[Federal Register Volume 69, Number 146 (Friday, July 30, 2004)]
[Proposed Rules]
[Pages 45616-45622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17356]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1309

[Docket No. DEA-211P]
RIN 1117-AA62


Security Requirements for Handlers of Pseudoephedrine, Ephedrine, 
and Phenylpropanolamine

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Notice of proposed rulemaking.

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SUMMARY: DEA is proposing to require that manufacturers, distributors, 
importers, and exporters of pseudoephedrine, ephedrine, and 
phenylpropanolamine (PPA) implement security procedures to prevent the 
theft and diversion of these List I chemicals. These chemicals are 
available in over-the-counter medications and are widely used in the 
illicit production of methamphetamine and amphetamine. Based on the 
number of reports and the size of thefts from manufacturers and 
distributors of these chemicals, DEA is proposing that these companies 
implement security measures similar to or as effective as those used 
for schedule III through V controlled substances. These measures will 
limit the opportunity for theft and diversion of these chemicals. DEA 
is soliciting the chemical industry for comments to describe alternate 
security systems that are equal to the existing controlled substances 
schedule III through V system.

DATES: To allow adequate time for industry to identify alternative 
security solutions, written comments must be postmarked, and electronic 
comments must be sent, on or before October 28, 2004.

ADDRESSES: To ensure proper handling of comments, please reference 
``Docket No. DEA-211P'' on all written and electronic correspondence. 
Written comments being sent via regular mail should be sent to the 
Deputy Assistant Administrator, Office of Diversion Control, Drug 
Enforcement Administration, Washington, DC 20537, Attention: DEA 
Federal Register Representative/CCD. Written comments sent via express 
mail should be sent to DEA Headquarters, Attention: DEA Federal 
Register Representative/CCD, 2401 Jefferson-Davis Highway, Alexandria, 
VA 22301. Comments may be directly sent to DEA electronically by 
sending an electronic message to [email protected]. 
Comments may also be sent electronically through http://www.regulations.gov using the electronic comment form provided on that 
site. An electronic copy of this document is also available at the 
http://www.regulations.gov web site. DEA will accept electronic 
comments containing MS Word, WordPerfect, Adobe PDF, or Excel files 
only. DEA will not accept any file format other than those specifically 
listed here.

FOR FURTHER INFORMATION CONTACT: Patricia M. Good, Chief, Liaison and 
Policy Section, Office of Diversion Control, Drug Enforcement 
Administration, Washington, DC 20537, Telephone (202) 307-7297.

SUPPLEMENTARY INFORMATION:

Special Notice

    Due to concerns regarding possible harmful side effects, the Food 
and Drug Administration (FDA) initiated action in November 2000, to 
remove phenylpropanolamine (PPA) from the market and requested that all 
drug companies discontinue marketing products containing PPA. As a 
result, many firms voluntarily discontinued marketing products 
containing phenylpropanolamine and removed them from the shelves for 
disposal. Phenylpropanolamine is a List I chemical, which is used in 
the illicit synthesis of amphetamine. Once products containing 
phenylpropanolamine are removed from the market, the requirements being 
proposed in this rule will affect mainly a few veterinary products 
containing phenylpropanolamine.

Background

DEA's Legal Authority for These Regulations

    DEA implements the Controlled Substances Act (21 U.S.C. 801-971), 
as amended by the Chemical Diversion and Trafficking Act of 1988 
(CDTA), the Domestic Chemical Diversion Control Act of 1993 (DCDCA), 
the Comprehensive Methamphetamine Control Act of 1996 (MCA) and the 
Methamphetamine Anti-Proliferation Act of 2000 (MAPA) (Title XXXVI of 
Pub. L. 106-310), among others. DEA publishes the implementing 
regulations for these statutes in Title 21 of the Code of Federal 
Regulations pursuant to 21 U.S.C. 821 and 871(b). Regulations relating 
to the control of listed chemicals are found in 21 CFR parts 1309, 1310 
and 1313. These regulations are designed to deter the diversion of 
listed chemicals to the illegal manufacture of controlled substances. 
Persons authorized to distribute List I chemicals are registered with 
the Drug Enforcement Administration, when such registration is 
determined to be consistent with the public interest. Among other 
factors used in determining the public interest is a registration 
applicant's maintenance of effective controls against diversion of 
listed chemicals into other than legitimate channels (21 U.S.C. 
823(h)(1)).

Legitimate Uses of Pseudoephedrine, Phenylpropanolamine, and Ephedrine

    Pseudoephedrine and ephedrine are chemicals that are widely used in 
over-the-counter medications. As noted above, phenylpropanolamine, 
although previously widely available for human consumption, is now 
being withdrawn from use in over-the-counter drugs and has only a few 
human and veterinary uses. Pseudoephedrine is a decongestant used for 
the temporary relief of nasal congestion due to the common cold, hay 
fever, or other upper respiratory allergies. Ephedrine is used for the 
temporary relief of shortness of breath, tightness of chest, and 
wheezing due to bronchial asthma. Each of the products is available in 
a variety of dosage forms as a single entity or in combination with 
antihistamines, antitussives, analgesics, expectorants, and/or 
vitamins.
    The majority of the products containing pseudoephedrine or 
ephedrine purchased by the public are commonly used medications and are 
easily accessible at pharmacies, grocery stores, convenience stores, 
and a variety of other retail stores. Most of these products are 
available to the public without a prescription. A few products 
containing pseudoephedrine, phenylpropanolamine, or ephedrine require a 
prescription issued by a practitioner prior to being dispensed to a 
patient. This proposed regulation will not adversely impact the 
public's access to these products as it applies solely to manufacturers 
and wholesalers of the products. Persons unaffected by this rulemaking 
include retailers, practitioners, and mid-level

[[Page 45617]]

practitioners, the vast majority of DEA's more than one million 
registrants.

