[Federal Register Volume 68, Number 212 (Monday, November 3, 2003)]
[Notices]
[Pages 62324-62327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26654]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Shani Distributors Denial of Application

    On August 20, 2002, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Shani Distributors (Shani) proposing to deny its 
application, executed on October 21, 1999, for DEA Certificate of 
Registration as a distributor of list I chemicals. The Order to Show 
Cause alleged that granting the application of Shani would be 
inconsistent with the public interest as that term is used in 21 U.S.C. 
823(h) and 824(a). The Order to Show Cause also notified Shani that 
should no request for a hearing be filed within 30 days, its hearing 
right would be deemed waived.
    According to the DEA investigative file, the Order to Show Cause 
was sent by certified mail to Shani at its proposed registered location 
in Oklahoma city, Oklahoma. The return receipt indicated that the show 
cause order has been forwarded by the United States Postal Service to 
Shani at a second location where it was received on August 28, 2002. 
DEA has not received a request for hearing or any other reply from 
Shani or anyone purporting to represent the company in this matter.
    Therefore, the Administrator of DEA, finding that (1) thirty days 
having passed since receipt of the Order to Show Cause, and (2) no 
request for hearing having been received, concludes that Shani has 
waived its hearing right. See Aqui Enterprises, 67 FR 12576 (2002). 
After considering relevant

[[Page 62325]]

material from the investigative file in this matter, the Administrator 
now enters his final order without a hearing pursuant to 21 CFR 
1309.53(c) and (d) and 1316.67 (2003). The Administrator finds as 
follows:
    List I chemicals are those that may be used in the manufacture of a 
controlled substance in violation of the Controlled Substances Act. 21 
U.S.C. 802(34); 21 CFR 1310.02(a). Pseudophedrine and ephedrine are 
list I chemicals commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance. 
Phenylpropanolamine, also a list I chemical, is a legitimately 
manufactured and distributed product used to provide relief of the 
symptoms resulting from irritation of the sinus, nasal and upper 
respiratory tract tissues, and is also used for weight control. 
Phenylpropanolamine is also a precursor chemical used in illicit 
manufacture of methamphetamine and amphetamine. Methamphetamine is an 
extremely potent central nervous system stimulant, and its abuse is a 
growing problem in the United States.
    DEA has obtained information that suggests a growing public health 
crisis in the State of Oklahoma concerning the abuse of 
methamphetamine. Contained within the investigative file is a chart 
prepared by the Oklahoma Bureau of Narcotics, which documents 
methamphetamine laboratory seizures by various law enforcement entities 
in that state. According to the chart, there were a total of 4,111 
methamphetamine lab seizures in the State of Oklahoma from 1996 to 
2002. In 2001 alone, there were 1,193 such seizures. In response to 
this public health threat, on May 22, 2002, the Governor of Oklahoma 
signed into law a provision which, among other things, makes it illegal 
under state law to possess or sell any product containing 
pseudoephedrine with intent to manufacture methamphetamine or another 
controlled substance. The new law also makes unlawful the sale of 
listed chemical products with the knowledge that they will be used as a 
precursor to manufacture methamphetamine. Okl. St., Sections 2-332, 2-
333, See 21 U.S.C. 841(c).
    The Administrator's review of the investigative file reveals that 
DEA received an application dated October 21, 1999, on behalf of Shani. 
The application was submitted by the company's owner, Tariq Maqsood 
(Mr. Maqsood). The applicant sought DEA registration as a distributor 
of the list I chemicals pseudoephedrine and phenylpropanolamine. On 
August 23, 2000, Mr. Maqsood submitted a letter to the DEA Oklahoma 
City District Office requesting the withdrawal of pseudoephedrine from 
Shani's DEA registration application. Because Shani did not submit its 
application for registration on or before July 12, 1997, the firm did 
not qualify for temporary exemption from the requirement of 
registration, pursuant to 21 CFR 1309.10.
