AEY Ammunition Contract: How Did Chinese Ammunition Reach the U.S. Army?

AEY Wins Despite the Origin Ban (0:00)

One line in an Army contract worth two hundred ninety-eight million dollars was impossible to miss: Chinese-made ammunition was prohibited. AEY won it in January 2007 for Afghan Army and Police. The rule was clear. How did it come to be broken? According to trial evidence, AEY’s people learned the Albanian ammunition they planned to buy had been made in Communist China.

They did not abandon the deal. They chose to disguise its origin. In 2009, three individuals and the company pleaded guilty. This story follows the rule from contract to purchase, then asks what the safeguards were meant to catch. It will also keep four questions apart: contract scale, country of origin, ammunition condition, and who was held accountable.

Before the Army issued that contract, Efraim Diveroli had taken over his father’s incorporated business after a dispute with his uncle over money. At eighteen, he returned to Miami. At nineteen, he became AEY’s president. One account called AEY a shell company, but that label misses part of the record. It brokered goods to the military, won smaller contracts for helmets and ammunition used by U.S.

Special Forces, and competed by finding lower prices than established suppliers. David Packouz met Diveroli in two thousand five while briefly studying chemistry at Miami Dade College. Employment accounts identify him as a commission-only account executive when he joined that November; Packouz said Diveroli also offered him the vice presidency. AEY’s Afghanistan ammunition purchases involved both financing and finding suppliers. Diveroli obtained financing from Utah machine-gun manufacturer Ralph Merrill.

According to trial testimony, Merrill joined the ammunition purchases and expected half the projected profits, which the defendants believed could reach millions. Those figures show projected incentives, not realized earnings. But the business model itself is documented: use a broker’s reach, find unusually cheap supply, and undercut competitors on a federal bid. The question becomes whether cost and compliance can survive the same pursuit. Here is the problem.

According to acting assistant secretary of state Stephen Mull, AEY entered the State Department watch list in January two thousand five, and Diveroli was added in two thousand six. Future license applications were to be very carefully scrutinized. A congressional investigation found that Diveroli, AEY, and a supplier were listed as suspicious international weapons dealers, yet the Army still granted the contract. That finding places warning signals before the award. It does not show what Army officials knew, or when.

Other warning signs were attached to AEY’s earlier work. Army Contracting Command executive director Jeffrey Parsons said the company failed to disclose several contracts terminated for cause before the Afghanistan award was granted. A committee record compiled by Representative Henry Waxman described damaged helmets delivered to Iraq and a claimed hurricane excuse after ten thousand pistols were not delivered to Iraqi security forces. These were committee allegations, not findings about every contract. Then came the opportunity large enough to magnify every strength and every weakness.

On July twenty-eighth, two thousand six, the Army Sustainment Command in Rock Island, Illinois, posted a forty-four-page solicitation for nonstandard ammunition. The request covered munitions for the Afghan National Army, including millions of seven point six two millimeter rounds for Warsaw Pact-model small arms. It also included assault-rifle ammunition, sniper-rifle ammunition, grenades, Russian mortars, and aviation rockets. Everything went to one bidder. One published account records initial orders of one hundred million A K forty-seven cartridges and more than one million grenade-launcher grenades, in an order described as nearly fifty million dollars.

Those figures describe orders, not completed delivery. According to that account, Diveroli spotted the solicitation within minutes and called Packouz while he was driving. Diveroli asked him to find suppliers and offered twenty-five percent of profits from new sources. The incentive was projected, not documented profit. Packouz searched for manufacturers in Ukraine, Hungary, and Bulgaria, contacting them by email, fax, or phone.

At the same time, Alexander Thomet worked his contacts in Albania. The scattered supplier hunt became the basis of AEY’s bid. AEY submitted an offer of two hundred ninety-eight million dollars and won the contract in January two thousand seven. One report said the bid was tens of millions of dollars below major competitors. Diveroli was twenty-one.

