Washington blocks exports of munitions firm suspected of fraud

NEW YORK, April 4 – The State Department has suspended the international export activities of AEY Inc., a Miami Beach arms-dealing company led by a 22-year-old man whose munitions procurements for the Pentagon are under criminal investigation, according to local media in the U.S.
The U.S. Army last week accused Efraim E. Diveroli of fraud, claiming he shipped Chinese cartridges to Afghanistan after certifying they were made in Hungary. The Army also suspended Diveroli, and the company, from future federal contracts.
“AEY is under a policy of denial for future export authorization requests,” said an official, who was not authorized to speak publicly and requested anonymity. “The department may make exceptions to this policy of denial, but only if there are overriding national security or foreign policy reasons to do so.”
Diveroli’s lawyer, Hy Shapiro, declined to comment.
AEY had been the principal supplier of munitions to Afghanistan’s army and police forces since the Army awarded it a two-year contract in January 2007. The contract, now unraveling, was potentially worth $298 million.
An examination by The New York Times found Diveroli shipped tens of millions of aging Chinese rifle and machine-gun cartridges from Albania, and provided munitions in crumbling and decomposing packaging. The contract, and American law, prohibit trading in Chinese arms.
Diveroli’s company has also worked with a shell company in Cyprus and middlemen on a federal watch list of entities suspected of illegal arms trafficking, and was secretly recorded by a subcontractor (Kosta Trebicka) in a phone conversation that suggested corruption.
Marc D. Seitles, the lawyer who represents David M. Packouz, the licensed massage therapist who is AEY’s former vice president, said he had sent a letter to Congress stating Packouz would speak publicly only if he was granted immunity from prosecution.
Packouz, 25, left AEY last spring and had no contact with the company since. Without immunity, “I cannot allow my client to testify in this matter, and if he is subpoenaed he will invoke the Fifth Amendment.”
MFS 2000, a Hungarian cartridge manufacturer, has also threatened legal action. AEY purchased millions of cartridges, which they said were in good condition, from the company last year.
Diveroli later certified that other munitions, made decades ago in China, had been manufactured by MFS 2000 as well, according to Army investigators. The Hungarian company suggested that Mr. Diveroli had blemished its reputation.
Documents from Albania showed that AEY bought more than 100 million Chinese cartridges that had been stored for decades in former cold war stockpiles. The cartridges had been manufactured as long ago as 1960.
Diveroli then arranged to have them repacked in cardboard boxes, many of which split or decomposed after shipment to Afghanistan. Different lots or types of ammunition were mixed. In some cases the ammunition was dirty, corroded or covered with a film.
The Army’s new request specified the ammunition must be less than 20 years old, in durable packaging and in proper condition.