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The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. A ransom? A bribe? “Yeah, somewhat,” says John Carver, an agent specializing in foreclosed homes for Prudential Americana Group in Las Vegas. But “you lose a house, and then you get some financial help — it’s a good thing…It’s a win-win for both parties.”

No one tracks how frequently such payoffs are made. In Las Vegas, agents hired by the banks to handle foreclosed properties say the “cash for keys” approach, as it’s known in the industry, is a regular part of the job. After all, formal eviction proceedings can take months and cost potentially much more than a payoff.

Analysts predict that as many as two million homeowners could enter foreclosure this year, caught by a slowing economy, falling house prices and, in many cases, adjustable mortgages with rates rising from high to higher. In Las Vegas, 1.9% of homes in the Las Vegas area were in the foreclosure process in January, almost triple the rate of a year earlier, according to First American CoreLogic Inc., a Santa Ana, Calif., real-estate and mortgage data company.

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Cruising the wreckage of the Las Vegas property market every day in his silver Cadillac Escalade, the 38-year-old Mr. Carver has developed a connoisseur’s eye for pointless destruction. Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child’s room once carefully decorated with a floral wallpaper stripe. It’s damage that Mr. Carver described as “a vengeance-type thing.”

“Some people have issues, and need to do what they have to do, I guess,” he said.

The study, by Dr Vini Khurana, is the most devastating indictment yet published of the health risks.

It draws on growing evidence – exclusively reported in the IoS in October – that using handsets for 10 years or more can double the risk of brain cancer. Cancers take at least a decade to develop, invalidating official safety assurances based on earlier studies which included few, if any, people who had used the phones for that long.

Earlier this year, the French government warned against the use of mobile phones, especially by children. Germany also advises its people to minimise handset use, and the European Environment Agency has called for exposures to be reduced.

Professor Khurana – a top neurosurgeon who has received 14 awards over the past 16 years, has published more than three dozen scientific papers – reviewed more than 100 studies on the effects of mobile phones. He has put the results on a brain surgery website, and a paper based on the research is currently being peer-reviewed for publication in a scientific journal.

He admits that mobiles can save lives in emergencies, but concludes that “there is a significant and increasing body of evidence for a link between mobile phone usage and certain brain tumours”. He believes this will be “definitively proven” in the next decade.

Noting that malignant brain tumours represent “a life-ending diagnosis”, he adds: “We are currently experiencing a reactively unchecked and dangerous situation.” He fears that “unless the industry and governments take immediate and decisive steps”, the incidence of malignant brain tumours and associated death rate will be observed to rise globally within a decade from now, by which time it may be far too late to intervene medically.

In remarks to Silicon Valley executives at the Tech Museum of Innovation, Mukasey said the economy and national security of the United States are increasingly threatened by violations involving copyrighted software code, patented inventions and trademarked properties.

Terror groups are taking their cues from organized crime and increasingly funding their operations from counterfeiting and piracy, he said.

Mukasey said his department is devoting more resources to prosecuting intellectual property crimes, which led to a 7 percent increase in the number of IP cases filed in 2007 over the year before and a 33 percent increase over 2005.

“Criminal syndicates, and in some cases even terrorist groups, view IP crime as a lucrative business and see it as a low-risk way to fund other activities,” Mukasey said. “A primary goal of our IP enforcement mission is to show these criminals that they’re wrong.”

Before Friday’s speech, he met privately with representatives from companies including Apple Inc. and Adobe Systems Inc.

“This is the right thing to do,” said Michelle Creeden, a UBS spokeswoman, in a prepared statement. “It is in the best interest of our clients to provide them full transparency regarding their account. Given current market dislocations, this is the next logical step for any committed wealth manager.”

UBS will inform clients of the reduced value of their holdings via their online statements, Briefing.com said, citing a Dow Jones report. UBS customers had maintained full value without any discount that could reflect bondholders’ inability to sell their holdings.

UBS’s action comes after auction-rate bond failures rose to about 71 percent this week, up from about 69 percent last week, according to data compiled by Bloomberg. The $330 billion auction-rate securities market originally attracted borrowers by offering financing for 20 years or more at variable costs determined through periodic bidding.

Auction-rate bonds have interest rates determined through bidding run by dealers every seven, 28 or 35 days. When there aren’t enough buyers, the auction fails and rates are set at a predetermined level set in documents when the bonds were issued.

“The fact that they aren’t worth par or may not be worth par is not going to be acceptable to any owners of these securities,” said Gary Miller, a partner at the Houston law firm of Boyar and Miller. “It’s certainly not acceptable to me.”

