David Packouz (@DavidPackouz) is an entrepreneur, musician, co-inventor of Instafloss, and CEO of Singular Sound. He’s also a former arms dealer, whose story was portrayed in the movie War Dogs with Jonah Hill, Miles Teller, Ana de Armas, and Bradley Cooper. [This is part one of a two-part episode. Carry on to part two here!]
What We Discuss with David Packouz:
- How does an Orthodox Jew with 10 siblings become an international arms dealer?
- How federal government contracts work — and why some of them almost always go over budget.
- How corruption at every level of the Russian government hamstrings its military and stifles innovation.
- How David and his partner Efraim Diveroli got hooked up with lucrative government arms deals when they were barely adults.
- The countless ways in which Efraim is not as charming as Jonah Hill made him out to be in War Dogs.
- And much more…
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Please Scroll Down for Featured Resources and Transcript!
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Miss our two-part conversation with the Caravaggio of currency counterfeiting? Catch up by starting with Episode 488: Frank Bourassa | The World’s Greatest Counterfeiter Part One here!
Thanks, David Packouz!
If you enjoyed this session with David Packouz, let him know by clicking on the link below and sending him a quick shout out at Instagram:
And if you want us to answer your questions on one of our upcoming weekly Feedback Friday episodes, drop us a line at email@example.com.
Resources from This Episode:
- War Dogs: The True Story of How Three Stoners From Miami Beach Became the Most Unlikely Gunrunners in History by Guy Lawson | Amazon
- War Dogs | Prime Video
- David Packouz | Website
- David Packouz | Instagram
- David Packouz | Facebook
- David Packouz | Twitter
- David Packouz | YouTube
- Next Generation Music Gear | Singular Sound
- Efraim Diveroli | Wikipedia
- Types of Government Contracts | Government Contracting Academy
- NATO and the Warsaw Pact | History of Western Civilization II
- Lord of War | Prime Video
838: David Packouz | The Real-Life “War Dogs” Gun-Runner Part One
[00:00:00] Jordan Harbinger: Coming up next on The Jordan Harbinger Show.
[00:00:03] David Packouz: The king wanted to buy like attack helicopters and heavy machine guns and like a large amount of them and various crowd control equipment. Yeah, let's do this, you know, we'll put together a Save the King package.
[00:00:22] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people and turn their wisdom into practical advice that you can use to impact your own life and those around you. Our mission is to help you become a better informed, more critical thinker through long-form conversations with a variety of amazing folks, from spies to CEOs, athletes, authors, thinkers and performers, even the occasional organized crime figure, fortune 500 CEO, or Russian chess grandmaster.
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[00:01:41] Now, today on the show, this is a particularly long episode. It's in two parts. I loved it. It was a hell of a lot of fun. David Packouz, really smart guy. His story became the movie War Dogs with Jonah Hill. Essentially, these two kids, because they were kids at the time, became massive arms dealers for the United States government mostly anyway, from what I understand and they got in a whole hell of a lot of trouble. I don't want to spoil the story. It's a great story. It's really, really interesting and well told because again, David Packouz is a sharp guy on the straight and narrow these days, not so much as former business partner played by Jonah Hill in the movie. I know you'll enjoy listening to this conversation as much as I enjoyed having it.
[00:02:22] So here we go, part one with David Packouz.
[00:02:29] You know it's funny, I was meaning to do this show for something like five years and I was like, I got to track down these guys and I tried to track you down for a second and then I was like, oh, I'll get this Efraim guy. It was like really hard because he was in prison and I thought, you know, okay fine. Then, he's out of prison and all these guys are like, "Oh yeah, I knew him, he was my cellie and I can get you him." And we talk all the time. And I pitched that and it was like, "Yeah, he's interested." And then it was like he ghosted me and I thought, damn. And I came so close so many times instead of being smart about it and just going like, "You know what? Screw it. I'll get Packouz." I just focused on Efraim, man. The guy has vanished. He's just gone.
[00:03:06] David Packouz: Yeah. Don't feel bad. He doesn't do any interviews.
[00:03:09] Jordan Harbinger: Yeah. I just thought like, oh, he's interested. And then it was like, no, he's just dicking around or like was drunk that day and said yes and then vanished again.
[00:03:16] David Packouz: Yeah, that tends to be what he does.
[00:03:19] Jordan Harbinger: Mm-hmm.
[00:03:20] David Packouz: So, yeah. It's not you, it's him.
[00:03:23] Jordan Harbinger: It doesn't make me feel bad to have this happen.
[00:03:25] David Packouz: Yeah.
[00:03:25] Jordan Harbinger: This is like the story of my life with many guests. It just was sort of dumb because I emailed you and you're like, "Yeah, let's do it." And I was like, damn it, that would've been so much easier. I would've saved myself a lot of time if I just asked you earlier. And frankly, the more research I did, the more I was like, oh, he's not this like cuddly Jonah Hill character. He's actually the bad guy by a long shot.
[00:03:49] David Packouz: Yeah, he is. Yeah.
[00:03:50] Jordan Harbinger: When you watch the movie and then you read the book and you get the real story and talk to other people that know you guys or to you guys. It's just really clear that Hollywood was like, let's make him like this cool, funny, quirky guy because it's a better story than this guy's a real bastard, right?
[00:04:07] David Packouz: Yeah, that's exactly how it was. Yeah. And the screenwriter told me that specifically that they did that on purpose.
[00:04:13] Jordan Harbinger: You have to because when you get the real story, you're just like, I feel gross being with this guy. This guy's gross, you know?
[00:04:19] David Packouz: For real.
[00:04:20] Jordan Harbinger: Yeah.
[00:04:20] David Packouz: It's true.
[00:04:21] Jordan Harbinger: I feel bad because we're sitting here, I'm sitting here talking negatively about this guy who's not here to defend himself, but at the same time—
[00:04:26] David Packouz: Yeah, yeah.
[00:04:27] Jordan Harbinger: Well, he's a convicted criminal. And he screws people over.
[00:04:30] David Packouz: Right.
[00:04:30] Jordan Harbinger: And it's kind of like he doesn't maybe seem to have learned anything by going to prison possibly.
[00:04:37] David Packouz: Right. And he's been given many chances to defend himself, but he turns it down.
[00:04:40] Jordan Harbinger: So I guess the first question is, how does an Orthodox Jew with, what is it, 10 siblings become an international arms dealer? Is that a good place to start?
[00:04:48] David Packouz: I guess that's—
[00:04:49] Jordan Harbinger: Before people are like, "It's the Jews." Don't worry.
[00:04:51] David Packouz: Yeah.
[00:04:51] Jordan Harbinger: He's a failed arms dealer.
[00:04:53] David Packouz: Right. Thank you. Thank you. That name makes it better maybe, right?
[00:04:56] Jordan Harbinger: Yeah. Look, we can't be in the Illuminati if we're not doing a good job of being, you know, infallible in our cabal to control things.
[00:05:03] David Packouz: Right, right. I will say that from doing these podcast interviews, it's, unfortunately, really brought home to me the level of anti-Semitism out there.
[00:05:16] Jordan Harbinger: Yeah.
[00:05:16] David Packouz: Very large amounts of comments on my Jewish background and—
[00:05:20] Jordan Harbinger: Mm-hmm.
[00:05:21] David Packouz: —that being the source of all bad in the world.
[00:05:24] Jordan Harbinger: If it makes you feel any better, it's sort of a mark of you having done literally anything in your life that's played any outsized role that people can latch onto.
[00:05:33] David Packouz: Right.
[00:05:33] Jordan Harbinger: There was a blog article a long time ago, and I don't want to go too far down this rabbit hole because it's frigging irrelevant, but it was like—
[00:05:39] David Packouz: Mm-hmm.
[00:05:39] Jordan Harbinger: —Jews of the podcasting community and it's like, all these podcasters that happen to be Jewish. And it's like, well, you know, okay. I mean it's still, it's like being the world's tallest midget. We're still podcasters. Who cares?
[00:05:52] David Packouz: Right.
[00:05:52] Jordan Harbinger: Like really, who cares?
[00:05:54] David Packouz: Yeah.
[00:05:54] Jordan Harbinger: The guy linked in that post to another post that was like Jew bloggers. And it's like, so you are saying that these guys, who write on the Internet, are just happen to be Jews and that that must mean some, I mean, talk about grasping at straws.
[00:06:08] David Packouz: Yeah.
[00:06:08] Jordan Harbinger: It's like Jews who own ice cream shops and it's like some kind of big conspiracy theory. I mean like they're really thinking that this hits the like—
[00:06:21] David Packouz: Nice. Very well done. Well done.
[00:06:23] Jordan Harbinger: Yeah. You got it. All right, so your family is Orthodox Jews.
[00:06:26] David Packouz: Yes.
[00:06:27] Jordan Harbinger: You meet Efraim, your future business partner—
[00:06:29] David Packouz: Yeah.
[00:06:29] Jordan Harbinger: —played by Jonah Hill, but again, totally not Jonah Hill in at synagogue.
[00:06:33] David Packouz: You're right.
[00:06:34] Jordan Harbinger: And how does that go? You end up with like a bedsheet business. This is random—
[00:06:39] David Packouz: Yeah.
[00:06:39] Jordan Harbinger: —and very unsexy, which tells me either someone told you about it, or you're really good at seeing angles other people don't see with respect to business.
[00:06:47] David Packouz: And so the way I got into the bedsheet thing, which was before the arms dealing thing, was, it was just a friend of mine that I had met in Israel, you know, cue the anti-Semitic comments.
[00:06:59] Jordan Harbinger: Right.
[00:06:59] David Packouz: And I met someone in Israel who was in the nursing home supply business.
[00:07:07] Jordan Harbinger: Mm-hmm.
[00:07:08] David Packouz: And he was buying from distributors in the United States, you know, various equipment like including bedsheets, towels, et cetera. And he had told me, because at the time I was already importing SD cards from China and selling them on eBay.
[00:07:24] Jordan Harbinger: Oh, okay.
[00:07:25] David Packouz: And that was a great business at the time because it's extremely easy to transport. They're very tiny but relatively valuable. And nowadays, of course, it's all flooded with Chinese knockoffs. And so I wouldn't say that business is that good anymore, but at the time it was a pretty good business, so I was doing pretty well. And he said, "Oh, you know, you have some experience sourcing internationally and importing things. If you can get me a better price on the bedsheets or the towels that I buy from these distributors, I'll buy from you and, you know, we'll both make some. I'll save money. You'll make money." And I thought, "Well, that's a great idea. If you can find SD cards, why can't you find bedsheets?" So I started researching and eventually, realized that the bedsheets and towels, the best price were actually from Pakistan. And I started importing from there and selling to him and to a few other people. And that started growing, that business, totally random. But unlike the movie, I wasn't actually going to nursing homes in person and trying to sell the whole bunch of bedsheets that I had unwisely bought and stuffed my apartment with. That's not what happened.
[00:08:34] I was just a broker. I would find a large buyer and say, "Hey, you know, these are my prices." And they'd be like, "Yeah, I'm interested in this, that, and the other." And I would just do the deal just putting the supplier and the buyer together and get a cut without actually even putting up my own money. It was a pretty decent business. And I was about 23 years old. I was 23 at the time. I was doing the bedsheet business, the SD card business. I also was working part-time as a massage therapist. That part is true—
[00:09:04] Jordan Harbinger: Okay.