Need for Security Controls on Pseudoephedrine, Ephedrine, and 
Phenylpropanolamine

    Each of these chemicals is a List I chemical because they are used 
to manufacture methamphetamine (otherwise known as ``speed,'' ``ice,'' 
``crystal,'' or ``meth'') and, in the case of phenylpropanolamine, 
amphetamine. Methamphetamine and amphetamine, which are Schedule II 
controlled substances, are potent central nervous system stimulants and 
are drug threats in the U.S.
    The earliest clandestine methamphetamine laboratories used the 
chemical phenyl-2-propanone, also known as phenylacetone or P2P, to 
produce methamphetamine. When P2P was placed into Schedule II as an 
immediate precursor, traffickers adjusted by switching to production of 
methamphetamine using other noncontrolled chemicals. Over the past 
decade, ephedrine and pseudoephedrine have been the chemicals of choice 
for the illegal production of methamphetamine. Similarly, clandestine 
laboratories have used phenylpropanolamine in the illegal production of 
amphetamine. The principal source of supply for these chemicals 
continues to be over-the-counter medications. As controls on the sale 
of over-the-counter products have become more effective, DEA has noted 
an increase in the number of thefts of the products from distributors 
and manufacturers. Almost all of the reports of List I chemical thefts 
in the past few years have involved pseudoephedrine, ephedrine, or 
phenylpropanolamine.

Illegal Manufacture of Methamphetamine and Amphetamine

    Until recent years, most illegal methamphetamine produced in the 
U.S. was manufactured in large illegal laboratories in California. 
Large-scale methamphetamine production is still concentrated in 
California, but smaller scale clandestine methamphetamine laboratories 
have become common throughout the western and midwestern U.S. and have 
begun moving into the southeast as well. Further, DEA has encountered 
instances in which amphetamine is being sold on the street as 
methamphetamine, as well as instances in which amphetamine/
methamphetamine mixtures are being sold. Since 1994, when DEA seized 
224 clandestine methamphetamine laboratories, the number of clandestine 
laboratory seizures has increased dramatically. In 2000, DEA and state 
and local agencies reported 7,267 clandestine laboratory seizures. In 
2001, DEA and state and local agencies reported 8,901 clandestine drug 
laboratory seizures, 97 percent of which were producing 
methamphetamine. Reported seizures increased again in 2002 to 9,612, 
with 97 percent producing methamphetamine. Since not all state, local, 
and federal agencies that seize clandestine laboratories report 
seizures to DEA, the total number of clandestine laboratories seized is 
higher than the numbers reported here.
    Although California has the highest number of clandestine drug 
laboratory seizures (1,168) and almost all of the large-scale 
clandestine laboratories, other states have witnessed the development 
of substantial clandestine drug laboratory problems. In 2002, 1,049 
clandestine drug laboratories were seized in Missouri, 674 in 
Washington, 481 in Oklahoma, 435 in Arkansas and Tennessee, 400 in 
Oregon, 394 in Indiana, 391 in Texas, 364 in Iowa, 336 in Illinois and 
334 in Kansas. Arizona, Kentucky and Mississippi had over 200 seizures 
each while Alabama, Florida, Michigan, Minnesota, New Mexico and Utah 
had more than 100 seizures each in 2002. Most of these clandestine 
laboratories produce smaller quantities of methamphetamine for personal 
use and local distribution. As noted earlier, almost all of the 
clandestine laboratories, whether large or small, use over-the-counter 
medications as their principal source of supply of precursor material.

The Source of Over-the-Counter Medications for Clandestine Drug 
Laboratories

    Operators of clandestine drug laboratories obtain over-the-counter 
medications containing pseudoephedrine, ephedrine, and 
phenylpropanolamine in three ways. First, some rogue manufacturers, 
distributors, and retailers continue to sell these chemicals to illegal 
producers. These purchases are often accomplished through multi-tier 
sales structuring that attempts to insulate the seller of the chemicals 
from direct contact with the ultimate criminal end-user. In the summer 
of 2000, Federal agents, working with state and local law enforcement 
agencies, arrested more than 140 people in eight cities who allegedly 
were involved in diverting large quantities of these chemicals to 
clandestine drug laboratories.
    DEA has also seen a significant increase in the amount of product 
that is illegally obtained from Canada. This product is typically used 
at large clandestine laboratories. DEA believes that as recently 
implemented Canadian regulations become more effective at curbing the 
illegal distribution of product from Canada to the United States, there 
will be greater pressure on other sources of supply. In fact, recent 
information indicates a possible decrease in chemicals smuggled from 
Canada, with an increase of suspicious shipments to and through Mexico.
    Second, operators of small clandestine laboratories may purchase 
these drugs from legitimate retail outlets by making small purchases at 
multiple stores or having a number of people buy small amounts at a 
single location. The Methamphetamine Anti-Proliferation Act of 2000 
(Title XXXVI of Pub. L. 106-310), reduced the threshold for retail 
transactions involving non-blister pack products from twenty-four grams 
to nine grams per individual transaction and added a package size 
requirement of not more than three grams base ingredient per package. 
For products sold in blister packs, there is no threshold unless the 
package contains more than three grams of base ingredient or there are 
more than two dosage units per blister pack. Several large retail chain 
stores already limit purchases to three packages of these products at 
any one time. These changes will make it more difficult for illegal 
methamphetamine producers to obtain their supplies efficiently through 
over-the-counter purchases.
    Third, as the MCA and MAPA have made it more difficult to obtain 
these chemicals through legitimate channels, and as DEA and state and 
local agencies have moved against rogue manufacturers and distributors, 
legitimate manufacturers and distributors have become targets for 
employee and outsider theft. DEA anticipates that the pressure on rogue 
manufacturers and distributors and the limits on legitimate sales will 
cause even more illegal producers to try theft.