Couldn’t Cash Out

Miller invested $750,000 from the sale of his house in auction-rate securities with UBS last December. After signing a contract on a new home, Miller said he called his broker to cash out of the securities and was told he couldn’t. When he bought the debt, Miller said he asked his broker whether there had ever been an unsuccessful auction.

Until now, customers who were unable to sell securities in regularly scheduled auctions were told that the securities retained full value and would receive higher interest rates.

UBS, however, using an internal model to value the securities, will mark them down Friday and inform clients via their online statements. The markdowns will range from a few percentage points to more than 20.

“This is the right thing to do,” said Martin Hoekstra, head of wealth management at UBS. “It doesn’t make sense to delay the pain. As a principal, we think we should tell clients what their securities are worth, and if it’s an illiquid market, estimate what they are worth.”

The losses won’t be realized immediately, as investors can’t sell the securities for lack of a market. But the unilateral move is sure to roil relations between brokers and their clients, who generally believed they were buying investments that were a safe alternative to cash offering a slightly higher yield.

UBS wouldn’t disclose the total value of auction-rate securities held by its clients, but Hoekstra said it was “a reasonable amount” concentrated among wealthier clients. The banks U.S. wealth management unit oversaw about $920 billion in client assets at the end of 2007.

The brokerage industry has used auction-rate securities as cash alternatives for nearly two decades. More than $300 billion of the securities are held by investors ranging from mutual funds and corporations to wealthy individual investors, according to Moody’s Investors Service. The securities are long-term bonds sold by issuers such as municipalities, arts organizations, universities and closed-end mutual funds like Nuveen Investments and BlackRock with interest rates reset in auctions held every 7 to 35 days.

The auctions are failing, because banks such as UBS, Goldman Sachs Group, Merrill Lynch, Citigroup Inc. and Wachovia Corp. that often conduct more than 100 auctions a day have balked at buying the securities when there aren’t enough bidders.

The Swiss bank told clients it was reducing the value of auction-rate securities in their accounts, by an average amount of 5%. It also refused to buy the bonds back from investors who bought the securities, thinking they were getting an easy-to-sell, higher-yielding alternative to money market funds but instead found themselves stuck with illiquid securities and capital losses, courtesy of the global credit crunch that began in the U.S. subprime mortgage market.

“This is the right thing to do,” said a UBS (nyse: UBS – news – people ) spokeswoman. “This is in the best interest in our clients regarding our accounts. Given the current market dislocation this the next logical step for any committed wealth manager.”

Auction-rate securities are long-term bonds issued by local governments, agencies, or corporations but sold in periodic auctions, say every 7 to 28 days, to set the interest rate. Firms that handle the auctions, like UBS and most of the big Wall Street concerns, used to step in an buy in the auctions if there weren’t enough bidders.

But that all went by the wayside in January and February as investors fled the bond markets. Auctions failed after no buyers showed up and the banks refused to step in as they had previously done. That meant the auctions failed, leaving brokerage customers holding the bag and issuers paying much higher penalty interest rates. The Port Authority of New York and New Jersey, for example, saw its rate skyrocket to 20% from 4% when its auction failed in February.

As a consequence of paying soaring penalty rates, many issuers are converting their auction rate bonds to fixed-rate bonds, putting more pressure on the remaining auction-rate securities that still haven’t started selling again. The bonds cost more than the issuers were paying on the auction-rate securities but yield far less than the penalty rates.

The banks backed off supporting the auctions because they didn’t want to risk taking more illiquid assets on their books after collectively writing off more than $100 billion in mortgage and credit derivatives. UBS has been among the hardest hit of the banks, already writing down $17 billion worth of credit holdings and facing another $11 billion in write-downs in the first quarter, according to analysts at Oppenheimer.

Its problems don’t stop there. Massachusetts securities regulators subpoenaed UBS, Merrill Lynch and Bank of America about their sale of auction -ate securities to customers, particularly bonds sold in closed-end mutual funds. The state is looking at what the banks disclosed about the possible risks of the securities.

“We received calls from a young saver whose house down payment is now frozen; two siblings whose family trust is now frozen; and small business owners who find their business interrupted because money they thought was liquid is tied up in these frozen securities,” said William Galvin, the Massachusetts secretary of the commonwealth, in a statement.

UBS wouldn’t say how much its brokerage customers own in auction rate securities, but the market is about $330 billion. The timing of UBS’s decision is perhaps telling. American investors are facing tax time, when many will need access to cash to pay Uncle Sam.

The Swiss banking giant previously told customers who were unable to sell the securities in scheduled auctions that the bonds would retain their full value and receive enhanced interest rates, according to TradeTheNews.com.