[00:09:05] David Packouz: —you know, in the movie.
[00:09:06] Jordan Harbinger: Yeah.
[00:09:06] David Packouz: I had gotten into that when I was 20. I had some, like a neck injury from a car crash, and I wanted to learn how to fix myself, and I realized that massage therapists made a lot more money than minimum wage, and which all my friends were working at the time while they were in college.
[00:09:22] Jordan Harbinger: Sure.
[00:09:22] David Packouz: I went to massage school and learned and got licensed as a massage therapist. And so I had a few multiple streams of income. I was also in school at the time, studying chemistry, and that's when I bumped into Efraim. We had known each other since I was 16. He's actually four years younger than me, unlike—
[00:09:39] Jordan Harbinger: Oh, wow.
[00:09:40] David Packouz: —in the movie, they say we're the same age, but he's actually four years younger than me, so I met him when I was 16. He was 12. We were both in synagogue and didn't like to pray, so we both sneak out and along with the other kids who didn't like to pray, which was most of them, you know.?
[00:09:54] Jordan Harbinger: Yeah.
[00:09:56] David Packouz: Very few kids enjoy praying. So that's how we met because our families went to the same synagogue. And then, his family shipped him off to LA because I think he got tested positive for weed. We both went to private Jewish schools, but different ones.
[00:10:12] Jordan Harbinger: Okay.
[00:10:12] David Packouz: So we weren't in the same school, but he got tested positive for weed. And so they said, "Oh, you're not taking the rules seriously. You're going to join the real world and work for your uncle." And his uncle owned a big pawn shop in South Central LA. And he got obsessed with guns. He just loved it. He started selling the guns that were in the pawnshop and then he started buying guns on the gun boards using his uncle's name because he was 16.
[00:10:37] Jordan Harbinger: Like forums?
[00:10:38] David Packouz: Yeah, exactly. Yeah, the forums, exactly. He was 16 years old at the time, so he couldn't legally own a gun, but he used his uncle's name to buy guns and then sell them. And he worked something out with his uncle so that they would split the profits. And his uncle also taught him how to bid to the government. So his uncle was selling equipment, handguns, ammunition, bulletproof vests, boots to the local and state police. And so he taught Efraim how to bid on these contracts. You know, go through the government system and offer them various equipment that you want to sell. And so he learned how to do that and worked for his uncle for about two years. And then, he claims, Efraim claims that his uncle screwed him out of 70 grand. His uncle claims that Efraim screwed him out of 70 grand. So, you know, I believe both of them.
[00:11:26] Jordan Harbinger: Yeah. Yeah. That's a good diplomatic way to put it. I mean, you do have experience with one of those people.
[00:11:30] David Packouz: Yeah. And I've heard about the other one. So his uncle doesn't have the best reputation either in the industry. So he came back to Miami when he was 18 years old, and he took over his dad's corporate entity called AEY Inc, which makes it into the movie. His dad hadn't used this corporate entity for anything other than I think some label printing business that he had done years ago. It was more or less a dormant company. And so he took over that business and registered it with the federal government and started bidding on contracts. This was in 2004, which was right after the invasion of Iraq and the United States. It had pretty much bombed Iraq to smithereens and was looking to rebuild it and make it into a democratic country. And so part of that process was supplying their government with various equipment, including the new police and army force, with weapons and ammunition and various military supplies.
[00:12:29] So he started bidding on these contracts, started doing very well, and after about a year of working on his own, we bumped into each other at a mutual friend's house. And as everyone does, "What are you doing these days?" And I told him about my sheet business and about the SD card business. And he was like, "Oh, that's really cool. You know, that's more or less the kind of business I'm doing, you know, finding suppliers overseas, uh, negotiating on price and arranging logistics, arranging, import permits. You know, all those like processes that you're doing. It's more or less the same thing I'm doing, but I bet I'm doing it on a much bigger scale than you. And so maybe, we can work together. Maybe you can come work with me and we can make a lot more money together." And so I asked him, "Okay, well, how much money have you made?" Right? Natural question. And he goes to me, he is like, "You know, I'm going to tell you, but only to inspire you because I'm not bragging, okay?" And he opens up his computer and he logs into his bank account and he shows me his bank account. And it had 1.8 million in the bank.
[00:13:41] Jordan Harbinger: Wow. And he's what? Like 20-something years old?
[00:13:44] David Packouz: He's 18 years old.
[00:13:45] Jordan Harbinger: Oh my God. Okay.
[00:13:47] David Packouz: Yeah.
[00:13:48] Jordan Harbinger: Wow. And it's not fake. It's not a screenshot. It's not him talking. It's like he logged in.
[00:13:52] David Packouz: He logged in.
[00:13:53] Jordan Harbinger: Wow.
[00:13:53] David Packouz: I saw him log in. He was not faking it. And I knew he hadn't gotten that money from his parents. I know who his parents are. They didn't give him that money. His grandfather is actually a billionaire.
[00:14:03] Jordan Harbinger: Oh, wow.
[00:14:03] David Packouz: Yeah. But his grandfather is also one of these characters that he doesn't give anything to anyone. You know, he's like Scrooge kind of character?
[00:14:12] Jordan Harbinger: Yeah. Scrooge McDuck.
[00:14:13] David Packouz: Yeah, exactly. His grandfather got into the papers because his grandmother had divorced him. Just to give you a little family background, his grandmother had divorced him. I think they had six or eight children together or something. I forgot how many. And it turned out that his grandfather, that she found out when she divorced him, that he had never married her legally in the first place. It was just a religious marriage, and so he decided that he was going to give her zero.
[00:14:40] Jordan Harbinger: Wow. I don't think that argument would fly with any judge though.
[00:14:43] David Packouz: Yeah.
[00:14:44] Jordan Harbinger: After X number of years.
[00:14:46] David Packouz: She sued him and it was, I believe, the largest alimony case in history.
[00:14:50] Jordan Harbinger: Yeah.
[00:14:50] David Packouz: She sued him for 700 million dollars.
[00:14:53] Jordan Harbinger: Well, good, good for her.
[00:14:54] David Packouz: Yeah.
[00:14:54] Jordan Harbinger: Because that's BS like he obviously had planned that, right? He's like, "I want to leave this bag. I'm going to just not pay her. Because I'm a bastard."
[00:15:01] David Packouz: Right. I mean, they were married for like 40 years or something. Crazy.
[00:15:04] Jordan Harbinger: That's gross. Yeah. That's gross.
[00:15:06] David Packouz: Not to speak badly about his whole family, but he's got family members in there who are that sorts of characters.
[00:15:13] Jordan Harbinger: Where did he learn how to behave like this? Oh, the apple has not fallen far from the tree, a lot of apples.
[00:15:18] David Packouz: I will say that. I know his dad and his dad was a really upstanding, great person. And, you know, he's a fine person. So, I won't say like his whole fam, I won't speak badly about his whole family, but a few members of his family—
[00:15:29] Jordan Harbinger: Right.
[00:15:29] David Packouz: —are not the most straightforward of characters, I guess you could say.
[00:15:34] Jordan Harbinger: Yeah.
[00:15:34] David Packouz: So, after he showed me that, I was like, holy crap. I mean, I had the same reaction that you had. I was blown away. I was like, this guy's 18 years old and he has a 1.8 million in the bank after working for a single, for one year on his own.
[00:15:49] Jordan Harbinger: Yeah.
[00:15:49] David Packouz: He obviously knows what he's doing. He knows this business. And he's making way more money than I'm making selling bedsheets or SD cards. So it seems like a pretty big opportunity. And so I said, "Okay, well, I'm in and teach me what you know."
[00:16:06] Jordan Harbinger: I do have some questions. I mean, a lot of people are probably like, 'Well, some of that money's operating capital." Doesn't matter. He still had to get the operating capital. The government doesn't just cut you a check when you start selling them something. I mean, government pricing—
[00:16:17] David Packouz: Right.
[00:16:18] Jordan Harbinger: Might be worth doing a little minute on this.
[00:16:20] David Packouz: Mm-hmm.
[00:16:20] Jordan Harbinger: A lot of people don't know. They'll go like, "Oh, the government pays $500 for a toilet seat. I mean—
[00:16:24] David Packouz: Right.
[00:16:25] Jordan Harbinger: Okay, there's probably some stuff like that, but the margins are agreed by the government. You can't just be like, here's what it costs. It's like—
[00:16:32] David Packouz: Right.
[00:16:32] Jordan Harbinger: —here's what it costs and here's what will pay you based on your cost, which we are auditing and looking at your sources and making sure that like you're not just lying so you can make a bunch of money.
[00:16:43] David Packouz: What you're talking about is a cost-plus contract.
[00:16:45] Jordan Harbinger: Yes.
[00:16:46] David Packouz: Yeah. And so there's different types of contracts with the federal government and the cost-plus contracts, they tend to usually reserve that for items that really only one or two or three companies can make. Like for example, like F-35 fighter jets or—
[00:17:01] Jordan Harbinger: Yeah.
[00:17:02] David Packouz: —nuclear bombs or nuclear submarines or something that like really only like Lockheed Martin or—
[00:17:07] Jordan Harbinger: Mm-hmm.
[00:17:08] David Packouz: —Northrop Grumman or Raytheon could make, and so because there's very limited competition, they'll do what they call a cost-plus where they'll be like, you're going to open up your books, you're going to show us exactly what the costs are, and we're going to give you an agreed upon percentage, you know, 1.5 or two percent on top of that. That will be your profit. And that's a one way of doing things. Of course, that has some negative incentives because then the more the contract costs, the more their profit ends up being. So they have an incentive to inflate their costs as much as possible, so they won't do things efficiently, which is why the government is famous for having cost overruns and paying way more.
[00:17:50] NASA faced this. NASA as a government agency did this for a very long time. That's why their SLS rocket is extremely over budget. Pretty much every project that they've ever done is extremely over budget. They only started doing, this is a complete detour, but they only started on a space—
[00:18:07] Jordan Harbinger: No, I like it. I'm here for it.
[00:18:09] David Packouz: Yeah. The commercial crew or before that the space station resupply missions that SpaceX competed under that was their first real competitive projects. And those contracts ended up coming in on budget, on time because the incentives were all aligned that they had to do that. But the SLS project, which is the standard cost-plus contract, is way over budget because the incentives are not aligned.
[00:18:41] Jordan Harbinger: Huh.
[00:18:41] David Packouz: But anyway, the contracts that we worked on were not cost plus, they were standard competitive contracts because we did not make F-35 fighter jets or anything—
[00:18:54] Jordan Harbinger: Right.
[00:18:54] David Packouz: In particular that they couldn't get anywhere else. We were dealing with commodity items like ammunition and weapons and bulletproof vests and things that not a thousand companies can make. So the way it works is the government will list what they want to buy on their site and they will say, "You have until this date, give us your best price." And then they collect the prices from all the companies that want to bid on this contract. They don't tell anyone what the prices that they're getting from the other companies are. So that's all a secret. So every company is incentivized to give the lowest possible price that they're willing to do in order to win the contract.
