[Federal Register Volume 64, Number 8 (Wednesday, January 13, 1999)]
[Notices]
[Pages 2234-2236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-687]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration
[Docket No. 98-22]


Yi Heng Enterprises Development Co. and Luciano Martinez & cia 
S.C.S.; Suspension of Shipments

    On March 4, 1998, the then-Acting Deputy Administrator of the Drug 
Enforcement Administration (DEA) issued two Orders to Suspend Shipment 
to Yi Heng Enterprises Development Company (Yi Heng) of Hong Kong, 
China, notifying it that DEA had ordered the suspension of two 
shipments of 10,000 kilograms each of potassium permanganate that were 
transshipped through the Port of Oakland, California on December 6 and 
28, 1997, on their way to its customer Luciano Martinez y cia S.C.S. 
(Martinez) of Bogota, Colombia. The Orders to Suspend Shipment stated 
that DEA believed that the listed chemical may be diverted based on 
failure to notify DEA of the transshipments in violation of 21 CFR 
1313.31 and on alleged diversionary practices by Martinez.
    On April 7, 1998, a hearing was requested on the suspension of 
shipments on behalf of both Yi Heng and Martinez and the matter was 
docketed before Administrative Law Judge Mary Ellen Bittner. Both Yi 
Heng and Martinez waived the requirement set forth in 21 U.S.C. 
971(c)(2) that the hearing be held within 45 days after the request for 
a hearing is filed, but did not waive their right to a hearing at a 
later date. During prehearing procedures, the issue was raised whether 
Martinez was entitled to participate in the hearing. In a Memorandum to 
Counsel, Ruling, and Order for Prehearing Statements dated May 4, 1998, 
Judge Bittner concluded, as will be discussed in more detail below, 
that Martinez is entitled to participate in a hearing on the record 
pursuant to 21 U.S.C. 971(c).
    The hearing in this matter was scheduled to begin on August 11, 
1998. However, on August 5, 1998, counsel for Martinez and Yi Heng 
filed a Notice of Waiver of Hearing, stating that they ``have concluded 
that the suspension orders can be sustained based on the absence of 
notice pursuant to 21 CFR 1313.12, 21 CFR 1313.21, and 21 CFR 
1313.31,'' and that they therefore ``waive their right to a hearing on 
the suspension of shipments orders.'' On August 6, 1998, the Government 
filed a response to the Notice of Waiver of Hearing indicating that it 
did not object to the waiver of the hearing, but arguing that the 
issues cannot be limited to those set forth in the notice. Thereafter, 
on August 7, 1998, Judge Bittner issued an Order which terminated the 
proceedings before her and indicated that the file would be forwarded 
to the Deputy Administrator.
    On August 11, 1998, counsel for Yi Heng and Martinez submitted a 
letter to Government counsel forwarding additional documents to be 
included in the file for consideration by the Deputy Administrator. In 
that letter, counsel for Yi Heng and Martinez states that 
``(n)otwithstanding the fact that the proceedings before the 
administrative law judge have been terminated, we have not withdrawn 
our legal arguments set forth in our filings before the ALJ. Those 
legal arguments, as set forth in our prehearing conference statements 
are now to be submitted for review and determination by the Deputy 
Administrator.''
    The Deputy Administrator concludes that Yi Heng and Martinez are 
deemed to have waived their opportunity for a hearing. After 
considering relevant material from the file in this matter, the Deputy 
Administrator now enters his final order without a hearing pursuant to 
21 CFR 1313.54(c) and 1313.57.
    First, the Deputy Administrator must address whether Martinez was 
entitled to participate in these proceedings. Pursuant to 21 U.S.C. 
802(35) and 21 CFR 1310.04, potassium permanganate is a List II 
chemical because it is a chemical that is used in the illegal 
manufacturing of a controlled substance. Each regulated person who 
imports or exports a listed chemical is required to notify DEA of the 
importation or exportation not later than 15 days before the 
transaction is to take place. See 21 U.S.C. 971(a). A regulated person 
is defined in 21 U.S.C. 802(38) as ``a person who manufacturers, 
distributes, imports or exports a listed chemical. * * *'' DEA may 
order the suspension of any importation or exportation of a listed 
chemical pursuant to 21 U.S.C. 971(c) on the ground ``that the chemical 
may be diverted to the clandestine manufacture of a controlled 
substance,'' and a regulated person to whom an order to

