; even obtaining a tiny fraction would amount to a fortune to a teenager.
“It was much bigger than I had ever imagined or hoped for,” Diveroli recalled. “I wanted a piece of it. I was going to bid on federal defense contracts. I was hell-bent.”
Diveroli began vying for contracts, using his uncle’s money to finance the deals, along with his various gun licenses. The arrangement was that Diveroli would split the profits 60–40 with his uncle, with the youngster receiving the smaller share. In weeks, Diveroli had begun to win small contracts on FedBizOpps. Within eighteen months, he calculated that he’d earned $150,000 in commissions.
“But there was tension between me and my uncle,” Diveroli recalled. “It was mainly to do with stuff outside the office—like me smoking weed with the guys in the warehouse, not keeping kosher, not following the Sabbath. I told him to leave me alone—to keep personal and business separate. But I could see real trouble was coming, so I demanded at least partial payment of what he owed me. He told me to fuck myself. Within forty-eight hours I was on a plane to Miami to start my own business. One thing I knew for sure was that I was never going to take shit from any tyrant ever again.”I
Back in Miami Beach and in business on his own in the summer of 2004, Diveroli spent days searching the Internet for the best price for the .223 ammunition. He didn’t tell the suppliers he approached about the contract on FedBizOpps, lest they bid on the deal themselves. Eventually he found a company in Kentucky that would sell him the ammo for $105 for each box of a thousand rounds, making the total price $94,500. Diveroli now had to calculate his profit margin. Try for too much and he’d lose the contract; bid too low and he’d miss out on potential earnings. He reasoned that an established contractor would command at least 10 percent profit. So Diveroli gave himself a 9 percent margin. He hoped the sliver of difference would tilt the deal his way.
Three days later, Jerry called: “You got it, kid.”
“It was the most exciting and scary moment of my life all at once,” Diveroli recalled. “On one hand, I’d just secured my first contract with the Department of Defense. On the other hand, I had no fucking idea how I was going to actually deliver the ammo. But that wasn’t going to stop me from trying.”
The first obstacle was money. Diveroli had a stake of $30,000. Not bad for an eighteen-year-old, but it wasn’t enough to pay the full price for the ammo up front, as the seller demanded. When the company refused to change its requirement for payment before delivery, Diveroli panicked. He had to find another supplier, one that would let him purchase the rounds on credit.
“I began frantically calling every ammo company in the United States, pulling off marathon eighteen-to-twenty-hour stretches of work,” Diveroli recalled. “Not only did I not have enough money—I didn’t have the product to supply.”
Diveroli finally located a shady outfit near Miami run by a pair of Cuban expats. They agreed to sell him the ammo for $114 per thousand. His profit would be nearly cut in half, but he no longer cared. He just needed to get the ammo to Fort Bragg ASAP—he needed to perform. If he failed to fulfill the contract, it would affect his ability to get more deals, and Diveroli was determined to build a stellar performance record.
Then this vendor also demanded full payment before shipping the ammo. With nowhere else to turn and time running out, Diveroli begged his father to lend him the money. Diveroli’s father had bid on government contracts as well, though for smaller law-enforcement deals, so he was familiar with the idea of having to pay for goods up front. Diveroli said he only needed the money for thirty days. The government wouldn’t renege on the contract, he promised; no creditor was more reliable than the US Treasury. Reluctantly, his father relented.
Within weeks, the rounds arrived at Fort Bragg. Countless hours of hard work had resulted in a profit of $4,500. Measly money, Diveroli thought, especially considering all the stress. But he knew something momentous had occurred, something with staggering implications. It was as if he had been initiated into a secret society—he was now a federal contractor, an arms dealer, a gunrunner.
“I was at the point of no return,” Diveroli recalled. “I was meant to do this shit, and that was what I was going to do.”