Existing Controls on the Sale of These Chemicals

    The principal focus of DEA's requirements with respect to these 
chemicals has been on regulating sales. Manufacturers, distributors, 
importers, and exporters are required to identify their customers, 
maintain records of their distributions, and report suspicious proposed 
transactions. The requirements have emphasized that manufacturers, 
distributors, importers, and exporters should ``know your customer'' 
and ensure that all sales of listed chemicals are for legitimate 
purposes. Little emphasis has been placed on the security of the 
products while in the possession of

[[Page 45618]]

manufacturers, distributors, importers, and exporters. DEA has noted an 
increase in the reported theft of these products from manufacturers and 
distributors.
    The high street value of these over-the-counter medications makes 
them an attractive target for thieves. Unlike most items that are 
stolen, which can be sold on the black market for only a fraction of 
their retail price, a case of these products (e.g., 144 bottles of 60 
count 60-mg pseudoephedrine dosage units) commands a premium on the 
black market. The wholesale value of a case is between $400 and $500, 
while the black market price varies between $800 and $5000, depending 
on the location.
    Theft is also attractive because these products are usually stored 
with other consumer products in warehouses and are sometimes left 
unattended on loading docks and in freight yards while waiting to be 
shipped or stored. Although most distributors have security controls 
for high cost items, such as cameras, they have not usually applied 
such controls to these products. As a result of the limited security 
controls placed on these products (i.e., controlled access, employer 
and employee responsibility to report diversion), an increasing number 
of thefts are occurring and being reported to DEA.

The Theft Problem

    From late 1995 through late 2003, DEA received reports of thefts 
and losses of more than 1,000 kilograms of bulk ephedrine, 
pseudoephedrine, and phenylpropanolamine and more than 15 million 
dosage units or 823 kilograms of these chemical products. (The 
calculations were based on the smallest dosage unit strength in the 
absence of the specific information.) The bulk product thefts listed 
below could produce 2,400 pounds of methamphetamine. The dosage unit 
thefts could produce about 1,660 pounds. (These estimates are based on 
theoretical yields. Actual yields depend on the practices and 
sophistication of a specific clandestine laboratory.) The street value 
of the methamphetamine that could have been produced from these thefts 
ranges from $26 million to $122 million.
    During the period covered by these reports (late 1995 through late 
2003), DEA received very few theft reports that involved other listed 
chemicals. The nature of the over-the-counter products, their demand 
and value on the black market, and the absence of effective security 
controls make them an attractive target for theft.
    The lack of understanding of the widespread threat of theft of 
these products is illustrated by the case of a major distributor with 
multiple facilities. In 1998, employees at one of the distributor's 
warehouses stole more than 72,000 dosage units of pseudoephedrine and 
phenylpropanolamine, some of which were found at a clandestine 
methamphetamine laboratory. The company responded by installing better 
security systems at that one warehouse. A second 1998 theft from 
another of the company's warehouses resulted in a loss of 800,000 
dosage units. In 1999, employees at a third warehouse stole more than 
500,000 dosage units of pseudoephedrine and phenylpropanolamine, which 
were found at more than 20 clandestine methamphetamine laboratories and 
dump sites. In 2000, employees at a fourth company warehouse stole 
1,200 dosage units, and at a fifth warehouse, the company discovered 
and reported eight separate thefts, which totaled almost a million 
dosage units. In total, this single company lost well over two million 
dosage units during a three year period. Despite this pattern of theft, 
the company improved security only after the thefts and only at the 
warehouses where a theft occurred; there was no apparent effort to 
proactively establish additional security for the products at other 
locations operated by the company.
    Thefts reported to DEA include, but are not limited to, the 
following:
Bulk Chemical Thefts
     A manufacturer reported the theft of 90 kilograms (kg) of 
pseudoephedrine
     An employee stole 12 kg of pseudoephedrine from a 
manufacturer.
     A manufacturer was robbed of two 25-kg drums of 
pseudoephedrine stolen, but recovered them. A subsequent inventory 
check showed a third drum was missing.
     A manufacturer had most of the chemical ingredients needed 
to make methamphetamine clandestinely (hydriodic acid, red phosphorus, 
iodine, ephedrine, and pseudoephedrine) stolen from outside a fence. 
Included in the theft was 4.375 kg of pseudoephedrine.
     A manufacturer had 11.22 kg of pseudoephedrine stolen from 
a movable cart.
     A distributor had two 25-kg drums of pseudoephedrine 
stolen from a locked trailer.
     Employees stole 390.91 kg of ephedrine from a 
manufacturer.
     A manufacturer lost 23 kg of pseudoephedrine.
     A manufacturer lost 55.6 kg of pseudoephedrine during the 
manufacturing process.
     A manufacturer had eight 55 pound drums of pseudoephedrine 
(200 kg) stolen from a storage cage which was missing a lock.
     An importer had 70.4 kg stolen from an unlocked quarantine 
cage.
     A manufacturer had an unexplained loss of 17.87 kg of 
pseudoephedrine.
     An analytical laboratory had 90 kg of ephedrine stolen 
during a burglary.
Dosage Unit Thefts
     An employee or employees stole 4,201,112 pseudoephedrine 
dosage units from a manufacturer.
     A distributor had 150,400 pseudoephedrine 30 mg dosage 
units and phenylpropanolamine 24.3 mg dosage units stolen.
     A distributor reported the loss of 674,800 pseudoephedrine 
dosage units in seven thefts from an open area of the warehouse with 
unrestricted access for employees. The same location reported another 
theft of 294,900 dosage units from outside a cage.
     A distributor reported the loss of 800,000 pseudoephedrine 
dosage units due to employee theft.
     A distributor lost 418,224 dosage units of ephedrine and 
pseudoephedrine in an armed robbery.
     A distributor had 85,000 dosage units of pseudoephedrine 
and ephedrine stolen.
     An employee stole more than 1,200 pseudoephedrine dosage 
units.
     A mail order pharmacy had more than 66,000 pseudoephedrine 
dosage units stolen after they were dropped off by a delivery truck.
     A manufacturing relabeler reported the loss of 83,333 
ephedrine dosage units.
     A distributor had a trailer stolen containing more than 
22,080 dosage units of pseudoephedrine.
     A hospital lost more than 756,600 pseudoephedrine 60 mg 
dosage units from an open warehouse, where access was unrestricted.
     A manufacturer had more than 266,669 ephedrine 180 mg 
dosage units stolen from its waste stock.
    A distributor found major shortages in 27 of 34 lots examined; more 
than 1,578,628 pseudoephedrine and ephedrine dosage units were missing.
     A distributor had a trailer stolen from a residence; the 
trailer contained more than 96,768 dosage units, some of which were 
later found at a clandestine laboratory dump site.
     A distributor had a trailer stolen containing 9,216 dosage 
units of pseudoephedrine.