[[Page 2235]]

suspend shipment applies is entitled to a hearing.
    In addition, the regulations implementing these provisions of the 
law also require advance notification to DEA if a listed chemical 
meeting certain criteria is ``transferred or transshipped within the 
United States for immediate exportation. * * *'' See 21 CFR 1313.31. 
While transshipment is not defined, the regulations do define 
``chemical export'' as ``transferring ownership or control, or the 
sending or taking of threshold quantities of listed chemical out of the 
United States * * *'' and ``chemical exporter'' as ``a regulated person 
who, as the principal party in interest in the export transaction, has 
the power and responsibility for determining and controlling the 
sending of the listed chemical out of the United States.'' See 21 CFR 
1300.02(b)(5) and (6). Further, 21 CFR 1300.02(b)(7) and (8) define 
``chemical import'' as ``any bringing in or introduction of such listed 
chemical into either the jurisdiction of the United States or into the 
Customs Territory of the United States * * *'' and ``chemical 
importer'' as ``a regulated person who, as the principal party in 
interest in the import transaction, has the power and responsibility 
for determining and controlling the bringing in or introduction of the 
listed chemical into the United States.''
    In its prehearing filings, the Government essentially argued that 
Yi Heng imported the potassium permanganate into the United States for 
transshipment to Colombia and therefore is the ``regulated person'' to 
whom the order of suspension applies and as a result is the only one 
entitled to participate in these proceedings. Yi Heng and Martinez 
asserted that Martinez purchased the potassium permanganate from Yi 
Heng F.O.B. Huangpu, China which means that Martinez assumed title to, 
the obligation to pay transportation charges for, and the risk of loss 
of the goods when Yi Heng delivered the potassium permanganate to the 
carrier.
    Judge Bittner noted that all parties seem to be in agreement that 
Yi Heng is entitled to participate in these proceedings, but that ``the 
statute does not specify that only one party in a transaction is 
entitled to a hearing. Furthermore, the statute provides the 
opportunity for a hearing to `a regulated person to whom an order 
(suspending shipment) applies,' not necessarily the person to whom the 
order was issued.'' Thus Judge Bittner concluded and the Deputy 
Administrator agrees that if the title to the potassium permanganate 
passed to Martinez before the chemical entered the United States, then 
Martinez is the principal party in interest. There is no evidence in 
the file to refute the position of Yi Heng and Martinez that the title 
passed to Martinez when the goods were given to the carrier in China. 
Therefore, Martinez should be considered an importer of the potassium 
permanganate into the United States and an exporter of the chemical 
from the United States, and as such is a regulated person. As a 
regulated person to whom the suspension order applies, Martinez is 
entitled to participate in these proceedings pursuant to 21 U.S.C. 
971(c).
    The Deputy Administrator finds that based upon the assertions of Yi 
Heng and Martinez in their Notice of Waiver of Hearing, it is 
undisputed that no advance notification of the December 6 and 28, 1997 
shipments of potassium permanganate was provided to DEA as required by 
the regulations, and that this provides a basis for the suspension of 
these shipments. In its August 11, 1998 letter to Government counsel, 
counsel for Yi Heng and Martinez indicate that they have not withdrawn 
their legal arguments set forth in their filings before Judge Bittner. 
However, all but one of Yi Heng and Martinez' arguments relate to 
whether advance notice was required and whether the suspensions and 
seizures of the shipments of the potassium permanganate were proper. In 
its Notice of Waiver of Hearing, Yi Heng and Martinez concede that 
``the suspension orders can be sustained based on the absence of 
notice.'' In other words, Yi Heng and Martinez concede that advance 
notice of the shipments was required and that the failure to provide 
such notice is a basis for the suspension of the shipments. Therefore, 
the Deputy Administrator finds it unnecessary to address the earlier 
arguments of Yi Heng and Martinez.
    However, counsel for Yi Heng and Martinez does raise the argument 
in its August 11, 1998 letter that all evidence regarding the 
activities of Martinez' customers is irrelevant and should not be 
considered in rendering a decision in this matter. Specifically, 
counsel argues that 21 CFR 1316.59 provides inter alia that only 
relevant evidence should be considered; that Martinez engaged in a 
legitimate business; that there are no allegations that Martinez knew 
of the improper conduct of its customers; that Martinez cannot be held 
responsible for the bad acts of its customers; and that Martinez has no 
control over potassium permanganate once it is sold to its customers. 
The Deputy Administrator disagrees with Yi Heng and Martinez and finds 
that evidence relating to the activities of Martinez' customers is 
relevant. In order to suspend a shipment, the Deputy Administrator must 
find that the chemical at issue may be diverted to the clandestine 
manufacture of a controlled substance. The prior conduct of Martinez' 
customers regarding potassium permanganate is clearly relevant in 
determining whether the shipments may be diverted.
    After reviewing the file in this matter, the Deputy Administrator 
finds that there is ample evidence that these chemicals may be diverted 
to the clandestine manufacture of a controlled substance. Information 
in the file indicates that one customer purchases 50% of all of 
Martinez' sales of potassium permanganate. A review of that customer's 
sales invoices for October 1 through December 31, 1997, revealed that 
the company made numerous sales of potassium permanganate to 
individuals with non-existent addresses. In addition, the company sold 
large quantities of potassium permanganate to customers that did not 
have chemical permits authorizing them to purchase more than 5 
kilograms or 5 liters of the chemical at a time. When told to stop this 
practice, the company told its customers to gather identification from 
their employees. The company then used this information for its records 
to indicate sales of potassium permanganate to individuals in 
quantities less than 5 kilograms where no permit would be required. 
There is also information in the file that another of Martinez' 
customers employed this same practice.
    The Deputy Administrator also finds that a review of the file in 
this matter revealed that Martinez sold 1,000 kilograms of potassium 
permanganate to a company that had gone out of business approximately 
two years before the sale, and that it sold the chemical to another 
company at an address that had been abandoned for at least seven months 
before the sale.
    The Deputy Administrator further finds that the suspension orders 
specifically noted that in 1993 the Colombian National Police seized 
Martinez' stock of potassium permanganate for exceeding its import 
quota in violation of Colombian law. However, the Deputy Administrator 
finds that there is evidence in the file that this seizure was based 
upon an importation of 17,500 kilograms of the chemical. Martinez had 
received authorization to import 16,000 kilograms. Information in the 
file indicates that the chemicals were in a sealed drum on its way to 
Martinez when it realized that the shipment

