Army flayed over 21-year-old's $298 million arms deal

WASHINGTON — Military officials came under withering attack Tuesday in Congress from both Democrats and Republicans, who expressed anger and astonishment that a 21-year-old Miami Beach man with a spot on a State Department "watch list" and a history of failing to deliver on military contracts was awarded a $298 million deal to provides arms to allied forces in Afghanistan.

A congressional investigation found that Efraim Diveroli — who's now 22 — was granted the contract even though he, his company, AEY, and a supplier he worked with were on a State Department watch list for suspicious international arms dealers, said Rep. Henry Waxman, the chairman of the House Oversight and Government Reform Committee.

The California Democrat said that the awarding of the contract revealed a "fundamentally flawed system," noting that Defense Department officials had overlooked AEY's "long record of failed and dubious performance." That record, as compiled by the committee, included delivering damaged helmets to Iraq, falsely blaming a hurricane in Miami for failing to deliver 10,000 pistols to Iraq's security forces and delivering the wrong model of laser pointer and rifle attachments to the U.S Embassy in Colombia.

"It appears that anyone — no matter how inexperienced or unqualified — can win a lucrative federal contract worth hundreds of millions of dollars," Waxman said, adding that it was "hard to imagine a less-qualified company than AEY."

Defense officials acknowledged shortcomings in the contracting process and vowed changes, though they were unable to tell the panel whether AEY still has business in Iraq.

"I will have to get back to you on whether they're still performing," Jeffrey Parsons, the executive director of the Army Contracting Command, told Rep. Stephen Lynch, D-Mass., who said he'd seen crates of supplies with ties to AEY on a recent trip to Iraq.

Military contracting officials said the review of AEY's past performance didn't raise any red flags because the company's previous contracts were too small to require mandatory reporting.

Parsons said AEY had failed to tell the military that it had several contracts that were "terminated for cause" before it was awarded the $298 million contract in January 2007. He said the Army was changing its policies to require that all canceled contracts — regardless of the amounts — be reported.

"In my opinion while there certainly is room for improvement . . . this case is more about a contractor who failed to properly represent his company ... rather than a faulty contracting process," Parsons said. But he acknowledged, "It was not a good decision."

Rep. Tom Davis of Virginia, the ranking Republican on the panel, criticized the "failure to root out AEY sooner" but said "there is little indication the United States routinely purchases ammunition for vintage Soviet weapons from 22-year-old arms dealers."

Military officials said they didn't know that the State Department had flagged Diveroli and the company because contracting officers weren't required to review the watch list. Parsons said he didn't know whether the list was available to outside agencies.

Stephen Mull, the acting assistant secretary of state at the bureau of political military affairs, said the agency had shared the information with other agencies upon request. According to Mull, AEY was placed on the watch list in January 2005. Diveroli was listed in 2006, with an entry noting "there appear to be several suspicious characteristics of this company, including the fact that Diveroli is only 21 years old and has brokered or completed several multimillion-dollar deals involving fully and semi-automatic assault rifles. Future license applications involving Diveroli and/or his company should be very carefully scrutinized."

Waxman said Diveroli was invited to testify before the committee but declined through an attorney, citing his Fifth Amendment right not to incriminate himself. Noting that Diveroli was indicted in Miami last week on charges of defrauding the U.S. government, Waxman said, "His Fifth Amendment concerns would appear to be well-founded."

Authorities contend that Diveroli and three employees conspired to defraud the federal government by selling it more than $10 million worth of Chinese-made machine-gun rounds, telling U.S. officials that the ammunition was from Albania.

Diveroli's attorney has called the government indictment flawed.

The committee contends that the senior U.S. diplomat in Albania tried to cover up the Chinese origins of the ammunition, which AEY shipped to Afghanistan.

A spokesman for the State Department, Tom Casey, said at a briefing Tuesday that the agency's inspector general had been asked "to go and look at these charges and conduct a thorough, fair and transparent investigation of these allegations."