We were somewhat astonished this week to learn that the Pentagon had awarded a $298 million contract to arms dealer AEY Inc. despite the fact the company and its then-21-year-old president were on the U.S. State Department's Arms Trafficking Watchlist.

An Army general said, quite simply, they don't typically check that watchlist before awarding big contracts.

Now we've found evidence that the State Department might not be checking its own list.

AEY and its president, Efraim Diveroli, were on the watchlist as early as April 2006 because U.S. Immigration and Customs Enforcement (ICE) had started an investigation of the company in 2005 for "numerous violations of the Arms Export Control Act and contract fraud," according to the House oversight committee.

Yet according to a government Web site that tracks federal contracting activity, the State Department on Dec. 1, 2006, signed a purchase order for $113,967 with AEY to provide a batch of K3 Light Machine guns.

Less than two weeks after State officials inked the new deal with AEY, someone at Foggy Bottom was adding to the company's watchlist file. According to the oversight committee's report:

On December 12, 2006, the State Department made the following entry to the watchlist regarding both Mr. Diveroli and his company, AEY:

"There appear to be several suspicious characteristics of this company, including the fact that Diveroli is only 21 years old and has brokered or completed several multi-million dollar deals involving fully and semi-automatic assault rifles. Future license applications involving Diveroli and/or his company should be very carefully scrutinized."

According to the public records:

In February 2007, the State Department signed a purchase order for $70,330 for AEY to provide bullet proof vests.

Also in Februrary 2007, the State Department signed a purchase order for $166,357 for AEY to provide "340 Halographic Weapons Systems and 400 RICO Alpha 9 Tactical Weapons Systems."

In June 2007, the state Department signed a $34,878 purchase order for more bullet proof vests.

Legally, the watchlist doesn't have much teeth to it. It was set up for officials to consider when signing off on weapons deals. According to the committee's report:

In 1968, Congress passed the Arms Export Control Act to require companies engaging in the brokering of weapons and ammunition to obtain a license for each transaction. The State Department's Directorate of Defense Trade Controls may deny or revoke licenses if it "deems such action to be in furtherance of world peace, the national security or the foreign policy of the United States, or is otherwise advisable." To help make these determinations, the State Department maintains a watch list of suspect individuals and entities based on information it receives from law enforcement, the intelligence community, and other government and non-governmental sources.

A spokesman for the State Department said they're not going to comment while the department's inspector general is investigating the matter.