Diveroli’s company was named AEY, from the first initials of the three siblings in his family (Efraim, the eldest, was the E). His father had incorporated this shell company and allowed his son to use it. There was nothing illegal about what his son wanted to do, after all, even if he was extraordinarily young to go into the federal-contracting business. Indeed, Diveroli wasn’t old enough to qualify for a federal firearms license—the minimum age was twenty-one—so he begged his father to apply for one on his behalf. Once he had the company, the license, an Internet connection, and an ample supply of pot to modulate his manic nature, Diveroli had everything he needed to succeed—except money.
Diveroli figured he needed to have a minimum of $100,000 in cash to be a player on FedBizOpps. Planning to vie for big international defense contracts in Iraq and Afghanistan, he initially found backers willing to finance domestic ammunition deals that had nothing to do with the government—with the goal of building a war chest.
“I’d buy a hundred thousand dollars’ worth of ammo from a company in New York with fifty grand down and fifty grand on net-thirty-day terms,” Diveroli recalled. “Then I’d chop the ammo into three different sales of forty grand each going to Arizona, Louisiana, and fucking Texas. That meant I had a profit of twenty thousand bucks. Not many eighteen-year-olds can make twenty grand in a week legitimately and consistently. But I was doing it.”
The truly big money wasn’t in arms dealing in America, Diveroli knew; it was in Iraq. As it happened, he’d picked the ideal moment to get into the arms business. To fight simultaneous wars in Afghanistan and Iraq, the Bush administration had decided to outsource virtually every facet of America’s military operations, from building and staffing Army bases to hiring mercenaries to provide private security for diplomats abroad. The Bush administration’s heavy reliance on private contractors was part of a broader ideological struggle to bring the efficiencies of private enterprise to government. At least that was the theory. With Bush in office, private military contracts soared from $145 billion in 2001 to $390 billion by 2008. Military-industrial giants like Raytheon and Lockheed Martin turned war profiteering from a crime into a business model. Why shouldn’t a stoner in Miami Beach get in on the action?
Diveroli had only a ninth-grade education, but even he could see that a fortune was to be made in the war on terror. As he amassed the capital he needed, he turned his attention to federal arms contracts for Iraq. Creating an Iraqi military alone was going to cost billions because the Americans were starting from scratch. The reason was in good measure the result of a strategic error of biblical proportions. In the heady aftermath of the invasion of Iraq in 2003, a former diplomat named Paul Bremer had run the Coalition Provisional Authority, the title given to the governing organization the United States was attempting to establish. Staffed largely with young neoconservative operatives from Washington, DC, with little or no foreign or military experience, the new authority tried to impose a radical form of free-market economics in Iraq—in direct contradiction to the authoritarian rule of Saddam Hussein, as well as the traditional tribal social order. As part of this initiative, in an attempt to rid the country of any hint of Saddam’s Ba’ath Party and the Republican Guard, Bremer had dismissed the entire Iraqi security apparatus, including every soldier in the land. The decision had enraged, humiliated, and deprived a livelihood to four hundred thousand Iraqi men; the blunder had directly led to the growing insurgency in the summer of 2004.
The US military had worked with foreign militaries in the past, aiding allies in Vietnam and elsewhere, though it had never attempted to create an entire national military in the middle of a war. But the Bush administration wasn’t willing to rely on American soldiers. Private industry would do a superior job, it was believed, and also protect the government from the political complications of a large commitment of American forces. Initially, the Pentagon outsourced the effort to stand up the new Iraqi army and police force through a no-bid contract to an American corporation called Vinnell, a division of Northrop Grumman. Vinnell had done some security work with the military in Saudi Arabia, but the retired American soldiers sent to Baghdad were clueless about Iraq, its culture, and the difficulties of starting an entirely new military. Contracted to create nine battalions of 1,000 men each, at a cost of $48 million, more than half of the first battalion deserted, and authorities in Baghdad soon decided on a new approach without Vinnell—but not before the company collected $24 million for not getting the job done.