[00:19:32] And then, the government takes all the offers and they analyze it. And depending on what factors are important to them, obviously, price is an important factor and that may plays a major role. But depending on the contract, there could be other factors like the reliability of the supplier, the proposed delivery date, the quality of the material that you're proposing to deliver. And they take all that and they have like a scoring system. And then they decide on what's the best value in total to the government and they award that contract to the winner. And then that contractor has the opportunity to deliver on the things, on the items that they promised the government that they contracted with the government to deliver.
[00:20:11] And once they deliver, the government inspects it. Once it passes inspection, they issue a certificate of conformance. They call it a COC, which is a document stating they got the stuff and it passed inspection, and then they submit that to the payment department and 30 days later—
[00:20:27] Jordan Harbinger: Yeah.
[00:20:28] David Packouz: —you get your money. So you do need to fund the contract until you know from the point, so if you were doing, being a broker like we were, most companies are not going to ship you stuff unless you pay them in full in advance. Some large companies with great credit may get, be able to buy things on credit, but most small middlemen will need to pay for things in advance before the company, the supplier ships. Especially international companies, they won't give you any credit. I mean, that's out of the question.
[00:20:58] Jordan Harbinger: Sure.
[00:20:58] David Packouz: Only, national companies within the United States would even consider it.
[00:21:01] Jordan Harbinger: That's worse than podcasting, by the way, those bastards, right? Like you get net 30, I would kill for net 30, but you know—
[00:21:09] David Packouz: Yeah.
[00:21:09] Jordan Harbinger: It's like net 90 sometimes in podcasting now that I think about it. I mean, it can be bad, but then again, I'm not fronting two million for a bunch of rockets or ammunition or more than two million. Who knows?
[00:21:19] David Packouz: Yeah. I mean, different government departments do have different standards. The vast majority of them do net 30, but there are some departments that will say, this contract is net 60. It's not like a set-in-stone kind of thing. But most of the things that we dealt with were net 30, though sometimes they would be a little bit late paying. Like the State Department at the time for some reason still paid with paper check—
[00:21:41] Jordan Harbinger: Oh my God.
[00:21:42] David Packouz: —instead of sending you a wire, you know?
[00:21:44] Jordan Harbinger: It's painful to even hear about it.
[00:21:46] David Packouz: Yeah.
[00:21:46] Jordan Harbinger: How can the government even test doing business with literal kids? I mean, okay, fine.
[00:21:52] David Packouz: Right.
[00:21:52] Jordan Harbinger: He's 18, you're 22.
[00:21:54] David Packouz: Yeah.
[00:21:54] Jordan Harbinger: Have you met an 18- and 22-year-old and been like, I want to give these guys five million, or in your case, 300 million?
[00:22:02] David Packouz: Yeah.
[00:22:02] Jordan Harbinger: I wouldn't even entertain the idea. I wouldn't even take the call, man. I wouldn't.
[00:22:08] David Packouz: Right. So the way they work is that for contracts for the government, a contract under a hundred thousand dollars is considered small.
[00:22:17] Jordan Harbinger: Yeah, that makes sense.
[00:22:18] David Packouz: Yeah. So for most contracts that are under a hundred thousand dollars, they pretty much go by best price. So whoever offers them the best price, they'll roll the dice and see if you can deliver. So you don't need any experience under your belt. You know, you don't need to be able to prove that you're a reliable supplier in order to win these contracts. So once you have like four or five of those contracts, now you have what they call past performance.
[00:22:44] Jordan Harbinger: Mmm.
[00:22:44] David Packouz: Which is proof that you are a reliable supplier, at least for these items that you have proven that you can't supply. And then you could bid on bigger contracts, you could bid on million-dollar contracts plus. So by the time that we bid on the $300 million contract which you know, was the high point of the movie. We had already delivered, I think something around like 150 contracts to the government.
[00:23:09] Jordan Harbinger: Oh, wow.
[00:23:10] David Packouz: Of various items and various sizes. I mean, we had already delivered — and by we, I mean the company, not me personally.
[00:23:18] Jordan Harbinger: Right.
[00:23:18] David Packouz: The company had to already delivered, I think the largest contract at that time was, that the company had delivered was about 15 million.
[00:23:26] Jordan Harbinger: Still high.
[00:23:26] David Packouz: Yeah. So not nothing, you know, a 15-million contract is significant. It's not 300 million obviously, but it does show that the company is able to deliver large quantities of high-value weapons and ammunition, which is what the government used as the basis for awarding us that large contract.
[00:23:46] Jordan Harbinger: I assume most democracies have this kind of process because it's transparent and it's sort of—
[00:23:51] David Packouz: Yeah.
[00:23:51] Jordan Harbinger: —capitalist and supposedly breeds efficiency, even though we found out that it doesn't.
[00:23:56] David Packouz: Right.
[00:23:56] Jordan Harbinger: But this is a little bit of a tangent, but I'm guessing Russia doesn't have anything like this, right? And that may be why they have all these equipment issues in the Ukraine war.
[00:24:04] David Packouz: Yeah.
[00:24:05] Jordan Harbinger: Because corruption in this process would be so deleterious and inefficient.
[00:24:09] David Packouz: Yeah. So I don't know what Russia's official procurement process is, but they are famous for or I should say infamous—
[00:24:17] Jordan Harbinger: Mm-hmm.
[00:24:17] David Packouz: —for having corruption at all levels of the government. One of the most famous examples that we saw in the Ukraine war was that a lot of the convoy in the beginning that was heading towards Kyiv, a lot of their tires were blowing out because they were using cheap Chinese tires and not the standard military spec tires. And then, you have to question, well, why was that? Well, it was probably because someone along the supply chain decided that they were going to pocket the difference. And you see that in many levels of the Russian military. You see that in their space program as well. There's a reason why their space program has stagnated since the fall of the Soviet Union. The entire system is really built on patronage and on corruption, where everyone is really just looking to get in the good graces of someone more powerful so that they could get a little piece of the corruption pie.
[00:25:08] Jordan Harbinger: Mm-hmm.
[00:25:08] David Packouz: And that obviously doesn't breed efficiency because there's money going towards oligarch yachts instead of towards to where it's supposed to go. But it also doesn't breed innovation because it's very disconcerting and very disheartening for the engineers of the rank and file people when they know that like the resources they need are just being squandered by the higher ups and they don't get all the equipment they need. So they can't do the job that they need to do, but they also don't want to do it because they aren't getting a piece of that corruption pie.
[00:25:44] Jordan Harbinger: Right.
[00:25:45] David Packouz: You know, they're going to escape by with as little work as possible, and this kind of is remnant of the whole communist system where, because there was no capitalist incentives for people to do a good job versus a bad job, everyone just did a mediocre job and did the minimum possible thing because there was not really that much room for advancement and opportunity.
[00:26:14] Jordan Harbinger: Or operated in the black market because they were like, "My stuff is better. I should get a higher price. Oh, it's illegal. Okay. I'm just going to break the law."
[00:26:21] David Packouz: Yeah.
[00:26:21] Jordan Harbinger: Or leave the country and defect and go to a place where my efforts are rewarded.
[00:26:25] David Packouz: Exactly.
[00:26:26] Jordan Harbinger: To be fair, a lot of people are going to go, "Well, wait, this bidding process sounds like it takes a really long time. I bet we're not doing that with Ukraine."
[00:26:32] David Packouz: Right.
[00:26:32] Jordan Harbinger: Because now it seems like Biden, it says, "Hey Congress, I need 48 billion." And they go, okay. And then it's like here's a bunch of weapons. It's a different sort of emergency situation.
[00:26:43] David Packouz: Yeah.
[00:26:44] Jordan Harbinger: I assume.
[00:26:44] David Packouz: Yeah. So with Ukraine, when they have like an emergency situation like that the vast majority of the military equipment that was supplied to Ukraine, since the start of the war was actually from the US military's own stocks, so equipment that the US military already owned and was keeping in reserve for themselves. So the US military can give that immediately. They have their own logistics system, one of the best logistics systems in the world, their own planes and everything. And they could just fly it all into to Ukraine and supply them immediately. Now, what's going on is because the US military has, uh, used up so much of its own stocks that now they're trying to replenish those stocks. So they are putting out for contract to the manufacturing companies to manufacture more of the, that equipment that they gave to Ukraine.
[00:27:36] Jordan Harbinger: That makes sense, right? Because if you just say, "Hey, we're selling our own stuff because it's an emergency."
[00:27:40] David Packouz: Yeah.
[00:27:40] Jordan Harbinger: There's probably a lot less hoops to jump through. And I know a lot of it is, "Hey, we're looking for Soviet-era ammunition," so we're going to get it from Romania, which is not going through the United States sort of bidding process. And also the Ukrainian troops are trained on this equipment, their guns fire, that kind of ammo.
[00:27:57] David Packouz: Yeah.
[00:27:58] Jordan Harbinger: But once that stuff's gone, it's like, "Well, now we need Northrop to make those rocket systems that are going to go there, and that's probably going to take a longer time.
[00:28:06] David Packouz: The big issue is that because we live in a capitalist system and the military is the only buyer of these items. You know, no one else buys anti-tank rockets, right?
[00:28:16] Jordan Harbinger: Right. Yeah.
[00:28:16] David Packouz: So these companies that make this equipment like Lockheed Martin, Northrop Grumman, they only have the minimum amount that they think, you know, they have the minimum production line set up that they think is the government is going to require. And for the past 20 years, the US military has been focused on anti-insurgency operations, which is very different than a large-scale land conflict where you have to take out tanks. You know, the Islamic state didn't have tanks, so they didn't have to manufacture these anti-tank rockets or anti-aircraft rockets because they weren't being used. So for the past 20 years, the US military has a minimum level of stock that they feel that they would need in a conflict situation. But they only really stock it for themselves for the various conflicts that they think that they might be involved in. They don't stock emergency supplies for a large land war in Europe, because that hasn't happened since World War II. No one was really expecting that. So now that that's happened and suddenly we're shifting from a peace economy to a war economy, not obviously the whole economy—
[00:29:29] Jordan Harbinger: Sure.
[00:29:30] David Packouz: —but for these particular items, suddenly there is a demand from mortar shells that far, far exceeds what was a normal production rate in peace time. And Ukraine is just eating it all up. The Russia has massive quantities still left over from the Cold War, but they're starting to eat through that as well. So they're looking for some of the few friends they have like North Korea and Iran to step up and supply them. And now China, which it seems has been supplying them in secret though they deny it. So everyone's scrambling for supply and the United States and the West is scrambling to ramp up production because all those production factor, all those factories were on a peacetime footing. And now suddenly you've got a massive land war that's eating up. I think I read something like that Ukraine uses in one month of like mortar shells of what the United States could produce in a year.
[00:30:30] Jordan Harbinger: Oh, man.
[00:30:31] David Packouz: Yeah. So it's a major, major problem and obviously, the side that runs out of ammo first loses. So everyone's scrambling and that's why Ukraine has been getting such a wide variety of weapons. They've been using their old Soviet weapons, but now they're getting some NATO weapons, but they're getting some weapons from France and from Germany and from the United States, and it's this whole mix. And like some of those weapons systems use different ammo and definitely different parts. And so it's a huge, huge logistical headache for them. But they're happy to get what they can get because it's a matter of life and death, so they have to.