    The Administrator finds that on March 10, 2000, DEA Diversion 
Investigators conducted a pre-registration inspection on Shani. DEA's 
investigation revealed that Shani, a sole proprietorship located in 
Oklahoma City, Oklahoma, specializes in the retail sale of tobacco 
products, vitamins, candy, and over-the-counter products such as 
aspirin and ibuprofen. At the time of DEA's on-site preregistration 
inspection, Shani was located at 532-B North Pennsylvania Avenue in 
Oklahoma City. The company was situated in a commercial warehouse area 
and was constructed with both brick and center block. The commercial 
roof was metal and rock design. Mr. Maqsood informed DEA investigators 
that in the event Shani's registration application was approved, list I 
chemical shipments would be received at the back warehouse door. That 
door was constructed of steel, secured by two sliding bars and a 
contact switch. After verification of the shipment, the chemicals were 
to be moved to a secured storage area. The customer entrance door was 
reinforced with glass and metal and secured with burglar bars, key-lock 
and the premises were secured with infrared motion detectors and an 
alarm system.
    During the inspection, Mr. Maqsood further informed DEA 
investigators that he anticipated selling pseudoephedrine (60 mg., 60-
ct. bottles) and phenylpropanolamine products to small convenience 
stores and food marts throughout the Oklahoma City area. Despite Mr. 
Maqsood's stated intent to sell listed chemical products, DEA's 
investigation revealed that Shani had no procedures in place to 
identify ``suspicious'' activity regarding a regulated transaction, in 
order to report such activity to DEA as required by 21 U.S.C. 
830(b)(1)(A) and 21 CFR 1310.05(a)(1). Mr. Maqsood also informed DEA 
investigators that he had no experience with suspicious orders related 
to listed chemicals.
    Mr. Maqsood further stated that Shani's sale of listed chemical 
products would be limited to approximately 48 bottles (or approximately 
eleven cases) per customer each month. When asked about potential 
suppliers of these products, Mr. Maqsood provided DEA investigators 
with the names of six companies. The companies were located in the 
states of California or Texas.
    DEA's investigation revealed that in 1997, one of Shani's 
prospective suppliers (hereinafter referred to as ``JGKC''), located in 
Los Angeles, California received 90 million 60mg. tablets of 
pseudoephedrine, with most of the product diverted to clandestine 
methamphetamine labs in southern California. In March of that year, 
JGKG's ephedrine products were also discovered at a clandestine 
methamphetamine laboratory site in the Los Angeles area. DEA documented 
several additional instances where listed chemical products distributed 
by JGKG were eventually diverted to illicit uses.
    DEA's investigation further revealed that a second prospective 
listed chemical supplier to Shani (hereinafter referred to at ``AWD'') 
supplied over six million tablets of ephedrine to a liquor store in 
1996. Such distribution practices to a liquor store were apparently in 
excess of legitimate demand for these products. AWD's pseudoephedrine 
products were also discovered at a clandestine methamphetamine lab site 
in the State of California.
    An investigation of a third prospective listed chemical supplier 
(hereinafter referred to as ``IWI'') revealed the sale of large 
quantities of pseudoephedrine to individuals involved in the illicit 
sale of listed chemicals in May 1996. DEA developed further information 
that in October 1996, law enforcement personnel seized 864,000 
pseudoephedrine tablets from IWI in Dallas, Texas. Approximately one 
month later, an additional 432,000 pseudoephedrine tablets were seized 
from IWI on one occasion, and another 30 cases of that same product 
were subsequently seized. In 1998, IWI reported that it lost a shipment 
of 720 bottles of ``Heads Up'' 2-Way listed chemical product. In 1999, 
IWI was the intended recipient of 1,872 bottles of pseudoephedrine that 
were seized by law enforcement personnel in Upland, California. DEA 
further documented numerous excessive or suspicious purchases and sales 
of pseudoephedrine and ephedrine by IWI from 1993 to 2000.