That award gave AEY a place inside a sensitive supply chain. It also put the low-price model under a much larger test. According to the indictment, AEY’s contract required serviceable and safe ammunition; the Army contract also expressly prohibited Chinese-made ammunition. AEY planned to source most of the A K forty-seven ammunition from Albania. The route ran through Evdin, a Cyprus-based company owned by Thomet, which passed the ammunition to AEY.

Reporters later described the material as Chinese ammunition from aging Albanian caches. Early shipments departed Hungary or Bulgaria while flights to Kabul were being organized. Then, in April two thousand seven, the known origin changed. According to testimony and trial evidence, the Albanian Ministry of Defense ammunition was made in Communist China. Authorities alleged that the Chinese ammunition was being represented as Albanian.

The manufacturing origin was China. The proposed purchase therefore conflicted with the Army contract. The Army contract expressly prohibited Chinese-made ammunition, and a published account says the State Department told Diveroli AEY could not proceed. According to trial testimony, the response did not end the plan. The defendants decided to buy the Chinese ammunition, disguise its origin, and ship it to the U.S.

Army’s ammunition depot in Afghanistan. The key choice was deliberate. Packouz then instructed Trebicka by email to repackage the ammunition so its provenance would be as concealed as possible. The instruction matters because it shows the concealment was not merely an accidental mismatch between paperwork and inventory. The contract and published reporting put dollar figures on the transaction.

The Army contract was worth two hundred ninety-eight million dollars. AEY fulfilled it with Chinese ammunition and shipped ten million dollars of that material to the government. Authorities alleged more than ten million dollars was represented as Albanian. So the case was not that every dollar of the contract was proved fraudulent. The alleged deception involved a meaningful portion of Chinese-origin ammunition, and the legal case asked how that material entered an Afghan Army contract that expressly excluded it.

A cargo plane carrying nearly five million A K forty-seven rounds departed Hungary.

Packouz Joins AEY (8:15)

It was bound through Kyrgyzstan for Kabul. On the runway in Kyrgyzstan, it was seized. A freight forwarder called Packouz with the news. Accounts differ over the penalty: one says Packouz faced three hundred thousand dollars for every day the aircraft remained, while another placed that cost on its owner. A published account said Defense Secretary Robert Gates traveled to Kyrgyzstan to defuse the dispute, while another described his mission as freeing the cargo.

The same account linked the standoff to airport fees and North Atlantic Treaty Organization expansion. Here the story must resist a shortcut. It is still not known whether the seized aircraft carried the Chinese ammunition represented as Albanian. The cargo seizure and origin case overlap in time, but they are not proven to be the same shipment. A dramatic seizure can look like proof.

It is not. Federal agents later searched AEY’s offices. A published account said emails showed that Packouz and Podrizki knew they were violating the embargo. One story ended in detention. The legal case moved through documents and cooperation.

In August two thousand seven, federal agents served a search warrant at AEY’s Miami Beach offices during a licensing investigation. A published account says federal agents inspected the offices and seized computers in late August 2007. According to the source account, David Packouz and Alexander Podrizki then came forward and revealed the plan to ship Chinese ammunition disguised as Albanian. That account also described their emails as explicit evidence that they knew they were violating the embargo. Both chose to cooperate, according to that account.

Packouz also says he had left AEY in July and never spoke to Diveroli again. That cooperation followed emails a published account described as explicitly showing awareness of the embargo. Another line of evidence asks a different question: not where the ammunition came from, but whether it was safe and serviceable. The indictment said AEY’s contract required serviceable and safe ammunition. A government inspector in Afghanistan found that some ammunition was unsafe for transportation because of corrosion and a termite infestation in the packaging.

That finding concerned some of the material, not every round AEY shipped. Packouz said all ammunition shipped while he was at AEY was fully functional and acceptable. It is still not known how that broader claim can be reconciled with the inspector’s finding about some material. Condition became an issue alongside origin. Now return to the safeguards.

