The story of Efraim Diveroli took a new turn in March when the U.S. Army debarred Diveroli and his company, AEY Inc., from federal contracting for 14 years. POGO first blogged about the 22-year-old arms dealer from Miami Beach three years ago when his incredible story first made the news (here's his MySpace profile from March 2008).
At that time, the Army had suspended Diveroli amid allegations that he supplied defective gun cartridges, some of which had been illegally exported from China, under a $300 million Army contract. Diveroli and several of his business partners eventually pleaded guilty. In January of this year, Diveroli was sentenced to four years in prison.
The Army finally lowered the boom on Diveroli with a 14-year ban on doing business with the federal government. The Army also imposed a ten-year debarment on several of Diveroli’s associates and the web of companies they set up to reap the fortunes of the international arms trade.
Yet, as we noted when this scandal broke in 2008, the Army bears some of the blame for what happened. Contracting officials were under such pressure to arm Afghan forces in the fight against al-Qaeda that they did not carefully vet the bidding companies. Had they done a more thorough background check, they would have turned down AEY, a company with hardly any defense contracting experience (it was started less than ten years earlier as a printing business) and a reputation for unreliability. In addition, the contract lacked rigorous quality assurance standards or oversight, leaving Diveroli free to maximize profits at the expense of the end users of the defective ammunition.
All of this leads POGO to wonder if the Diveroli affair marks a turning point in contractor accountability or is just the tip of the iceberg. Consider all of the instances of poor contract performance, contract fraud, and import/export violations (among the many other kinds of misconduct) in our Federal Contractor Misconduct Database. Some of those instances involved conduct more egregious than that of Efraim Diveroli and his cohorts, yet only five of the contractors in our database have been suspended, while none have been debarred. Just this week, a federal judge green-lighted another case involving defective defense articles. The judge denied a motion to dismiss a whistleblower lawsuit alleging several companies sold the military defective grenades that detonated prematurely or not at all.
Image: Diveroli's MySpace profile from 2008.