    As noted above, Mr. Maqsood submitted a letter to DEA requesting 
withdrawal of pseudoephedrine from his company's DEA registration 
application. As a result, on November 1, 2000, representatives from the 
DEA Oklahoma City District Office prepared a written memorandum of 
agreement (MOA) which contained conditions that would allow Shani to 
handle

[[Page 62326]]

phenylpropanolamine only. When asked about specific products he would 
handle, Mr. Maqsood mentioned combo-ephedrine products. DEA personnel 
informed Mr. Maqsood of differences between phenylpropanolamine and 
ephedrine, and further advised Mr. Maqsood that ephedrine was a 
Schedule IV controlled substance under Oklahoma law, thus requiring 
state licensure. Mr. Maqsood is not authorized under Oklahoma law to 
handle ephedrine, nor was the listed chemical included on Shani's 
application for DEA registration. Mr. Maqsood advised DEA that he would 
have his attorney review the proposed MOA, and requested a list of 
products that contained phenylpropanolamine. DEA subsequently provided 
the information. Mr. Maqsood never responded to DEA with respect to the 
proposed MOA.
    On June 18, 2002, the DEA Oklahoma City District Office was 
contacted by the Oklahoma City Police Department (OCPD)--
Methamphetamine (Investigations) Group regarding suspicious items 
observed at Shani. The officer informed DEA that while inside Shani, he 
observed 30-35 cases of ``Heet;'' brand gas line additive (a flammable 
solution with a chemical composition that includes methyl alcohol), 
approximately 8-10 cases of lithium batteries, lye and unspecific 
quantities of pseudoephedrine.
    In response to this information, DEA investigators attempted to 
verify the observations of the OCPD officer by conducting a follow-up 
inspection of Shani. Upon their arrival, DEA investigators discovered 
that Shani had moved from the location and relocated to an address at 
912 N. Pennsylvania in Oklahoma City. DEA had not received a request 
from Shani to modify its pending application for DEA Certificate of 
Registration, and DEA investigators have not performed an inspection of 
Shani's new business location.
    On July 3, 2002, DEA investigators conducted verifications of 
Shani's customers. A review of the investigative file reveals that 
Shani's proposed customer base is comprised primarily of small 
convenience stores and/or food marts that sell gasoline. Shani provided 
to DEA a list of approximately 34 proposed customers located in or 
around the Oklahoma City area. DEA's investigation revealed that on 
February 27, 2001, the owners of two of the listed business 
establishments were convicted by a federal jury in the Western District 
of Oklahoma on charges related to the unlawful distribution of listed 
chemicals. Specifically, the two were convicted of conspiracy and 
unlawful distribution of pseudoephedrine knowing or having reasonable 
cause to believe that the product would be used to manufacture 
methamphetamine, in violation of 21 U.S.C. 841(d)(2) and 846. Both were 
sentenced to terms of imprisonment exceeding 60 months.
    DEA investigators conducted interviews and or inspections of nine 
business establishments listed by Shani as proposed customers. Of the 
nine establishments inspected, two revealed that they never heard of 
Shani; three indicated that they did not intend on purchasing listed 
chemical products from Shani; one firm disclosed that it had stopped 
selling pseudoephedrin for over a year; and one informed DEA 
investigators that it already had a listed chemical supplier. The two 
remaining business establishments were closed and boarded up.
    On July 12, 2002, the DEA Oklahoma City District Office received a 
letter from the General Counsel for the Oklahoma State Bureau of 
Narcotics and Dangerous Drugs Control (the Bureau) regarding Shani's 
DEA registration application. The General Counsel argued that approval 
of Shani's application would be contrary to the public interest of the 
citizens of Oklahoma based in part upon ``* * * an exponential growth 
in the number of clandestine methamphetamine laboratories seized'' in 
that state. The letter further outlined the Bureau's alarm over the 
events of June 18, 2002, when the Oklahoma City Police Department 
observed large quantities of ``Heet'' gas line additive and batteries 
on the premises of Shani. The General Counsel found that these products 
``are widely used along with pseudoephedrine to manufacture 
methamphetamine, and * * * the combination of these three basic 
substances in one location is very consistent with involvement in such 
criminal activity.'' The General Counsel concluded that the Bureau was 
``aware of no legitimate reason why a chemical dealer would handle only 
or even primarily Heet, batteries and pseudoephedrine, unless he or she 
was catering specifically to those engaged in criminal drug 
manufacturing.''