The problems with using private contractors weren’t limited to the Iraqi security forces. The US Army’s use of Logistics Civil Augmentation Programs (LOGCAP) meant that many no-bid contracts worth billions were still being given to companies like Halliburton—where Vice President Dick Cheney had been chairman and CEO. Worse, the open-ended, contingency-based contracts didn’t state a fixed value but moved according to expenses incurred by the company, plus an agreed profit margin, an arrangement that encouraged contractors to pad their accounts, if not outright steal. Revelations that Kellogg Brown & Root couldn’t justify more than $1 billion in charges in 2004 alone led to the resignation of the Pentagon’s top civilian overseeing the contract—not because he was caught taking bribes but because he refused to release the funds until the company explained why it deserved the extra billion. Instead, the official was replaced and the money was given to the company—with no accountability or oversight for the discrepancy. Likewise, in the early days of the war in Iraq $12 billion in $100 bills was transported in more than twenty flights from a vault in New Jersey to the Green Zone—only to vanish. The Pentagon’s law-enforcement agency did nothing to investigate or stop this theft.
Inside the Green Zone, in the gardens of what had been the Republican Palace under the rule of Saddam Hussein, a business center was established as the place for private contractors to gather to peruse the various contracts for goods and services posted on the bulletin board each day. Like the scores of other ambitious American entrepreneurs descending on Baghdad to get rich quick, the principals of a small start-up called Custer Battles won a multimillion-dollar contract to provide security at the airport, even though its staff had no relevant experience. Creating sham companies in the Cayman Islands and Lebanon, Custer Battles used fake invoices to grossly inflate its prices. The scam was revealed when a spreadsheet was accidentally left on a conference table in Baghdad, showing that the company had charged nearly $10 million for work that had cost less than $4 million—a markup of 162 percent. But only a whistle-blower lawsuit brought by two employees against the company prompted a Pentagon investigation, and by then Custer Battles had won more than $100 million in contracts from the US government.II
Bremer departed in June of 2004, fleeing a few days earlier than scheduled to avoid a feared assault from insurgents. Authority was passed to an interim Iraqi government. By July, a new strategy was being implemented to stand up the Iraqi military. The Iraqis would be in charge of the task; at least, that was the hope. A small group of Iraqis were flown to America for a three-week crash course in weapons procurement. An Iraqi who’d previously worked as a used-car salesman while exiled in Poland for decades was put in charge, given a budget of $600 million to spend by the end of the year, and let loose to enrich his cronies through no-bid contracts for shoddy, overpriced arms that often weren’t even delivered. Many Iraqi soldiers lacked guns and helmets and bulletproof vests, but the Iraqi procurement officials conspired to buy ancient Russian helicopters that couldn’t fly and armored personnel carriers that couldn’t climb a slight incline because they had only a 150-horsepower engine. The theft and waste had all happened directly under the supervision of the occupying Americans—though nothing was done to stop it.
“Before, I sold water, flowers, shoes, cars—but not weapons,” the Iraqi who was eventually put in charge of spending $1.3 billion explained to the Los Angeles Times. “We didn’t know nothing about weapons.”III
In desperation, the US Army decided to use the Pentagon’s own procurement system to arm the Iraqis. A new organization was formed called the Multi-National Security Transition Command, or Minsticky. General David Petraeus was put in charge. A vast array of matériel was needed for the Iraqis—guns, tanks, ammo, mortar rounds. Every day officers from Minsticky posted “wants and needs” in the business center in Baghdad and on the Internet. These deals were open to any qualified bidder—and as an approved contractor on FedBizOpps, that included Diveroli.
Sitting in his tiny apartment in Miami Beach, Diveroli watched longingly as scores of Iraq solicitations appeared on his computer screen. Some of the contracts were for nonlethal goods, like boots and helmets. Some were for lethal matériel, like AK-47s and RPGs. Encouraged by his initial success, Diveroli spent all his waking hours trying to find a way into the Iraq action. He didn’t care what kind of deal he won; he just wanted to get in the game.
