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19 October 2007
[Federal Register: October 17, 2007 (Volume 72, Number 200)]
[Notices]
[Page 58890-58893]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17oc07-99]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Tim's Wholesale; Denial of Application
On March 20, 2006, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Tim's Wholesale (Respondent) of Baton Rouge, Louisiana.
The Show Cause Order proposed the denial of Respondent's application
for a DEA Certificate of Registration as a distributor of list I
chemicals, on the ground that granting it a registration would be
``inconsistent with the public interest.'' Show Cause Order at 1.
More specifically, the Show Cause Order alleged that in December
2004, Respondent's President (Mr. Tim Tran) had applied for a
registration to distribute pseudoephedrine, a list I chemical which is
commonly diverted into the illicit manufacture of methamphetamine, a
schedule II controlled substance. Id. at 1-2. The Show Cause Order
alleged that during a pre-registration investigation, Mr. Tran stated
to DEA Diversion Investigators (DIs) that his business distributes
candy, snacks, cigarettes and novelties to ``approximately 250
convenience stores.'' Id. at 2. The Show Cause Order further alleged
that Mr. Tran stated to
[[Page 58891]]
investigators that ``he was unaware that traditional cough and cold
products contained pseudoephedrine,''and that they ``could be used to
make the controlled substance methamphetamine.'' Id.
Next, the Show Cause Order alleged that after Mr. Tran finally
provided a list of his proposed pseudoephedrine customers, the DIs
conducted customer verifications. Id. The Show Cause Order alleged that
of the seven customers contacted by the DIs, six of them stated that
they had no intention of doing business with Respondent. The Show Cause
Order also alleged that while Respondent did not have a DEA
registration, the other customer informed the DIs that it was
``currently purchasing listed chemical products from'' Respondent. Id.
Finally, the Show Cause Order alleged that Respondent's proposed
customer base of convenience stores account for only a very small
percentage of the legitimate commerce in over-the-counter drug products
and that ``convenience stores continue to be the primary source'' of
pseudoephedrine which is diverted into the illicit manufacture of
methamphetamine. Id. at 3. The Show Cause Order thus concluded that
because Respondent's management has ``insufficient experience,'' lacks
``knowledge of the diversion problems associated with handling listed
chemicals,'' and had ``distributed listed chemicals without a
registration, it is unlikely that they would be able to carry out the
responsibilities of a registrant.'' Id.
The Show Cause Order was served by certified mail, return receipt
requested. While the return receipt card was not returned to the
Agency, on June 22, 2006, a DEA Diversion Investigator contacted
Respondent's owner and confirmed that he had received the Show Cause
Order approximately two months earlier. I therefore find that
Respondent was properly served.
I further find that because: (1) more than thirty days have passed
since service of the Show Cause Order, and (2) neither Respondent, nor
anyone purporting to represent it, has responded, it has waived its
right to a hearing. See 21 CFR 1309.53(c). I therefore enter this
Decision and Final Order without a hearing based on relevant material
contained in the investigative file and make the following findings.
Findings
On December 15, 2004, Respondent, a Louisiana corporation, applied
for a DEA Certificate of Registration to distribute the list I chemical
pseudoephedrine. Respondent's application was prepared and submitted by
its President, Mr. Tim Tran, and proposed as its registered location
its facility which is located at 8150 South Choctaw Drive, Baton Rouge,
Louisiana. Respondent is a wholesale distributor of cigarettes, candy,
snacks, grocery bags, and novelty items, and has approximately 250
customers which include convenience stores and restaurants in the Baton
Rouge area. As noted in numerous agency orders, such establishments are
not part of the traditional market for legitimate consumers of
pseudoephedrine products. See Holloway Distributing, 72 FR 42118, 42119
(2007); D & S Sales, 71 FR 37607, 37608-09 (2006).
Pseudoephedrine is lawfully marketed under the Food, Drug and
Cosmetic Act as a decongestant. See Holloway Distributing, 72 FR at
42119. Because pseudoephedrine is, however, easily extracted from non-
prescription drug products and used in the illicit manufacture of
methamphetamine, a schedule II controlled substance, it is regulated as
a list I chemical under the Controlled Substances Act (CSA). See 21
U.S.C. 802(34); 21 CFR 1308.12(d).
Methamphetamine is a powerful and addictive central nervous system
stimulant. See Gregg Brothers Wholesale Co., Inc., 71 FR 59830 (2006).
