US: Arms Dealer Had Troubled History

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.

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.

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."

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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