As he studied the website, Diveroli learned that the Pentagon had decided to use “nonstandard” weapons for the Iraqi army and police. The term was used to differentiate the two basic forms of arms in the world of war. The Pentagon called Soviet Bloc guns and bombs—based on the metric system and designed for cost-effectiveness and reliability—nonstandard. On the other side was American and NATO-style “standard” weaponry, created for accuracy and lethality and consequently expensive.
Weapons on both sides of the Cold War divide had merits, but there was no debate about price. An American M16 rifle cost at least $1,000. A used Communist AK-47 could be had for a few dollars, or a live chicken in some African countries. According to Donald Rumsfeld’s memoir, Known and Unknown, it cost $107,000 to train and deploy an American soldier, while an Iraqi soldier cost $6,500, and an Afghan soldier was a mere $1,800. This calculation ran through the strategic planning for both wars, with profound implications.
When Diveroli saw a contract to supply ten thousand bulletproof helmets to the Iraqi army, he began to scour the Internet for potential suppliers. Eventually, he found a Korean company willing to sell him the requisite amount for $110 each. Diveroli put in a bid of $125 per helmet and crossed his fingers. Soon after, he received the giddy-making news. He’d won his second government contract on his own—and this one was in Iraq.
But there was a hitch once again: finance. The value of the contracts was $1.25 million, and he needed $300,000 up front to pay for the first shipment. Diveroli’s father couldn’t lend him that much, even if he wanted to. Diveroli frantically looked for someone willing to back him, but the only person who agreed to take the risk had such onerous terms that Diveroli would receive nothing—literally not one dollar—on the contract. Diveroli couldn’t agree to such a deal, even if it meant defaulting on his first Iraq contract.
Unable to find a financial backer and at the end of his rope, Diveroli decided to try one last possibility. When he was living in LA working for his uncle, he’d done business with an older Mormon man in Utah. The transactions had been modest, mostly involving spare parts for Uzis. But the man—Ralph Merrill—had an entrepreneurial streak and the means to finance the deal. Diveroli’s telephone pitch to Merrill lasted three minutes: in return for half of the profits, the Mormon had to risk his money for thirty days. Diveroli would take care of all the details—managing the supplier, overseeing delivery, and attending to the paperwork.
Merrill was conservative: trim and clean-cut, a military veteran in his sixties, he was a lifelong Republican and a devoted father of five who kept to the strict tenets of his faith. Merrill had made his fortune designing and installing ATMs in banks around the country, but a lifelong interest in guns had led him to start his own arms company after he retired, dedicated mostly to rebuilding AK-47s and Uzis.
Merrill seemed an unlikely partner for a brash teenager like Diveroli. But Merrill was an adventurer at heart. Over the years, he’d been involved in deals to import Uzis from Zimbabwe and AK-47 ammo from China, and along the way he’d developed close relationships with a number of international arms dealers.
Considering Diveroli’s proposal, Merrill reasoned that the Pentagon wasn’t going to refuse to pay for the helmets. After sleeping on it, Merrill decided to back the kid; their prior dealings had gone well, and he liked working with young entrepreneurs. There was also the possibility of bidding on more contracts through Diveroli. Like anyone watching the nightly news, Merrill knew that large sums were being made in Iraq. Diveroli was only nineteen at the time, but he was bright, ambitious, and seemingly trustworthy.
To get Diveroli started on the helmet order, Merrill agreed to front AEY $200,000 for thirty days, with a 3 percent monthly rate of return. If the deal worked, Merrill would renew the loan every thirty days, on the same terms. The arrangement turned out to be mutually beneficial and highly promising.
“Smooth as a baby’s ass was how the first helmet deal went,” Diveroli recalled. “Ralph immediately said he was interested in doing more business together, particularly if the United States government was the customer. I was, too. So I started bidding on government contracts with him in mind. I had my sights on the big Iraq contracts for weapons and munitions. I knew the government required an enormous quantity of Soviet Bloc arms and munitions—nonstandard arms. I hadn’t even heard of most of the stuff they were after, let alone dealt with the weapons. But I wasn’t going to throw in the towel.”