[00:31:12] Jordan Harbinger: You're listening to The Jordan Harbinger Show with my guest, David Packouz. We'll be right back.
[00:31:17] This episode is sponsored in part by Hyundai. The Hyundai Tucson comes with America's best warranty. It's like a mental vacation from worry that no other brand offers. Whether that's up in the mountains to hit the slopes on a ski trip, cruising down the coast to the beach, or hitting the trail way out in wherever you go to get away from it all, add in three years of Hyundai complimentary maintenance and five years of roadside assistance, so the Tucson makes that mental vacation even more worry-free. Just don't forget your sunscreen and maybe a little bit of bugs, spray and some snacks. And don't forget, well, it's your trip. So take a mental vacation, or better yet, a vacation, vacation in the Tucson, and leave those worries behind the Tucson with America's best warranty, it's your journey. Test drive the Tucson at your nearest Hyundai dealer, or learn firstname.lastname@example.org. Call 562-314-4603 for complete details.
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[00:33:53] Now back to David Packouz.
[00:33:56] The stuff is cheap. The Ukrainians are already trained on it, right? This Warsaw Pact stuff.
[00:34:01] David Packouz: Yeah.
[00:34:01] Jordan Harbinger: The Warsaw Pact stuff, Soviet stuff doesn't fit NATO arms, like you said, and it's just—
[00:34:06] David Packouz: Right.
[00:34:06] Jordan Harbinger: What a mess. I don't want to go too far down this rabbit hole, but it is interesting. The Soviet weapons really don't need a lot of maintenance, right? So it's like the US weapons—
[00:34:13] David Packouz: Yeah.
[00:34:14] Jordan Harbinger: Part of the problem is it's like a Ferrari where the performance is out of this world.
[00:34:19] David Packouz: Yeah.
[00:34:19] Jordan Harbinger: But you need to know how to drive the thing. You need to know how to take it apart and put it back together. Every part is specialized. You can't just take like a piece of metal and bash it into approximately the right shape to fit in there. You know, for like a high Mars or something. There's semiconductors all over the thing, so it's like that versus a Toyota Corolla where you're like, "Man, my muffler's making a loud noise. Everybody can hear me coming. You know what? Give me that ball-peen hammer. That piece of aluminum and give me some bolt cutters, I'll cut it into approximately the right shape, hammer it on this rock, and it's going to hold up until it doesn't."
[00:34:51] David Packouz: Yeah. I mean, that has been the Warsaw Pact versus NATO mentality as far as their designing their weapon systems. The Warsaw Pact generally had lower-level trained soldiers, so they had to make their equipment much more forgiving. There's a famous case in World War II where the tanks that they were producing in World War II, the pins that held the tracks on were kept on falling out.
[00:35:18] Jordan Harbinger: On a tank?
[00:35:18] David Packouz: Yeah, on the tank.
[00:35:19] Jordan Harbinger: Okay.
[00:35:19] David Packouz: So, yeah. And so instead of creating a new system of fastening the tank tread to the tank, they pretty much just put this wedge of metal so that the pins as they get loose, they hit the wedge of metal and it knocks it back in. That was a famous case of Soviet ingenuity and just kind of speaks to their design philosophy of the absolute minimum and simplest solution, which isn't necessarily a good performance solution, but it is cheap and they can do very, very large quantities.
[00:35:51] Jordan Harbinger: Wow.
[00:35:51] David Packouz: So that permeates their entire design philosophy for all their weapons and ammunition and systems. And the AK-47 versus the M-16 is the most famous example. The AK-47 is famously durable. You could like bury it in the mud for 10 years and it'll still fire, but it's not the most accurate thing. M-16 is a much higher performance weapon, but it takes a lot more maintenance, a lot more care, a lot more training to use, which is why the United States decided to supply the Iraqis and the Afghanis after they invaded those countries to build up their army and police forces with those weapons and ammunition. Because they're already trained on them, as you said, and they also happen to be much cheaper.
[00:36:39] Jordan Harbinger: Mm-hmm.
[00:36:39] David Packouz: Which saves the US taxpayer quite a bit of money.
[00:36:41] Jordan Harbinger: It all sounds good until you realize that the way to sabotage a tank is to use a crowbar and pull out a few of these pins and now half drives and the fricking tread falls off.
[00:36:52] David Packouz: Yeah. Yeah, that's true. But luckily for the Soviets, they had 10,000 more where that came from.
[00:36:57] Jordan Harbinger: Right.
[00:36:57] David Packouz: And you see they're doing, they're using the same philosophy now, where they're just throwing poorly trained soldiers into the meat grinder of the war. It's quite tragic for the people of Russia because they don't bother. I mean, there were famous videos that came out, I think earlier that showed a lot of these conscripts that they're forcing to go to war are being supplied with like rusty weapons.
[00:37:23] Jordan Harbinger: Mm-hmm.
[00:37:24] David Packouz: Some aren't even being given weapons at all. And of course, the Wagner group is recruiting from the prisons and they just use them as like a distraction. Like the prisoners, they just throw them into the battle space and see where they obviously all get killed, but they, at least when the Ukrainians are forced to reveal their positions to fire on these incoming people, and then the trained soldiers can handle those positions now that they've revealed themselves. But they have a very low value on human life, and they have no problem in just throwing people into the meat grinder without much hope of survival.
[00:38:06] Jordan Harbinger: It seems like you're really up on geopolitical events. Were you like that when you were a kid, or was it like, "Let's make some money with guns," and then you're like, "Hey, the whole political situation that we waltzed into was kind of interesting"?
[00:38:16] David Packouz: Yeah, no, I kind of got my education on the job, so to speak.
[00:38:21] Jordan Harbinger: Yeah.
[00:38:21] David Packouz: You know, when I started I had no idea about any of it. I was a musician. I was more interested in writing songs and listening to music and normal things as a person in their early 20s is interested in. And I just saw the whole arms thing as opportunity of a lifetime. And then kind of had to learn on the job, all the entire geopolitical situation of the world because it affected our ability to deliver. When we were fly over certain countries, we had to know whether they were going to give us a permit or—
[00:38:59] Jordan Harbinger: Mm-hmm.
[00:38:59] David Packouz: You know, when planning logistics and what was the current situation, political situation in that because maybe they'll say yes now, but there's an election in a month. And depending on who's standing for election and who's likely to win will affect on whether by the time we want to deliver, whether that country is still willing to give us an over-flight permit. So I had to learn all these things that I really had no idea about before getting into the business. Then, it just became interesting to me and—
[00:39:29] Jordan Harbinger: Sure.
[00:39:30] David Packouz: —now I find it fascinating, even though I'm not in that business, to be clear, I'm not in that business anymore.
[00:39:34] Jordan Harbinger: Right. Yeah.
[00:39:36] David Packouz: Yeah.
[00:39:36] Jordan Harbinger: The interest in politics has endured the, the other parts Yes. Have not exactly. The book is full of different angles that you guys bought. Tell me about this Xbox deal, because this is almost—
[00:39:45] David Packouz: Right.
[00:39:45] Jordan Harbinger: How did big companies miss this? And you guys are like, "Ah, let's go ahead and make 20 million selling frigging Xboxes.
[00:39:52] David Packouz: Right. So that was a strange situation and to this day, I'm not a hundred percent sure what the truth is about it.
[00:39:59] Jordan Harbinger: Okay.
[00:39:59] David Packouz: What happened there was actually before I started working with the arms business because I was importing SD cards at the time, I was talking to all these electronics wholesalers, and at the time the Xbox had just been released, the original Xbox.
[00:40:15] Jordan Harbinger: Mm-hmm.
[00:40:15] David Packouz: And this is how long ago it was. But the Xbox was a huge smash hit and it got sold out of all stores. And nobody had it. It was like being sold for triple the price on eBay at the time. And then, one of my contacts from buying SD card said, "Hey, you know, I've actually got a whole bunch of Xboxes that are for sale." And I said, "Well, that's obviously a great opportunity."
[00:40:40] Jordan Harbinger: Yeah.
[00:40:40] David Packouz: Because everyone's looking for Xboxes, but it was way more, I think he offered me like a thousand Xboxes, which was way more than I had money for.
[00:40:49] Jordan Harbinger: Yeah.
[00:40:49] David Packouz: And so I talked to Efraim and I'm like, "Hey, you know, I've got this opportunity to do this deal with Xboxes. I know you've got some money, right? You showed me."
[00:40:59] Jordan Harbinger: Mm-hmm.
[00:40:59] David Packouz: "So are you interested in doing this?" And he was like, "Oh, yeah, that sounds very interesting." He talked to the guy and then it turned out that this guy was just a broker for someone else.
[00:41:08] Jordan Harbinger: Yeah.
[00:41:08] David Packouz: And so somehow Efraim, I'll give him credit is a very talented negotiator, but also he can convince people very, very well to do things that they won't necessarily want to do. He's a really great—
[00:41:23] Jordan Harbinger: Persuader?
[00:41:24] David Packouz: Persuader, that was the word. It's on the tip of—
[00:41:25] Jordan Harbinger: I think you were trying not to say con artist, but that's what he is. Yeah, he's a persuader. My words not yours.
[00:41:31] David Packouz: He's that too.
[00:41:32] Jordan Harbinger: Yeah.
[00:41:32] David Packouz: He is that. But he managed to get the guy who was my contact to introduce us to his contact.
[00:41:40] Jordan Harbinger: Mm-hmm.
[00:41:40] David Packouz: And then that guy said, "Oh, well, the minimum order is 3000 units." And we're like, okay. And then it turned out that he was a broker for someone else.
[00:41:48] Jordan Harbinger: Sure.
[00:41:48] David Packouz: And he got him to introduce us to his contact. And we went through five layers. I'm not even, I'm not exaggerating here. It was like literally five different layers of brokers until we got to a company. I forgot the name of the company offhand, but I remember at the time that it was a large multi-billion-dollar electronics wholesaler. So it was not a nobody and we were talking to people from the company because they had the official company address, which was why we thought it was real.
[00:42:15] Jordan Harbinger: It's amazing that though, like, hey, we have this lot of a really hot product. Everyone wants it.
[00:42:20] David Packouz: Yeah.
[00:42:20] Jordan Harbinger: Let's talk to two random dudes that we met through three Chinese contacts. It's like—
[00:42:24] David Packouz: Right.
[00:42:24] Jordan Harbinger: How are you not calling Walmart and being like, "Hey, notice your auto boxes. Do you want 20,000 of them? We have them."
[00:42:30] David Packouz: Which was so strange. Which is that part makes me think that it was some sort of scam.
[00:42:35] Jordan Harbinger: Mm-hmm.
[00:42:36] David Packouz: But if it was a scam, it was by a scam from people within this large electronics or it could be that they pulled something shady within their company and they were trying to offload this stuff.
[00:42:49] Jordan Harbinger: Stuff a hundred thousand of these in a warehouse, nobody will know.
[00:42:52] David Packouz: Yeah.
[00:42:52] Jordan Harbinger: It'll be sold out and then we will sell the crap out of these.
[00:42:55] David Packouz: Right.
[00:42:55] Jordan Harbinger: And we'll retire right after we do it.
[00:42:57] David Packouz: Yeah. Right. So like one thing that some Chinese manufacturing companies are infamous for is doing production overruns.