After falling 2.4% in Switzerland, to 28.98 Swiss francs, before the announcement, UBS American depositary receipts slid further in New York, dropping to $27.80, a loss of $1.33, or 4.6%, on the day. Less than a year ago, the stock had been above $66.

The proposal is part of a sweeping blueprint to overhaul the country’s hodge-podge of regulatory agencies, which many specialists say failed to recognize rampant excesses in mortgage lending until after they triggered what is now the worst financial calamity in decades.

According to a summary provided by the administration, the plan would consolidate what is now an alphabet soup of banking and securities regulators into a trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it avoids a call for tighter regulation. The plan would not rein in practices that have been implicated in the housing and mortgage meltdown, like packaging risky subprime loans into securities carrying AAA ratings.

The Fed would also be given some authority over Wall Street firms but only when an investment bank’s practices posed a threat to the financial system over all.

The plan does not recommend tighter rules over the vast and largely unregulated markets for risk-sharing and hedging, like credit-default swaps, which are supposed to insure lenders against loss but became a speculative instrument and gave many institutions a false sense of security.

Some changes could actually reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors.

The blueprint suggests several areas where the S.E.C. should take a lighter approach to its oversight, such as allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.

Under the proposal, the S.E.C. would merge with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.

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Under the Treasury proposal, the Federal Reserve would become the government’s “market stability regulator” and would be allowed to gather information from virtually any financial institution. Fed officials would be allowed to examine the practices and even the bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the financial system.

“The Fed would have the authority to go wherever in the system it thinks it needs to go for a deeper look to preserve stability,” Mr. Paulson said in the advance text of Monday’s speech. “To do this effectively, it will collect information from commercial banks, investment banks, insurance companies, hedge funds, commodity pool operators.”

That would be a significant expansion of the central bank’s regulatory mission, which has been limited primarily to supervising commercial banks. When Fed officials agreed earlier this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to beef up its protections.

In an unprecedented pair of moves, the Fed engineered a shotgun marriage between Bear Stearns and a rival, JPMorgan Chase, and then lent $29 billion to JP Morgan in order to prevent a bankruptcy filing by Bear and a chain of defaults that might have brought down much of the financial system.

Lt. Steve McCullough and his team hovered in a Coast Guard helicopter over the boat that was speeding through the western Caribbean. They flashed blue lights. They fired three machine-gun rounds into the air to warn the boat to stop, and when it didn’t, they shot out two of its engines.

“As soon as they saw us bring out the sniper rifles, that’s when the bales [of cocaine] started going off the vessel,” said McCullough, as the crew of the Coast Guard cutter Bear got ready to unload 1.6 tons of the seized cocaine in Port Everglades on Thursday.

The load had a street value of $100 million. It was likely headed to Mexico, where it would then be smuggled into the United States, McCullough said.

On the afternoon of March 18, a Coast Guard aircraft alerted the Bear of a suspicious boat 40 miles off Nicaragua’s coast.

The Bear sent a helicopter and a small boat to check it out.

McCullough’s chopper tracked down the speedboat and blew out two of its engines. The boat finally stopped. But the helicopter ran low on gas and had to turn around. That gave the men their chance to race into Nicaraguan waters before the inflatable Coast Guard power boat could reach them.

“At that point, we were unable to pursue out of respect for our neighbors down south,” said Wes Pulven, commander of the Bear, whose crew pulled 50 bales of cocaine out of the water.

The 3,200 pounds of pure cocaine were tightly packed in burlap sugar sacks.

About a dozen crew members wearing surgical masks and gloves unloaded the contraband from the 270-foot cutter in Port Everglades.

FBI and DEA agents loaded the dope into a U-Haul truck to take away.

Navajo Nation President Joseph Shirley signed an agreement with Joseph Kennedy III, the chairman and president of Boston-based Citizens Energy Corp to develop the project.

The agreement forms a joint venture between Citizens, a global developer of renewable energy and power transmission, and Dine Power Authority, the Navajo’s wholesale energy enterprise.

Wind power “can bring economic prosperity for the Navajo people and build our energy independence while providing jobs and other benefits for the Navajo Nation,” Shirley said in a statement.

Under terms of the agreement, the Navajos would have a ownership stake in the project development company and be able to invest additional equity in the project, eventually acquiring a majority ownership stake, according to statement from the Washington office of the Navajos.

Citizens Energy has also agreed to reinvest a portion of the profits from the project on the Navajo Nation, it said.

