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John Vanags Denial of Application
FR Doc E6-10924 [Federal Register: July 12, 2006 (Volume 71, Number
133)] [Notices] [Page 39365-39367] From the Federal Register Online via
GPO Access [wais.access.gpo.gov] [DOCID:fr12jy06-104]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
John Vanags Denial of Application
On October 8, 2004, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to John Vanags (Respondent), d/b/a Distribution
General. The Show Cause Order proposed to deny Respondent's application
for a DEA Certificate of Registration as a distributor of List I
chemicals on the grounds that Respondent's registration would be
inconsistent with the public interest. See 21
U.S.C. 823(h).
The Show Cause Order specifically alleged that Respondent was
proposing to sell List I chemical products containing ephedrine,
pseudoephedrine, and phenylpropanolamine to gas stations and convenience
stores in the Chicago, Illinois area, and that these retail outlets
constitute the non-traditional or "gray market'' for these products. See
Show Cause Order at 2. The Show Cause Order further alleged that many of
these retailers "purchase inordinate amounts of these products and
become conduits for the diversion of listed chemicals into illicit drug
manufacturing.'' Id. The Show Cause Order also alleged that Respondent
admitted that he had no prior experience in the distribution of List I
chemicals, see id., that Respondent was "unfamiliar with his
customers,'' id. at 4, and that Respondent has "little familiarity with
his potential suppliers.'' Id. Finally, the Show Cause Order alleged
that granting Respondent's application for registration "would likely
lead to increased diversion of List I chemicals.'' Id.
On October 8, 2004, DEA attempted to serve the Show Cause Order by
certified mail to Respondent's business address as given in his
application. The Order was, however, returned unclaimed. Thereafter, on
March 24, 2005, a DEA Diversion Investigator (DI) personally served
Respondent with the Show Cause Order.
Since the effectuation of service, neither Respondent, nor anyone
purporting to represent him, has responded. Because (1) more than thirty
days have passed since Respondent received the Show Cause Order, and (2)
no request for a hearing has been received, I conclude that Respondent
has waived his right to a hearing. See 21
CFR 1309.53(c). I therefore enter this final order without a hearing
based on relevant material in the investigative file and make the
following findings.
Findings
Ephedrine and pseudoephedrine are List I chemicals that, while having
therapeutic uses, are easily extracted from lawful products and used in
the illicit manufacture of methamphetamine, a schedule II controlled
substance. See 21
U.S.C. Sec. 802(34); 21
CFR 1308.12(d). Phenylpropanolamine (PPA) is also a List I chemical,
which can be used to manufacture methamphetamine. In November 2000, the
FDA issued a public health advisory regarding PPA based on a study that
found that use of PPA increases the risk of hemorrhagic stroke.\1\
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\1\ More recently, on December 22, 2005, the FDA issued a notice of
proposed rulemaking, which proposed to reclassify over-the- counter
PPA products as "not generally recognized as safe and effective.''
U.S. FDA, Center for Drug Evaluation and Research, Phenylpropanolamine
(PPA) Information Page http.//http://www.fda.gov/cder/drug/infopage/ppa/
(visited June 15, 2006).
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Methamphetamine is an extremely potent central nervous system
stimulant. A-1 Distribution Wholesale, 70 FR 28573 (2005).
Methamphetamine abuse has destroyed lives and families, ravaged
communities, and created serious environmental harms.
Respondent is the owner of Distribution General, a sole
proprietorship. The firm sells novelty items, sunglasses, lighters and
collectibles to gas stations and convenience stores in the Chicago area.
On April 3, 2002, Respondent applied for a DEA Certificate of
Registration as a distributor of the List I chemicals ephedrine,
pseudoephedrine, and PPA. On May 23, 2002, two Diversion Investigators (DIs)
visited Respondent at the address of his proposed registered location,
which at the time was a high crime area located in Maywood, Illinois.\2\
While the proposed location had a dead bolt lock, a pad lock, a magnetic
contact switch on the back door, and bars on the windows, the building
had been burglarized numerous times.\3\
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\2\ At the time of the pre-registration investigation, Respondent's
business was located at 17 North 5th Ave., Maywood, Illinois. At some
point thereafter, Respondent moved his business to 3129 Louis Sherman
Drive, Steger, Illinois. Respondent, however, did not notify DEA of
this fact until March 2005.
\3\ The DIs also conducted a criminal background
check on Respondent; the check revealed no adverse information.
