It turned out that Packouz had bigger things to worry about. Winning the Afghan contract had earned AEY powerful enemies in the industry. One American arms dealer had complained to the State Department, claiming that AEY was buying Chinese-made AK-47s and shipping them to the Iraqi army. The allegation was false, but it had apparently triggered a criminal investigation by the Pentagon. On August 23rd, 2007 — the very day Packouz was supposed to sign the settlement papers with Diveroli — federal agents raided AEY's offices in Miami Beach. Ordering everyone to step away from their computers, the agents seized all of the company's hard drives and files.
The raid led agents directly to the e-mails about the Chinese markings on the ammunition from Albania, and the conspiracy to repackage it. "The e-mails were incredibly incriminating — they spelled out everything," Packouz says. "I knew once they saw them we were in trouble. We were so stupid. If we didn't e-mail, we could probably have denied the whole thing. But there were the names and dates. It was undeniable. I realized I was going to get caught no matter what I did, so I turned myself in. When the agents came to my lawyer's office to interview me, they were joking about how they had seen all the e-mails and notes. They were laughing."
To avoid indictment, Packouz agreed to cooperate, as did Alex Podrizki. But Diveroli went right on shipping Chinese ammo to Afghanistan — and the Army went right on accepting it. By now, though, the repackaging being done in Albania was getting even sloppier. Some of the crates were infested with termites, and the ammunition had been damaged by water. Tipped off by an attorney for Kosta Trebicka, who had begun a crusade against corruption in Albania, The New York Times ran a front-page story in March 2008 entitled "Supplier Under Scrutiny on Arms for Afghans."
Before the Times story ran, Packouz had been led to believe that he wasn't going to be charged for shipping pre-embargo Chinese ammunition. But after the article appeared, he and Podrizki and Diveroli were indicted on 71 counts of fraud. Faced with overwhelming evidence, all pleaded guilty. The Mormon gun manufacturer from Utah, Ralph Merrill, pleaded not guilty and was convicted in December. Heinrich Thomet simply vanished; according to rumors, he was last seen somewhere in Bosnia.
After the story broke, Kosta Trebicka traveled to the United States to talk to congressional investigators and federal prosecutors in Miami. He soon became terrified that the U.S. government was going to indict him as well. But back in Albania, he also became the lead witness in a case that targeted Albanian thugs and gangsters with ties to the prime minister. Then one afternoon in September 2008, Trebicka was killed in a mysterious "accident" when his truck somehow managed to flip over on a flat stretch of land outside Tirana. He was found alive by villagers, but medical crews and the police were slow to arrive. One of the first officials on the scene, in fact, was the Albanian prime minister's former bodyguard. "If it was an accident," says Erion Veliaj, an Albanian activist who worked with Trebicka, "it was a very strange kind."
Through all the chaos, Diveroli and Packouz had done a huge amount of business with the U.S. military. All told, AEY made 85 deliveries of munitions to Afghanistan worth more than $66 million, and had already received orders for another $100 million in ammunition. But the fiasco involved more than a couple of stoner kids who made a fortune in the arms trade. "The AEY contract can be viewed as a case study in what is wrong with the procurement process," an investigation by the House Committee on Oversight and Government Reform later concluded. There was a "questionable need for the contract," a "grossly inadequate assessment of AEY's qualifications" and "poor execution and oversight" of the contract. The Bush administration's push to outsource its wars in Iraq and Afghanistan, in short, had sent companies like AEY into the world of illegal arms dealers — but when things turned nasty, the federal government reacted with righteous indignation.
In January, Packouz was sentenced to seven months of house arrest after he stood before a federal judge in Miami and expressed his remorse for the "embarrassment, stress and heartache that I have caused." But his real regret is political: He believes that he and Diveroli were scapegoats, prosecuted not for breaking the law but for embarrassing the Bush administration. No one from the government has been charged in the case, even though officials in both the Pentagon and the State Department clearly knew that AEY was shipping Chinese-made ammunition to Afghanistan.
"We were the Army's favorite contractors when we got the deal — poster boys for President Bush's small-business initiative," Packouz says. "We would have saved the government at least $50 million. We were living the American dream, until it turned into a nightmare."
In January, dressed in a tan prison-issued jumper, Diveroli came before Judge Joan Lenard for sentencing at Miami's gleaming new federal courthouse. The court was packed with his friends and relatives, but they didn't exactly give him the support he was hoping for. "Efraim needs to go to jail," a local rabbi told the judge. Even Diveroli's mother concurred. "I know you hate me for saying this," she said, addressing her son directly, "but you need to go to jail." Diveroli's shoulders slumped.
Diveroli described his contrition to Judge Lenard. When prison guards saw his file, he said, they asked in amazement how such a young person had managed to win such a huge military contract. "I have no answer," Diveroli told the court. "I have had many experiences in my short life. I have done more than most people can dream of. But I would have done it differently. All the notoriety in my industry and all the good times — and there were some — cannot make up for the damage."
Judge Lenard gazed at Diveroli for a long time. "If it wasn't so amazing, you would laugh," she said. Then she sentenced him to four years.
The hearing was not the end of Diveroli's woes. As a convicted felon, he was barred from so much as holding a gun, let alone selling arms. But while he was awaiting sentencing on the fraud charges, Diveroli couldn't stay out of the business he loved. He contrived to act as a consultant to a licensed importer who wanted to buy Korean-made ammunition magazines. The deal was technically legal — the magazines only fed ammo into the guns, so Diveroli wasn't actually selling weapons — but it put him in the cross hairs of another federal sting operation.
An ATF agent posing as an arms dealer spent weeks trying to wheedle Diveroli into selling arms. Diveroli refused, but he couldn't resist bragging about his exploits; as agents recorded his every word, he talked about hunting alligators and hogs in the Everglades with a .50-caliber rifle. Finally, the ATF agent lured Diveroli to a meeting, asking him to bring along a gun so they could go shooting together. Diveroli didn't bring a weapon — he knew that would constitute a felony. But the ATF agent, who had thoughtfully brought along a gun of his own, handed Diveroli a Glock to try out.
The temptation was too much. Adopting his best tough-guy swagger, Diveroli cleared the chamber and inspected the weapon. As always, the 24-year-old arms dealer was the star of his own Hollywood movie. No matter what happened, he told the agent moments before his arrest, he would never leave the arms business.
"Once a gun runner," he boasted," always a gun runner."
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