[Federal Register: August 24, 2006 (Volume 71, Number 164)]
[Notices]
[Page 50102-50105]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au06-80]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Sujak Distributors; Denial of Application
On May 18, 2005, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Sujak Distributors (Respondent). 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 ground that
Respondent's registration would be inconsistent with the public
interest. See U.S.C. 823(h).
The Show Cause Order specifically alleged that Respondent was
proposing to sell ephedrine and pseudoephedrine products, which are
precursors used in the manufacture of methamphetamine, to convenience
stores, gas stations and liquor stores in the Davenport, Iowa area. See
Show Cause Order at 2. The
[[Page 50103]]
Show Cause Order alleged that only a small percentage of sales of non-
prescription ephedrine and pseudoephedrine products occur in these
retail outlets and that these establishments are a primary supply
source of these products for the illegal manufacture of
methamphetamine. See id. at 1-2. The Show Cause Order further alleged
that Respondent's proposed registered location was at a storage unit
rental facility and that Respondent's unit was not ``sufficiently
secure from entry from adjacent units.'' Id. at 2.
The Show Cause Order also alleged that Respondent's co-owner, Mr.
Dennis Carney, had told DEA Diversion Investigators that ``25 to 35
percent of his business would consist of listed chemical product sales
to convenience stores, liquor stores and gas stations.'' Id. The Show
Cause Order alleged that ``the average small store could expect to sell
monthly only about $15.00 to $40.00 worth of pseudoephedrine
products.'' Id. at 3. Finally, the Show Cause Order alleged that
methamphetamine is ``one of the most popular and widely abused drugs
throughout the Midwest.'' Id. The Show Cause order also notified
Respondent of its right to a hearing. Id. at 4.
The Show Cause Order was served on Respondent by certified mail,
return receipt requested, and on June 3, 2005, Respondent acknowledged
receipt. Since that time, neither Respondent, nor anyone purporting to
represent it, has responded. Because (1) more than thirty days have
passed since Respondent's receipt of the Show Cause Order, and (2) no
request for a hearing has been received, I conclude that Respondent has
waived its 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. 802(34); 21 CFR 1308.12(d). As
noted in numerous prior DEA orders, ``methamphetamine is an extremely
potent central nervous system stimulant.'' David M. Starr, 71 FR 39367
(2006); A-1 Distribution Wholesale, 70 FR 28573 (2005). Methamphetamine
abuse has destroyed lives and families, ravaged communities, and
created serious environmental harms. Starr, 71 FR at 39637.
Respondent is organized as a partnership which is co-owned by Mr.
and Mrs. Dennis Carney. The investigate file contains additional
information suggesting that Mr. Greg Glowacki, an employee of
Respondent, may also have a financial interest in Respondent.
Respondent is located at 2501 N. Lincoln Ave, M-3, Davenport, Iowa. The
location is a unit in a storage rental facility.
On July 16, 2004, Respondent, through its co-owner, submitted an
application for a registration to distribute the List I chemicals
ephedrine and pseudoephedrine. On November 18, 2004, two DEA Diversion
Investigators (DIs) visited Respondent at its proposed registered
location to conduct a pre-registration investigation. The DIs met with
Mr. Carney and discussed the nature of Respondent's business.
Respondent supplies general merchandise and seasonal items to
convenience stores, gas stations, and liquor stores in the Davenport,
Iowa area. Respondent's business includes customers in both Iowa and
Illinois.
Mr. Carney advised the DIs that he was seeking registration in
order to sell the following List I chemical products which contain
ephedrine: Mini Two Way 12.5/200 mg. in 6 count packets, 12 count
blister cards, and 48 count bottles; Twin Tabs 12.5/200 mg. in 48 count
bottles; and Rapid Action 12.5/200 mg. in 48 count bottles. Mr. Carney
further advised the DIs that neither he or his wife, nor his employee,
had any experience in handling List I chemicals. Background checks on
Mr. Carney, his wife, and Mr. Glowacki, did not find any adverse
information.
Respondent's proposed registered location was a 10 foot by 20 foot
unit in a rental storage facility with approximately 100 units. The
facility's office hours were 9 a.m. to 5 p.m., Monday through Friday.
All occupants have access to the main corridor where Respondent's unit
is located and can apparently obtain access to the facility at any time
through use of a key-pad entry system. Moreover, the main corridor is
wide enough so that a motor vehicle can be driven into the facility.
