The secret world of arms dealers

PERUGIA, Italy (AP) - The Libyan officer tried to cloak the purpose of his call to the Italian arms dealer. "A friend," he said, wanted to buy 1 million "pieces" and 50 million items of "food." But when that phone call was placed in 2006, Italian police were listening. They knew the meaning. Libya was shopping for guns - lots of them.

Authorities shadowed the negotiations between Libyan officials and a group of black-market dealers from across Italy for a year before they moved in and broke up what would have been a US$64 million (euro41 million) deal for hundreds of thousands of Chinese-made assault rifles.

The case, detailed in documents obtained by The Associated Press, raises questions about whether Libya, a country eagerly shedding its reputation as a sponsor of terrorism, is still surreptitiously supporting suspect groups and regimes. The investigation also underscores the Italian underworld's role as a go-between for illegal arms deals.

The court papers say at least part of the shipment was expected to go to other countries, and experts believe likely destinations were African countries including war-torn Chad and Sudan, where killings of civilians are widespread. Libyan officials did not respond to questions from the AP about the allegations.

Italian prosecutors say the deal involved hundreds of thousands of dollars in kickbacks to senior Libyan officials. Italy was a natural place for them to shop. "Organized crime syndicates ... use Italy for brokering or transshipping illegal arms transfers to the Balkans, Africa, the United States and Colombia, in a trade that includes cocaine and human trafficking," said Sergio Finardi, a military logistics expert at TransArmsEurope, a nonprofit group based in Italy and the United States that monitors arms deals.

It was anti-Mafia prosecutors in the central city of Perugia who discovered the Libyan transactions, while conducting an unrelated investigation into drug trafficking by the mob. One of the drug suspects was found to be part of a group that used offshore companies in Malta and Cyprus to broker arms deals.

The phone call they tapped was between Ermete Moretti, owner of the Malta-based Middle East Engineering Ltd., and a man identified by prosecutors as a Libyan Defense Ministry official in Tripoli, Col. Tafferdin Mansur. "They want the food too," Mansur told Moretti in the March 2006 conversation, referring to bullets. "Their request is for 1 million pieces and 50 million food."

A few days later, Gianluca Squarzolo, the crossover suspect from the drug probe, went to the Libyan capital, Tripoli, to make a deal. Unknown to him, police at Rome's Leonardo da Vinci airport inspected his checked baggage and found a weapons catalog, the first physical evidence of the group's activities.

Police used wiretaps and e-mail intercepts to keep tabs on the ensuing negotiations, which documents show were marked by requests for bribes by the Libyan officials. When it appeared that an initial agreement was ready for the sale of 500,000 T-56 submachine guns, a Chinese version of the AK-47, authorities moved in to break up the deal.

Early on, the arms traffickers themselves had hinted that Libya would not have been the final stop for the shipment. The country of 5.5 million has an army of only 76,000 personnel, according to the London-based International Institute for Strategic Studies.

"They are really shopping around if they want a million," Moretti said in a March 2006 conversation. "It means they want to spread them right and left." Investigators shared that view. "The suspects know that the huge order of AK-47s is destined to fulfill not only the needs of the Libyan army ... they are aware that part of the order will be forwarded to third parties," anti-Mafia prosecutor Dario Razzi in Perugia, a city in central Italy, wrote in requesting the arrest warrants for the group.

The Italians made trips to Tripoli and China, arranged for six sample guns to be sent to the North African country and got as far as organizing a trip to Libya for the Chinese middlemen to sign the final contract. On Feb. 12, 2007, police across Italy arrested four of the alleged arms traffickers: Moretti, Squarzolo, Massimo Bettinotti and Serafino Rossi. A fifth member, Vittorio Dordi, is believed to be in the Democratic Republic of Congo, where he apparently is involved in the diamond trade.

In addition, 13 other Italians were arrested in the drug probe. A lawyer for the Italians did not return repeated phone calls. None of the Libyan and Chinese officials named in the probe was charged, as they are not suspected of committing crimes in Italy. Authorities led by Razzi have requested information on the case from several countries. Court documents show the Italians had contact with international arms dealers to supply Russian-made tanks and helicopters, buy a naval cannon and night visors for Sri Lanka, and procure rubber-coated bullets and tear gas launchers from a French company.

Many of the prospective deals appeared to fizzle out quickly. But prosecutors say the ring came close to success with a separate attempt to sell more than 100,000 AK-47s to Iraq, as well as with the Libyan case. Since the 1 million-gun order for Libya was daunting, the Italians decided to seek an initial 500,000 rifles and 10 million bullets in China, according to the arrest warrants issued in Perugia.

They held talks with a trading company called China Jing An Import & Export Corporation, which in turn was to procure the arms from China's giant, state-owned North Industries Corp., also known as Norinco. Neither company responded to requests for comment.

In 2005, the U.S. government barred Norinco from doing business in the United States, accusing the company of helping Iran's missile program. Norinco has denied that allegation. Libya's order was huge even for Norinco. Jing An warned the Italians that it would take more than two years to produce that many guns.

"You must be sure of the quantity of the order," said an e-mail from Jing An director Yin Weiguo. "I have to admit that it's a big order, and a bit of a surprise for us." Before sending six rifles for testing by Tripoli, the Chinese also requested export documents known as end-user certificates showing Libya as the final recipient of the samples. The job of obtaining the papers fell to Mansur and other Libyan officials, who, according to the court documents, were in the pay of the Italians.

Prosecutors believe the group paid the colonel and another Libyan Defense Ministry official at least US$500,000 (euro318,600) in kickbacks, including tuition payments for Mansur's son, studying in Britain. The Italians also agreed to share with the Libyans the profits from the deal.

Libyan officials in Tripoli and diplomats in Rome and at the United Nations declined to discuss the case, and requests for contacts for Mansur and other officials named in the probe were ignored.

Demands for even more money frayed relations between the Italians and their contacts during the spring and summer of 2006, as they waited for the paperwork from the Libyan government. In one wiretapped conversation, Squarzolo, reporting to his bosses from Libya, suggested that Moretti call the colonel to smooth things out.

"I'm not calling Mansur," Moretti replied. "Why should I call him, to hear him ask 'send money to my son?' Tell him we need results, not just requests and demands."

The certificates were finally produced in July 2006, signed by an official identified in the court documents as Major General Abdulrahman Ali Alssied, the head of the Defense Ministry's procurement office. While the Libyans conducted tests, the Italians and the Chinese hammered out the final contract for 10 million bullets, 300,000 T-56 rifles and 200,000 variants of the T-56 with a double handle.

The price tag was US$40.9 million (euro26 million), which grew to US$64.8 million (euro41.3 million) after the Italians added a 60 percent profit. They told the Chinese that "we have to share the commission with people in Libya."