The illegal manufacture and abuse of methamphetamine pose a grave
threat to this country. Methamphetamine abuse has destroyed numerous
lives and families and ravaged communities. Moreover, because of the
toxic nature of the chemicals used to make the drug, its manufacture
causes serious environmental harms. Id.
On February 15, 2005, a DEA Diversion Investigator (DI) telephoned
Mr. Tran to schedule an on-site inspection of Respondent. During the
conversation, the DI informed Mr. Tran that he would need to compile a
list of all the customers who would be purchasing pseudoephedrine
products from his firm, as well as a list of the pseudoephedrine
products that he intended to sell. According to the DI, Mr. Tran did
not understand that pseudoephedrine is an active ingredient in various
cold products. Moreover, during the conversation, Mr. Tran further
stated that he was unaware that pseudoephedrine was used to manufacture
methamphetamine, a statement which he repeated during the on-site
inspection.
On February 18, 2005, the above DI (accompanied by another DI)
visited Respondent at its proposed registered where they met Mr. Tran.
Mr. Tran had not prepared a list of either his potential customers or a
list of the pseudoephedrine products he intended to sell. He also
stated to investigators that he would dispose of out-of-date or damaged
pseudoephedrine products in the garbage and did not know if his
suppliers would take back such products. Mr. Tran further told
investigators that he was unfamiliar with the purchase and sale of
pseudoephedrine products. He also told investigators that he had been
in the wholesale business for approximately four and a half months.
During the on-site inspection, Mr. Tran also told investigators
that he had high employee turnover. Moreover, he did not know the last
names of his two employees, one of whom had been on the job for a week,
the other for two days. Even though both employees would have access to
pseudoephedrine products, Mr. Tran stated that he had not performed
background checks on either of them and did not know how to do so.
Mr. Tran further stated that he sold to walk-in customers. When
asked how he would verify whether these customers were legitimate, Mr.
Tran stated that he knew most of them because he had lived in Baton
Rouge for approximately twenty years and went to church with them.
Mr. Tran eventually marked on his customer list the names of
eighteen stores that he expected would purchase pseudoephedrine from
him. Subsequent to the on-site inspection, the DIs visited seven of the
establishments. At three of the stores, the managers told the DIs that
they had never done business with Respondent; at another, the cashier
told the DIs that the store used a different supplier. At one store,
the manager told the DIs that while he had used Respondent in the past,
he no longer did business with it and did not intend to purchase
pseudoephedrine products from it. At another establishment, the cashier
stated that the store mostly bought cigarettes from Respondent and
obtained cold products from other sources. At the final store, the
manager told the DIs that he was currently purchasing cold products
from Respondent. The record, however, does not establish what those
products were and whether they contained a list I chemical.
Discussion
Section 303(h) of the Controlled Substances Act (CSA) provides that
``[t]he Attorney General shall register an applicant to distribute a
list I chemical unless the Attorney General determines that
registration of the applicant is inconsistent with the public
interest.''
[[Page 58892]]
21 U.S.C. 823(h). 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. Sec. 823(h).
``These factors are considered in the disjunctive.'' Joy's Ideas,
70 FR 33195, 33197 (2005). I may rely on any one or a combination of
factors, and may give each factor the weight I deem appropriate in
determining whether an application for a registration should be denied.
See, e.g., David M. Starr, 71 FR 39367, 39368 (2006); Energy Outlet, 64
FR 14269 (1999). Moreover, I am ``not required to make findings as to
all of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005);
Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005). In this case, I
conclude that Factors One, Four, and Five establish that granting
Respondent a registration would be ``inconsistent with the public
interest.'' 21 U.S.C. 823(h). Respondent's application will therefore
be denied.
Factor One--The Maintenance of Effective Controls Against Diversion
In several respects, the investigative file establishes that
Respondent would not maintain effective controls against diversion.
First, the file establishes that Respondent intends to dispose of out-
of-date or damaged pseudoephedrine products by throwing them in its
trash. This is not a proper method of disposing of list I chemical
products, which can still be used to manufacture methamphetamine even
if they are out-of-date or damaged.
Second, Respondent told the DIs that he did not conduct background
checks on his employees and, indeed, he did not even know their last
names. Under DEA's regulations, a ``registrant shall exercise caution
in the consideration of employment of persons who will have access to
listed chemicals, who have been convicted of a felony offense relating
to controlled substances or listed chemicals, or who have, at any time,
had an application for registration with DEA denied, had a DEA
registration revoked, or surrendered a DEA registration for cause.'' 21
CFR 1309.72(a). Moreover, a ``registrant should be aware of the
circumstances regarding the action against the potential employee and
the rehabilitative efforts following the action,'' and a ``registrant
shall assess the risks involved in employing such persons.'' Id.