Diveroli asked Merrill if he knew anyone who could source the different kinds of nonstandard weapons that were appearing in the solicitations. Merrill said he knew a Swiss man by the name of Henri who’d sold him Uzi parts in the past. Merrill and Henri had a good working relationship and had met several times. Merrill started forwarding Diveroli’s e-mails requesting quotes for AK-47s, heavy machine guns, and grenades to Henri. Diveroli had no direct contact with Henri, but he was able to quote aggressively, using Henri’s low prices on surplus munitions.
With Henri’s connections, Diveroli was soon winning multimillion-dollar Iraqi arms contracts. His business model was brilliant. Most companies try to develop more customers as they grow. Not the young gunrunner. Diveroli concentrated exclusively on a single customer: the US government. No organization on the planet spent more money than the Pentagon, he knew.
Like an aspiring samurai, Diveroli set about mastering the art of arms dealing. He had little formal education but was blessed with an intuitive grasp of the art of deal-making as well as the gift of gab. Studying FedBizOpps wasn’t tedious for him—it was the pursuit of a dream.
And it was profitable. Diveroli had virtually no overhead, no staff, and few of the expenses normally associated with running a company. Within months he’d started making serious money, amassing hundreds of thousands of dollars in profit. But Diveroli still maintained a tightfisted lifestyle. He drove an old, junk-box Daewoo Leganza sedan and dressed like a slob. His main expenses were drugs and the tabs he ran up at Miami Beach nightclubs.
The launch of the American offensive called Phantom Fury in the city of Fallujah, Iraq, in the fall of 2004 did nothing to slow the insurgency. Car bombs exploded in markets, suicide bombers attacked American outposts, and soldiers began to refuse to transport goods within Iraq, citing the lack of safety and protection.
As the insurgency intensified, so did the volume of solicitations appearing on FedBizOpps. Like the contract for ten thousand AK-47 rifles Diveroli bid on. Trying to get a price for the guns without relying on Henri, Diveroli found an Italian lawyer who brokered arms deals. Arnaldo La Scala claimed to have “bound” a cache of guns in a warehouse in Croatia—he didn’t own them, but he said he was the exclusive broker. Diveroli bid on the contract using La Scala’s price and his now trademark 9 percent profit margin. And Diveroli won. But when he tried to arrange for delivery of the weapons to Iraq, La Scala said he wasn’t able to get them out of Croatia because the government refused to approve the sale. Diveroli couldn’t accept excuses. He knew the Army didn’t accept excuses. He had to deliver to protect his performance record, as best he could, in the chaos that was enveloping Iraq and grinding flights to a halt because of insurgent RPG fire.
Panicking, as any nineteen-year-old might, Diveroli called Ralph Merrill to ask if he had any other contacts who could supply the AK-47s quickly. Merrill explained that La Scala was really just a broker for Henri, the Swiss arms dealer Merrill was friendly with. Merrill said Diveroli should cut out the middleman and go directly to Henri. He gave Diveroli Henri’s e-mail address and phone number. Merrill said his last name was Thomet, pronounced in the German way—toe-met.
When Diveroli called Thomet, the Swiss broker said the Croatian AK-47s couldn’t be shipped to Iraq. But Thomet said he had access to another stockpile of AK-47s in Bosnia. Relieved, Diveroli was able to get the guns to Baghdad and reap a nice profit. It was another breakthrough. Diveroli was now dealing directly with a serious arms dealer who had high-level contacts throughout the Balkans. In a business that revolved around relationships, Diveroli had just acquired a major-league connection.
But the AK-47 shipment had a problem. Nothing major—the kind of thing that happened often in the gun trade, especially in the unfolding disaster of the war in Iraq. The Bosnians had slipped a thousand substandard AK-47 rifles alongside nine thousand good-quality guns that were delivered to Baghdad. Getting guns to pass muster with the procurement officers in Iraq usually wasn’t hard: as long as the guns worked, they were okayed. Serviceable without qualification was the term of art on FedBizOpps. It essentially meant the guns had to fire, no matter how old they were or where they came from.