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Respondent told the DIs that he had handled over-the-counter medicine
while serving in the U.S. Army Medical Corps, but that he had no
experience in the distribution of List 1 chemicals. Respondent informed
the DIs that he intended to sell List I chemical products to convenience
stores and gas stations in the Chicago area.
Respondent told the DIs that he had four suppliers: Biotek
Pharmaceuticals, McNeil Consumer & Specialty Pharmaceuticals, Bayer
Consumer Care Division, and Novartis Consumer Health, Inc. He also told
the DIs that he intended to sell Alka Seltzer Plus Cold & Sinus,
Theraflu, Efedrin and Tylenol PM.
The DIs subsequently found various discrepancies in the information
Respondent provided about his suppliers. For example, Respondent
provided a phone number for McNeil, but the number was for the company's
consumer hotline and not for its distribution center. Respondent
provided an address for Bayer, but Bayer did not have a DEA registration
at the address. Finally, the DIs noted that Respondent had only provided
a phone number for Novartis and no address. The DIs thus concluded that
Respondent lacked essential knowledge about his suppliers.
The DIs also conducted verification visits at three entities that
Respondent claimed to have done business with. The person working at the
first entity--a convenience store--had not done business with
Respondent's firm. The second entity was no longer in business. Finally,
persons working at the third entity--a gas station--were not familiar
with Respondent's firm.
Subsequently, and without notifying DEA of this development for
months, Respondent moved his business to a warehouse in a low crime area
in Steger, Illinois. Respondent told the DIs that he did not have a
complete security system but that he intended to add cameras, motion
detectors and a surveillance system, which would allow him to monitor
the warehouse from home. Respondent, however, has not submitted
documentation that he ever upgraded his security system.
Discussion
Under 21
U.S.C. 823(h), an applicant to distribute List I chemicals is
entitled to be registered unless I determine that
[[Page 39366]]
the registration would be inconsistent with the public interest. In
making that determination, Congress directed that I consider the
following factors:
(1) Maintenance by the applicant of effective controls against
diversion of listed chemicals into other than legitimate channels;
(2) Compliance by the applicant with applicable Federal, State, and
local law;
(3) Any prior conviction record of the applicant under Federal or
State laws relating to controlled substances or to chemicals
controlled under Federal or State law;
(4) Any past experience of the applicant in the manufacture and
distribution of chemicals; and
(5) Such other factors as are relevant to and consistent with the
public health and safety.
Id.
"[T]hese factors are considered in the disjunctive.'' Joy's Ideas, 70
FR 33195, 33197 (2005). I may rely on any one or combination of factors,
and may give each factor the weight I deem appropriate in determining
whether a registration should be revoked or an application for a
registration be denied. See id. See also Energy Outlet, 64 FR 14269
(1999). Having considered all of the factors in this case, I conclude
that Respondent's application should be denied.
Factor One--Maintenance of Effective Controls Against Diversion
The investigative file does not address whether Respondent will
comply with DEA requirements pertaining to recordkeeping and reports.
Furthermore, Respondent's initial proposed location presented a major
security concern.
Respondent, however, submitted a letter changing his business address
before he received the Show Cause Order. Under DEA's regulations, "[a]n
application may be amended * * * without permission of the
Administration at any time before the date on which the applicant
receives an order to show cause.'' 21
CFR 1309.36.
I acknowledge that Respondent's new location may well have provided
adequate security had Respondent installed the alarm system he discussed
with the DIs. I also acknowledge that the Government attempted to serve
the Show Cause Order in October 2004, and the only reason the order was
not received was because Respondent failed to notify DEA that he had
changed his business address. Ultimately, I need not decide the issue of
whether Respondent maintains effective controls against diversion
because under agency precedent, there are numerous other grounds to deny
the application.
Factors Two and Three--Compliance With Applicable Law and the
Applicant's Prior Record of Relevant Criminal Convictions
The investigative file contains no evidence that Respondent would not
comply with applicable Federal, State, or local laws. Moreover, the
investigative file indicates that Respondent has never been convicted of
a criminal offense involving controlled substances or chemicals under
Federal or State law. Both factors thus weigh in favor of granting
Respondent's application.
Factor Four--Past Experience in the Manufacture or Distribution of
Controlled Substances
Respondent acknowledged that he has no prior experience in the
manufacture or distribution of List I chemicals. Because of the
potential for diversion, DEA precedent establishes that an applicant's
lack of experience in distributing List I chemicals is a highly
important consideration that weighs heavily against granting an
application for registration. See Jay Enterprises, 70 FR 24620, 24621
(2005); ANM Wholesale, 69 FR 11652, 11653 (2004); Extreme Enterprises,
67 FR 76195, 76197 (2002). Respondent's lack of experience thus weighs
against granting the application.