    Pursuant to 21 U.S.C. 823(h), the Administrator may deny an 
application for Certificate of Registration if he determines that 
granting the registration would be inconsistent with the public 
interest as determine under that section. Section 823(h) requires the 
following factors be considered in determining the public interest:
    (1) Maintenance of effective controls against diversion of listed 
chemicals into other than legitimate channels;
    (2) compliance with applicable Federal, State, and local law;
    (3) Any prior conviction record under Federal or State laws 
relating to controlled substances or to chemicals controlled under 
Federal or State law;
    (4) Any past experience in the manufacture and distribution of 
chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety.
    As with the public interest analysis for practitioners and 
pharmacies pursuant to subsection (f) of section 823, these factors are 
to be considered in the disjunctive; the Administrator may rely on any 
one or combination of factors, and may give each factor the weight he 
deems appropriate in determining whether a registration should be 
revoked or an application for registration denied. See, e.g., Energy 
Outlet, 64 FR 14269 (1999). See also Henry J. Schwartz, Jr., M.D., 54 
FR 16422 (1989).
    The Administrator finds factors one, four and five relevant to 
Shani's pending application for registration.
    With respect to factor one, maintenance of effective controls 
against the diversion of listed chemicals, DEA's pre-registration 
inspection documented adequate security measures taken by Shani with 
respect to the company's proposed storage of listed chemicals at its 
532-B North Pennsylvania location. However, DEA's follow-up inspection 
of Shani revealed that the company has since abandoned that location 
and moved its operation to a second location. There is no evidence in 
the investigative file that Shani has requested modification of its 
pending application for registration to reflect a different business 
address, or that DEA has conducted a second pre-registration inspection 
of Shani to determine the adequacy of any security measures the company 
currently has in place.
    With respect to factor four, the applicant's past experience in the 
distribution of chemicals, DEA's investigation revealed that the owner 
of Shani has no previous experience related to distributing or 
otherwise handling listed chemicals. The investigative file further 
revealed that Shani has no procedures in place to identify 
``suspicious'' activity regarding a regulated transaction, in order to 
report such activity to DEA as required by to 21 U.S.C. 830(b)(1)(A) 
and 21 CFR 1310.05(a)(1), and Mr. Maqsood has no experience with 
suspicious orders related to listed chemicals. This factor weighs 
against the granting of Shani's pending application. See, Matthew D.

[[Page 62327]]

Graham, 67 FR 10229 (2002); Xtreme Enterprises, Inc., 67 FR 76195 
(2002). In addition, the Administrator finds factor four relevant to 
Mr. Maqsood's unfamiliarity with listed chemical products as evidenced 
by his statement to DEA investigators that he intended to distribute 
ephedrine products when not authorized to do so under Oklahoma state 
law. Mr. Maqsood further demonstrated his lack of familiarity with 
listed chemical products when he expressed confusion over the 
differences between combo-ephedrine products and products containing 
phenylpropanolamine.
    With respect to facto five, other factors relevant to and 
consistent with the public safety, the Administrator finds this factor 
relevant to Shani's proposal to distribute listed chemical products 
primarily to convenience stores and combination food mart/gas station. 
While there are no specific prohibitions under the Controlled Substance 
Act regarding the sale of listed chemical products to these entities, 
DEA has nevertheless found that gas stations and convenience stores 
constitute sources for the diversion of listed chemical products. See, 
e.g., Sinbad Distributing, 67 FR 10232, 10233 (2002); K.V.M. 
Enterprises, 67 FR 70968 (2002) (denial of application based in part 
upon information developed by DEA that the applicant proposed to sell 
listed chemicals to gas stations, and the fact that these 
establishments in turn have sold listed chemical products to 
individuals engaged in the illicit manufacture of methamphetamine); 
Xtreme Enterprises, Inc., supra. The Administrator is further concerned 
about Shani's proposed customer base, particularly in light of the 
public health threat facing the State of Oklahoma and several 
surrounding states arising from the increased diversion of listed 
chemicals to the illicit manufacture of methamphetamine.
    Notwithstanding the above concerns, the Administrator also finds 
factor five relevant to the results of DEA's verification of Shani's 
proposed customers. Among Shani's potential customers were two 
individuals convicted of felony charges related to the unlawful 
handling of listed chemicals, two that never heard of Shani, three that 
revealed their intent not to purchase listed chemicals from Shani, one 
that had stopped selling pseudoephedrine, and two establishments were 
closed and boarded up.