The poor quality of weapons being issued to the Iraqis was one of countless double standards on display in Baghdad. Often American soldiers were armed with the latest high-tech weapons, and ammunition was plentiful; when IEDs began to rip apart Humvees, soldiers campaigned to have their vehicles “up-armored.” The benighted Iraqis got ancient Serbian AK-47s, Polish tanks that didn’t start, and the cheapest, nastiest surplus ammo private contractors like AEY could find in dank bunkers in Eastern Europe.
A thousand of the Bosnian guns Diveroli shipped failed to meet even the abysmal standards the Army applied to Iraqi matériel. When the guns were rejected, Diveroli insisted that Thomet get the Bosnians to send replacements, which duly arrived in Baghdad. The faulty weapons were then “abandoned” in the field. There was no way for Diveroli to know what happened to them, if he’d cared to find out, just as there was no reliable method for the Army to ensure they didn’t wind up in the hands of the enemy.
Elections in Iraq early in 2005 only quickened the daily thrum of roadside bombings, kidnappings, and sectarian fighting between Sunni and Shiite Muslims. The violence caused a thrilling upswing in business for AEY, and the Swiss broker became Diveroli’s ideal collaborator. Thomet provided a “delivered” price. This meant that he took care of the logistics—the packing and shipping, obtaining the necessary permissions to transport hazardous goods, as well as the chartering of the planes to carry the goods to Iraq. Despite millions being spent on security, simply landing at Baghdad International Airport was extremely perilous, due to insurgent RPG and sniper fire; then followed the six-mile ride to the Green Zone along Route Irish—or ambush alley, as it was known. Thomet was able to navigate these obstacles with a skill and discretion Diveroli didn’t possess. In the Balkans, men like Thomet used bribes, kickbacks, and numbered Swiss bank accounts as standard operating procedure, or so everyone in the business assumed—including, inevitably, the Pentagon.
At the time, Diveroli’s buddy David Packouz was plying his trade as a massage therapist and taking a couple of chemistry classes at a local college. Alex Podrizki was still finishing an undergraduate degree in international relations. After he graduated, Podrizki had planned to join the US military, to follow in his veteran father’s footsteps. But the invasion of Iraq had appalled Podrizki as a naked theft of Iraq’s oil fields based on lies about Saddam Hussein’s alleged connection to the attack on 9/11. Podrizki had become radicalized politically, attending protests and questioning America’s role in the world. Over time, as the lack of weapons of mass destruction in Iraq became apparent, David Packouz had come to share his friend’s dim view of the war. Efraim Diveroli had a different response.
“Do I agree with the Iraq War?” Diveroli asked Packouz and Podrizki one night as they passed a bong around. “Do I think George Bush did the right thing for the country by invading Iraq? No. But am I happy about it? Absofuckinglutely. I hope Bush invades more countries, because it’s good for business.”
The dudes rolled their eyes. Among his friends, Diveroli’s act was a running joke—but it was getting old for Alex Podrizki.
“Efraim used to be a very funny guy,” Podrizki recalled. “Cynical but hilarious. We used to sell pot and jewelry to tourists together along Miami Beach. He had an old .22 that we’d take to the range to shoot, and we used to joke about sawing off the barrel and attaching laser sights and a fifty-round clip—making this shitty gun super-tactical. But then Efraim changed when he started to be an arms dealer. He became all about making money. He wasn’t funny anymore—he became controlling, overbearing, arrogant. He was a smart guy, in a lot of ways, but he became one-dimensional.”
/ / / / /
In the spring of 2005, Diveroli came across an opportunity on FedBizOpps that promised to give him a chance to win a contract far larger than anything he’d attempted. The $51 million contract was called an ID/IQ, meaning an Indefinite Delivery, Indefinite Quantity solicitation. Diveroli learned that in an ID/IQ contract the Army couldn’t say with certainty the amount of arms it wanted, or how long the deal would run. But it wanted to select a single company to fulfill the many orders that would follow as the United States tried to prepare Iraqis for combat.
