Polar Opposites Before they got mixed
up in a $300 million international scandal, David Packouz and Efraim Diveroli were just
a couple of kids from Miami Beach. They met at Beth Israel Congregation, the largest orthodox
synagogue in the area. However, their religion was about the only thing they had in common.
Packouz was a skinny kid who always wore his yarmulke but
wasn't particularly sure of himself or his place in the world.
On the other hand, Diveroli, who was 4 years younger than Packouz,
was an overweight, loud-mouthed class clown who always made his presence known and felt.
Perhaps it was their drastically different temperaments that ultimately drew the two
together. After school, they'd head down to the beach where they'd smoke some pot,
play some music, and engage in the kind of shenanigans akin to the typical teenager.
As Packouz's high school years came to a close, his indecisiveness about what to do
with his life became painfully clear. He enrolled at the University of Florida but
spent his first few semesters drifting aimlessly without an obvious direction.
Packouz spent most of his time with his high school buddies,
doing the kinds of things they always did: getting high,
making music, and trying their best to ignore the constraints of everyday life.
Although a slacker at heart, Packouz wasn't without his aspirations. He had
dreams of becoming a world-famous rock star. He knew the odds weren't in his favor. Still,
he had no intention of wasting his life away, flipping burgers, or trapped inside a cubicle.
Diveroli had no such problems. His destiny, it seems, was determined before he was even born:
he was going to be an arms dealer, like his father before him. It's a good thing he had
a family business to fall back on, too, because he got himself kicked out of school in the 9th grade.
Instead of spending his formative teenage years sleeping through English class, Diveroli moved
to Los Angeles to learn under the wing of his arms-dealer uncle. By his 16th birthday,
he was hawking weapons, ammunition, and other military paraphernalia in foreign lands.
In 2001, Diveroli and his uncle had a falling out, prompting him to pack his bags and move back
across the country to his old Miami stomping grounds. It was then that he took over his
father's shell company, AEY Inc., and took his first steps into the arms business by himself.
Just Business Before we delve into
Diveroli's first solo venture as an arms dealer, let's talk about the state of the
arms trade in the early 2000s. Throughout George W. Bush's tenure as US President,
private military contracts became more prevalent. With the onset of war in the Middle East, the US
government turned to private contractors to get their hands on weapons at an unprecedented rate.
There's a reason these contracts ballooned from $145 billion to $390 billion under President Bush.
US law requires that every Pentagon purchase order be made available to public bidding.
This gave the Department of Defense access to the seemingly
infinite well of the international arms aftermarket through independent contractors.
Eastern European countries stockpiled weapons, preparing for war with the west during the Cold
War era. When war no longer seemed imminent, arms dealers got a hold of
these warehouses filled with munitions, which they set out to sell to the highest bidder.
The US government obviously couldn't get involved with these shady dealers - at least, not directly.
For that reason, they relied on contractors to do their "dirty work." Instead of paying
an arms dealer, the Department of Defense paid a middle man to do business with arms dealers.
That's why the arms trade was dubbed a kind of "gray market."
There was undoubtedly a criminal element to the whole operation. However,
with the help of independent contractors - like Diveroli - the US government could still get
the supplies they needed for the militias they were forming in Iraq and Afghanistan.
As long as the weapons were flowing, they didn't really care how their contractors conducted
business, save for a couple of key exceptions: there was an embargo on munitions from China,
and the State Department also banned doing business with a particular Russian firm called
Rosoboron, who allegedly sold nuclear equipment to Iran.
AEY Inc After taking control of AEY,
Diveroli took advantage of the burgeoning arms aftermarket that was only being helped by the
developing war. However, the company wasn't a top-shelf operation in its early stages.
Diveroli rented a modest room from a family's house in Miami and essentially ran AEY
from the comfort of his bedroom. He was a self-taught self-starter
who quickly became well-versed in the complicated language commonly
used throughout federal contracts, such as those he started bidding on.
At this point, AEY was a no-name small business competing with massive corporations
like Lockheed Martin and BAE Systems. But what Diveroli lacked in infrastructure,
he certainly made up for in no holds barred ambition. His company's
lack of overhead also allowed him to run a lean operation with very few extraneous expenses.
This made it possible for him to undercut his top competitors on bids. He typically
dealt with smaller contracts, but even so, he was accumulating a proven record of "past
performance," which is something the Pentagon was looking for in its prospective contractors.
Packouz became aware of Diveroli's career path and how it proved
quite lucrative for his old stoner buddy. The two ran into each other one day.
Diveroli invited Packouz to accompany him to a party thrown by a local rabbi.