[[Page 45619]]

     An employee stole 8,000 dosage units of pseudoephedrine 
from a distributor.
     An employee stole 51,100 pseudoephedrine 60 mg dosage 
units from manufacturer.
     A distributor lost 311,040 pseudoephedrine 60 mg dosage 
units during a burglary.
     A locked trailer load of over the counter products 
containing 1,833,504 dosage units of pseudoephedrine was stolen from a 
distributor.
     A manufacturer had an unexplained loss of 3,288 30 mg 
dosage units of pseudoephedrine.
     During a routine inventory 40,000 60 mg dosage units of 
pseudoephedrine were found to be missing from a holding area in a 
distributor's warehouse. Employee pilferage was suspected.
     A distributor discovered the loss of 119,800 30 mg dosage 
units of pseudoephedrine from its off site storage warehouse.
     An employee of a manufacturer stole approximately 75,000 
dosage units of pseudoephedrine and conspired with others to 
manufacture methamphetamine. The employee was subsequently arrested.
     An analytical laboratory lost 76,968 120 mg dosage units 
of pseudoephedrine from a locked in process storage room.
     A distributor lost 7,200 120 mg dosage units of 
pseudoephedrine.

Impact of Methamphetamine Abuse

    As the dramatic increase in the number of clandestine laboratory 
seizures indicates, methamphetamine abuse is a serious problem. 
According to the Substance Abuse and Mental Health Services 
Administration (SAMHSA), Drug Abuse Warning Network, in 2002, 
methamphetamine was mentioned in almost 18,000 emergency room visits; 
from 1994 through 2002, there were about 130,000 emergency room visits 
where methamphetamine was mentioned. (Drugs are often used in 
combination; it is not possible to determine which drug led to the 
emergency room visit, if any; in some cases, a patient may have sought 
treatment unrelated to the drug use.) In 1993, amphetamine treatment 
admission rates were high in a few Western States--California, Oregon, 
and Nevada. By 1999, SAMHSA reported that high amphetamine treatment 
admission rates were seen in most states west of the Mississippi. 
Amphetamine treatment admission rates increased between 1993 and 1999 
by 250 percent or more in 14 states and by 100 to 249 percent in 
another 10 states. SAMHSA data from 23 metropolitan areas indicate that 
methamphetamine was involved in more than 500 deaths in 2001.
    The surge in methamphetamine abuse has caused serious law 
enforcement and environmental problems, particularly in rural 
communities. Rural areas are frequently the site of clandestine 
laboratories because the manufacturing process produces distinctive 
odors and can be identified if there are close neighbors. The district 
attorney of Snohomish County in western Washington reported that two 
thirds of all crimes in the county are tied to methamphetamine. The 
number of lab seizures in the county exceeded the number of seizures in 
New England, New York, and Pennsylvania combined.
    Besides causing crime as people steal ingredients to make 
methamphetamine and steal to support their addiction, the clandestine 
laboratories often leave serious pollution behind. In 2002, Washington 
state alone had more than 2,000 sites that required immediate clean-up. 
A laboratory can produce 6 to 10 pounds of hazardous waste for every 
pound of methamphetamine produced. In 2003, DEA funded clean-ups of 
approximately 8,600 clandestine laboratories and estimates that states 
have funded an equal number of clean-ups. California is reported to 
have spent about $10 million in 2000 for clean-ups. The Federal and 
State clean-ups are generally limited to removing chemicals that could 
be reused; they do not address water and soil pollution that remain. 
Owners of the property are responsible for completing the clean up of 
contaminated water and soil, but if the owner cannot pay the cost, 
local governments bear the burden or the contamination remains.

