Iraq Contractors

Feds Investigating Twenty-Something Contractor

Paul Kiel | March 28, 2008, 10:58AM

Oh, man. Not cool. Not only has the Army suspended any further contracts for AEY (the shady contractor run by 22 year-old Efraim Diveroli), but the U.S. attorney in Miami along with Department of Justice prosecutors in Washington have picked up the case, The Miami Herald reports.

The probe launched as a result of an audit by the Army's Procurement Fraud Branch (it's unclear whether the probe launched as a result of The New York Times' inquiries), where officials determined that Diveroli appeared to have lied when he claimed that the ammunition he was providing came from Hungary when it in fact was made in China -- which he would have done because the Army prohibits using Chinese ammo.

If Diveroli did lie to the government, that would be a crime. You can read the Army's audit letter, in addition to the letter to Diveroli suspending his ability to win any further contracts, here.

The Herald also uncovered a second arrest for Diveroli: one for drunk driving earlier this month. That's the mugshot above. The earlier one, as the Times reported in the initial story, was for beating up a parking valet and getting busted with a fake ID (ironically just after his 21st birthday). The mugshot for that one is to the right. I guess sometimes the pressures of being a big time defense contractor are just too much.

Update: A number of stories have featured Diveroli's sadly out of date MySpace page. How a multi-million dollar contractor only has one friend I cannot understand.

For the curious, Radar was also able to get in touch with AEY's 25 year-old masseur VP (or someone claiming to be him, at least) through his MySpace page.

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Iraq Contractors

Waxman Scheds Hearing for Twenty-Something Arms Contractor

Paul Kiel | March 27, 2008, 2:47PM

Dude! It's time to testify before Congress!

House sleuth Henry Waxman (D-CA) read the news today, oh boy. And he wants 22 year-old AEY President Efraim Diveroli, his 25 year-old VP (and masseur) David Packouz, and the company's general manager, also 25, to testify before Congress about how they managed to get a $300 million U.S. contract to supply (sometimes forty year-old) ammunition to the Afghan Army, among other contracts. Waxman also wants officials from the Department of Defense and Department of State to appear as well. He's set the date of April 17th.

Update: Here's a copy of the letter that the Army sent AEY on Tuesday, suspending any further contracts. The attached letter also runs through all of the contracts AEY won since 2004.

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Topics: Iraq Contractors

Must Read

Today's Must Read

Paul Kiel | March 27, 2008, 10:30AM

Courtesy of The New York Times, I'm proud to present to you a brand new member of the Bush Administration War Profiteer Hall of Shame: 22 year-old Efraim Diveroli, whose company AEY has been awarded approximately $300 million in contracts by the Pentagon.

How does a 22 year-old get a multi-million dollar defense contract? you ask. “AEY’s proposal represented the best value to the government," the Army tells the Times. (Never mind that AEY was headed by a guy who'd been busted by the police for carrying a fake ID.)

AEY's fattest contract came in January of last year, when a Pentagon contract made AEY, "which operates out of an unmarked office in Miami Beach,... the main supplier of munitions to Afghanistan’s army and police forces." AEY's VP is 25 and a licensed masseur. AEY also had a $5.7 million contract for rifles for Iraqi forces, among others.

As the Times found out, AEY fulfilled that contract by dealing with a variety of shady arms dealers (one Czech, one Swiss) to get their hands on ammo stockpiles in the old Eastern bloc. And as far as ensuring the quality of the munitions? Here's how it went in Albania:

Albania offered to sell tens of millions of cartridges manufactured as long ago as 1950. For tests, a 25-year-old AEY representative was given 1,000 cartridges to fire, according to Ylli Pinari, the director of the arms export agency at the time of the sale.

No ballistic performance was recorded, he said. The rounds were fired by hand.

Not surprisingly, the Afghan army has been unhappy with the product. AEY shipped the decades-old ammo in cardboard boxes -- apparently to save money on shipping charges. And the Times reports that the boxes arrived in Afghanistan spilling out of the boxes, "revealing ammunition manufactured in China in 1966." It's illegal to deal in Chinese arms.

In response to the Times' questions, the Army has suspended AEY "from any future federal contracting, citing shipments of Chinese ammunition and claiming that Mr. Diveroli misled the Army by saying the munitions were Hungarian."

But surely the most memorable details of the story (which is well worth reading in full) have to do with a kid trying to wiggle out of legal trouble on the basis of his work fighting terror:

By [2005, when Diveroli became president of the company at the age of 19, taking over from his father], pressures were emerging in Efraim Diveroli’s life. In November 2005, a young woman sought an order of protection from him in the domestic violence division of Dade County Circuit Court….

Mr. Diveroli sought court delays on national security grounds. “I am the President and only official employee of my business,” he wrote to the judge on Dec. 8, 2005. “My business is currently of great importance to the country as I am licensed Defense Contractor to the United States Government in the fight against terrorism in Iraq and I am doing my very best to provide our troops with all their equipment needs on pending critical contracts.”…

On Dec. 21, 2006, the police were called back to the condominium. Mr. Diveroli and AEY’s vice president, David M. Packouz, had just been in a fight with the valet parking attendant.

The fight began, the police said, after the attendant refused to give Mr. Diveroli his keys and Mr. Diveroli entered the garage to get them himself. A witness said Mr. Diveroli and Mr. Packouz both beat the man; police photographs showed bruises and scrapes on his face and back.

When the police searched Mr. Diveroli, they found he had a forged driver’s license that added four years to his age and made him appear old enough to buy alcohol as a minor. His birthday had been the day before.

