[Federal Register Volume 64, Number 95 (Tuesday, May 18, 1999)]
[Notices]
[Pages 26984-26986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12390]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration
[Docket No. 99N-1220]


Draft Civil Money Penalty Reduction Policy for Small Entities

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is issuing a draft 
civil money penalty reduction policy for small entities as required by 
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) 
and the Presidential Memorandum of April 21, 1995. This draft policy is 
being issued for public comment only and will not be implemented until 
a final policy is published in the Federal Register.

DATES: Written comments on the draft policy may be submitted by August 
16, 1999.
ADDRESSES: Submit written comments on the draft policy to the Dockets 
Management Branch (HFA-305), Food and Drug Administration, 5630 Fishers 
Lane, rm. 1061, Rockville, MD 20852. Comments should be identified with 
the docket number found in brackets in the heading of this document. 
See the SUPPLEMENTARY INFORMATION section for electronic access to the 
draft policy.

FOR FURTHER INFORMATION CONTACT: Jeffrey B. Governale, Division of 
Compliance Policy (HFC-230), Office of Regulatory Affairs, Food and 
Drug Administration, 5600 Fishers Lane, Rockville, MD 20857, 301-827-
0411, FAX 301-827-0482.
SUPPLEMENTARY INFORMATION:

I. Background

    The Food and Drug Administration (FDA) is issuing a draft civil 
money penalty (CMP) reduction policy for small entities (draft penalty 
reduction policy) as mandated by SBREFA (Pub. L. 104-121) and the 
Presidential Memorandum of April 21, 1995 (60 FR 20621, April 26, 
1995).
    SBREFA was enacted on March 29, 1996, and seeks to improve the 
regulatory climate for small entities by, among other things, requiring 
agencies to establish small entity penalty reduction policies as 
follows:
    Sec. 223--Rights of Small Entities in Enforcement Actions
    (a) In General--Each agency regulating the activities of small 
entities shall establish a policy * * * to provide for the 
reduction, and under appropriate circumstances for the waiver, of 
civil penalties for violations of a statutory or regulatory 
requirement by a

[[Page 26985]]

small entity. Under appropriate circumstances, an agency may 
consider ability to pay in determining penalty assessments on small 
businesses.
    (b) Conditions and Exclusions--Subject to the requirements or 
limitations of other statutes, policies or programs established in 
this section shall contain conditions or exclusions which may 
include, but not be limited to--
    (1) requiring the small entity to correct the violation within a 
reasonable correction period;
    (2) limiting the applicability to violations discovered through 
participation by the small entity in a compliance assistance or 
audit program operated or supported by the agency or a State;
    (3) excluding small entities that have been subject to multiple 
enforcement actions by the agency;
    (4) excluding violations involving willful or criminal conduct;
    (5) excluding violations that pose serious health, safety or 
environmental threats; and
    (6) requiring a good faith effort to comply with the law.
    A statement entered into the Congressional Record (142 
Congressional Record S3242, daily ed. March 29, 1996) after enactment 
of SBREFA explains that agencies have ``flexibility to tailor their 
specific programs to their missions and charters'' and instructs 
agencies ``to develop the boundaries of their program and the specific 
circumstances for providing for a waiver or reduction of penalties'' 
(id. at S3244). To that end, SBREFA specifies that a penalty reduction 
policy adopted by an agency may be subject to the requirements or 
limitations of other applicable statutes. SBREFA also lists six 
possible exclusions or conditions (see section 223 of SBREFA as quoted 
previously in this document) that an agency may incorporate in its 
policy.
    This draft penalty reduction policy also complies with the 
Presidential Memorandum of April 21, 1995, which directs agencies to 
implement the policy of waiving penalties as follows:
    1. Authority to Waive Penalties. (a) To the extent permitted by 
law, each agency shall use its discretion to modify the penalties 
for small businesses in the following situations. Agencies shall 
exercise their enforcement discretion to waive the imposition of all 
or a portion of a penalty when the violation is corrected within a 
time period appropriate to the violation in question. For those 
violations that may take longer to correct than the period set by 
the agency, the agency shall use its enforcement discretion to waive 
up to 100 percent of the financial penalties if the amounts waived 
are used to bring the entity into compliance. The provisions in 
paragraph 1(a) of this memorandum shall apply only where there has 
been a good faith effort to comply with applicable regulations and 
the violation does not involve criminal wrongdoing or significant 
threat to health, safety, or the environment.
    FDA has reviewed: (1) The Federal statutes it enforces which 
authorize CMP's, (2) its current practices used to assess CMP's on 
small entities, and (3) the appropriate conditions and exclusions for a 
penalty reduction policy for small entities that violate the law. On 
the basis of that review, FDA announces its draft penalty reduction 
policy for small entities. FDA invites comments on this draft policy.
    FDA currently enforces the following amendments to the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C.) and the Public Health Service 
Act (42 U.S.C.), which authorize CMP's under the referenced sections:
    Radiation Control for Health and Safety Act of 1968 (21 U.S.C. 
360pp),
    Safe Medical Devices Act of 1990 (21 U.S.C. 333(f)),
     Mammography Quality Standards Act of 1992 (42 U.S.C. 263b(h)),
    National Childhood Vaccine Injury Act of 1986 (42 U.S.C. 262(d)(2) 
and 42 U.S.C. 300aa-28),
    Prescription Drug Marketing Act of 1988 (21 U.S.C. 333(b)),
    Generic Drug Enforcement Act of 1992 (21 U.S.C. 335b), and
    Food Quality Protection Act of 1996 (21 U.S.C. 333(f)).