DEA's Proposal

    DEA initially required manufacturers, distributors, importers, and 
exporters of List I chemicals to implement minimal physical security 
measures, such as tamper proof storage containers. DEA depended on the 
individual firms to adequately safeguard the materials in their 
possession. However, this approach has not been successful even though 
the affected industry is aware of the problems associated with the 
diversion of List I chemicals and their use to illegally manufacture 
methamphetamine. Due to the reported thefts of pseudoephedrine, 
ephedrine, and phenylpropanolamine and the significant increase in the 
amount of illegal methamphetamine produced from these products, DEA is 
proposing that a medium level of security be placed on the areas where 
pseudoephedrine, ephedrine, and phenylpropanolamine are stored. The 
proposed regulations allow for a number of security options that may be 
used for the storage of these products. Therefore, small businesses 
with minimal inventory will have low cost options available that comply 
with the proposed regulations. In addition, many of the affected 
entities with large inventories of pseudoephedrine, ephedrine, and 
phenylpropanolamine already have secure storage facilities that comply 
with the requirements.
    DEA is proposing that manufacturers, distributors, importers, and 
exporters of pseudoephedrine, ephedrine, and phenylpropanolamine 
implement security procedures that are similar to or as effective as 
those now used by registrants handling Schedule III through V 
controlled substances. These procedures may include the storage of the 
substances in a secure safe or steel cabinet, cage, or room and 
installation of a monitored alarm system linked to a central location 
or procedures that generally provide the same level of protection. 
Safes or steel cabinets would need alarm systems only if more than a 
total of one (1) kilogram of pseudoephedrine, ephedrine, and 
phenylpropanolamine, combined, were stored at any one time. In 
evaluating their overall security system, chemical registrants should 
consider the factors which DEA considers relevant in evaluating overall 
security requirements for chemical applicants and registrants. These 
factors are specified in 21 CFR 1309.71(b)(1) through (8):
    (1) The type, form, and quantity of List I chemicals handled;
    (2) The location of the premises and the relationship such location 
bears on the security needs;
    (3) The type of building construction comprising the facility and 
the general characteristics of the building or buildings;
    (4) The availability of electronic detection and alarm systems;
    (5) The extent of unsupervised public access to the facility;
    (6) The adequacy of supervision over employees having access to 
List I chemicals;
    (7) The procedures for handling business guests, visitors, 
maintenance personnel, and nonemployee service personnel in areas where 
List I chemicals are processed or stored;
    (8) The adequacy of the registrant's or applicant's systems for 
monitoring the receipt, distribution, and disposition of List I 
chemicals in its operations.
    In light of the need for increased security chemical registrants 
may also wish to consider the factors which DEA considers relevant in 
evaluating overall security requirements for controlled

[[Page 45620]]

substances applicants and registrants. These factors are specified in 
21 CFR 1301.71(b)(1) through (14):
    (1) The type of activity conducted (e.g., processing of bulk 
chemicals, preparing dosage forms, packaging, labeling, cooperative 
buying, etc.);
    (2) The type and form of controlled substances (regulated 
chemicals) handled (e.g., bulk liquids or dosage units, usable powders 
or nonusuable powders);
    (3) The quantity of controlled substances (regulated chemicals) 
handled;
    (4) The location of the premises and the relationship such location 
bears on security needs;
    (5) The type of building construction comprising the facility and 
the general characteristics of the building or buildings;
    (6) The type of vault, safe, and secure enclosures or other storage 
systems (e.g. automatic storage and retrieval system) used;
    (7) The type of closures on vaults, safes, and secure enclosures;
    (8) The adequacy of key control systems and/or combination lock 
control systems;
    (9) The adequacy of electric detection and alarm systems, if any, 
including use of supervised transmittal lines and standby power 
sources;
    (10) The extent of unsupervised public access to the facility, 
including the presence and characteristics of perimeter fencing, if 
any;
    (11) The adequacy of supervision over employees having access to 
manufacturing and storage areas;
    (12) The procedures for handling business guests, visitors, 
maintenance personnel, and nonemployee service personnel;
    (13) The availability of local police protection or of the 
registrant's or applicant's security personnel, and
    (14) The adequacy of the registrant's or applicant's system for 
monitoring the receipt, manufacture, distribution and disposition of 
controlled substances (regulated chemicals) in its operations.
    DEA believes that schedule III through V controlled substances 
security requirements implemented correctly by chemical handlers would 
be one responsible approach in an effort to deter theft and diversion 
of regulated chemicals. Keeping pseudoephedrine, ephedrine, and 
phenylpropanolamine products in such secure areas limits the 
opportunity for theft. Controlled limited access to such areas 
discourages employee theft because it makes the identity of the thief 
easier to determine. However, DEA is soliciting and will consider 
recommendations regarding alternative means to achieve the same level 
of security including industry-sponsored security systems and 
activities, recognizing that in certain circumstances the 
implementation and use of schedule III through V controlled substances 
security may pose significant challenges. Therefore, in an effort to 
accommodate the industry's concerns about implementing this type of 
security system, DEA requests, invites, and solicits the chemical 
industry to provide specific efficient and economically acceptable 
alternatives to the system now required for controlled substances 
registrants.