Conducting a background check on a potential employee is therefore
essential to comply with the regulation and to make an accurate
assessment of the risk posed by the person's employment.
Finally, Respondent's proposed method of determining the legitimacy
of his walk-in customers is obviously inadequate. Mr. Tran stated that
he knew most of his customers because he had lived in Baton Rouge, a
city of sizable population, for twenty years, and went to church with
them. Mr. Tran offered no explanation as to how he would verify the
legitimacy of those walk-in customers he did not personally know.
Each of the above reasons provides an independent basis to conclude
that Respondent would not maintain effective controls against
diversion. Moreover, this finding provides reason alone to conclude
that granting Respondent's application would be ``inconsistent with the
public interest.'' 21 U.S.C. 823(h).
Factor Four and Five--The Applicant's Experience in Distributing List I
Chemicals and Other Factors Relevant to and Consistent With Public
Health and Safety
As I have previously held, ``an applicant's lack of experience in
distributing list I chemicals creates a greater risk of diversion and
thus weigh heavily against the granting of an application.'' Planet
Trading, Inc., 72 FR 11055, 11057 (2007) (quoting Tri-County Bait
Distributors, 71 FR 52160, 52163 (2006)). Moreover, ``[d]istributors of
list I chemicals are subject to a comprehensive and complex regulatory
scheme.'' Id. at 11058 (citing 21 CFR Pts. 1309 & 1310).
Here, Mr. Tran has no experience in the distribution of list I
chemicals and the fulfillment of the regulatory obligations imposed by
the CSA. See id. Moreover, Mr. Tran did not understand that
pseudoephedrine is the active ingredient in various cold products and
was unfamiliar with the problem caused by the diversion of the chemical
into the illicit manufacture of methamphetamine. See id. (rejecting
application based on applicant's lack of product knowledge). Mr. Tran's
lack of experience and knowledge does not bode well for his performance
as a registrant who will prevent diversion.
Numerous DEA orders establish that the sale of 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 Rick's Picks, 72
FR 18279 (2007) (noting role of non-traditional retailers such as
convenience stores and gas stations in supplying meth. cooks); 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 [non-traditional 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 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'').
DEA orders have thus found 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'' and ``substantial''); Jay Enterprises,
70 FR at 24621 (noting ``heightened risk of diversion'' should
application be granted). 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.
Because of the methamphetamine epidemic's devastating impact on
communities and families throughout the country, DEA has repeatedly
denied an application when an applicant proposed to sell into the non-
traditional market and the analysis of one of the
[[Page 58893]]
other statutory factors supports the conclusion that granting the
application would create an unacceptable risk of diversion. Thus, in
Xtreme Enterprises, 67 FR 76195, 76197 (2002), my predecessor denied an
application observing that the respondent's ``lack of a 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.'' 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 Planet Trading, 72 FR at 11058;
Prachi Enterprises, 69 FR 69407, 69409 (2004).
Here, the investigative file supports additional adverse findings
beyond those which DEA has repeatedly held are sufficient to warrant
the denial of an application to distribute list I chemicals. Respondent
clearly lacks effective controls against diversion, has no experience
in the licit wholesale distribution of List I chemical products, and
yet intends to distribute these products to non-traditional retailers,
a market in which the risk of diversion is substantial. See Planet
Trading, 72 FR at 11058; Taby Enterprises of Osceola, Inc., 71 FR
71557, 71559 (2006). Given these findings,\1\ it is indisputable that
granting Respondent's application would be ``inconsistent with the
public interest.'' 21 U.S.C. 823(h).
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\1\ Because these findings establish that granting Respondent's
application would create an unacceptable risk of diversion, it is
unnecessary to make any findings on the remaining factors.
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Order
Pursuant to the authority vested in me by 21 U.S.C. 823(h), as well
as 28 CFR 0.100(b) & 0.104, I order that the application of Tim's
Wholesale, for a DEA Certificate of Registration as a distributor of
list I chemicals be, and it hereby is, denied. This order is effective
November 16, 2007.
Dated: October 9, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E7-20443 Filed 10-16-07; 8:45 am]
BILLING CODE 4410-09-P