“I don’t even need that any more,” he told the police, the report said. “I’m 21 years old.”

Diveroli would have been prohibited from dealing in contracts if he'd been convicted of possession of a forged document, which is a felony, the Times reports, but "to avoid a conviction on his record, Mr. Diveroli entered a six-month diversion program for first offenders in May 2007 that spared him from standing trial."

Unfortunately, it seems that AEY is unwinding with all this public attention:

[I]n Miami Beach, even before the suspension, AEY had lost staff members. Michael Diveroli, the company’s founder, told a reporter that he no longer had any relationship with the company. Mr. Packouz, who was AEY’s vice president, and Levi Meyer, 25, who was briefly listed as general manager, had left the company, too.

Mr. Meyer offered a statement: “I’m not involved in that mess anymore.”

So it seems pretty clear that Diveroli is a shoo-in for the Hall of Shame. But the question becomes whether he's in competition to be the champ. Is he competition for Erik Prince, Brent Wilkes?

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Topics: Iraq Contractors, Must Read

Iraq Contractors

Sick Workers Hope to Hang KBR with Its Own Tax Loophole

Paul Kiel | March 25, 2008, 1:44PM

From The Boston Globe:

When the American team arrived in Iraq in the summer of 2003 to repair the Qarmat Ali water injection plant, supervisors told them the orange, sand-like substance strewn around the looted facility was just a "mild irritant," workers recall....

But the chemical turned out to be sodium dichromate, a substance so dangerous that even limited exposure greatly increases the risk of cancer. Soon, many of the 22 Americans and 100-plus Iraqis began to complain of nosebleeds, ulcers, and shortness of breath....

Now, nine Americans are accusing KBR, then a subsidiary of the oil conglomerate Halliburton, of knowingly exposing them to the deadly substance and failing to provide them with the protective equipment needed to keep them safe.

But the workers, like all employees injured in Iraq, face an uphill struggle in their quest for damages. Under a World War II-era federal workers compensation law, employers are generally protected from employee lawsuits, except in rare cases in which it can be proven that the company intentionally harmed its employees or committed outright fraud.

KBR is citing the law, called the Defense Base Act, as grounds to reject the workers' request for damages.

But the company's own actions have undermined its case: To avoid payroll taxes for its American employees, KBR hired the workers through two subsidiaries registered in the Cayman Islands, part of a strategy that has allowed KBR to dodge hundreds of millions of dollars in Social Security and Medicare taxes.

That gives the workers' lawyer, Mike Doyle of Houston, a chance to argue to an arbitration board that KBR is not an employer protected by federal law, but a third-party that can be sued.

The whole horrid story is worth a read.

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Topics: Iraq Contractors

Iraq Contractors

Waxman Calls for Investigations of Blackwater Tax Dodge

Paul Kiel | March 10, 2008, 12:13PM

It was a pretty neat trick. Because Blackwater classified its guards in Iraq as independent contractors, the company saved possibly "tens of millions" of dollars in taxes.

A number of senators called for investigations last October. But House oversight committee Chairman Henry Waxman (D-CA) says that his staff have been digging and now it's clear: Blackwater is wrong when it says that its guards fit the description of contractors and not employees, and that dodge had much bigger benefits than a simple tax dodge.

Because Blackwater had many fewer "employees," for example, it made out with a number of contracts reserved for so-called small businesses: "at least 100 small business set-aside contracts. worth over $144 million, that have been awarded to Blackwater since 2000."

Waxman wants the IRS, the Small Business Administration, and the Department of Labor to investigate. Blackwater is already the focus of its share of criminal investigations, but it may be that these, if they were to get off the ground, would do the most damage to the company's bottom line.

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Iraq

Legendary Gun-Runner Nabbed in Thailand

Paul Kiel | March 6, 2008, 3:46PM

Viktor Bout, the famed Russian arms smuggler, supplier to anybody anywhere in the world who could pay the right price (such as, say, Liberia's Charles Taylor, FARC in Colombia, and the U.S. military), has been nabbed in Thailand. From the AP:

One of the world's most notorious arms dealers was arrested Thursday in Bangkok on allegations that he supplied Colombian rebels with arms and explosives, Thai police said.

Russian Viktor Bout was arrested in his hotel room in the capital, Bangkok, on a warrant issued by a Thai court, said Police Lt. Gen. Pongpat Chayapan, head of the Crime Suppression Bureau. The warrant stemmed from an earlier one issued by the U.S. Drug Enforcement Administration, he said.

A U.S. Embassy spokesman "congratulated" Thai police for the arrest but could not provide details about the role U.S. officials played in it.

Funny, that last bit, since journalists Douglas Farah and Stephen Braun reported in their book on Bout, "Merchant of Death: Money, Guns, Plans, and the Man Who Makes War Possible," that both the U.S. military and defense contractors KBR and Dyncorp had used Bout's services in the aftermath of the Iraq war.

Even after President Bush signed an order freezing Bout's assets, the Pentagon continued using his planes, they reported, to get reconstruction supplies into Baghdad. All in all, they say, his planes flew hundreds of flights from 2003 to 2006, even after his work for the Defense Department was exposed in 2004. Bout may have been an international criminal, but he got the job done.

But now Thai police have nabbed him. So congrats!

Update: Turns out that U.S. authorities were in on the bust, which was a "four-month sting by the Drug Enforcement Administration with secret help from security officials in four other nations." Go figure.

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Topics: Iraq, Iraq Contractors