Cost of Proposed Security Measures

    The ultimate costs of the proposed security will depend on the 
types of economically acceptable alternatives to the system now 
required for controlled substance registrants that the chemical 
industry can provide to DEA. The costs of an alternative system, if 
adopted, may be significantly less than those discussed in the ensuing 
paragraphs.
    DEA investigated the costs of security systems currently used by 
controlled substances registrants with emphasis that the economic 
impact would not place an unreasonable burden on small distributors. 
These systems allow for a number of security options for the storage of 
ephedrine, pseudoephedrine, and phenylpropanolamine, including a safe 
or steel cabinet, a cage, and a separate room within the facility. To 
develop unit cost estimates, DEA contacted several firms that supply 
and install various types of security containers and alarm systems to 
determine the range of costs for each system. DEA determined that a 
cage is the least expensive storage option if a specific structure is 
selected. Safes and steel cabinets that meet DEA security requirements 
would be more costly than a cage. Setting aside a room may not be a 
feasible option for warehouse operations; many distributors already use 
cages to store items that are likely to be targets of theft.
    As of November 3, 2003, 3,232 distributors were registered to 
handle at least one of the three drugs; of these, 1,228 were registered 
to handle all three. Most registrants handle pseudoephedrine (3,092). 
Of the 3,232 handlers registered with DEA, five are retailers who will 
not be subject to the new security requirements and are therefore not 
part of the affected population. Further, DEA determined that 96 of 206 
registered importers and exporters do not actually conduct import and 
export transactions of these drugs. However, to account for constant 
fluctuations in the registrant population, DEA estimated that this 
rulemaking would affect approximately 3,100 DEA registrants, including 
wholesale distributors, manufacturers, and importer/exporters.
    As noted above, according to security firms, a cage is likely to be 
the least expensive option for a facility that stores materials in a 
warehouse, costing between $2,400 and $3,670 (in 2004 dollars) to 
purchase and install. Cages vary in cost based on their size. DEA 
assumed that most distributors are not storing large quantities of 
these products at any one time and that an 800 cubic feet cage would be 
sufficient; such a cage could hold at least 5 million dosage units. The 
costs of a cage were depreciated over 15 years, hence the annual cost 
of the cage would be between $265 and $403.
    An alarm system would cost between $2,100 and $4,190 to purchase 
and install. Although an alarm system is likely to function for at 
least 15 years, the analysis depreciated the costs over five years; the 
annual cost of the alarm system would be between $511 and $1,022. 
Annual costs for alarm system monitoring and maintenance would be about 
$1,150. The total annual cost of the equipment per distributor facility 
(present value over 15 years) would range from $5,700 to $ 9,000. The 
annualized cost for the equipment and ongoing costs is approximately 
$1,900 to $2,600 for each distributor.
    DEA assumed that the manufacturers and exporters would already have 
secure storage systems and alarms and would only need to add an annual 
alarm monitoring system. Because these registrants were assumed to have 
a much larger alarm system than distributors have, the annual cost for 
monitoring the system is higher, about $3,100.
    The total annualized cost for all affected entities (the 
approximately 3,100 manufacturers, distributors, importers, and 
exporters) is between $6.8 million and $8.7 million. The total cost of 
meeting the security requirements over a 15-year time frame for all 
affected manufacturers, distributors, importers, and exporters of 
pseudoephedrine, ephedrine, and phenylpropanolamine is estimated to be 
between $62 million and $80 million. DEA has been cautious in its 
approach to estimating the actual costs of implementing the proposed 
security requirements. Many of the affected entities may already have 
monitored alarm systems and/or secure storage areas in their facilities 
to secure other types of products such as small electronic devices, 
tobacco, or controlled substances. Therefore, the

[[Page 45621]]

existing systems could be used to comply with these proposed 
regulations and the actual additional costs to implement the security 
requirements will be less than the estimates provided here. 
Manufacturers, distributors, importers, and exporters are asked to 
comment on the security measures that are currently utilized in their 
facilities.

Benefits of the Proposed Rule

    If the thefts reported to DEA from 1995 to 2003 constituted all 
relevant thefts, and if the pattern of thefts were to continue for the 
next 15 years, assuming no increase in thefts or in the street value of 
clandestinely produced methamphetamine, the total value of the 
methamphetamine that could be produced from stolen chemicals over that 
time would range from $66 million to $307 million. These drugs impose 
substantial costs on the U.S. economy. As noted above, methamphetamine 
was mentioned in almost 18,000 emergency room visits in 2002. The cost 
of these visits range from $8.5 million to $29 million. (Estimates are 
based on a 1996 national average cost of emergency room visits of $383 
reported in the New England Journal of Medicine and a 1997estimate from 
the Centers for Disease Control of $1,324 for the average cost of 
emergency room visit for asthma, adjusted to 2004 dollars). In 
addition, there are costs associated with addiction treatment, law 
enforcement, and clean up of lab sites. Each of these costs 
individually is likely to be higher than the total annual costs of 
security measures. Finally, some of the more than 500 deaths a year 
associated with methamphetamine could be averted if diversion of these 
over-the-counter drugs could be curtailed.