Early estimates anticipate the Dine Wind Project could produce between $60 to $100 million in total revenue for the Navajo Nation over the lifetime of the projects, not including the jobs and environmental benefits of wind energy, the Navajo statement said.

Since 2006, when the insurgency in Afghanistan sharply intensified, the Afghan government has been dependent on American logistics and military support in the war against Al Qaeda and the Taliban.

But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur.

With the award last January of a federal contract worth as much as nearly $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.

Since then, the company has provided ammunition that is more than 40 years old and in decomposing packaging, according to an examination of the munitions by The New York Times and interviews with American and Afghan officials. Much of the ammunition comes from the aging stockpiles of the old Communist bloc, including stockpiles that the State Department and NATO have determined to be unreliable and obsolete, and have spent millions of dollars to have destroyed.

In purchasing munitions, the contractor has also worked with middlemen and a shell company on a federal list of entities suspected of illegal arms trafficking.

Moreover, tens of millions of the rifle and machine-gun cartridges were manufactured in China, making their procurement a possible violation of American law. The company’s president, Efraim E. Diveroli, was also secretly recorded in a conversation that suggested corruption in his company’s purchase of more than 100 million aging rounds in Albania, according to audio files of the conversation.

This week, after repeated inquiries about AEY’s performance by The Times, the Army suspended the company from any future federal contracting, citing shipments of Chinese ammunition and claiming that Mr. Diveroli misled the Army by saying the munitions were Hungarian.

Mr. Diveroli, reached by telephone, said he was unaware of the action. The Army planned to notify his company by certified mail on Thursday, according to internal correspondence provided by a military official.

But problems with the ammunition were evident last fall in places like Nawa, Afghanistan, an outpost near the Pakistani border, where an Afghan lieutenant colonel surveyed the rifle cartridges on his police station’s dirty floor. Soon after arriving there, the cardboard boxes had split open and their contents spilled out, revealing ammunition manufactured in China in 1966.

“This is what they give us for the fighting,” said the colonel, Amanuddin, who like many Afghans has only one name. “It makes us worried, because too much of it is junk.” Ammunition as it ages over decades often becomes less powerful, reliable and accurate.

AEY is one of many previously unknown defense companies to have thrived since 2003, when the Pentagon began dispensing billions of dollars to train and equip indigenous forces in Afghanistan and Iraq. Its rise from obscurity once seemed to make it a successful example of the Bush administration’s promotion of private contractors as integral elements of war-fighting strategy.

But an examination of AEY’s background, through interviews in several countries, reviews of confidential government documents and the examination of some of the ammunition, suggests that Army contracting officials, under pressure to arm Afghan troops, allowed an immature company to enter the murky world of international arms dealing on the Pentagon’s behalf — and did so with minimal vetting and through a vaguely written contract with few restrictions.

In addition to this week’s suspension, AEY is under investigation by the Department of Defense’s inspector general and by Immigration and Customs Enforcement, prompted by complaints about the quality and origins of ammunition it provided, and allegations of corruption.

Mr. Diveroli, in a brief telephone interview late last year, denied any wrongdoing. “I know that my company does everything 100 percent on the up and up, and that’s all I’m concerned about,” he said.

He also suggested that his activities should be shielded from public view. “AEY is working on a moderately classified Department of Defense project,” he said. “I really don’t want to talk about the details.”

He referred questions to a lawyer, Hy Shapiro, who offered a single statement by e-mail. “While AEY continues to work very hard to fulfill its obligations under its contract with the U.S. Army, its representatives are not prepared at this time to sit and discuss the details,” he wrote.

As part of the suspension, neither Mr. Diveroli nor his company can bid on any further federal work until the Army’s allegations are resolved. But he will be allowed to provide ammunition already on order under the Afghan contract, according to internal military correspondence.

In January, American officers in Kabul, concerned about munitions from AEY, had contacted the Army’s Rock Island Arsenal, in Illinois, and raised the possibility of terminating the contract. And officials at the Army Sustainment Command, the contracting authority at the arsenal, after meeting with AEY in late February, said they were tightening the packaging standards for munitions shipped to the war.

And yet after that meeting, AEY sent another shipment of nearly one million cartridges to Afghanistan that the Combined Security Transition Command-Afghanistan regarded as substandard. Lt. Col. David G. Johnson, the command spokesman, said that while there were no reports of ammunition misfiring, some of it was in such poor condition that the military had decided not to issue it. “Our honest answer is that the ammunition is of a quality that is less than desirable; the munitions do not appear to meet the standards that many of us are used to,” Colonel Johnson said. “We are not pleased with the way it was delivered.”