It was there that Diveroli told his old friend all about his work and how
he'd just secured a $15 million contract with the Pentagon. Packouz was intrigued, and Diveroli
indicated that his ever-increasing workload made it harder for him to run AEY by himself.
Packouz then asked him how much money he'd made in the arms trade,
expecting him to say something in the ballpark of $100 thousand. Diveroli pulled his car over
and looked his friend directly in the eyes when he said he'd made 1.8 million in cash.
That was all Packouz needed to hear. Diveroli had his new business partner right then and there.
Even with Packouz, who was made "account executive," the operation remained
relatively lean. The two sat across from one another in Diveroli's one-bedroom apartment,
and, after getting themselves good and stoned, they'd get to work bidding on federal contracts.
Diveroli was a natural-born charmer, using his charisma and business skills to leverage
the Pentagon's buyers, aka soldiers without a lick of business experience.
This meant he could convince the State Department to accept cheaper weapons after already signing
a contract with AEY, increasing the company's profit margin exponentially.
Arms Convention Seven months into
Packouz's involvement with AEY, he and Diveroli traveled to Paris for
an international arms convention. It was there that the pair met Heinrich Thomet,
a Swiss arms dealer. He was stationed at a booth displaying a new robotic reconnaissance device.
Thomet was a seasoned vet in the arms trade, which meant he had connections worldwide.
With his intricate network of shell companies and offshore accounts, Thomet could get good
prices on munitions while avoiding government scrutiny on his various business transactions.
Despite his efforts to evade the feds, he'd recently come under
investigation by US law enforcement in connection to his illicit dealings,
and he was on an official State Department watch list as a result. For that reason, he viewed AEY
as a perfect conduit through which he could go back to facilitating Pentagon contracts.
The Contract With Thomet in tow,
AEY was more profitable than ever. Then, in July of 2006,
they finally got their big break. They came across the mother of all federal contracts
while perusing the usual government listings. It was a 44-page document detailing a semi-covert
operation by the Bush administration to prop up the Afghan National Army.
Based on the huge number of supplies the Army was looking for, Diveroli knew it would be
a massively profitable contract if they managed to bid on it successfully.
It was the type of contract that a small-time operation like AEY normally wouldn't have a
prayer of obtaining. However, President Bush recently enacted a small business
initiative that stipulated a certain percentage of defense contracts go to smaller firms like AEY.
Furthermore, the supply lines Thomet helped them set up made it possible for Packouz and Diveroli
to get in contact with the types of dealers necessary to meet the giant contract's demands.
The contract's language also made it seem as though the Pentagon wasn't
particularly concerned with the quality of the ammunition,
so long as it was "serviceable." This meant AEY might be able to get away with delivering
a low-quality product as long as it shot out of the barrel like it was supposed to.
Packouz had to step up his game to get their hands on this contract. For the next 6 weeks,
he worked tirelessly, day and night, calling every Eastern European arms manufacturer known to man,
looking for stockpiles of weapons at reasonable prices.
Diveroli wasn't sure whether he should calculate a 9 or 10% profit margin into their bid. While 1%
may not seem like much to write home about, that 1 measly percent was a $3 million difference.
He ultimately settled on 9%, which came out to a total bid of nearly $300 million. In the end,
that was enough for them to undercut the big boys and win the bid, making Packouz and Diveroli,
who were still in their early 20s, responsible for one of the Bush administration's biggest arms
deals. Overnight, they became a pivotal aspect of the US government's entire foreign policy.
The Russians Packouz was saddled
with the brunt of the workload. This daunting assignment would have normally taken dozens
of experienced employees to complete. But he believed he was up to the task. While
Diveroli was off in Eastern Europe looking for suppliers, Packouz headed to Abu Dhabi
to attend the annual International Defense Exhibition. He hoped to find one supplier
big enough to meet the majority of AEY's various needs for their $300 million contract.
The obvious candidate was the Russian arms behemoth, Rosoboron, but,
as you might remember, they were blacklisted by the US government. But Rosoboron sold more
than 90% of Russia's weapons, making them the perfect fit for what AEY was trying
to accomplish. Packouz just had to keep their Russian association on the down-low.
He managed to get in front of Rosoborn's deputy director to
make his pitch. The Russians seemed to be interested in what AEY had going on,
and it looked as though the two parties were going to work out a deal.
Several weeks after his meeting with the Russians, Packouz learned that AEY
was barred from flying over the former Soviet satellite, Turkmenistan, which they had to cross
to get the arms to Afghanistan. It appeared the Russians were screwing with their new business
partner, perhaps in some backward attempt to get themselves off of the US' blacklist.
Packouz had to obtain overflight permission from Ukraine instead.