A written origin clause existed. A watch-list entry existed. Prior contract problems were raised. The question is not whether warning signals existed; it is what each contracting decision actually knew and did. A congressional investigation concluded that the award proceeded despite Diveroli’s watch-list status.

The same investigation also placed AEY and a supplier on the State Department watch list for suspicious international weapons dealers. The committee also concluded that a U.S. diplomat in Albania tried to cover up the Chinese origin. That finding sits beside another account that the State Department had refused Diveroli permission. Neither supports treating every official as part of one coordinated scheme.

Congressional investigators also concluded that the procurement may have been unnecessary. Bosnia, Bulgaria, Hungary, and Albania had offered Soviet-style cartridges for Afghan forces. The offers concerned Soviet-style rifle and machine-gun cartridges used by Afghan forces. The Army later suspended AEY from future federal contracting in March, citing the Chinese-ammunition shipments and alleging that Diveroli had described the material as Albanian. A separate report said the Defense Department suspended contracts amid arms-embargo allegations.

In June two thousand eight, a federal grand jury indicted Diveroli, Packouz, and two other AEY associates on fraud and conspiracy charges. One published report counted seventy counts; another counted seventy-one. The reports differed on the number of counts but both described fraud and conspiracy charges. In two thousand nine, Diveroli, Packouz, Podrizki, and AEY pleaded guilty and were sentenced. The pleas resolved the core prosecution against these defendants, but they did not make every allegation in the wider inquiry a judicial finding.

Diveroli received forty-eight months in prison. Packouz received seven months of house arrest in January two thousand nine. Ralph Merrill received forty-eight months for conspiracy to make false statements to the Army, procurement-contract fraud involving at least one million dollars, wire fraud, and related offenses. The Army’s contracting response followed. It permanently debarred AEY and suspended responsible officials for periods ranging from ten to fourteen years, with the decision announced on March twenty-eighth.

AEY’s access to future federal contracting ended. What did the convictions settle? The guilty pleas established a deliberate scheme to present Chinese ammunition as Albanian within a major Army procurement. They also produced sharply unequal sentences among the defendants. The criminal case against Diveroli, Packouz, Podrizki, and AEY was resolved through guilty pleas and sentencing.

A freight forwarder reported that the plane had been seized on the runway in Kyrgyzstan; the published account linked the standoff to airport fees and North Atlantic Treaty Organization expansion. A team of reporters reported that AEY fulfilled the contract with Chinese ammunition purchased from aging Albanian caches and shipped ten million dollars of that material to the U.S. government. Nothing in the cited findings turns that silence into evidence of a specific battlefield consequence. Nor can the case be reduced to a tidy motive story.

The projected twenty-five and fifty percent shares describe incentives around the bid, not verified earnings. The evidence establishes the scheme’s actions more clearly than the money ultimately made. The strongest conclusion is not that AEY simply stumbled into fraud. It was an active low-price broker with prior performance concerns. After learning the Albanian material was Chinese-made, its principals chose deception despite a written ban and a State Department refusal.

That means the safeguards were real, but unevenly applied. A watch-list entry called for careful scrutiny of future license applications; agents searched AEY’s offices during a licensing investigation; an inspector found some ammunition unsafe for transport in Afghanistan; and Diveroli, Packouz, Podrizki, and AEY pleaded guilty. The evidence shows choices around those controls and leaves questions about how information traveled. Which question matters most now? Perhaps not the age of the men at the center, but the sequence: a low bid gained entry, a known Chinese origin met an explicit prohibition, and paperwork became the place where the scheme tried to survive.

AEY’s scheme was deliberate, the safeguards were real, and the consequences were severe. The unanswered issue is not whether the paper trail lied.

Warnings Before the Army Award (16:30)

It was who knew what, when, and what happened to the ammunition after it moved. Follow the channel for a sourced follow-up to the cargo seizure, the inspection records, or the unresolved question of what the Army knew. Which thread should be traced next?