22-Year-Old Arms Dealer Scandal Exposes Flaws in Federal Contracting

The news has recently been abuzz with the story of Efraim Diveroli, the 22-year-old self-described "super nice guy" from Miami Beach who was caught supplying the Afghan government with unreliable and obsolete munitions under a $300 million U.S. Army contract. Diveroli and his company, AEY Inc., are also believed to have dealt with illegal arms traffickers and covered up the fact that tens of millions of the rifle and machine gun cartridges he supplied were illegally obtained from China.

The Army awarded the contract to AEY early last year. According to an investigation published Thursday in the New York Times, problems with the munitions began cropping up last fall. In January, American officers in Afghanistan became concerned enough to suggest terminating the contract. A month later, Army contracting officials met with AEY and imposed more rigorous packaging standards. Yet the company again supplied another shipment of substandard cartridges.

This week, the Army suspended AEY from all future federal contracts. Neither Diveroli nor his company will be allowed to bid on any future government work until the allegations are resolved, but will still be allowed to provide ammunition already on order under the contract. AEY is also facing investigations by the Department of Defense’s inspector general and Immigration and Customs Enforcement.

How did a relatively new company run by a twenty-something land such a lucrative contract in such a vital national security area? The Times found a host of systemic problems. In 2006, Army contracting officials were under intense pressure to supply munitions to Afghan forces. They did not carefully vet the bidding companies. By 2006, AEY had landed a few security and defense-related contracts, but, according to contracting officials quoted anonymously in the Times story, AEY had already earned a reputation for unreliability. Diveroli also had a series of run-ins with the Dade County authorities in 2005 and 2006. Nevertheless, the Army was satisfied with AEY’s bid proposal and awarded it the contract in January 2007.

That contract, however, was vaguely worded and had few quality assurance restrictions. It lacked rigorous standards regulating the quality, packaging, transportation and storage of munitions. Without such restrictions, AEY was free to conduct its business in a way that maximized its profits, which meant dealing with shadowy "middlemen" and vast, unregulated stockpiles of unsafe munitions in former Soviet Bloc countries and elsewhere.

Unfortunately, debacles like this are becoming all too common. In fighting the global war on terror, the Pentagon is handing out billions of dollars in hastily drafted contracts to poorly vetted companies like AEY. The contractor takes advantage of the loophole-ridden contract, the government drops the ball on oversight, and the pursuers of Al Qaeda are left with defective bullets. This time, a team of tenacious reporters at the New York Times pushed the government into action. Whether or not this will lead to meaningful reforms in the federal contracting system remains to be seen.