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US: Arms Dealer Had Troubled History


by ERIC SCHMITTThe New York Times
June 25th, 2008

WASHINGTON — When the Army last year awarded a contract worth up to nearly $300 million to a tiny Miami Beach munitions dealer to supply ammunition to Afghanistan’s army and police forces, it was in spite of a very checkered past.

A Congressional investigation revealed on Tuesday that by the time the Army had awarded the bid, State and Defense department officials had already canceled or delayed at least five earlier contracts with the company, AEY Inc., for shoddy quality or late deliveries.

But that information, including a botched $5.6 million order for 10,000 Beretta pistols for Iraq’s security forces, was either ignored or omitted from databases that American military contracting officials use to weed out companies suspected of involvement in illegal arms deals.

Moreover, Congressional investigators found that the Afghanistan ammunition contract may have been unnecessary: Bosnia, Bulgaria, Hungary and Albania had offered to donate the same kind of Soviet-style rifle and machine-gun cartridges that the Afghan forces use.

With AEY’s business dealings effectively shut down by recent Federal fiats, and its top executives charged last week with defrauding the government, lawmakers on Tuesday assailed four State and Defense department officials for what the legislators said was a case study in military contracting gone terribly wrong.

The hearing of the House Oversight and Government Reform Committee focused on a central question posed by its chairman, Representative Henry A. Waxman, Democrat of California: “How did a company run by a 21-year-old president and a 25-year-old former masseur get a sensitive $300 million contract to supply ammunition to Afghan forces?”

It is a question Federal and congressional authorities have been asking since March, when the Army suspended any future federal contracting, citing shipments of Chinese ammunition and claiming that the company’s young president, Efraim E. Diveroli, misled the Army by saying the munitions were Hungarian.

Democrats and Republicans criticized Army contracting officials, under pressure to arm Afghan troops, for allowing a fledgling company to enter the murky world of international arms dealing on the Pentagon’s behalf -- and doing so with scant vetting and vaguely written contracts with few restrictions.

In response, Pentagon and State Department officials sought to defend their contracting procedures, arguing that AEY repeatedly deceived contracting officials or took advantage of loopholes in the Federal contracting rules.

The officials said the Pentagon, and specifically the Army, is reviewing how it orders foreign munitions and supervises their quality, packaging and shipment. The military is also planning to revamp how it vets Pentagon-sponsored deals in f foreign arms procurement.

“We’re going to do everything we can to ensure this never happens again,” said Brig. Gen. William N. Phillips, commander of the Joint Munitions and Lethality Life Cycle Management Command (cq).

But lawmakers were not mollified, angrily ticking off a litany of problems plaguing the military’s contracting process, and the AEY contracts, in particular.

Pentagon officials, for instance, never consulted a “watch list” of potential arms traffickers compiled by the State Department, a list of 80,000 individuals and companies that happened to include Mr. Diveroli and some middlemen the company used to buy the suspect ammunition.

Under American law, American dealers must disclose every entity involved in an arms shipment overseas, including brokering, transportation and repackaging companies. The State Department checks subcontractors and partners against a watch list of entities suspected of involvement in illegal arms deals.

But the law exempts federal agencies and contractors working for them. Arms-trade researchers have complained that many contractors supplying the wars, including AEY, have worked with suspicious companies abroad, and that the Pentagon has not screened their activities.

Then there was the parade of previous contracts with AEY that were canceled or delayed, many of which apparently never raised red flags with contracting officials because they fell under the $5 million contract value that was the threshold for warning.

In October 2005, for instance, AEY delivered a shipment of damaged helmets to the American training command in Iraq. One American inspector said in an e-mail message obtained by the committee: “The helmets came to Abu Ghraib by mistake. They are not very good. They have peeling paint and a few appear to have been damaged such as having been dropped.”

At about the same time, the committee found, AEY failed to deliver more than 10,000 Beretta pistols under contract to Iraqi security forces. According to the contracting officer, Mr. Diveroli’s excuses for the tardy delivery included a plane crash that destroyed important documents and a hurricane that hit Miami.

In April 2005, U.S. Army Special Forces partly canceled a contract with AEY for ammunition, complaining of a failure to deliver “acceptable goods.”

All of which left lawmakers on Tuesday angry and puzzled how the Army could miss tell-tale warning signs of trouble when it awarded AEY the Afghan ammunition contract in January 2007.

“Obvious evidence of consistently shoddy performance was somehow missed or ignored as substandard or illegally-obtained munitions were apparently being sent to Afghanistan,” said Representative Tom Davis of Virginia, the committee’s ranking Republican.





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