[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]
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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]
BILLING CODE 4410-09-P