The facility has at least two video cameras in place; one covers the
main entrance, another covers the corridor adjacent to Respondent's
unit and the loading dock. The entry system records the identification
number of any person who has entered or exited the facility. In the
event of a break-in, the security company notifies the local police
department. Respondent's unit is protected by a padlock. Mr. Carney
also told the DIs that he intended to purchase a steel storage cabinet
for the List I chemical products. However, Mr. Carney has not provided
documentation that the cabinet was in fact purchased.
Upon entering Respondent's storage unit, the DIs observed that the
unit did not have a solid ceiling. Instead, the top of the unit was
comprised of wire, which was run both length and width wise at perhaps
one foot intervals.\1\ The DIs found that the wire could easily be
tampered with and that a person could gain access to Respondent's unit
from other storage units.
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\1\ The estimates of the interval is based on the photographs.
No actual measurement was taken.
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The DIs also discussed with Mr. Carney his firm's business
practices. Mr. Carney told the DIs that he did not have any procedures
to determine whether new customers are legitimate purchasers other than
visiting their businesses and ``checking them out.'' The DIs found that
Mr. Carney understood the record-keeping requirements. Mr. Carney also
appears to have adequate procedures for receiving and delivering List I
chemicals. Mr. Carney further told the DIs that he would not engage in
any transactions triggering the reporting threshold, see 21 CFR 1310.04
and 1310.05, and that he would contact DEA in the event a customer
placed a suspicious order.
Subsequent to the pre-registration investigation, the DIs conducted
customer verifications. The verifications did not uncover any adverse
information.
Discussion
Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals
is entitled to be registered unless I determine that the registration
would be inconsistent with the public interest. In making this
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. ``These 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
[[Page 50104]]
give each factor the weight I deem appropriate in determining whether a
registration should be revoked or an application for a registration be
denied.'' Starr, 71 FR 39368. See also Energy Outlet, 64 FR 14269
(1999). In this case, I conclude that factors one, four and five
establish that Respondent's application should be denied.
Factor One--Maintenance of Effective Controls Against Diversion
The investigative file does not establish that Respondent would
fail to properly comply with DEA's regulations pertaining to
recordkeeping and reports. But ``the adequacy [of an] applicant's
systems for monitoring the receipt, distribution, and disposition of
List I chemicals,'' 21 CFR 1309.71(b)(8), is only one part of the
inquiry under factor one.
Determining whether an applicant will provide proper physical
security of listed chemicals is also critical in evaluating the
effectiveness of an applicant's controls against diversion. See 21 CFR
1309.71(b). Here, the investigative file establishes that Respondent's
proposed location does not provide adequate security for listed
chemicals for several reasons. First, Respondent's storage unit lacks
an adequate ceiling. Thus, even individuals who have lawful access to
the facility could easily break in to the unit.
Second, DEA's regulations specifically mandate that I consider
``the extent of unsupervised public access to the facility.'' Id.
1309.71(b)(5). Here, there are 100 rental units in the facility and it
is apparent that a large number of people have access to the building.
Beyond that, it appears that the facility has employees on-site only
from Monday through Friday, and only between the hours of 9 a.m. to 5
p.m. The facility is however, accessible 24 hours a day, every day of
the year. Thus, access to the facility is largely unsupervised.
Moreover, Respondent does not know whether any of the other tenants
have criminal records. Nor does it control who the landlord rents to.
While Respondent's owner claimed to the DIs that no other occupant of
the facility would be aware that he was handling List I chemicals, it
is certainly possible, if not likely, that other occupants would
eventually find out either through word of mouth or by observing
Respondent's employees. Perhaps none of the other tenants (and the
acquaintances they may bring to the facility) is a criminal, but this
is a risk I decline to assume. I thus conclude that Respondent's
proposed registered location does not provide adequate security for
storing listed chemicals. This factor thus weighs heavily in support of
denying Respondent's application.\2\
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\2\ Having concluded that Respondent's proposed location does
not provide adequate security, I do not decide whether Respondent
has adequate procedures for verifying the legitimacy of customers.
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Factors Two and Three--Compliance With Applicable Law and the
Applicant's Prior Record of Relevant Criminal Convictions
While there is evidence that Respondent failed to comply with
Federal regulations when it was run by its previous owner, I have
already concluded that those violations are not relevant. The more
important question is whether there is any evidence that either the co-
owners of Respondent or its employee have failed to comply with
applicable Federal, state or local laws. The investigative file does
not establish that any of these persons has failed to comply with
applicable laws. Relatedly, none of these persons has been convicted of
a criminal offense relating to controlled substances or chemicals. I
thus conclude that both of these factors support granting Respondent's
application.
