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The Stoner Arms Dealers: How Two American Kids Became Big-Time Weapons Traders

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At first, Packouz struggled to land his own deals. Bidding on contracts on fbo.gov was an art; closing a deal was a science. At one point, he spent weeks obsessing over an $8 million contract to supply SUVs to the State Department in Pakistan, only to lose the bid. But he finally won a contract to supply 50,000 gallons of propane to an Air Force base in Wyoming, netting a profit of $8,000. "There were a lot of suppliers who didn't know how to work FedBizOpps as well as we did," he says. "You had to read the solicitations religiously."

Once a week or so, the pair would hit the clubs of South Beach to let off steam. Karaoke in a basement bar called the Studio was a favorite. Packouz took his performances seriously, choosing soulful music like U2's "With or Without You" or Pearl Jam's "Black," while Diveroli threw himself into power ballads and country anthems, tearing off his shirt and pumping his fists to the music. Between songs, the two friends would take hits of the cocaine that Diveroli kept in a small plastic bullet with a tiny valve on the top for easy access. Packouz was shy around girls, but Diveroli cut right to the chase, often hitting on women right in front of their boyfriends.

All the partying wasn't exactly conducive to running a small business, especially one as complicated and perilous as arms dealing. As AEY grew, it defaulted on at least seven contracts, in one case failing to deliver a shipment of 10,000 Beretta pistols for the Iraqi army. Diveroli's aunt — a strong-willed and outspoken woman who fought constantly with her nephew — joined the two friends to provide administrative support. She didn't approve of their drug use, and she talked openly about them on the phone, as if they weren't present.

"Mark my words," she told Diveroli's mother repeatedly, "your son is going to crash and burn."

"Shut up!" Diveroli would shout, the coldblooded arms dealer giving way to the pissed-off teenager. "You don't know what you're talking about! I made millions last year!"

"Crash and burn," the aunt would say. "Mark my words — crash and burn."

In June, seven months after Packouz started at AEY, he and Diveroli traveled to Paris for Eurosatory, one of the world's largest arms trade shows. Miles of booths inside the Paris Nord Villepinte exhibition center were filled with arms manufacturers hawking the latest instruments of death — tanks, robots, unmanned drones — and serving up champagne and caviar to some of the most powerful political and military officials on the planet. Packouz and Diveroli were by far the youngest in attendance, but they tried to look the part, wearing dress pants, crisp shirts and sales-rep ties. "Wait until I am really in the big time," Diveroli boasted. "I will own this fucking show."

At a booth displaying a new robotic reconnaissance device, Diveroli and Packouz met with Heinrich Thomet, a Swiss arms dealer who served as a crucial go-between for AEY. Tall and suave, with movie-star looks and an impeccable sense of fashion, Thomet had blond hair, light-blue eyes and an eerily calm demeanor. He spoke fluent English with a slight German accent, adding "OK" to the beginning and end of every sentence ("OK, so the price on the AKs is firm, OK?"). He seemed to have connections everywhere — Russia, Bulgaria, Hungary. Serving as a broker, Thomet had created an array of shell companies and offshore accounts to shield arms transactions from official scrutiny. He had used his contacts in Albania to get Diveroli a good price on Chinese-made ammunition for U.S. Special Forces training in Germany — a deal that was technically illegal, given the U.S. embargo against Chinese arms imposed after the Tiananmen Square massacre in 1989.

"Thomet could get body armor, machine guns, anti-aircraft rockets — anything," Packouz recalls. "He was one of the best middlemen in the business, a real-life Lord of War."

Like Diveroli, Thomet had been in the business since he was a teenager, and he recognized that the two young upstarts could be useful to him. Thomet was singled out by Amnesty International for smuggling arms out of Zimbabwe in violation of U.S. sanctions. He was also under investigation by U.S. law enforcement for shipping weapons from Serbia to Iraq, and he was placed on a "watch list" by the State Department. Given the obstacles to selling directly in the United States, Thomet wanted to use AEY as a front, providing him an easy conduit to the lucrative contracts being handed out by the Pentagon.

With Thomet on their side, Diveroli and Packouz soon got the break they were looking for. On July 28th, 2006, the Army Sustainment Command in Rock Island, Illinois, posted a 44-page document titled "A Solicitation for Nonstandard Ammunition." It looked like any other government form on fbo.gov, with blank spaces for names and telephone numbers and hundreds of squares to be filled in. But the document actually represented a semi-covert operation by the Bush administration to prop up the Afghan National Army. Rather than face a public debate over the war in Afghanistan, which was going very badly indeed, the Pentagon issued what is known as a "pseudo case" — a solicitation that permitted it to allocate defense funds without the approval of Congress. The pseudo case wasn't secret, precisely, but the only place it was publicized was on fbo.gov. No press release was issued, and there was no public debate. The money was only available for two years, so it had to be spent quickly. And unlike most federal contracts, there was no dollar limit posted; companies vying for the deal could bid whatever they wanted.

Based on the numbers, it looked like it was going to be a lot of money. The Army wanted to buy a dizzying array of weapons — ammunition for AK-47 assault rifles and SVD Dragunov sniper rifles, GP 30 grenades, 82 mm Russian mortars, S-KO aviation rockets. The quantities were enormous — enough ammo to literally create an army — and the entire contract would go to a single bidder. "One firm fixed-price award, on an all-or-none basis, will be made as a result of this solicitation," the tender offer said.

The solicitation was only up for a matter of minutes before Diveroli spotted it, reading the terms with increasing excitement. He immediately called Packouz, who was driving along the interstate.

"I've found the perfect contract for us," Diveroli said. "It's enormous — far, far bigger than anything we've done before. But it's right up our alley."

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