Several officials said the problems would have been avoided if the Army had written contracts and examined bidders more carefully.

Public records show that AEY’s contracts since 2004 have potentially been worth more than a third of a billion dollars. Mr. Diveroli set the value higher: he claimed to do $200 million in business each year.

Several military officers and government officials, speaking on condition of anonymity because of the investigations, questioned how Mr. Diveroli, and a small group of men principally in their 20s and without extensive military or procurement experiences, landed so much vital government work.

“A lot of us are asking the question,” said a senior State Department official. “How did this guy get all this business?”

An Ambitious Company

The intensity of the Afghan insurgency alarmed the Pentagon in 2006, and the American unit that trains and equips Afghan forces placed a huge munitions order through an Army logistics command.

The order sought 52 types of ammunition: rifle, pistol and machine-gun cartridges, hand grenades, rockets, shotgun slugs, mortar rounds, tank ammunition and more. In all, it covered hundreds of millions of rounds. Afghan forces primarily use weapons developed in the Soviet Union. This meant that most munitions on the list could be bought only overseas.

AEY was one of 10 companies to bid by the September 2006 deadline.

Michael Diveroli, Efraim’s father, had incorporated the company in 1999, when Efraim was 13. For several years, a period when the company appeared to have limited activity, Michael Diveroli, who now operates a police supply company down the street from AEY’s office, was listed as the company’s sole executive.

In 2004, AEY listed Efraim Diveroli, then 18, as an officer with a 1 percent ownership stake.

The younger Diveroli’s munitions experience appeared to be limited to a short-lived job in Los Angeles for Botach Tactical, a military and police supply company owned by his uncle, Bar-Kochba Botach.

Mr. Diveroli cut off an interview when asked about Botach Tactical. Mr. Botach, reached by telephone, said that both Michael and Efraim Diveroli had briefly worked for him, but that after seeing the rush of federal contracts available after the wars began, they had struck out on their own.

“They just left me and took my customer base with them,” he said. “They basically said: ‘Why should we work for Botach? Let’s do it on our own.’ ”

As Efraim Diveroli arrived in Miami Beach, AEY was transforming itself by aggressively seeking security-related contracts.

It won a $126,000 award for ammunition for the Special Forces; AEY also provided ammunition or equipment in 2004 to the Department of Energy, the Environmental Protection Agency, the Transportation Security Administration and the State Department.

By 2005, when Mr. Diveroli became AEY’s president at age 19, the company was bidding across a spectrum of government agencies and providing paramilitary equipment — weapons, helmets, ballistic vests, bomb suits, batteries and chargers for X-ray machines — for American aid to Pakistan, Bolivia and elsewhere.

It was also providing supplies to the American military in Iraq, where its business included a $5.7 million contract for rifles for Iraqi forces.

Two federal officials involved in contracting in Baghdad said AEY quickly developed a bad reputation. “They weren’t reliable, or if they did come through, they did after many excuses,” said one of them, who asked that his name be withheld because he was not authorized to speak with reporters.

By this time, pressures were emerging in Efraim Diveroli’s life. In November 2005, a young woman sought an order of protection from him in the domestic violence division of Dade County Circuit Court.

The woman eventually did not appear in court, and her allegations were never ruled on. But in court papers, the woman said that after her relationship with Mr. Diveroli ended, he stalked her and left threatening messages.

Once, according to the file, his behavior included “shoving her to the ground and refusing to allow her to leave during a verbal dispute.” Other times, she reported, Mr. Diveroli arrived at her home unannounced and intoxicated “going about the exterior, banging on windows and doors.”

The woman worried that she could not ignore him, court records said, because his behavior frightened her.

Mr. Diveroli sought court delays on national security grounds. “I am the President and only official employee of my business,” he wrote to the judge on Dec. 8, 2005. “My business is currently of great importance to the country as I am licensed Defense Contractor to the United States Government in the fight against terrorism in Iraq and I am doing my very best to provide our troops with all their equipment needs on pending critical contracts.”

As AEY’s bid for its largest government contract was being considered, Mr. Diveroli’s personal difficulties continued. On Nov. 26, 2006, the Miami Beach police were called to his condominium during an argument between him and another girlfriend. According to the police report, he had thrown her “clothes out in the hallway and told her to get out.”

A witness told the police Mr. Diveroli had dragged her back into the apartment. The police found the woman crying; she said she had not been dragged. Mr. Diveroli was not charged.

On Dec. 21, 2006, the police were called back to the condominium. Mr. Diveroli and AEY’s vice president, David M. Packouz, had just been in a fight with the valet parking attendant.