Factor Four--Past Experience in the Manufacture or Distribution of
Controlled Substances
Neither of Respondent's co-owners, nor its sole employee, have any
prior experience in the manufacture or distribution of List I
chemicals. Because of the potential for diversion, DEA has repeatedly
held that an applicant's lack of experience in distributing List I
chemicals is a factor which weighs heavily against granting an
application for registration. See, e.g., Starr, 71 FR at 39368; Jay
Enterprises, 70 FR 24620, 24621 (2005); ANM Wholesale, 69 FR 11652,
11653 (2004). The fact that neither of Respondent's co-owners, nor its
employee, has any experience thus provides a substantial reason to deny
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 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 seizures of [gray market distributor's]
pseudoephedrine product at clandestine sites,'' and that in an 8-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 distributor]
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'').
Moreover, during clandestine lab seizures, DEA has frequently found
high count List I chemical products, thus indicating that these are the
preferred products for illicit methamphetamine manufacturers. See OTC
Distribution, 68 FR at 70541, MDI Pharmaceuticals, 68 FR at 4236.
Respondent proposed to sell similar high count products.
Significantly, all of Respondent's proposed customers participate
in the non-traditional market for ephedrine and pseudoephedrine
products. 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); Xtreme Enterprises, 67 FR at 76197.
Under DEA precedents, an applicant's proposal to sell into the non-
traditional market weighs heavily against the granting of a
registration under factor five. So too here.
Furthermore, DEA has repeatedly denied an application when an
applicant proposed to sell into the non-traditional market and analysis
of one of the other statutory factors supports the conclusion that
granting the application would create an unacceptable risk of
diversion. Thus, in Xtreme Enterprises, my predecessor denied an
application
[[Page 50105]]
observing that the respondent's ``lack of criminal record, compliance
with the law and willingness to upgrade her security system are far
outweighed by her lack of experience with selling List I chemicals and
the fact that she intends to sell ephedrine almost exclusively in the
gray market.'' 67 FR at 76197. More recently, I denied an application
observing that the respondent's ``lack of a criminal record and any
intent to comply with the law and regulations are far outweighed by his
lack of experience and the company's intent to sell ephedrine and
pseudoephedrine exclusively to the gray market.'' Jay Enterprises, 70
FR at 24621. Accord Prachi Enterprises, 69 FR 69407, 69409 (2004).
I also note that the State of Iowa recently enacted legislation
making all ephedrine products Schedule V controlled substances. See
2005 Iowa Acts Ch.15, S.F. 169 (codified at Iowa Code Ann. 124.212
(West 2006)). Under Iowa law, all ephedrine products must be sold in
licensed pharmacies. Therefore, it appears that none of Respondent's
customers can now lawfully sell the products that Respondent proposed
to distribute.\3\ See Iowa Code Ann. 124.302. Relatedly, Respondent can
not distribute ephedrine products without obtaining an Iowa controlled
substances registration. See id. As I have previously explained, where,
as here, state efforts to combat the illicit manufacture of
methamphetamine are consistent with Federal policy, it is appropriate
to give them due weight in determining whether the granting of a
registration would be consistent with public health and safety. See
McBride Marketing, 71 FR 35710, 35711 (2006); Joy's Ideas, 70 FR 33195,
33199 (2005). I thus conclude that granting Respondent's application
would be inconsistent with public health and safety.
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\3\ The Iowa Act also placed limits on the sale of
pseudoephedrine products, generally limiting their sale to
pharmacies except for packages of liquid, liquid capsule, and
liquid-filled gel caps that contain 360 milligrams or less.
Respondent also has customers in Illinois. Respondent did not,
however, include any customers from Illinois in its list of
potential List I chemical customers. I therefore do not consider the
effect of Illinois' recently enacted Methamphetamine Precursor
Control Act.
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In summary, there are several factors which support the conclusion
that granting the application would be inconsistent with the public
interest. Respondent's proposed security measures are plainly
inadequate and are thus grounds alone to deny the application.
Moreover, Respondent lacks experience in the distribution of List I
chemicals and proposes to sell into the non-traditional market.
Furthermore, none of Respondent's customers can lawfully sell ephedrine
products under Iowa law. I therefore conclude that granting
Respondent's application would be ``inconsistent with the public
interest.'' 21 U.S.C. 823(h).
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
application of Sujak Distributors for a DEA Certificate of Registration
as a distributor of List I chemicals be, and it hereby is, denied. This
order is effective August 24, 2006.
Dated: August 16, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-14048 Filed 8-23-06; 8:45 am]
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