[00:43:05] Jordan Harbinger: Hmm.
[00:43:05] David Packouz: So, you know, Microsoft will contract, let's say a company to produce a million Xboxes and they'll make 1.1 million, but they won't tell Microsoft about it. But they will only make enough that they think they could sell without Microsoft noticing. So it can't be like a huge amount extra, but it could be enough that they could double, triple their profit margins that they're making from this contract with Microsoft.
[00:43:28] Jordan Harbinger: Mm-hmm.
[00:43:28] David Packouz: And this is something that, especially in the early days of Chinese manufacturing, which is back then in like 2006 when this was happening, this was pretty common. So I suspect that if it was not a complete scam, it probably was something a gray market like that. Not necessarily illegal, but definitely against their commercial contract with Microsoft.
[00:43:51] Jordan Harbinger: Sure.
[00:43:52] David Packouz: So that's probably what was happening. You know, they didn't want to have like a direct contact between them and Walmart because Walmart obviously is going to advertise the sh*t out of this and say, "Hey, we've got Xboxes coming." Then Microsoft will be like, "Where'd you buy that?"
[00:44:10] Jordan Harbinger: Mm-hmm.
[00:44:10] David Packouz: And they'll be like, "These guys. I thought they were official distributors." And Microsoft was like, "Well, we thought that they were already sold out. That doesn't add up." And then someone's going to get in a lot of trouble.
[00:44:22] Jordan Harbinger: Right.
[00:44:23] David Packouz: So they were trying to sell it a little bit—
[00:44:26] Jordan Harbinger: On the low.
[00:44:26] David Packouz: Yeah, under the radar. Yeah.
[00:44:28] Jordan Harbinger: It was like a hundred thousand Xbox consoles, right? It's not like a few hundred or even a few thousand. It's a massive amount.
[00:44:34] David Packouz: Yeah.
[00:44:35] Jordan Harbinger: What's the retail value? That's like 20 million or something at that point.
[00:44:39] David Packouz: Yeah, I remember we needed 20 million to buy it. We had already gotten a buyer from Walmart and Target who had agreed to purchase it from us at the retail price really. So they weren't even going to make any profit on it. They were plan B. It was such a hot item that they wanted to use it as what they call a loss leader.
[00:45:01] Jordan Harbinger: Sure.
[00:45:01] David Packouz: Where they have a item that is really in demand, and even though they're losing money on it, people will come into the store and buy something else because they are attracted to go buy an Xbox. So while they're buying an Xbox, they'll buy some accessories or a game or something.
[00:45:15] Jordan Harbinger: Mm-hmm.
[00:45:16] David Packouz: And so Walmart will make money like that. And so they were willing to buy it from us at the full retail price. And the distributor was willing to sell it to us, I believe, somewhere along the lines of around 60 or 70 percent of the retail price. So we stood to make like a good six or eight million on this if we could pull together 20 million.
[00:45:37] Jordan Harbinger: Wow.
[00:45:37] David Packouz: And we tried, I mean, we worked for like a good solid week and a half, two weeks, looking, you know, pretty much asking everyone to invest in us. And we even got some meetings with some like, hedge funds in New York.
[00:45:50] Jordan Harbinger: Sure.
[00:45:51] David Packouz: It just didn't pass the smell test. It was what they said.
[00:45:54] Jordan Harbinger: Right.
[00:45:54] David Packouz: They declined it because even though the suppliers were willing to do a letter of credit, which meant that they wouldn't get paid until they actually delivered the goods. So it wasn't like it was going to be a total scam because we'd be able to inspect the merchandise before the funds were released. So the payment process was solid, but as the hedge fund guys said, it just didn't pass the smell test.
[00:46:17] Jordan Harbinger: Yeah.
[00:46:18] David Packouz: Which I totally understand. It doesn't even pass the smell test for me, you know, these days. So eventually that ended up falling apart and nothing happened with that, at least not with us.
[00:46:27] Jordan Harbinger: Yeah. The hedge fund guys are probably like, this is a great opportunity that shouldn't exist. Something is wrong.
[00:46:33] David Packouz: Yeah.
[00:46:33] Jordan Harbinger: We can't put our finger on it. We don't really want to be in a position where the Feds are seizing the profits or the money that we spent on, or the devices themselves when they hit customs because it turns out these are Yboxes and they're made with all the same parts and they run the games.
[00:46:48] David Packouz: Exactly.
[00:46:48] Jordan Harbinger: They're not really licensed. Yeah.
[00:46:49] David Packouz: Yeah. Exactly.
[00:46:50] Jordan Harbinger: I love this story because it really does paint you guys, it's very savvy.
[00:46:55] David Packouz: Well, thank you.
[00:46:56] Jordan Harbinger: But also like really focused on money. And I know Efraim was obsessed with money. You mentioned—
[00:47:01] David Packouz: Yeah.
[00:47:01] Jordan Harbinger: —there's this casual anecdote where he's talking with federal contractors while he is having sex with his girlfriend, which is gross and weird, but this is what gets him off. Not the girl. He's like, "I'm negotiating."
[00:47:11] David Packouz: Yeah, yeah. Yeah. He would brag about this to us actually. That's the only reason I even know about it. I mean, I'm not there looking.
[00:47:18] Jordan Harbinger: Yeah.
[00:47:18] David Packouz: But he would brag. He's like, "Yeah. So I was like, you know, banging my girlfriend and then I got a call from the contracting officer and I told her, 'Hey baby, you keep on doing what you're doing. I got to take this call.'"
[00:47:29] Jordan Harbinger: Oh my God.
[00:47:30] David Packouz: "Of course, she hates it, but she knows where her bread is buttered on, you know?" He was so gross. Yeah.
[00:47:36] Jordan Harbinger: It's so gross. It is so gross. But it paints a picture of just like exactly the type of guy that you expect him to be—
[00:47:43] David Packouz: Yeah.
[00:47:43] Jordan Harbinger: —once you actually find out what this guy's like.
[00:47:45] David Packouz: Yeah.
[00:47:46] Jordan Harbinger: And you guys must have had Nick Cage posters all over the office.
[00:47:49] David Packouz: Lord of War was definitely Efraim, it was his favorite movie by far. He thought it was the coolest movie ever.
[00:47:56] Jordan Harbinger: Sure.
[00:47:57] David Packouz: For his birthday, actually, I bought him, one of the famous Lord of War posters, which is a picture of Nick Cage's face that's made out of bullets.
[00:48:05] Jordan Harbinger: Hmm.
[00:48:05] David Packouz: And he loved it so much he put it like right behind his desk, so when people would come into his office, they would see like the big Nick Cage poster right behind him, above his desk.
[00:48:16] Jordan Harbinger: Yeah. He just didn't know how to have his own poster made with his own face made out of bullets. That's what he really wanted.
[00:48:22] David Packouz: For sure.
[00:48:23] Jordan Harbinger: I'm surprised he didn't take some of the actual ammo you guys got in trouble for selling and have a sculpture made of himself made out of bullets. That's what I would've done if I was a gaudy arms dealer. In fact, I'm thinking about doing it now. That looks really good behind me. Just saying.
[00:48:36] David Packouz: He actually, I saw later, I mean, this was later, not during the time, but he did commission some artists to make a portrait of him.
[00:48:42] Jordan Harbinger: It's like a starter pack for narcissists. Like you need a sculpture and/or a painting of yourself in your office, that's you looking at the, like everyone dominating them, really high up on the wall too, not eye level.
[00:48:54] David Packouz: Exactly.
[00:48:54] Jordan Harbinger: The morality of some of these deals. I'm wondering if this got to you at all, because there's one where, I think it was the king of Nepal wanting to buy weapons because there was an uprising and it was like, "Let's sell this guy weapons to kill a bunch of his own citizens." And then, it's like, "Well, do we want to do that?"
[00:49:10] David Packouz: That was really early on when I started working with him. You know, like a few weeks into it, that one really threw me off. I mean, so what happened was after the whole Xbox thing fell through, he said, "Hey, you know, let's get back to business that I know, you know, that I know we can make money on. You know, let's do the government contracting business. I'll teach you how to do it. You'll go for items that I'm not really focusing on so that we could expand the business and we'll split the profit 50/50. You'll do all the work. I'll provide the money, I'll do the negotiation. We'll use my company's licenses and all that, and we'll split it 50/50." And so I said, "That's great." And he's like, "Well, you know, I mainly focus on military equipment and ammunitions and weapons, but I know there's energy as a huge sector for the government. They buy massive amounts of oil and gas and various energy commodities. And so why don't you focus on that?"
[00:50:04] So I started doing that. Actually, the first contract I won with the federal government was for 50,000 gallons of propane. It was with the US Air Force. I delivered it to a US Air Force base in Wyoming. Won that within, I think the first month of starting made $8,000 for myself. Not so bad for a first contract. And while that was happening, you know, I was working in the office with him, well, his apartment. We were using his apartment as an office.
[00:50:32] Jordan Harbinger: Hashtag startup life. Yeah, exactly.
[00:50:33] David Packouz: Yeah, for real. It was, he had this big desk in the middle of his living room and it was just covered in like, stacks of papers because he loved printing things out. So like, whenever we'd get a contract, you'd print out the entire contract and that's usually like between 30 and 50 pages with all the addendums and everything.
[00:50:50] Jordan Harbinger: Oh wow.
[00:50:50] David Packouz: And he was working on so many different things at the same time. It just like became this huge mess. So I was working in his apartment and obviously, I hear what he's talking about on the phone and he started working on, he got through one of his contacts in the industry, someone who wanted to supply the king of Nepal. And we looked up what was happening with Nepal and it turns out there were all these pro-democracy protests happening in the country. And so the king wanted to buy like attack helicopters and heavy machine guns and like a large amount of them and various crowd control equipment.
[00:51:30] And Efraim was like, "Yeah, let's do this. We'll put together a Save the King package." You know, he was talking to his contact on the phone and I told him, I'm like, "Efraim, you know, that's like, first of all, are you sure that's like legal?"
[00:51:45] Jordan Harbinger: Yeah. It doesn't sound legal.
[00:51:46] David Packouz: Yeah. "Because that's like, I'm pretty sure the US government wouldn't be happy with you supplying a Monarch in order to suppress a pro-democracy government. Are you sure that's legal? And that's kind of f*cked up, even if it is legal."
[00:51:59] Jordan Harbinger: Yeah.
[00:52:00] David Packouz: And he's like, looks at me and he's like, "Just worry about your fuel contracts, bro. Okay. You leave this sh*t to me."
[00:52:05] Jordan Harbinger: Cool. I'll just be your accomplice because I'm also going to get in trouble for this since I'm right next to you, but okay, why not?
[00:52:10] David Packouz: Yeah. So I was like, wow, you know, that's like, that's very concerning. You know, like, I mean, I wasn't working on it with him. And so I guess that's what I told myself at the time. I'm like, well, I mean, he's doing it, not me. You know, I'm working on fuel contracts and so that's how I made, you know, I excused it to myself. But it was extremely disturbing and luckily that whole thing fell through. I think the king managed to negotiate something, so the contract got canceled and he didn't end up buying all those things.
[00:52:43] Jordan Harbinger: Wow. So you're dealing with other arms dealers in other regions
[00:52:46] David Packouz: Yeah.
