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

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Every day, Packouz spoke with military officials, sending volleys of e-mails to Kabul and Kyrgyzstan and the Army depot in Rock Island. The contracting officers he dealt with told him that there was a secret agenda involved in the deal. The Pentagon, they said, was worried that a Democrat would be elected president in 2008 and cut the funding for the war — or worse, pull U.S. troops out of Afghanistan entirely.

"They said Bush and Rumsfeld were trying to arm Afghanistan with enough ammo to last them the next few decades," Packouz recalls. "It made sense to me, but I didn't really care. My main motivator was making money, just like it was for General Dynamics. Nobody goes into the arms business for altruistic purposes."

It didn't take long for AEY to strike cut-rate deals that vastly improved its profit margin. The nine percent planned for in the original bid was soon pushing toward 25 percent — enough to provide Packouz and Diveroli with nearly $85 million in profits. But even such a jaw-dropping sum didn't satisfy Diveroli. He scoured FedBizOpps for even more contracts and landed a private deal to import Lithuanian ammo, determined to turn AEY into a multibillion-dollar company.

To cope with the increased business, AEY leased space in a larger and more expensive office building in Miami Beach. The company hired an office manager and two young secretaries they found on Craigslist. Diveroli brought in two more friends from the synagogue, including a guy fluent in Russian, to help fulfill the contracts. "Things were rolling along," Packouz recalls. "We were delivering on a consistent basis. We had suppliers in Hungary and Bulgaria and other countries. I had finally arranged all the overflight permits. We were cash positive."

Packouz had yet to be paid a cent, but he was convinced he was about to be seriously rich. Anticipating the big payday, he ditched his beater Mazda for a brand-new Audi A4. He moved from his tiny efficiency apartment to a nice one-bedroom overlooking the pool at the Flamingo in fashionable South Beach. Diveroli soon followed, taking a two-bedroom in the central tower. It was convenient for both — their drug dealer, Raoul, lived in the complex.

"The Flamingo was a constant party," Packouz says. "The marketing slogan for the building was 'South Beach revolves around us,' and it was true. There was drinking, dancing, people making out in the Jacuzzi — sometimes more than just making out. Outside my balcony there was always at least a few women sunbathing topless. People at parties would ask us what we did for a living. The girls were models or cosmetologists. The guys were stockbrokers and lawyers. We would say we were international arms dealers. 'You know the war in Afghanistan?' we would say. 'All the bullets are coming from us.' It was heaven. It was wild. We felt like we were on top of the world."

In the evenings, Packouz and Diveroli would get high and go to the American Range and Gun Shop — the only range near Miami that would let them fire off the Uzis and MP5s that Diveroli was licensed to own. "When we let go with our machine guns, all the other shooters would stop and look at us like, 'What the fuck was that?' Everyone else had pistols going pop pop. We loved it. Shooting an automatic machine gun feels powerful."

The biggest piece of the Afghan contract, in terms of sheer quantity, was ammunition for AK-47s. Packouz had received excellent quotes from suppliers in Hungary and the Czech Republic. But Diveroli insisted on using the Swiss arms dealer Heinrich Thomet's high-level contacts in Albania. The move made sense. The Albanians didn't require a large deposit as a down payment, which made it easier for AEY to place big orders. And Albania's government could certainly handle the volume: Its paranoid communist leaders had been so convinced they were going to be attacked by foreign powers that they had effectively transformed the nation into a vast military stockpile, with bunkers scattered throughout the countryside. In fact, AK-47 ammunition was so plentiful that Albania's president had recently flown to Baghdad and offered to donate millions of rounds to Gen. David Petraeus.

The structure for AEY's purchase of the Albanian ammo was standard in the world of illegal arms deals, where the whole point is to disguise origins and end-users. It was perfectly legal, but it had the stench of double-dealing. A shell company called Evdin, which Thomet had incorporated in Cyprus, would buy the ammo from Albania's arms-exporting company. Evdin would then resell the rounds to AEY. That way Thomet got a cut as broker, and AEY and the U.S. government were insulated from any legal or moral quandaries that came with doing business in a country as notoriously corrupt and unpredictable as Albania.

There was only one snag: When Diveroli bid on the contract, he had miscalculated the cost of shipping, failing to anticipate the rising cost of fuel. The Army had given him permission to repackage the rounds into cardboard boxes, but getting anything done in a country as dysfunctional as Albania wasn't easy. So Diveroli dispatched another friend from their synagogue, Alex Podrizki, to the capital city of Tirana to oversee the details of fulfilling the deal.

Despite the hands-on approach, signs of trouble emerged immediately. When Podrizki went to look at a cache of ammunition in one bunker, it was apparent that the Albanians had a haphazard attitude about safety; they used an ax to open crates containing live rounds and lit cigarettes in a room filled with gunpowder. The ammunition itself, though decades old, seemed to be in working order, but the rounds were stored in rusty cans and stacked on rotting wooden pallets — not the protocol normally used for such dangerous materiel. Worst of all, Podrizki noticed that the steel containers holding the ammunition — known as "sardine cans" — were covered in Chinese markings. Podrizki called Packouz in Miami.

"I inspected the stuff and it seems good," Podrizki told him. "But dude, you know this is Chinese ammo, right?"

"What are you talking about?" Packouz said.

"The ammo is Chinese."

"How do you know it's Chinese?"

"There are Chinese markings all over the crates."

Packouz's heart sank. There was not only an embargo against selling weapons manufactured in China: The Afghan contract specifically stipulated that Chinese ammo was not permitted. Then again, maybe AEY could argue that the ammunition didn't violate the ban, since it had been imported to Albania decades before the embargo was imposed, back when Albania's communist government had forged an alliance with Mao. There was precedent for such an argument: Only the year before, the Army had been delighted with Chinese ammo that AEY had shipped from Albania. But this time, when Diveroli wrote the State Department's legal advisory desk to ask if he could use Chinese rounds made prior to the embargo, he received a curt and unequivocal reply: not without a presidential decree.

Given the deadline on the contract, there was no time to find another supplier. The Hungarians could fill half the deal, but the ammunition would not be ready for shipment until the fall; the Czechs could fill the entire order, but they wanted $1 million. Any delay would risk losing the entire contract. "The Army was pushing us for the ammo," says Packouz. "They needed it ASAP."

So the two friends chose a third option. As arms dealers, subverting the law wasn't some sort of extreme scenario — it was a routine part of the business. There was even a term of art for it: circumvention. Packouz e-mailed Podrizki in Albania and instructed him to have the rounds repackaged to get rid of any Chinese markings. It was time to circumvent.

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