Effective Date for Installation of the Security Measures

    If finalized, manufacturers, distributors, importers and exporters 
will have 90 days after the effective date of the final rule to install 
the security systems. The final rule will become effective 30 days 
after publication in the Federal Register; therefore affected entities 
will have a total of 120 days to implement the security requirements. 
If a timely and good faith effort has been made to implement the 
requirements, and it is determined that an affected entity will be 
unable to meet the required deadline, then the local DEA office must be 
notified to make alternate arrangements in the interim.

Regulatory Certifications

Regulatory Flexibility Act

    The Deputy Assistant Administrator hereby certifies that this 
rulemaking has been drafted in accordance with the Regulatory 
Flexibility Act (5 U.S.C. 605(b)). Although the proposed rule will 
impact a substantial number of small entities (about 2,800 
distributors, most of them small businesses), it will not have a 
significant adverse financial impact on them.
    In the North American Industry Classification System (NAICS) (the 
successor to the Standard Industrial Classification System (SIC code)), 
the affected manufacturers are most likely to be classified as part of 
the pharmaceutical industry while importers and exporters are likely to 
be classified as part of the ``all other inorganic chemical 
manufacturing'' industry. Distributors are most likely to be captured 
as part of either the drug and druggists' sundries wholesale sector or 
the tobacco and tobacco product wholesale sector. DEA further assumes 
that all manufacturers, exporters, and importers are relatively large 
in size, but that all of the affected distributors are small 
businesses, based on the small business size standards provided by the 
Small Business Administration.
    The annual costs for distributors ($1,900-$2,600) represent 0.1 
percent to 0.2 percent of the average annual sales of the smallest 
class of distributors (one to four employees) in the drug and druggist 
sundries sector (annual sales $1.3 million) and tobacco and tobacco 
products sector (annual sales $1.9 million) sectors and less than 0.05 
percent of average annual sales for the next class (five to nine 
employees) (annual sales of $4.7 million and $6.3 million 
respectively). Sales data are from the 1997 Economic Census and, 
therefore, are likely to be understated.
    Even if costs are considered as one-time, non-amortized values, 
they represent no more than 0.7 percent of the smallest distributor's 
1997 sales. Although the Small Business Administration provides no 
definitive guidance on how to define a significant economic impact, one 
percent of sales or revenues is a commonly used standard to define the 
level at which costs may impose an adverse economic impact. The costs 
of this rule do not approach that level and are likely to be 
considerably less than the estimated costs because most distributors 
already have some security systems to protect other goods.

Executive Order 12866

    The Deputy Assistant Administrator further certifies that this 
rulemaking has been drafted in accordance with the principles of 
Executive Order 12866 Section 1(b). It has been determined that this 
rule is a significant rulemaking action, and, therefore, this 
rulemaking has been reviewed by the Office of Management and Budget. As 
discussed above, DEA has conducted an economic analysis of the security 
requirements proposed in this rulemaking and does not believe that 
these proposed security requirements would have a significant economic 
impact. DEA believes that the security requirements proposed here are 
necessitated by the value of pseudoephedrine, ephedrine and 
phenylpropanolamine on the black market, and the value of amphetamine 
and methamphetamine on the streets. The benefits of preventing the 
diversion of these drugs far outweigh the costs.
    DEA is requesting manufacturers, distributors, importers, and 
exporters of List I chemicals to comment on the specific types of 
security measures that are currently utilized in their facilities and 
the specific costs that will be necessary to adopt the proposed new 
security requirements.

Executive Order 12988

    This regulation meets the applicable standards set forth in 
Sections 3(a) and 3(b)(2) of Executive Order 12988.

Executive Order 13132

    This rulemaking does not preempt or modify any provision of state 
law; nor does it impose enforcement responsibilities on any state; nor 
does it diminish the power of any state to enforce its own laws. 
Accordingly, this rulemaking does not have federalism implications 
warranting the application of Executive Order 13132.

Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by state, local and 
tribal governments, in the aggregate, or by the private sector, of 
$113,000,000 or more in any one year, and will not significantly or 
uniquely affect small governments. Therefore, no actions were deemed 
necessary under the provisions of the Unfunded Mandates Reform Act of 
1995.

Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by Section 804 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. This rule 
will not result in an annual effect on the economy of $100,000,000 or 
more; a

[[Page 45622]]

major increase in costs or prices; or significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based companies to compete with foreign-
based companies in domestic and export markets.

List of Subjects in 21 CFR Part 1309

    Administrative practice and procedure, Drug traffic control, List I 
and II chemicals, Security measures.

    For the reasons set out above, 21 CFR part 1309 is proposed to be 
amended as follows:

PART 1309--REGISTRATION OF MANUFACTURERS, DISTRIBUTORS, IMPORTERS, 
AND EXPORTERS OF LIST I CHEMICALS

    1. The authority citation for part 1309 continues to read as 
follows:

    Authority: 21 U.S.C. 821, 822, 823, 824, 830, 871(b), 875, 877, 
958.


Sec.  1309.24  [Amended]

    2. Sec.  1309.24(k) is proposed to be amended by removing the 
phrase ``Sec. Sec.  1309.71-1309.73'' and replacing it with the phrase 
``Sec. Sec.  1309.71-1309.74'.
    3. Section 1309.74 is proposed to be added to read as follows:


Sec.  1309.74  Security requirements for pseudoephedrine, ephedrine, 
and phenylpropanolamine.