II. Draft Civil Money Penalty Reduction Policy for Small Entities

    The FDA's draft policy with respect to reducing or waiving civil 
money penalties (CMP's) against a small entity is: FDA will consider on 
a case-by-case basis whether to reduce or waive CMP's against a small 
entity. In determining whether to reduce or waive CMP's against a 
specific small entity, the following considerations will apply:
    A. Except as provided in paragraph C below, penalty reduction or 
waiver will not be available for any small entity if:
      1. The small entity was subject to an enforcement action (e.g. 
seizure, injunction or prosecution) by FDA within the last 5 years, and 
is still under the same management;
      2. Any of the small entity's violations involved willful conduct;
      3. The small entity does not make a good faith effort to comply 
with the law; or
      4. Any of the small entity's violations pose serious health or 
safety threats.
    B. In considering whether FDA will reduce or waive a CMP, FDA may 
consider:
      1. The egregiousness of the violations;
      2. The isolated or repeated nature of the violations;
      3. The small entity's history (if any) of violations;
      4. The amount of harm caused by the violations;
      5. The degree to which a CMP will deter the small entity or 
others from committing future violations;
      6. The extent to which the small entity cooperated during the 
investigation;
      7. Whether the small entity corrected the violations within a 
reasonable time period;
      8. Whether the small entity has engaged in subsequent significant 
remedial efforts to mitigate the effects of the violations and to 
prevent future violations;
      9. Whether the small entity voluntarily reported the violations 
to FDA promptly after discovering them; and
      10. The small entity's efforts to determine and meet its legal 
obligations.
    C. FDA may also consider whether to reduce or waive a CMP against a 
small entity, including a small entity otherwise excluded from this 
draft policy under paragraph A above, if the small entity can 
demonstrate to the FDA's satisfaction that it is financially unable to 
pay the penalty, immediately or over a reasonable period of time, in 
whole or in part.
    D. If a small entity corrects the violative conditions within a 
reasonable time period, FDA may reduce the amount of any CMP that may 
be imposed for the violations, up to the amount spent by the small 
entity for corrective action. FDA may take into account the time in 
which the small entity took corrective action and any difficulties the 
small entity encountered when doing so.

Penalties Eligible for Reduction

    The draft penalty reduction policy will apply to judicial and 
administrative CMP's.

Exclusions From the Draft Penalty Reduction Policy

    The draft penalty reduction policy shall not apply to any remedy 
that may be sought by FDA other than CMP's.
    SBREFA also permits an agency to apply penalty reduction to 
violations discovered through a small entity's participation in a 
compliance assistance or audit program operated or supported by the 
agency or state. Although various units within FDA provide regulatory 
guidance to small entities, FDA does not operate a formal compliance 
assistance or audit program. Because FDA does not have a compliance 
program of the type described in SBREFA, this condition is not included 
in the draft penalty reduction policy.

[[Page 26986]]

    Both SBREFA and the Presidential Memorandum exclude violations that 
pose serious environmental threats from the penalty reduction policy. 
Because FDA's enforcement efforts generally focus on actions that 
affect the public health and safety, but not the environment, the 
condition is not included in the draft penalty reduction policy. If a 
small entity is eligible for CMP reduction, but has obtained an 
economic benefit from the violations such that it may have obtained an 
economic advantage over its competitors, FDA may seek the full amount 
of the penalty. FDA retains this discretion to ensure that small 
entities that comply with public health laws enforced by the agency are 
not disadvantaged by those who have not complied.
    FDA has determined that all CMP's assessed under the authority of 
the Generic Drug Enforcement Act (GDEA) should be excluded from the 
draft penalty reduction policy. Under GDEA, CMP's may be assessed for a 
variety of intentional or ``knowing'' conduct related to abbreviated 
new drug applications (21 U.S.C. 335b(a)). Also, GDEA permits CMP's for 
debarred individuals who provide services in any capacity to persons 
who have approved or pending drug product applications (id). Because of 
the level of scientist required to assess a CMP under GDEA, FDA 
believes it is not appropriate to consider reduction or waiver of 
penalties in such cases.
    The National Childhood Vaccine Injury Act (NCVIA) also has a 
provision for CMP, for which intentional or knowing conduct is a 
requirement for assessment of penalties. Section 2128(b) of the Public 
Health Service Act (42 U.S.C. 300aa-28) states that a CMP may be 
assessed when a vaccine manufacturer intentionally destroys, alters, 
falsifies, or conceals records associated with the manufacture of 
vaccines. Accordingly, FDA believes it is not appropriate to consider 
reduction or waiver of CMP in cases involving this provision of the 
NCVIA.