Factor Five--Other Factors That Are Relevant To and Consistent
With Public Health and Safety
Numerous DEA cases recognize that the sale of certain List I chemical
products by non-traditional or gray market retailers is an area of
particular concern in preventing diversion of these products into the
illicit manufacture of methamphetamine. See, e.g., Joey Enterprises, 70
FR 76866, 76867 (2005). As Joey Enterprises explains, "[w]hile there are
no specific prohibitions under the Controlled Substances Act regarding
the sale of listed chemical products to [gas stations and convenience
stores], DEA has nevertheless found that [these entities] constitute
sources for the diversion of listed chemical products.'' Id. See also
TNT Distributors, 70 FR 12729, 12730 (2005) (special agent testified
that "80 to 90 percent of ephedrine and pseudoephedrine being used [in
Tennessee] to manufacture methamphetamine was being obtained from
convenience stores''); OTC Distribution Co., 68 FR 70538, 70541 (2003)
(noting "over 20 different seizure of [gray market distributor's]
pseudoephedrine product at clandestine sites,'' and that in eight month
period distributor's product "was seized at clandestine laboratories in
eight states, with over 2 million dosage units seized in Oklahoma
alone''); MDI Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding that "pseudoephedrine
products distributed by [gray market supplier] have been uncovered at
numerous clandestine methamphetamine settings throughout the United
States and/or discovered in the possession of individuals apparently
involved in the illicit manufacture of methamphetamine'').
Numerous DEA final orders recognize that there is a substantial risk
of diversion of List I chemicals into the illicit manufacture of
methamphetamine when these products are sold by non-traditional
retailers. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the risk
of diversion was "real, substantial and compelling''); Jay Enterprises,
70 FR at 24621 (noting "heightened risk of diversion'' should
application be granted); Y & M Distributions, Inc., 67 FR 10234,
10235 (2002) (noting "unacceptable risk of diversion'' in denying
application). Under these and other cases, an applicant's proposal to
sell List I chemicals into the non-traditional market weighs against the
granting of a registration. So too here.
There are other factors that support a finding that granting
Respondent's application would be inconsistent with public health and
safety. While Respondent represented that he intended to sell both
traditional-market and gray-market products, the information he provided
regarding both his potential suppliers and customers raises substantial
concerns. The information with respect to several suppliers was
incomplete. In addition, in DEA's experience, larger drug and consumer
product companies typically distribute their goods through wholesalers;
it would be unusual for these companies to deal directly with an entity
such as Respondent's. At a minimum, the information Respondent provided
regarding his suppliers suggests a lack of knowledge of the business.
Moreover, Respondent's potential customers had either not done
business with him, were not familiar with his firm, or were out of
business. This information raises a substantial concern as to whether
Respondent had any legitimate customers. Cf. Prachi Enterprises, Inc.,
69 FR 69407, 69408 (2004).
Finally, I note that Respondent applied to distribute PPA. Most
significantly, he did so more than a year after the FDA issued a public
health advisory and asked drug companies to stop marketing products
containing the
[[Page 39367]]
chemical. DEA has previously held that "an applicant's request to
distribute [PPA] constitutes a ground under factor five for denial'' of
an application. ANM Wholesale, 69 FR 11652, 11653 (2004); see also Shani
Distributors, 68 FR 62324 (2003). In light of the FDA's advisory,
Respondent's proposal to sell PPA raises a serious concern that the
purchasers of these products would ultimately use them to manufacture
methamphetamine.
Having considered all of the statutory factors, I conclude that
granting the application would be inconsistent with the public interest.
In particular, I find that Respondent's proposal to sell into the
non-traditional market, his lack of experience in distributing List I
chemicals, his evident lack of business knowledge, his provision of
inadequate information regarding potential customers, and his proposal
to sell PPA, greatly outweigh Respondent's lack of a criminal record and
the finding that there is no evidence of non-compliance with applicable
laws.
Order
Accordingly, pursuant to the authority vested in me by 21
U.S.C. 823(h), and 28 CFR 0.100(b) and 0.104, I hereby order that
the previously submitted application of John Vanags, d/b/a Distribution
General, for a DEA Certificate of Registration as a distributor of List
I chemicals be, and it hereby is, denied. This order is effective August
11, 2006.
Dated: July 5, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-10924 Filed 7-11-06; 8:45 am]
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