    (a) Manufacturers, distributors, importers, and exporters must 
store pseudoephedrine, ephedrine, and phenylpropanolamine raw 
materials, bulk materials awaiting further processing, and finished 
products in a secure storage area. The secure area may be a safe or 
steel cabinet, as specified in paragraph (c) of this section; a secure 
room that meets the requirements of paragraph (d) of this section; a 
cage that meets the requirements of paragraph (e) of this section; or 
other areas approved by the Administrator (paragraphs (f) and (g) of 
this section). Secure rooms, cages, and other areas approved by the 
Administrator must have an alarm system that meets the requirements of 
paragraph (b) of this section. A safe or steel cabinet must have an 
alarm system if a total of 1 kilogram or more, combined, of 
pseudoephedrine, ephedrine, and phenylpropanolamine materials are 
stored at any one time.
    (b) The secure storage area must be equipped with an alarm system 
that, upon attempted unauthorized entry, transmits a signal directly to 
a central protection company, a local or State police agency that has a 
legal duty to respond, a 24-hour control station operated by the 
registrant, or such other protection as the Administrator may approve.
    (c) Where small quantities (less than one (1.0) kilogram of 
pseudoephedrine, ephedrine or phenylpropanolamine, combined) permit, 
pseudoephedrine, ephedrine, and phenylpropanolamine may be stored in a 
safe or steel cabinet that meets the following requirements:
    (1) The safe or steel cabinet must conform to the following 
specifications or the equivalent: 30 man-minutes against surreptitious 
entry, 10 man-minutes against forced entry, 20 man-hours against lock 
manipulation, and 20 man-hours against radiological techniques; and
    (2) If the safe or cabinet weighs less than 750 pounds, it must be 
bolted or cemented to the floor or wall in such a way that it cannot be 
readily removed.
    (d) Pseudoephedrine, ephedrine, and phenylpropanolamine may be 
stored in a secure room with perimeter security that limits access 
during working hours and provides security after working hours. The 
secure room must be equipped with self-closing, self-locking doors 
constructed of substantial material. A door that is kept closed and 
locked at all times when not in use and when in use is kept under 
direct observation of a responsible employee or agent of the registrant 
is permitted in lieu of a self-closing, self-locking door. Doors may be 
sliding or hinged. Where hinges are mounted on the outside, the hinges 
must be sealed, welded, or otherwise constructed to inhibit removal. 
Locking devices for such doors must be of either the multiple-position 
combination or key lock type and must comply with one of the following:
    (1) In the case of key locks, the lock must require key control 
that restricts access to a limited number of employees.
    (2) In the case of combination locks, the combination must be 
limited to a minimum number of employees and must be changed upon 
termination of employment of an employee having knowledge of the 
combination.
    (e) Pseudoephedrine, ephedrine, and phenylpropanolamine may be 
stored in a cage, located within a building on the premises, meeting 
the following specifications:
    (1) The cage walls must be constructed of not less than No.10 gauge 
steel fabric mounted on steel posts. The posts must be:
    (i) At least one inch in diameter;
    (ii) Set in concrete or installed with lag bolts that are pinned or 
brazed; and
    (iii) Placed no more than ten feet apart with horizontal one and 
one-half inch reinforcements every sixty inches.
    (2) The cage must have a mesh construction with openings of not 
more than two and one-half inches across the square.
    (3) The cage must have a ceiling constructed of the same material 
or, in the alternative, a cage must be erected which reaches and is 
securely attached to the structural ceiling of the building. A lighter 
gauge mesh may be used for the ceilings of large enclosed areas if 
walls are at least 14 feet in height.
    (4) The cage must be equipped with a door constructed of No. 10 
gauge steel fabric on a metal door frame in a metal door flange, and 
which conforms to all the requirements of paragraph (d) of this section 
in all other respects.
    (f) Pseudoephedrine, ephedrine, and phenylpropanolamine may be 
stored in an enclosure of masonry or other material, approved in 
writing by the Administrator as providing security comparable to a 
cage.
    (g) Pseudoephedrine, ephedrine, and phenylpropanolamine may be 
stored in such other secure storage areas as may be approved by the 
Administrator after considering the factors listed in Sec.  
1309.71(b)(1) through (8).
    (h) Nonregulated chemicals and other materials may be stored with 
pseudoephedrine, ephedrine, and phenylpropanolamine in any of the 
secure storage areas required by this section, if permission for the 
storage of non-controlled items is obtained in advance, in writing, 
from the DEA Special Agent in Charge for the area in which the storage 
area is located. Any permission granted must be based on the Special 
Agent in Charge's written determination that such non-segregated 
storage does not diminish the effectiveness of security for 
pseudoephedrine, ephedrine, and phenylpropanolamine.
    (i) The pseudoephedrine, ephedrine, and phenylpropanolamine storage 
areas must be accessible only to an absolute minimum number of 
specifically authorized employees. When it is necessary for employee 
maintenance personnel, nonemployee maintenance personnel, business 
guests, or visitors to be present in or pass through pseudoephedrine, 
ephedrine, and phenylpropanolamine storage areas, the registrant must 
provide for adequate observation of the area by an employee 
specifically authorized in writing.

    Dated: July 23, 2004.
William J. Walker,
Deputy Assistant Administrator, Office of Diversion Control.
[FR Doc. 04-17356 Filed 7-29-04; 8:45 am]
BILLING CODE 4410-09-P