[00:52:47] Jordan Harbinger: You're thinking like, "Oh, okay, well, where do I get attack helicopters and I can't buy them from the US government, let's buy them from somebody who buys them from a supply—" It just seems like there's 16 brokers between you and the end user.
[00:52:56] David Packouz: Yeah.
[00:52:57] Jordan Harbinger: For some of these deals.
[00:52:58] David Packouz: For some of the deals. Yeah. I mean, so there's different ways that the arms business works. There's obviously the factories that manufacture these things in the first place, and that is usually the most expensive way to buy things. You buy something brand new.
[00:53:14] Jordan Harbinger: Sure.
[00:53:14] David Packouz: But because all the militaries in the world tend to stock up on military equipment and in the best of times they don't get used, and sometimes countries priorities shift and then they try to change their military equipment or something gets a little bit too old for their liking and they try to sell it to get rid of it. And there's other countries that are totally okay with buying a little bit older equipment as long as they get a good discount. So there's a large opportunity for brokers to do these kinds of deals, and that really all comes down to who you know and who you have connections with. Because there isn't no like worldwide database of all the military equipment that every country owns and that's available. You know, there's no Amazon of military equipment.
[00:54:02] Jordan Harbinger: Yeah.
[00:54:02] David Packouz: Maybe now that I said that someone's going to create that.
[00:54:04] Jordan Harbinger: Yeah, they're going to say great idea.
[00:54:05] David Packouz: Yeah. Yeah. So it really comes down to the kind of connections you have. And a lot of countries, especially countries that are not first world transparent democracies, they are run on systems of patronage and corruption. And so, you need some sort of personal connection with the government or with the powers in that country in order to do these kinds of deals. And if you don't have that connection, you need to find someone who does. So that's where all these middlemen come in, because it's like, "I know a guy who knows, a guy who knows a guy," you know?
[00:54:42] Jordan Harbinger: Right.
[00:54:43] David Packouz: Everyone gets their cut along the line, including the crooked politician or military official who is making this deal happen.
[00:54:53] Jordan Harbinger: Right. So you've got the supplier has to sell it to you and then go through the chain to get to the buyer.
[00:54:59] David Packouz: Yeah.
[00:54:59] Jordan Harbinger: And each person along the way is probably like, "Well, I got to make a little 10 percent margin here."
[00:55:04] David Packouz: Yeah.
[00:55:04] Jordan Harbinger: So it's inflated crazily by the time it gets there, but it still has to be somewhat competitive or you have to bribe the guy more than the other company does, or whatever it is.
[00:55:13] David Packouz: Yeah. So it, it depends on the specific situation. So the more desperate the buyer is, the higher price they're willing to pay. So if like there's an emergency situation and it's a matter of life or death, they're willing to pay pretty much anything because what's good money for them if they're dead. Now, if they are not in a rush and then price becomes more of an issue and then they can shop around a bit more. So it really depends on and, but, sometimes the buyer is corrupt themselves and they don't really care how much money they're spending as long as they can pocket some of that money as well. So there are different situations in these kinds of deals that can inflate or deflate the price.
[00:56:00] Jordan Harbinger: Interesting. Okay. Well, in the movie, Bradley Cooper plays this guy, his name's like Heinrich. Is it Heinrich Thomet?
[00:56:07] David Packouz: Heinrich Thomet. We called him Henri.
[00:56:09] Jordan Harbinger: Henri, yeah. He's a Swiss arms dealer. But who is this guy? Because he seems like the kind of guy who goes, "I don't care what the weapons are for," right? He's—
[00:56:17] David Packouz: Yeah.
[00:56:17] Jordan Harbinger: —I don't want to say your mentor, but certainly a good contact for you guys.
[00:56:20] David Packouz: So Henri was, he's probably, definitely the most successful arms dealer we ever met. He'd been in the business since he was 18 years old.
[00:56:30] Jordan Harbinger: Wow.
[00:56:30] David Packouz: But he was in his, at the time, we knew him, in his 40s, I guess now he's probably in his 50s, maybe even 60s at this point. Efraim met Henri through Ralph. In the movie, Ralph is this Jewish laundromat owner—
[00:56:43] Jordan Harbinger: Okay.
[00:56:43] David Packouz: —who is the investor, right? But in real life, Ralph is a real person and he really was our investor, but he was actually a Mormon who owned a machine gun factory in Utah.
[00:56:54] Jordan Harbinger: Okay.
[00:56:54] David Packouz: It's a very, very different kind of character.
[00:56:57] Jordan Harbinger: Yeah.
[00:56:57] David Packouz: They really changed him in the movie, but they kept the name the same, which was, you know, Efraim met Ralph actually through his dad. His dad was doing government contracting, but for non-weapon, for like non-lethal stuff, for like boots and clothing and normal commodities like that. And I don't know how Michael, Efraim's dad met Ralph but I think through one of those deals. But when Efraim won his first federal contract, He was looking for an investor, because remember as I said, you need to put up the money yourself before the government pays you 30 days after you deliver.
[00:57:34] Jordan Harbinger: Sure.
[00:57:35] David Packouz: So Efraim was looking for an investor and his dad introduced him to Ralph. Ralph funded his first deal and they made money and Ralph was thrilled. And so he agreed to continue funding his deals. So they did a whole bunch of deals together and Ralph had known Henri since I think the '90s. They had done a deal where Henri, it was, I believe, illegal to purchase at the time, like weapons from like apartheid South Africa.
[00:58:04] Jordan Harbinger: Mm-hmm. Yeah.
[00:58:05] David Packouz: So Henri found a way around that by taking the guns apart and selling all the parts, I think except the receiver, which was the only part that was legally considered a gun by the United States. And so he sold all the parts to Ralph, and Ralph put them back together in his machine gun factory and just manufactured the missing part.
[00:58:26] Jordan Harbinger: Oh, wow.
[00:58:26] David Packouz: And so he made a huge amount of money from through that deal. It was all legal of course, you know?
[00:58:32] Jordan Harbinger: Yeah.
[00:58:32] David Packouz: Because they managed to find that loophole. So that's how they established their relationship. And when Efraim and Ralph started doing business together, Ralph introduced him to Henri. And Henri is a Swiss, as you mentioned, a Swiss arms dealer, so he had connections all over Europe and he was especially strong in the Balkans, had very personal connections with a lot of the power players in the Balkans. And so he was able to get Efraim very, very good deals on a lot of the, uh, weapons and ammunition that he was purchasing for the US Army in Iraq and Afghanistan. Later on, we found out that Henri, it came out in the papers that Henri had been the subject of Amnesty International report.
[00:59:17] Jordan Harbinger: Never a good thing.
[00:59:18] David Packouz: Yeah, never a good thing. Exactly. They suspected him of supplying some warlords in Africa, but I don't know if it was ever, I don't believe it was ever definitively proven. He was just placed on a watch list of guys to be concerned about not necessarily a banned list. So as far as I'm aware, it was still legal for us to do business with him.
[00:59:44] Jordan Harbinger: I see.
[00:59:44] David Packouz: Maybe not ethical but legal. So in the movie, Bradley Cooper plays him like a badass, you know, like he's yelling, he's screaming. He's like, you know, has a hooker in his room. He really played him like a badass. But in real life, Henri was more, he had more of the personality of like a Swiss banker. He was always dressed in a really nice suit, perfectly brushed hair, very calm voice, never raised his voice, never got excited, everything. He was like, he was selling potatoes. He was, you know, there was nothing to get excited. He was doing a regular, boring job, and very professional. And I guess that's probably why he lasted so long. And he's still in business. He's still out there, doing deals. Last I heard he had some billion dollar contract with the Russian military to like refurbish their Air Force.
[01:00:37] Jordan Harbinger: Oh, wow.
[01:00:37] David Packouz: Or some parts of their Air Force, but this was years ago. This was before the—
[01:00:41] Jordan Harbinger: Oh, okay.
[01:00:42] David Packouz: —the Russian War. So I don't know what he's doing now. I've lost contact with him. We're not besties anymore.
[01:00:51] Jordan Harbinger: Got it. Yeah. He no longer follows me on TikTok.
[01:00:57] This is The Jordan Harbinger Show with our guest David Packouz. We'll be right back.
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[01:04:06] Now, for the rest of part one with David Packouz.
[01:04:11] That sort of answers the question of why he needs you guys at this point.
[01:04:15] David Packouz: Yeah.
[01:04:15] Jordan Harbinger: Because if he's on a watch list, he might be like, "Well, I don't really want to pop my head up for all these little deals. Maybe I'll let these kids go do some legwork and then I'll just give them good pricing and skim off the top until the heat dies."
[01:04:27] David Packouz: Yeah. That's probably what it was. I also don't believe that he was registered with the US government probably for that reason, but—
[01:04:35] Jordan Harbinger: Got it.
[01:04:36] David Packouz: —as I mentioned before, it is not enough just to be registered, you also have to build up a certain amount of past performance history in order to be eligible for the very large contracts. And I think as I could imagine, the reasons, as you know, are similar to what you were saying, but he never stated his reasons for not bidding directly with the federal government. We just kind of assumed he wanted to keep his head low. He was supplying, not just us, but he was supplying a few other contractors who were supplying the US government. So he was the source for quite a few US government contractors.
[01:05:13] Jordan Harbinger: Tell me about the Afghanistan contract. This is the big one that eventually, you know, spoiler alert gets you guys in big trouble, but—
[01:05:18] David Packouz: Yeah.
[01:05:19] Jordan Harbinger: Why is Afghanistan buying anything from you instead of buying directly from the US or Russia for that matter? Or even like South Korea, they make a bunch of arms. Why do a deal with you, Yahtzee? No offense.
[01:05:30] David Packouz: Right. None taken. None taken. So the Afghans were not buying directly from us. They were being supplied by the US Army. So what happened was after the United States invaded Afghanistan and Iraq, and pretty much bombed the people in power to smithereens, they decided that the best way forward was to attempt to build a democracy in that country. A democratic government that was friendly to the West. And Afghanistan famously failed, right? After 20 years of trying.
[01:06:04] Jordan Harbinger: Yeah.
[01:06:05] David Packouz: Iraq is teetering on democracy, but still, I guess, an official democracy at this point.
[01:06:13] Jordan Harbinger: Yeah. Not a shining example.
[01:06:14] David Packouz: Yeah. Not the best.
[01:06:16] Jordan Harbinger: Yeah.
[01:06:16] David Packouz: Not doing that great. But part of the rebuilding process, the reconstruction process was building these institutions. The idea was that the United States would eventually leave the United States doesn't have any policy of staying and taking on, there was no idea of annexing Iraq or annexing Afghanistan and making it the 51st and 52nd state of the United States, like what Russia is trying to do with Ukraine. That wasn't the plan. The plan was to go and take out this unfriendly government and do a regime change to put in a friendly government. So part of that is when you, in order for the friendly government to stay in power, is they needed to have a police force in a military and to fight the insurgents and their neighbors if they would attack them.
