WASHINGTON, March 27, 2008  Army officials announced today that the service has suspended its contract with a company that delivered ammunition from China for use by Afghan army and police forces in a way that violated the contract terms. Officials from the Army Legal Services Agency notified Edraim Diveroli, president of the Miami Beach-based AEY Inc., that his company is suspended from future contracting with any U.S. government agency. That letter, dated March 25, follows an Army investigation launched in November regarding AEY’s violation of its contract.
The Army contracted with AEY in January 2007 to supply various types of nonstandard ammunition for use by the Afghan National Army and Afghan National Police, an Army official said on background. The company was required to purchase the ammunition and deliver it to Kabul International Airport in Afghanistan.
As of today, the Army has issued five task orders, collectively worth $155.3 million, the official said. AEY has made about 80 deliveries, with an estimated value of $54.6 million, into Kabul.
Those deliveries violated two specific terms of the contract, the official said. One stated that the ammunition could not be acquired directly or indirectly from the People’s Republic of China, and the other specified that it must be packaged to comply with best commercial practices for international shipment.
Although AEY specified that its 7.62 mm ammunition had been produced in Hungary for the civilian market, U.S. inspectors and Army investigators in Afghanistan determined that much of it actually was manufactured in China. In addition, much of the ammunition was older than specified, with some produced as early as 1962, officials said.
Army Criminal Investigation Command is continuing its investigation, an Army official said.
Bryan Whitman, deputy assistant secretary of defense for public affairs, told reporters today the Army suspended its contract with AEY over questions about the origin and packaging of ammunition, not the company’s safety or performance.
“Safety and performance has not apparently been a factor, according to our folks in Afghanistan,” Whitman told Pentagon reporters. “They have had no safety incidents reported and no reports of any ammunition that has malfunctioned associated with this particular contract.”
Whitman denied that the issue resulted from the Army’s awarding of a contract to the lowest bidder and said he was not aware of AEY’s qualifications for fulfilling the contract terms.
“As the United States government does business, they are obviously always trying to ensure they get the best value,” he said. “But that does not mean that, in achieving the best value for the taxpayer, that we will accept something that is below standard for what it is we are purchasing, either.”
Suspension of the AEY contract will have no impact on operations in Afghanistan, and many other contractors have expressed interest in entering into a contract, an Army official said. “Besides, there’s no shortage of ammunition already in Afghanistan,” he said. “This will have no impact.”
Yugoslavian version of the 7.62x39mm cartridge, the standard-issue ammunition for the AK-47, which is the standard-issue rifle of the Afghan National Army.
The United States Army has suspended its contract with a company that delivered old and corroding ammunition from China for use by Afghan army and police forces in a way that violated the contract terms.

The ammunition was supplied by the Miami-based AEY Inc., a company run by a 22-year old named Efrain Diveroli. The nearly US$300 million contract stated that bullets were coming from Hungary, but were actually decades-old, damaged and corroded bullets from China.

Officials from the Army Legal Services Agency notified Diveroli, via a letter, that his company is suspended from future contracting with any U.S. government agency. The letter came as part of an Army investigation since November regarding violation of the contract.

According to the ''New York Times'', Diveroli signed papers back on November 25, 2007 certifying  that 28 pallets of ammunition for Afghanistan had been manufactured by MFS 2000, a Hungarian company, according to a memo written by investigators.

AEY violated the contract by breaking two clauses, one stating that the ammunition could not be acquired directly or indirectly from the People’s Republic of China, which is a violation of American law. The other clause specified that it must be packaged to comply with best commercial practices for international shipment. 

According to the ''Times'', says the ammunition arrived in decomposing cardboard boxes which contained ammunition dating as far back as 1966. However, Army officials believe some ammunition even dates back further to 1962.

The Army had contracted with AEY in January 2007 to supply various types of nonstandard ammunition for use by the Afghan National Army and Afghan National Police, an Army official said on background. The company was required to purchase the ammunition and deliver it to Kabul International Airport in Afghanistan. AEY was recently awarded a delivery order amount of $48,717,553 on March 17, 2007 as part of the $298,004,398 contract.

Also according to the ''Times'', when purchasing the ammunition, AEY worked with middlemen and a shell company which has been placed on federal list of entities suspected of illegal arms trafficking. Also, the ''Times'' reported that, Diveroli was secretly recorded in conversation that suggested corruption on his company's purchase of 100 million aging rounds from Albania.

Bryan Whitman, The Pentagon's spokesperson told reporters that suspension of the contract was due to the violation of the origin of the ammunition and the packaging of the ammunition, not the safety and performance.

“Safety and performance has not apparently been a factor, according to our folks in Afghanistan. They have had no safety incidents reported and no reports of any ammunition that has malfunctioned associated with this particular contract,” Whitman told the press.

He also denied that the issue happened because the Army awarded the contract to the lowest bidder and that he was not aware of AEY's qualifications to fulfill the contract.

“As the United States government does business, they are obviously always trying to ensure they get the best value,” he said. “But that does not mean that, in achieving the best value for the taxpayer, that we will accept something that is below standard for what it is we are purchasing, either.” 


According to an Army official, the suspension of the contract will not have an impact on Afghanistan operations and other contractors are expressing interest into entering into a contract.  “Besides, there’s no shortage of ammunition already in Afghanistan. This will have no impact," he said.

Michael Diveroli, Efrain's father, who originally founded AEY as a small printing business, said of his son's career choice to CBS' Miami affiliate, WFOR, "I would prefer he became a nice Jewish doctor or lawyer rather than an arms dealer. He's never asked for my approval on the company. He doesn't always take my advice, I don't influence him. As a father of a boy genius he's hard to control."

Angelo Diveroli, Efrain's grandfather said the young man frequently accompanied him to gun shows when he was younger and became an expert at weapons. 

A friend of Diveroli said to WFOR, "The government came here and checked him out and gave him the contract. How do you give someone, a 21 year old kid a contract like that?"

The United States Army Criminal Investigation Command is continuing their investigation, according to officials.