Until an investigation has been completed, AEY Inc. and its president Efraim Diveroli, have been suspended from future contracting with any US government agency, according to officials and army documents obtained by AFP.

Diveroli was notified in a letter March 25 that he had been suspended because he provided certificates declaring the ammunition was made in Hungary, "when in fact the majority of the ammunition was manufactured in the People's Republic of China between 1962 and 1974," according to the document.

Using Chinese-made ammunition violated the terms of the contract, the notice of suspension said. Army officials said it also violated a US law that prohibits arms purchases from China.

In January, investigators inspected munitions stored at a bunker in Afghanistan and found that 14 of 15 containers of 7.62-caliber ammunition supplied by AEY Inc. were manufactured in China, the army memo said.

The army's Criminal Investigation Division is conducting an investigation into procurement fraud, an army official said.

The army memorandum, which was prepared by its legal services agency, said making false or misleading statements was punishable by fines or up to five years in prison.

Representative Henry Waxman, chairman of a House committee that oversees government contracting, scheduled a hearing into the matter for mid-April.

The New York Times, which first disclosed the problems with the contract, said AEY Inc operates out of an unmarked office in Miami Beach, Florida.

Diveroli, it said, was 19 years old when he became president of AEY Inc in 2005 and began bidding on an array US government munition contracts.

The company, which was founded by his father in 1999, has eight employees, the army said.

Between March and December of 2007, the army placed orders for more than 223 million dollars worth of munitions with AEY, according to the army memo.

Most of it was ammunition for AK-47 rifles and light machine guns, and grenades for rocket-propelled grenade launchers, the memo said.

The Times said the ammunition AEY provided was more than 40 years old and in decomposing packaging.

Pentagon spokesman Bryan Whitman said the army was looking into the origin of the munitions and complaints about substandard packaging of the munitions delivered to Afghanistan.

US military officials in Afghanistan stated "no safety incidents were reported and (there were) no reports of any ammunition that has malfunctioned associated with this particular contract," he said.

"That said, there is some concern with the packaging of the ammunition that's not in accord with the type of standards that we would like to see and would expect in the performance of this contract," he said.

The Times said the contractor had worked with middlemen and a shell company on a US list of entities suspected of engaging in illegal arms trafficking.

It also raised questions about how the army vetted AEY, a previously unknown defense contractor whose principle officers had little experience in army procurement.

In 2005, the year Diveroli became president, AEY was awarded 59 contracts valued at 7.2 million dollars, primarily by the Defense and State Departments, according to the army memo. In 2006, it was awarded 48 contracts valued at 2.4 million dollars, it said.

The big step up came in fiscal 2007 when it was awarded 29 government contracts valued at 201.7 billion dollars.

"This extreme increase in the value of AEY's government contracts can be attributed to the award of ... a requirements type contract to provide non-standard ammunition to the Afghan National Police (ANP) and Afghan National Army," the memo said.

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