[[Page 2236]]

exceeded its import quota, and it sought authorization for the other 
1,500 kilograms. Martinez was cleared by the Colombian government of 
any wrongdoing in this matter.
    The Deputy Administrator finds it significant that at the time of 
the December 6 and 28, 1997 shipments to Martinez the United States had 
decertified the Government of Colombia after a determination was made 
by the President of the United States that the controls utilized by the 
Government of Colombia to prevent the processing and trafficking of 
illicit drugs were inadequate. This caused DEA to issue a policy 
statement indicating that a heightened review process would be used for 
shipments of listed chemicals to Colombia. See 61 FR 13,759 (1996).
    Pursuant to 21 U.S.C. 971(c), and the delegation of authority found 
in 28 CFR 0.100(b) and 0.104, the Deputy Administrator may ``order the 
suspension of any importation or exportation of a listed chemical * * * 
on the ground that the chemical may be diverted to the clandestine 
manufacture of a controlled substance.'' The Deputy Administrator 
concludes that there is substantial evidence to support the conclusion 
that these shipments of potassium permanganate may be diverted to the 
clandestine manufacture of a controlled substance. No advance 
notification of the shipments was provided to DEA as required by 21 CFR 
1313.31 Yi Heng and Martinez have conceded that advance notification 
was required and that the suspension of the shipments can be sustained 
based upon the failure to file such notification. In addition, there is 
evidence in the file that both Martinez and its customers have 
improperly sold potassium permanganate in the past. Finally, the 
decertification of the Government of Colombia at the time of the 
shipments leads to the conclusion that this shipment of a list chemical 
may be diverted to the clandestine manufacture of a controlled 
substance.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in him by 21 U.S.C. 
971 and 28 CFR 0.100(b) and 0.104, hereby order that the proposed 
transshipments described above, be, and they hereby are, suspended, and 
that these proceedings are hereby concluded. This final order is 
effective immediately.

    Dated: January 6, 1999.
Donnie R. Marshall,
Deputy Administrator.
[FR Doc. 99-687 Filed 1-12-99; 8:45 am]
BILLING CODE 4410-09-M