Two American kids became 'war dogs' when they landed a huge contract with the U.S. government to get weapons into Afghanistan in 2007. Read the story about how the stoner arms dealers did it Showtime
Reassured by the e-mail, Packouz got into his brand-new blue Audi A4 and headed home for the evening, windows open, the stereo blasting. At 25, he wasn’t exactly used to the pressures of being an international arms dealer. Only months earlier, he had been making his living as a massage therapist; his studies at the Educating Hands School of Massage had not included classes in military contracting or geopolitical brinkmanship.
The arms shipment, it appeared, was being used as a bargaining chip in a high-stakes standoff between George W. Bush and Vladimir Putin. The Russian president didn’t like NATO expanding into Kyrgyzstan, and the Kyrgyzs wanted the U.S. government to pay more rent to use their airport as a crucial supply line for the war in Afghanistan.
Packouz and Diveroli met at Beth Israel Congregation, the largest Orthodox synagogue in Miami Beach. Packouz was older by four years, a skinny kid who wore a yarmulke and left his white dress shirts untucked. Diveroli was the class clown, an overweight kid with a big mouth and no sense of fear. After school, the pair would hang out at the beach with their friends, smoking weed, playing guitar, sneaking in to swim in the pools at five-star hotels.
To get into the game, Diveroli knew he would have to deal with some of the world’s shadiest operators — the war criminals, soldiers of fortune, crooked diplomats and small-time thugs who keep militaries and mercenaries loaded with arms. The vast aftermarket in arms had grown exponentially after the end of the Cold War.
“Dude, I’ve got so much work I need a partner,” Diveroli said. “It’s a great business, but I need a guy to come on board and make money with me.” Packouz was about to get a rare education. He watched as Diveroli won a State Department contract to supply high-grade FN Herstal machine guns to the Colombian army. It was a lucrative deal, but Diveroli wasn’t satisfied — he always wanted more. So he persuaded the State Department to allow him to substitute Korean-made knockoffs instead of the high-end Herstals — a swap that instantly doubled his earnings.
To master the art of federal contracts, Packouz studied the solicitations posted on fbo.gov. The contracts often ran to 30 or 40 pages, each filled with fine print and legalese. As Diveroli’s apprentice, Packouz saw that his friend never read a book or a magazine, never went to the movies — all he did was pore over government documents, looking for an angle, a way in.
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.
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. Bidding on defense contracts is a speculative business — laborious, time-consuming, with no prize for second place. As they passed a joint back and forth, Diveroli decided it was time for Packouz to step up and take on a larger role.
“Efraim was conflicted about whether to put a nine percent or 10 percent profit margin on top of our prices,” Packouz recalls. “The difference was more than $3 million in cash, which was huge — but with either margin, profits were going to be more than $30 million. He figured everyone else was going to take 10 percent, but what if another bidder had the same idea as him and put in nine percent? So maybe he should go with eight percent.
The meeting with Army officials proved to be a formality. Diveroli had the contracting jargon down, and he sailed through the technical aspects of the transaction with confidence: supply sources, end-user certificates, AEY’s experience. No one ever asked his age. “We were supremely confident,” says Packouz. “I just think it never occurred to the Army people that they were dealing with a couple of dudes in their early twenties.
After their celebratory dinner the night they received the contract, the two friends headed for Diveroli’s brand-new Audi. As Diveroli arranged a line of coke on the dashboard, he warned Packouz not to make any mistakes with the grenades. In Abu Dhabi, Packouz hoped to find a single supplier big enough to meet most of AEY’s demands. The obvious candidate was Rosoboron Export, the official dealer for all Russian arms. The company had inherited the Soviet Union’s global arms-exporting empire; now, as part of Vladimir Putin’s tightly held network of oligarchic corporations, Rosoboron sold more than 90 percent of Russia’s weapons.
“I know we can’t do business with you directly,” Packouz said. Then he hinted that there was a way to get around the blacklist. “If you can help us do business with another Russian company, then we can buy from them.”It was the last Packouz ever heard from the Russian. Several weeks later, as he was arranging supply routes for the deal, Packouz was informed that AEY would not be given overflight permission for Turkmenistan, a former Soviet satellite that had to be crossed to reach Afghanistan.
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.
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.
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.
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.”
But greed got the better of Diveroli. In a phone call from Miami, he asked Trebicka to use his contacts in the Albanian government to find out how much Thomet was paying the Albanians for the ammunition. AEY was giving the Swiss arms broker just over four cents per round and reselling them to the Pentagon for 10 cents. But Diveroli suspected that Thomet was ripping him off.
Diveroli suggested that Trebicka try bribing Ylli Pinari, the head of the Albanian arms-exporting agency that was supplying the ammunition. “Why don’t you kiss Pinari’s ass one more time,” Diveroli said. “Call him up. Beg. Kiss him. Send one of your girls to fuck him. Let’s get him happy. Maybe we can play on his fears. Or give him a little money, something in his pocket. And he’s not going to get much — $20,000 from you.
But it didn’t take long for success to drive a wedge between the two friends. The exhausted Packouz no longer had to work 18 hours a day to track down suppliers. He started coming in late and knocking off early. Diveroli, who owed him commission but had yet to cut a check to his partner, started to argue with him about his hours.
“I know all of your contacts, and I can send them the actual documents showing what the government is paying,” Packouz said. “You’ll lose your entire profit margin.”A deal was struck, with Packouz agreeing to a fraction of the commission he had been promised. He figured he had something more precious than money: He knew how to work FedBizOpps.
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.
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