The previous ID/IQ deal in Iraq, which was about to expire, had been won by a company called Taos. In the normal course of business, Taos would be the strong favorite to retain the deal. But Diveroli had other ideas. As usual, he contacted Thomet for quotes. Rocket-propelled grenades, mortar rounds, Russian-style machine guns—Thomet had access to matériel all over the Balkans. Diveroli entered his bid, heaving a large sigh.
“Then I got an e-mail saying that I’d won the contract,” Diveroli recalled. “I’d won a fifty-one-million-dollar deal! I went out and celebrated like crazy. But the next day I found out that there was one major caveat. The same damn contract had been awarded to four other companies at the same time.”
Instead of giving the whole ID/IQ contract to one winner, the Pentagon was going to conduct “mini-competes.” AEY received an initial order for $500,000 in ammunition, but the rest of the order was cut into small contracts for Diveroli and his adversaries to bid on—companies like Taos, DLS, Blane International.
“Later on I would learn the significance of these companies,” Diveroli recalled. “But at the time I figured they were big companies and I was the little guy. Right away I started winning the mini-competes. I was beating the big boys at their own game.”
A normal commercial enterprise would assign perhaps a dozen people to the job. Not AEY: Diveroli worked alone. He was now on the phone with Thomet two, three, four times a day. The individual contracts were relatively small—a thousand pistols, half a million dollars’ worth of a specific kind of ammo, a million dollars’ worth of grenades. Whatever he was after, Diveroli knew that if anyone could find the arms, it was Thomet. He’d bound large quantities of weapons and ammos in storehouses in Bosnia, Croatia, and Albania. It made Thomet one of the few reliable sources in the market.
Diveroli didn’t know or care what Thomet did to get the arms to Baghdad—nor did the US government. The Army wanted guns and ammunition in Iraq as quickly and cheaply as possible, and Diveroli was delighted to do the job.
As he continued to triumph on FedBizOpps, Diveroli was acquiring a reputation inside the Green Zone in Iraq. A Texan named Howard Lowry, who operated his own one-man company in Baghdad, also competed for the ID/IQ deals. Working in a war zone, Lowry had firsthand knowledge of the dangers of being an arms dealer. The Army’s procurement officers were sometimes on the take, Lowry learned, but in such a lawless environment nobody was investigating or prosecuting the crimes. Rival contractors roamed Baghdad in armored vehicles, notoriously shooting at Iraqi civilians with impunity, and competitors sometimes uttered violent threats to each other. Lowry recalled talking to Diveroli during the ID/IQs competition and being struck by both his youth and his lack of awareness of the nature of the world he’d entered.
“The Army’s contracting officers told me Diveroli was an arrogant little snot,” Lowry recalled. “There were rumors floating around that he was a cocaine dealer. No one could understand how this kid could come up with the money to bid on contracts.”
On the phone one day, Diveroli boasted to Lowry that he was going to “kick his ass” in the mini-competes. Lowry laughed, but he wasn’t impressed by Diveroli’s manner, which came across as insolent and immature.
“I told him that he didn’t understand that he was in a very dangerous business,” Lowry recalled. “I wasn’t threatening him. I was letting him know that arms dealing was a very, very high-testosterone business. There were a lot of big egos. Diveroli told me not to worry. He said he knew everything about the business—literally everything. I told him he had no idea what he was getting himself into.”
As he neared his twentieth birthday, Diveroli imagined he was forging an identity as a gunrunner. He was beginning to believe he was the equal of or even better than hardened arms dealers like Henri Thomet. As Diveroli sat in his apartment in Miami Beach lighting a bong, the perils of war were little more than an abstraction.
I. Diveroli’s uncle would later tell the New York Times that his nephew didn’t leave empty-handed—but with his customers.
II. Rajiv Chandrasekaran, Imperial Life in the Emerald City (Vintage, 2007), 155–66.
III. “Iraq: Before Rearming Iraq, He Sold Shoes and Flowers,” Los Angeles Times, November 6, 2005.