[01:07:03] And because the Afghanis and the Iraqis were already trained on the Warsaw Pact weapons, as we mentioned before the United States decided to supply them with those kinds of weaponry. They were already trained on it. It also happened to be like five times cheaper. So that was a bonus. But the United States doesn't manufacture these weapons. So the United States manufactures weapons of NATO caliber, NATO standards. So to get a large quantity of Warsaw Pact weapons and ammunition, they had to go to someone else. And originally, they had to go to — speaking about the Afghan contract that we won specifically, the idea there that was put out in 2006. George Bush was president and the Bush administration felt that the next president because he was extremely unpopular at the time, his poll numbers were terrible, so they thought, you know, there's a good chance that the next president is going to be a Democrat. They were right. Obama was the next president, but they thought the next president was going to pull out of Afghanistan immediately and leave them to their own devices, which he was wrong. It took until Biden to do that. But the plan was because they thought the next president would abandon Afghanistan. They wanted to arm the Afghans to have enough weapons and ammunition for like the next 30 years. And so they were looking to buy massive, massive quantities of munitions in particular because ammunition is something that's, you know, you eat it up, right? Just like we see in Ukraine—
[01:08:38] Jordan Harbinger: They're consumable.
[01:08:39] David Packouz: They're consumables. That's the term I was looking for. So because of that, they wanted to have massive quantities of ammunition. And originally, the US Army went to the Russians directly and asked them to supply this massive quantity of ammunition. This came out in some news article I read later, but the Russians originally thought that they were joking because the quantities were so enormous. But the US Army had to ask them multiple times and they said, "No, no, no, we're actually serious. We want to really want to buy this quantity." And the Russians said sure and they gave them a price. And then before they could finalize the deal, it came out that the Russians were supplying nuclear technology to the Iranians.
[01:09:18] Jordan Harbinger: Mmm.
[01:09:19] David Packouz: And the United States got very upset about that and put the Russians on a blacklist, which made it illegal for the US Army to buy these ammunitions from the Russians. And so then they had to start looking for other sources of supply. And there was no other single source of supply that could supply this quantity. Only the Russians could do it. So they figured instead of dealing with 50 different suppliers, you know, from every former Soviet block country out there and having to deal with every headache that entails, they're going to open it up for a broker type contract. And they put it out in their usual contracting procedures. They put the list, I think it was 30-something different types of munitions with massive quantities of each. And they said, "Give us a package deal." And we bid on that contract. We didn't really think we were going to win.
[01:10:10] Jordan Harbinger: Right. I was going to say like, how did you even think you would win something like this?
[01:10:14] David Packouz: Yeah, yeah. We didn't really expect to win, but because it was all the kinds of ammunition that we had already been selling to Iraq and Afghanistan, we technically qualified because we had the past performance history. So because there was a technical, we weren't automatically disqualified. We felt, well, in that case, we have to at least give it a shot.
[01:10:35] Jordan Harbinger: Give it a shot, right?
[01:10:35] David Packouz: Give it a shot.
[01:10:36] Jordan Harbinger: Even though, it's like 20 times bigger than anything you guys have done in the past.
[01:10:39] David Packouz: Exactly.
[01:10:40] Jordan Harbinger: Huh.
[01:10:40] David Packouz: Literally 20 times bigger. Yes.
[01:10:42] Jordan Harbinger: Wow. This is what makes you guys successful at the end of the day. Right. It's like most people would go, okay, Lockheed Martin's probably bidding on this. General Dynamics is bidding on this.
[01:10:50] David Packouz: Yeah.
[01:10:51] Jordan Harbinger: Raytheon or whatever is bidding on this. The government of Uzbekistan is bidding on this.
[01:10:56] David Packouz: Right.
[01:10:56] Jordan Harbinger: I'm not even going to fill out this PDF.
[01:10:59] David Packouz: Right.
[01:10:59] Jordan Harbinger: And you guys are like, "Nah, let's do it."
[01:11:02] David Packouz: Yeah. It was a lot of work actually. It wasn't just filling out a PDF.
[01:11:06] Jordan Harbinger: No, of course not. Of course that. But even if it was filling out a PDF, most people would go, "To hell with this, this is a waste of digital ink."
[01:11:13] David Packouz: Right, right, right.
[01:11:14] Jordan Harbinger: How do you decide what to bid? Because you have to choose the pricing.
[01:11:19] David Packouz: Yeah.
[01:11:19] Jordan Harbinger: It's very complex. Then, you've got to choose a margin. How do you even come up with the price tag for this?
[01:11:25] David Packouz: So the way we did that, well, first what we did was we got a price from everybody we could find.
[01:11:30] Jordan Harbinger: Sure. Yeah.
[01:11:31] David Packouz: And so Efraim obviously asked all his suppliers for their best pricing on all these items. And then he tasked me, and this was my role in the contract to find new suppliers that he was not aware of, that he had not dealt with before. And so I scoured the Internet. I like must have gone 50 pages deep into Google searches. I'm not even, not even kidding.
[01:11:53] Jordan Harbinger: Yeah.
[01:11:54] David Packouz: And I built these massive spreadsheets of every supplier and like half of them weren't even in business anymore. The other half didn't speak English. It was a mess. And like, they were all in Eastern Europe, so I had to do this all, you know, late at—
[01:12:10] Jordan Harbinger: Four o'clock in the morning.
[01:12:10] David Packouz: Yeah, exactly. A lot of them didn't have emails, they only had fax numbers and so it was a massive, massive pain. It was a very grinding, time-consuming pain. But after a few months of work, You know, I was able to find suppliers that filled in the holes of where Efraim's suppliers were missing, and we had what we thought was a pretty competitive bid. Also, Henri gave us a really good deal on the AK-47 ammo, which was a big component of the contract. And that would later get us in trouble because we later found out why that ammo was so cheap, but we didn't know it at the time. So after we got all the suppliers in the spreadsheet and we also had to calculate what the estimated logistics cost, because the government wants you to give them a delivered price. Not a cost-plus shipping price.
[01:13:05] Jordan Harbinger: Right. Yeah.
[01:13:06] David Packouz: Shipping is always included to the government.
[01:13:08] Jordan Harbinger: Like Amazon Prime.
[01:13:09] David Packouz: Exactly. Exactly. Shipping has to be included. So, once we calculated the estimated shipping cost for each supplier and we called up the suppliers. Efraim would do this. He was very good at this. He would call them up like five times and just bother them until they agreed to like, lower their price even a tiny bit. He'd like keep on pestering them until they would and come up with all these crazy reasons why they need to give him a better price. You know, he was very good at this. He loved to say, one of his lines was, he'd love to say, a negotiation is a contest between two people over who could come up with a better reason for things to go their way.
[01:13:49] Jordan Harbinger: Meanwhile, all these other guys are like, whatever. But yeah, he's probably also not afraid to say like, if you do this, there's all these other deals that are lined up, and it's just BS.
[01:13:58] David Packouz: Yeah. He was the master of BS. I mean, he would promise people the world. He would say things in ways that you could take it in two ways. So he'd have a way to get himself out of it if you would call him out on it later. He was a master manipulator, a master liar. He was extremely, extremely talented at it, and that made him a very, very powerful, very capable negotiator. And so, he got all the suppliers to knock down their prices as low as they were willing to do. And then we had our price, and then it was time for us to put our margin, what we wanted to make on it before we bid it to the government. And Efraim figured he was torn because he figured everyone else was going to do 10 percent. That's what he thought. So he figured he would do nine percent, but then he started thinking for him to himself, "But wait a second, what if someone else had the same thought that I had? You know that everyone else is doing 10 percent, so I'll do nine percent. So then in that case, we need to do eight percent." So he was like, "But nobody's going to think that, so we don't have to do seven percent. So it's really just eight percent or nine percent, depending on which level of, you know, the other people are thinking." So he was torn. He's like, "Should we do eight percent, nine percent, eight percent, nine percent? And he doodled until it was like, literally half an hour before like the deadline. Actually, this was one of the few contracts we had to submit in paper. Most contracts you just submit as a PDF online.
[01:15:23] Jordan Harbinger: Okay.
[01:15:23] David Packouz: But for some, I don't know why, maybe you, because—
[01:15:25] Jordan Harbinger: it is a PDF. I was right.
[01:15:27] David Packouz: Yeah, no, it's actually a combination of PDF and spreadsheets.
[01:15:30] Jordan Harbinger: Yeah.
[01:15:31] David Packouz: But yeah, you are correct, PDF and Excel spreadsheets. So we had a deadline and we had to actually ship it overnight from the post office. Like the post office was going to close in like 30 minutes and he still hadn't decided on whether to do eight percent or nine percent. And I told him, "Efraim, just pick something. It could be anything."
[01:15:51] Jordan Harbinger: Yeah.
[01:15:51] David Packouz: "We're going to for sure lose if you keep on not deciding." And he's like, "Fine, fine, fine. I can't leave money on the table, so let's do nine percent. So finally, we punched that into the spreadsheets. We printed everything out. The printer like broke halfway through. We had to like change the ink cartridges. It was like the time is ticking. We finally left the office at like 10 minutes before 5:00 p.m. when the post office was going to close. Efraim is like driving at like 70 miles an hour down—
[01:16:21] Jordan Harbinger: Oh gosh.
[01:16:22] David Packouz: —suburban local roads where like the speed limit is like 25 miles an hour. He's like driving like a maniac. We like skid to a stop in the parking lot in front of the post office, run, run, run, run, run. And they were about to lock the doors and he like busts past the guy and like knocks the postal worker to the side and he's like, "Oh, I got to do this, I got to do this." And like, they almost didn't take it because he was just such a dick.
[01:16:46] Jordan Harbinger: Yeah.
[01:16:47] David Packouz: But they're like, "Fine, fine, fine. We'll take it. We'll take it." And they—
[01:16:50] Jordan Harbinger: Oh my God.
[01:16:50] David Packouz: —they did it. Yeah.
[01:16:51] Jordan Harbinger: I had a friend like this named Oprah from middle school all the way through college and he'd be working on something all night, zero sleep, that's due at eight o'clock in the morning after procrastinating for like a month until four o'clock that morning.
[01:17:02] David Packouz: Yeah.
[01:17:03] Jordan Harbinger: And he'd be on the phone with his mom and he's pacing and he's so nervous. And I'm like, "Just start the thing."
[01:17:07] David Packouz: Yeah.
[01:17:07] Jordan Harbinger: What are you doing? It's 3:00 a.m. We're all like drunk and everything. And he's just like, "I got a bunch of work to do." And the amount of stress that these guys, these types of guys live in—
[01:17:17] David Packouz: Right.
[01:17:17] Jordan Harbinger: And tell me what you think. It's horrible to even be around it because it's so contagious and you're just sitting there like, "Get away from me. You're freaking me out."
[01:17:25] David Packouz: It's extremely stressful because their stress like bleeds onto you.
[01:17:31] Jordan Harbinger: Yeah.
[01:17:31] David Packouz: Because their stress is your stress. I mean, I put a lot of work into that contract. I spent like a good like two months of sleepless nights scouring the Internet and talking to people from Eastern Europe and sending faxes and all these things. And then he was going to blow it because he couldn't decide on whether it was eight or nine percent and couldn't make a decision in time. So I was extremely stressed that he was just going to make us lose before we even got a chance to run the race, so to speak.
[01:18:01] Jordan Harbinger: Yeah, no kidding.
[01:18:02] David Packouz: Yeah.
[01:18:03] Jordan Harbinger: Uh.