The fight began, the police said, after the attendant refused to give Mr. Diveroli his keys and Mr. Diveroli entered the garage to get them himself. A witness said Mr. Diveroli and Mr. Packouz both beat the man; police photographs showed bruises and scrapes on his face and back.

When the police searched Mr. Diveroli, they found he had a forged driver’s license that added four years to his age and made him appear old enough to buy alcohol as a minor. His birthday had been the day before.

“I don’t even need that any more,” he told the police, the report said. “I’m 21 years old.”

Mr. Diveroli was charged with simple battery, a misdemeanor, and felony possession of a stolen or forged document.

The second charge placed his business in jeopardy. Mr. Diveroli had a federal firearms license, which was required for his work. With a felony conviction, the license would be nullified.

(Mr. Packouz was charged with battery and the charge was later dropped; he declined to be interviewed. To avoid a conviction on his record, Mr. Diveroli entered a six-month diversion program for first offenders in May 2007 that spared him from standing trial.)

A relative paid Mr. Diveroli’s $1,000 bail as his bid for the Afghan contract was in its final review.

To be accepted, the company had to be, in Army parlance, “a responsible contractor,” which required an examination of its financial soundness, transport capabilities, past performance and compliance with the law and government contracting regulations.

The week after a relative paid his bail, the Banc of America Investment Services in Miami provided Mr. Diveroli a letter certifying that his company had cash on hand to begin buying munitions on a large scale. It said AEY had $5,469,668.95 in an account.

AEY was awarded the contract in January 2007. Asked why it chose AEY, the Army Sustainment Command answered in writing: “AEY’s proposal represented the best value to the government.”

Eastern Bloc Arsenals

Both the Army and AEY have treated the sources of the ammunition the company purchases as confidential matters, declining to say how and where the company obtained it, the prices paid or the quantities delivered.

But records provided by an official concerned about the company’s performance, a whistle-blower in the Balkans and an arms-trafficking researcher in Europe, as well as interviews with several people who work in state arsenals in Europe, show that AEY shopped from stocks in the old Eastern bloc, including Albania, Bulgaria, the Czech Republic, Hungary, Kazakhstan, Montenegro, Romania and Slovakia.

These stockpiles range from temperature-controlled bunkers to unheated warehouses packed with exposed, decaying ammunition. Some arsenals contain ammunition regarded in munitions circles as high quality. Others are scrap heaps of abandoned Soviet arms.

The Army’s contract did little to distinguish between the two.

When the United States or NATO buys munitions for themselves, the process is regulated by quality-assurance standards that cover manufacturing, packaging, storage, testing and transport.

The standards exist in part because munitions are perishable. As they age, propellants and explosives degrade, and casings are susceptible to weathering. Environmental conditions — humidity, vibration, temperature shifts — accelerate decay, making munitions less reliable.

NATO rules require ammunition to be tested methodically over its life; samples are fired through braced weapons, and muzzle velocities and accuracy are recorded.

For rifle cartridges, testing begins at age 10 years, according to Peter Courtney-Green, chief of the Ammunition Support Office of NATO’s Maintenance and Supply Agency.

The Soviet Union, which designed the ammunition that AEY bought, developed similar tests, which are still in use. But when the Army wrote its Afghan contract, it did not enforce either NATO or Russian standards. It told bidders only that the munitions must be “serviceable and issuable to all units without qualification.”

What this meant was not defined. An official at the Army Sustainment Command said that because the ammunition was for foreign weapons, and considered “nonstandard,” it only had to fit in weapons it was intended for.

“There is no specific testing request, and there is no age limit,” said Michael Hutchison, the command’s deputy director for acquisition. “As the ammunition is not standard to the U.S. inventory, the Army doesn’t possess packaging or quality standards for that ammo.”

When purchasing such munitions, Mr. Hutchison said, the Army Sustainment Command relies on standards from the “customer” — meaning the Army units in Afghanistan. And the customer, he said, did not set age or testing requirements.

With the vague standards in hand, AEY canvassed the field. One stop was Albania, a fortress state during Soviet times now trying to join NATO. Albania has huge stocks of armaments, much if it provided by China in the 1960s and 1970s.

The quality of these stockpiles vary widely, said William D. G. Hunt, a retired British ammunition technical officer who assessed the entire stock for Albania’s Ministry of Defense from 1998 to 2002. He said a military planning to use the munitions had reason to worry: at least 90 percent of the stockpile was more than 40 years old.

“If there was any procurement made for combat purposes from that stockpile, I would be very dubious about it,” he said. “I am not suggesting that all the ammunition would fail. But its performance would tail off rather dramatically. It is substandard, for sure.”