    Factor five is also relevant to the chemical handling histories of 
Shani's proposed suppliers. The Administrator is concerned that Shani's 
proposed suppliers have apparently engaged in distribution practices 
that has led to the diversion of large quantities of listed chemical 
products.
    The Administrator also finds factor five relevant to Shani's 
possession and apparent sale of products that facilitate the illicit 
production of methamphetamine. In addition to listed chemicals such as 
pseudoephedrine, `Heet'' gas line additive and other products 
containing methyl alcohol, lye, as well as lithium batteries, are 
products typically used in the illicit methamphetamine manufacturing 
process. These items are routinely discovered by law enforcement 
personnel at clandestine methamphetamine laboratory sites. See, 
Clandestine Drug Labs, FBI Law Enforcement Bulletin, April 2000. The 
Administrator has also learned that small-scale retailers in the 
Oklahoma City area have stockpiled hundreds and thousands of bottles of 
starting fluid and ``Heet'' products, even during times of the year 
when there is no apparent demand for the product. When a relatively 
small scale merchant packages and displays large quantities of such 
products alongside frequently diverted listed chemicals like 
pseudoephedrine, that person or entity, either knowingly or 
unknowingly, creates a climate conducive for the illicit manufacture of 
methamphetamine.
    The Administrator finds relevant under factor five, the 
recommendation of the Oklahoma State Bureau of Narcotics and Dangerous 
Drugs Control that DEA not approve Shani's application for 
registration. The Bureau's recommendation was based in part upon 
concerns surrounding Shani's storage of large quantities of ``Heet'' 
and batteries, and how these products are catered to individuals 
engaged in the illicit manufacture of methamphetamine.
    The Administrator finds factor five relevant to Shani's request to 
distribute phenylpropanolamine, and the apparent lack of safety 
associated with the use of that product. On November 6, 2000, the Food 
and Drug Administration (FDA) issued a public health advisory 
concerning phenylpropanolamine. See, U.S. Food and Drug Administration, 
Center for Drug Evaluation and Research, newsletter, November 6, 2000. 
In a study cited by the FDA, researchers have discovered that taking 
phenylpropanolamine increases the risk of hemorrhagic stroke (bleeding 
into the brain or into tissue surrounding the brain) in women. The 
study found that men may also be at risk for taking the drug. Although 
the risk of hemorrhagic stroke is very low, the FDA has recommended 
that consumers not use any products that contain phenylpropanolamine.
    In addition, FDA's Nonprescription Drugs Advisory Committee (NDAC) 
subsequently reviewed the above study and other information on 
phenylpropanolamine. Id. NDAC determined that there is an association 
between phenylpropanolamine and hemorrhagic stroke and recommended that 
the drug not be considered safe for over-the-counter use. FDA has 
requested that all drug companies discontinue marketing products 
containing phenylpropanolamine. In response to FDA's request, many 
companies voluntarily reformulated and are continuing to reformulate 
their products to exclude phenylpropanolamine while FDA proceeds with 
the regulatory process necessary to remove the drug from the market. 
FDA's November 6, 2000 newsletter, supra.
    As of the date of this final order, the Administrator is unaware of 
whether the FDA has undertaken any regulatory action to remove 
phenylpropanolamine from the market. However, there is no information 
before the Administrator to refute recent findings that 
phenylpropanolamine may pose a health risk to users of the drug. In 
light of current data which suggests that phenylpropanolamine is unsafe 
for human consumption, the Administrator finds this factor also weighs 
against the granting of Shani's application for DEA registration. Based 
on the foregoing, the Administrator concludes that granting the pending 
application of Shani would be inconsistent with the public interest.
    Accordingly, the Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in him by 21 U.S.C. 
823 and 28 CFR 0.100(b) and 0.104, hereby orders that the pending 
application for DEA Certificate of Registration, previously submitted 
by Shani Distributors be, and it hereby is, denied. This order is 
effective December 3, 2003.

    Dated: September 16, 2003.
Karen P. Tandy,
Administrator.
[FR Doc. 03-26654 Filed 10-31-03; 8:45 am]
BILLING CODE 4410-09-M