The Albanian Ammo The largest facet of AEY's Afghan
defense contract was the millions of AK-47 rounds they agreed to provide. While they had several
ammo supplier options, they ultimately landed on Albanian contacts they'd gotten from Thomet. Their
decision largely stemmed from the fact that the Albanians didn't require massive down payments,
and Albania's government was more than capable of handling the large volume AEY required.
Diveroli sent another one of his old synagogue buddies, Alex Podrizki,
to broker the deal with the Albanians. However, upon his arrival in the capital city of Tirana,
Podrizki noticed some alarming details that indicated AEY's Albanian deal
might be more trouble than they bargained for.
First of all, they weren't exactly concerned with safety. Podrizki watched in horror as
soldiers lit cigarettes in a room overflowing with gunpowder. The rounds themselves were also being
stored in rusty sardine cans and stacked on rotten wood, which wasn't exactly an encouraging sight.
But the most concerning aspect of the Albanians' operation was the
Chinese lettering on the ammunition's packaging.
The Circumvention This was bad news all
around. Not only had the US government placed an embargo on the sale of Chinese weapons,
but the Afghan contract explicitly prohibited the use of any Chinese munitions.
With the contract's deadline fast approaching, Packouz and Diveroli had no time to look for
another supplier for their AK-47 ammo. They had to circumvent the rules. They had to improvise.
They instructed Podrizki to get the ammunition repackaged in Albania. Their
friend managed to track down a cardboard box manufacturer named Kosta Trebicka.
Trebicka was willing and able to repack the 100 million rounds of ammunition by transferring them
from the metal sardine cans to fresh cardboard boxes. He thought the request was more than a
little strange. Podrizki told him they just wanted to lighten the load to save money on air freight.
Although it seemed like AEY was in the clear, greed ultimately got the better of them. Diveroli
had grown suspicious that Thomet was ripping him off. He believed Thomet was charging a
higher rate than was necessary to broker with the Albanians and then pocketing the difference.
Diveroli's suspicions were correct, and he tried to cut Thomet out of the deal.
He called on Trebicka to strike a new deal with the Albanians that no longer included
Thomet as a middle man. Diveroli's plan backfired. Thomet was paying a kickback
fee to the Albanians off the books. He couldn't be kicked out of the deal.
Trebicka ended up getting muscled out of the deal instead,
and the Albanian mafia took over the repackaging effort.
The Downfall Despite the
unforeseen complications, the shipment ultimately went through on time, and,
again, it seemed like AEY was in the clear. But even with millions of dollars regularly
being wired to his bank account, Diveroli once again let greed get the better of him.
He approached Packouz about renegotiating their handshake deal. Diveroli wanted to
give his business partner less money than they originally agreed upon. Packouz,
unfortunately, had no legal leg to stand on, as he hadn't signed any written contract with AEY.
The two ultimately struck a new deal that awarded Packouz only a fraction of what he'd initially
been promised. But he had plans to get back at Diveroli for his betrayal. He opened up his own
arms dealing firm called Dynacore Industries. He boasted on the company's website how his "staff"
worked with the State Department, the Pentagon, and the Iraqi and Afghan armies in the past.
As Packouz himself admitted, sometimes you have to fake it until you make it.
Although the wedge between Packouz and Diveroli had brought their partnership to an end,
they had far more pressing concerns than a lost friendship.
Undercutting big businesses for the Afghan contract had made some serious enemies for AEY.
One American arms dealer tipped off the government about the illegal
shortcuts Packouz and Diveroli had taken to carry out the shipment.
Federal agents subsequently raided Diveroli's offices, where they came upon the damning emails
he'd sent regarding the Chinese ammunition and the conspiracy to circumvent the embargo.
At that point, there was nothing they could say or do to avoid the
impending consequences. The jig was officially up.
The Aftermath Although Diveroli and Packouz expressed remorse
over their misdeeds, their apology wasn't enough to avoid punishment. Diveroli was
sent to prison for 4 years, while Packouz was placed under house arrest for 7 months.
However, that wasn't the end of their time in the public spotlight. In 2016,
Hollywood made a movie about their story called War Dogs. It starred Jonah Hill
as Efraim Diveroli and Miles Teller as David Packouz.
That same year, Diveroli released a memoir titled Once A Gun Runner. He later sued Warner Brothers,
War Dogs director Todd Phillips, producer Bradley Cooper, and others,
seeking to block the film's release. He claimed that they had used his
memoir as the basis for the movie despite not compensating him at all.
Whatever the case may be, it seems that, even after supposedly paying
his debt to society and learning his lesson, wherever Diveroli goes, trouble soon follows.
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