Problems with Albania’s decaying munitions were apparent earlier this month, when a depot outside Tirana, Albania’s capital, erupted in a chain of explosions, killing at least 22 people, injuring at least 300 others and destroying hundreds of homes.

Before the Army’s contractors began shopping from such depots, the West’s assessment of Albanian munitions was evident in programs it sponsored to destroy them. Through 2007, the United States had contributed $2 million to destroy excess small-caliber weapons and 2,000 tons of ammunition in Albania, according to the State Department.

A NATO program that ended last year involved 16 Western nations contributing about $10 million to destroy 8,700 tons of obsolete ammunition. The United States contributed $500,000. Among the items destroyed were 104 million 7.62 millimeter cartridges — exactly the ammunition AEY sought from the Albanian state arms export agency.

Albania offered to sell tens of millions of cartridges manufactured as long ago as 1950. For tests, a 25-year-old AEY representative was given 1,000 cartridges to fire, according to Ylli Pinari, the director of the arms export agency at the time of the sale.

No ballistic performance was recorded, he said. The rounds were fired by hand.

On that basis, AEY bought more than 100 million cartridges for the Pentagon’s order. The cartridges, according to packing lists, dated to the 1960s.

The company also hired a local businessman, Kosta Trebicka, to remove the ammunition from its wooden crates and hermetically sealed metal boxes — the standard military packaging that protects munitions from moisture and dirt, and helps ensure its reliability and ease of transport in the field.

Mr. Trebicka, in interviews, said Mr. Diveroli wanted to discard the crates and metal boxes to reduce the weight and cost of air shipments and maximize profits. Several American officials said they suspected that the packaging was removed because it bore Chinese markings and the ammunition’s age.

The Czech Connection

As the cartridges in Albania were being prepared for shipment to Afghanistan, Mr. Diveroli began seeking ammunition from the Czech Republic to fill an order for Iraq’s Interior Ministry.

In May 2007, according to two American officials, the Czech government contacted the American Embassy in Prague with a concern: AEY was buying nine million cartridges through Petr Bernatik, a Czech citizen who had been accused by Czech officials of illegal arms trafficking.

The accusations included shipments of rocket-propelled grenades in violation of an international embargo to Congo, and illegal shipments of firearms to Slovakia.

Mr. Bernatik had publicly denied both accusations. But they were deemed credible enough in Washington that he was listed on the Defense Trade Controls watch list, according to one of the American officials.

This list, maintained by the State Department, is used to prevent American dealers from engaging suspicious traders in their business, in part to prevent legal arms companies from enriching or legitimizing black-market networks.

AEY has never been implicated in black-market sales. But the Czech government, which had discretion over the sale, asked the American Embassy if it wanted Mr. Bernatik involved in AEY’s deals, according to the two American officials, who requested anonymity because they were not authorized to share the contents of diplomatic discussions.

The United States did not try to block the transaction, one of the American officials said, in part because equipping Iraq was in the United States’ interest, and also because Mr. Bernatik had been accused, not convicted.

On May 7, 2007, the Czech government issued an export license. Mr. Bernatik, in a telephone interview, said he arranged seven flights to Iraq for AEY last year. “We have a normal business collaboration,” he said.

A Mysterious Middleman

The international arms business operates partly in the light and partly in shadows, and is littered with short-lived shell companies, middlemen and official corruption. Governments have tried to regulate it more closely for years, with limited success.

As Mr. Diveroli began to fill the Army’s huge orders, he was entering a shadowy world, and in his brief interview he suggested that he was aware that corruption could intrude on his dealings in Albania. “What goes on in the Albanian Ministry of Defense?” he said. “Who’s clean? Who’s dirty? Don’t want to know about it.”

The way AEY’s business was structured, Mr. Diveroli, at least officially, did not deal directly with Albanian officials. Instead, a middleman company registered in Cyprus, Evdin Ltd., bought the ammunition and sold it to his company.

The local packager involved in the deal, Mr. Trebicka, said that he suspected that Evdin’s purpose was to divert money to Albanian officials.

The purchases, Mr. Trebicka said, were a flip: Albania sold ammunition to Evdin for $22 per 1,000 rounds, he said, and Evdin sold it to AEY for much more. The difference, he said he suspected, was shared with Albanian officials, including Mr. Pinari, then the head of the arms export agency, and the defense minister at the time, Fatmir Mediu.