 Definition of ``Small Entity''

    Section 211(1) of SBREFA defines the term ``small entity'' as 
having the same meaning as in section 601 of the United States Code (5 
U.S.C. 601). Section 601 defines ``small entity'' as ``small 
business,'' ``small organization'' and ``small governmental 
jurisdiction.''
    Under section 601(3) of 5 U.S.C., a ``small business'' has the same 
meaning as ``small business concern'' under section 3 of the Small 
Business Act (15 U.S.C. 632(a)), unless an agency, after consultation 
with the Office of Advocacy of the Small Business Administration (SBA) 
and after opportunity for public comment, establishes its own 
definition.
    Section 632(a)(1) of 15 U.S.C. defines a ``small business concern'' 
as an enterprise ``which is independently owned and operated and which 
is not dominant in its field of operation'' (15 U.S.C. 632(a)(1)). The 
SBA has further defined ``small business concern'' for a number of 
specific industries based on the sizes of the enterprises and their 
affiliations (see 13 CFR part 121 and the SBA Table of Size Standards).
     When SBA determines whether an enterprise is a small business, it 
generally counts the enterprise's affiliations (see 13 CFR 121.103). 
Family enterprises or enterprises in which the same individual or 
individuals have a controlling interest are aggregated for this 
purpose. If the aggregate total of the affiliated enterprises exceeds 
the size requirement for small businesses, none of the affiliated 
enterprises is considered a small business.
    Federal law defines ``small organization'' as a not-for-profit 
enterprise which is independently owned and operated and not dominant 
in its field (5 U.S.C. 601(4)). The U.S. Code defines a ``small 
governmental jurisdiction'' as a governmental entity with a population 
of less than 50,000 (5 U.S.C. 601(5)). The definitions of ``small 
organization'' and ``small governmental jurisdiction'' may be changed 
by agencies after an opportunity for public comment. The small business 
definitions within the nutritional food labeling exemptions (21 CFR 
101.9(j) and 101.36(h)) are not applicable to CMP's.

III. Regulatory Requirements

    FDA is announcing a draft penalty reduction policy as required by 
SBREFA. As a general statement of policy, the Administrative Procedure 
Act does not require that FDA publish this draft policy for notice and 
comment. However, under the Good Guidance Practices published in the 
Federal Register of February 27, 1997 (62 FR 8961), FDA is providing 
interested parties, particularly small entities, with an opportunity to 
comment on the draft penalty reduction policy. This draft policy is 
being issued for public comment only and will not be implemented until 
a final policy is published in the Federal Register.
    This guidance document represents the agency's current thinking on 
the draft CMP reduction policy for small entities. It does not create 
or confer any rights for or on any person and does not operate to bind 
FDA or the public. An alternative approach may be used if such approach 
satisfies the requirements of the applicable statute, regulations, or 
both.

IV. Request for Comments

    Interested persons may, on or before August 16, 1999, submit to the 
Dockets Management Branch (address above) written comments on the 
document entitled ``Draft Civil Money Penalty Reduction Policy for 
Small Entities.'' Two copies of any comments are to be submitted, 
except that individuals may submit one copy. Comments are to be 
identified with the docket number found in brackets in the heading of 
this document. Although all received comments will be considered by FDA 
in formulating the final penalty reduction policy, the agency is not 
obligated to respond to each comment. The agency will make changes to 
the draft penalty reduction policy, as appropriate. Copies of the draft 
policy and received comments may be seen in the Dockets Management 
Branch between 9 a.m. and 4 p.m., Monday through Friday.

V. Electronic Access

    A copy of the draft policy may also be downloaded to a personal 
computer with access to the World Wide Web (WWW). The Office of 
Regulatory Affairs (ORA) home page includes the draft policy and may be 
accessed at ``http://www.fda.gov/ora''. The draft policy will be 
available under ``Compliance References.''

    Dated: May 11, 1999.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 99-12390 Filed 5-17-99; 8:45 am]
BILLING CODE 4160-01-F