[01:18:03] David Packouz: But, you know, he drove fast enough down those roads and didn't hit any child on the way, so we made it. Yeah.
[01:18:11] Jordan Harbinger: How do you then plan to get the weapons into Afghanistan? Because, are you going to like drive from Pakistan? That seems a little dodgy to war zone.
[01:18:18] David Packouz: So we considered all these different ways. Afghanistan is a landlock country, so the only way it was either, air, which was extremely expensive because, you know, flying things by air, it was I think something like five times the price—
[01:18:34] Jordan Harbinger: Of course. Yeah.
[01:18:35] David Packouz: —than by ocean or the only other option was over land, but to do that we would either need to go through Pakistan, which was an extremely unstable country, still is. Or overland through the central Asian countries. And for that, we had to transverse through Russia as well. And they didn't really want us to do that. The Russians were apparently very upset to have been cut out of this contract. And we found out later that they were men doing all sorts of maneuvers to try to make us fail to deliver because they thought that if we failed to deliver that the US Army would come running back to them and beg them to buy the ammo despite the blacklist. They try to convince the central Asian countries who are still very much in their orbit to refuse to give us over-flight permits when we decided to fly it in.
[01:19:28] Jordan Harbinger: Oh, wow.
[01:19:29] David Packouz: Yeah. Yeah. They really tried to make us fail. So we didn't want to take the chance of going through Pakistan because we were told that it's high likelihood that some warlord is just going to seize the shipment and—
[01:19:41] Jordan Harbinger: Sure.
[01:19:42] David Packouz: Then, you're f*cked and then you supply a warlord with all this ammo, which is not a good thing.
[01:19:47] Jordan Harbinger: Right. Somehow you get in trouble for that.
[01:19:49] David Packouz: Yeah.
[01:19:49] Jordan Harbinger: It wasn't your fault.
[01:19:50] David Packouz: Right. Yeah.
[01:19:51] Jordan Harbinger: Or just Iran takes out the whole convoy with a drone or something, or a militia.
[01:19:56] David Packouz: We realized that the only safe way to do this was by air. And even though it was extremely expensive and we would've made a huge amount more money if we had done it over land, but at least it's going to get there and we'll make something instead of nothing. So it was really, it felt like our only option really. But of course, it's extremely expensive to ship everything in with air freight. It all depends on the price of oil because that's the vast majority. I think something like 80 percent of the cost of air freight is the fuel. So at the time, we won the contract. In early 2007, there was a huge spike in oil prices. And a large responsible company would've bought oil hedge so that in case this happened, they would, it was kind of like insurance. You would get paid for the oil price going up and you would use that to cover your losses on the increase of the air freight. Of course, that wasn't Efraim style, so he didn't like buying insurance, so he didn't. And then, we kind of got stuck in a situation where the price of oil meant that we couldn't deliver a lot of the ammo that we had promised to deliver profitably. We would've been losing money on it, especially the AK-47 ammo, which Henri was supplying us.
[01:21:14] So we thought, well, how can we solve this? And I realized that AK-47 ammo that Henri offered us was packed in these very heavy wooden crates. And if we could just remove the wooden crates, then maybe we can save a bunch of weight and at least make it, you know, I don't know if it'll be completely profitable, but at least we won't lose as much money.
[01:21:37] Jordan Harbinger: Right. Okay.
[01:21:37] David Packouz: But we have no idea how much those crates weighed. So we sent one of my best friends, Alex, Alex Podrizki to Albania to go weigh the crates because we didn't trust the Albanians to give us accurate information.
[01:21:49] Jordan Harbinger: Sure.
[01:21:50] David Packouz: Yeah. In the movie, I go to Albania because they didn't want to add another character in the film. But I was already dealing with the US government contracting officers here, and I was dealing with all the other aspects of the contract with the Bulgarian and looking for other sources of supply, like from Kazakhstan and Ukraine. And I didn't have time to do this job, so we sent my friend Alex to do that. He gets there and he weighs the crate and it turns out to weigh quite a lot. And by getting rid of the crates, we would make it actually profitable instead of losing money. But while he was inspecting it, he said, "Hey, you know, these crates, they have like all sorts of Chinese markings on them. You know, these ammos from China, right?" We're like, "What are you talking about? That's from Albania." And he's like, "No, no, no. It's got Chinese all over it. It's definitely Chinese." And we're like, "F*ck. We didn't know that."
[01:22:47] Because our contract specifically said, no Chinese ammunition can be delivered under this contract. Because in 1989, there was the Tiananmen Square massacre in China, where the Chinese military suppressed this pro-democracy movement of these university students and killed hundreds if not thousands of students. And so as a punishment for the Chinese military doing that, the United States put them on arms embargo. And so it's illegal for US companies and citizens to purchase or sell military equipment with the Chinese. So the US Army put no Chinese ammunition can be supplied either directly or indirectly was the actual wording in the contract.
[01:23:31] Jordan Harbinger: Yikes.
[01:23:32] David Packouz: So we realized, well, this kind of violates our contract. According to our contract, we cannot deliver this. But we realized this ammunition is actually from the '70s.
[01:23:43] Jordan Harbinger: Oh, so before the massacre.
[01:23:44] David Packouz: Exactly.
[01:23:44] Jordan Harbinger: Like it should fall through this loophole—
[01:23:46] David Packouz: Right. Well—
[01:23:47] Jordan Harbinger: —in the contract.
[01:23:47] David Packouz: —legally, if you bought ammunition or an AK-47 or anything while it was legal, you know, like let's say 1988, right? And you bought it and you import it into the United States legally, even in 1990, after you can't deal with the Chinese anymore, you can still sell that weapon and you still own that weapon legally and sell it to whoever you want. That's a legal weapon because you bought it legally. It's not like the embargo made all Chinese weapons everywhere illegal. It was just illegal to do business with the Chinese, right? So technically, according to the embargo, this ammunition in Albania was legal. However, our contract didn't specify that. Our contract didn't—
[01:24:29] Jordan Harbinger: Oh, yeah.
[01:24:30] David Packouz: It didn't say anything. It didn't say anything about the embargo. It didn't say, you can only supply weapons that don't violate the embargo, right? That's what it should have said. But it's, instead it said, no, Chinese weapons directly or directly, period. Full stop.
[01:24:43] Jordan Harbinger: Ugh. Lazy drafting.
[01:24:44] David Packouz: Exactly.
[01:24:44] Jordan Harbinger: Lazy contractor.
[01:24:45] David Packouz: Exactly. So we thought, well, okay, we've got two options, right? We could either tell them about it and say, "Hey, US Army, you know, we're very sorry. We know our contract says no Chinese, but this stuff does not violate the embargo. Can we get a letter of exemption for this particular ammunition?" And they could have said, "Yeah, that makes sense. We were lazy in drafting the contract. So here's a letter of exemption. Go ahead. We really need the ammo," right? Or they could have said something along the lines of, "Well actually, you know, all your competitors were bidding with this clause in the requirements. So it's not fair. It's not fair to them that you can deliver this stuff because they weren't allowed to bid this. So, just in the interest of fairness, we're going to have to take this 300-million contract away from you and put it up for bid again." And we're like, "Uh, do we want to take that risk or should we just not tell them about it?"
[01:25:44] Jordan Harbinger: I mean, what's Efraim style, right? What would Efraim do?
[01:25:47] David Packouz: Yeah.
[01:25:48] Jordan Harbinger: Not the right thing.
[01:25:48] David Packouz: Right. So Efraim made the choice of let's not just tell them about it. I mean, we were planning on repackaging it any way to save on the shipping weight. Let's just repackage it, continue repackaging it. Let's tell them that we repackaged it so we could inspect it to make sure it was good quality.
[01:26:07] Jordan Harbinger: Yeah. And save on freight costs, not a lot, technically the truth, right?
[01:26:10] David Packouz: Exactly. It is.
[01:26:10] Jordan Harbinger: We also took out all that Chinese documentation that weighed a bunch too, all those papers.
[01:26:14] David Packouz: And he made sure that the people that we got to repackage it removed every single shred of Chinese documentation or Chinese markings from anywhere. And that's what got us in trouble is that there are emails from him saying, "Oh, make sure that you remove all the Chinese documentation."
[01:26:33] Jordan Harbinger: Oh, no, so smoking gun. No pun intended.
[01:26:38] David Packouz: Yeah. For real.
[01:26:38] Jordan Harbinger: Wow.
[01:26:39] David Packouz: For real, and it's the emails that always get you.
[01:26:43] Jordan Harbinger: You are about to hear a preview of The Jordan Harbinger Show with the world's best counterfeiter.
[01:26:48] How long does it take to print? 250,000,000 million dollars?
[01:26:54] Frank Bourassa: It needs to be worthwhile. It's going to need to be perfect because perfect, go big. One day, for no particular reason, I was driving and thinking and I stopped at red light. It just hit me out of nowhere, you know, I'm chasing something to make money from, sell something, make something, do something. All we do is to translate that into money. So we wake up in the morning and do that.
[01:27:20] Jordan Harbinger: I need to do something for money. Well, why don't I just literally make money? One million dollars in $20 bills is about 50 kilos. So 250 million is 12,500 kilos or over eight Toyota Camrys or six Ford F-150s. That is multiple metric tons of cash. You must have been f*cking stoked, man, because you knew you were going to put $20 bills all over all of that and then just never work again.
[01:27:55] Frank Bourassa: Yes. When I did bring it in and then I slammed the door shut, I was confident enough that everything I did after that, I hadn't done any mistakes. I was good to go. By design, there are people specifically looking for you all the time. This is all they do. If you get suspected, you know in any way, let's say you're dumb, you can tell them whatever you want. They're not dummies. I mean, this is as high as the goat. This is the top of the line.
[01:28:23] Jordan Harbinger: For more on how Frank Barasa created a quarter billion in us, $20 bills that look and feel genuine to experts, check out episode 488 of The Jordan Harbinger Show.
[01:28:36] All right, that's it for part one. All things David Packouz are going to be in the show email@example.com. You can also ask the AI chatbot. Part two coming up in just a few days. If it's not out already, by the time you hear this.
[01:28:47] Transcripts are in the show notes. Advertisers, deals, and discount codes, all the ways to support the show are all at jordanharbinger.com/deals. I've said it once, but I'll say it again. Please consider supporting those who support the show. I'm at @JordanHarbinger on both Twitter and Instagram. You can also connect with me on LinkedIn.
[01:29:04] And the best things, by the way, that have happened in my life and business have come through my network and I'm teaching you how to do the same thing for yourself in our Six-Minute Networking course. It's a hundred percent free. It's not gross, it's not schmoozy. You can find it on the Thinkific platform at jordanharbinger.com/course. The drills take a few minutes a day. I wish I knew this stuff 20 years ago. I want you to dig the well before you get thirsty, build relationships before you need them, and be in smart company where you belong. You can find it all at jordanharbinger.com/course.
[01:29:34] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Millie Ocampo, Ian Baird, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is you share it with friends and you find something useful or interesting. If you know somebody who would really be into this kind of show, this kind of episode, definitely share it with them. The greatest compliment you can give us is to share the show with those you care about. In the meantime, I hope you apply what you hear on the show, so you can live what you learn, and we'll see you next time.
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