(Mr. Mediu resigned last week after the ammunition depot explosions; Mr. Pinari was arrested.) The Albanian government has been infuriated by Mr. Trebicka’s allegations. Sali Berisha, the prime minister, Mr. Mediu and Mr. Pinari all denied involvement in kickbacks. But Mr. Trebicka said that after he raised his concerns about Evdin with the Defense Ministry, his company was forced from the repackaging contract.

On June 11, 2007, Mr. Trebicka and Mr. Diveroli commiserated by phone about problems with doing business in Albania. Mr. Trebicka surreptitiously recorded the conversation, and later gave the audio files to American investigators.

The conversation, he said, showed that the American company was aware of corruption in its dealings in Albania and that Heinrich Thomet, a Swiss arms dealer, was behind Evdin.

In the recordings, which Mr. Trebicka shared with The Times, Mr. Diveroli suggests that Mr. Thomet, called “Henri,” was acting as the middleman.

“Pinari needs a guy like Henri in the middle to take care of him and his buddies, which is none of my business,” Mr. Diveroli said. “I don’t want to know about that business. I want to know about legitimate businesses.”

Mr. Diveroli recommended that Mr. Trebicka try to reclaim his contract by sending “one of his girls” to have sex with Mr. Pinari. He suggested that money might help, too.

“Let’s get him happy; maybe he gives you one more chance,” he said. “If he gets $20,000 from you … ”

At the end, Mr. Diveroli appeared to lament his business with Albania. “It went up higher to the prime minister and his son,” he said. “I can’t fight this mafia. It got too big. The animals just got too out of control.”

In e-mail exchanges, Mr. Thomet denied an official role in Evdin. His involvement in the Albania deal, he said, had been in introducing Mr. Diveroli to potential partners and officials. Bogdan Choopryna, Evdin’s general manager, also said Mr. Diveroli’s allegations were not true. “We listen to the words of Mr. Diveroli, and then I am responsible for what he is saying?” he said. In addition to being an official with Evdin, Mr. Choopryna, 27, markets products for a Swiss company run by Mr. Thomet.

The dispute about Evdin’s role and who owns it remains publicly unresolved. Evdin had incorporated on Sept. 26, 2006 — the week after Mr. Diveroli bid on the Afghan contract, according to Cyprus’s registrar. The company listed its office in Larnaca, Cyprus, and its general director as Pambos Fellas.

A visit by a reporter to the address found an accounting business above a nightclub. Evdin had no office or staff there. And Mr. Fellas, who was inside, said that he was not Evdin’s general director, but “a nominee director” whose sole role was to register the company.

He had registered hundreds of such companies for a fee, he said, and knew nothing of Evdin’s business.

Some signs point back to Switzerland. Mr. Pinari initially told two reporters that he worked with Evdin via Mr. Thomet. (After a reporter told Mr. Thomet this, Mr. Pinari changed his story, referring the reporter to Mr. Fellas and Evdin’s office in Cyprus.) Mr. Diveroli also said the Cyprus company was run by a “Swiss individual.”

Mr. Thomet has been accused in the past by private groups, including Amnesty International, of arranging illegal arms transfers under a shifting portfolio of corporate names. His activities have also caused concern in Washington, where, like Mr. Bernatik, he and Evdin are on the Defense Trade Controls watch list, an American official said.

Mr. Thomet said past claims that he had engaged in illegal arms trading were caused by “false statements by former competitors.”

Hugh Griffiths, operations manager of the Arms Transfer Profile Initiative, a private organization that researches illicit arms transfers, described Mr. Thomet as a broker with contacts in former Eastern bloc countries with stockpiles and arms factories. His proximity to AEY’s purchases, Mr. Griffiths said, raised questions about whether the Pentagon was adequately vetting the business done in its name.

“Put very simply, many of the people involved in smuggling arms to Africa are also exactly the same as those involved in Pentagon-supported deals, like AEY’s shipments to Afghanistan and Iraq,” he said.

Under the suspension ordered Wednesday, the Army planned to continue accepting ammunition it had already ordered from AEY. As of March 21, it had ordered $155 million of munitions, according to the Army Sustainment Command.

In Afghanistan, American munitions officers are examining all of the small-arms ammunition AEY has shipped. The final shipment, which arrived in wooden crates, included loose and corroded cartridges, according to three officers. At Rock Island Arsenal, the contracting authority said it was cooperating with investigators, who have also visited Albania and Afghanistan.

And in Miami Beach, even before the suspension, AEY had lost staff members. Michael Diveroli, the company’s founder, told a reporter that he no longer had any relationship with the company. Mr. Packouz, who was AEY’s vice president, and Levi Meyer, 25, who was briefly listed as general manager, had left the company, too.

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