[Federal Register Volume 69, Number 228 (Monday, November 29, 2004)]
[Notices]
[Pages 69400-69402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-26309]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


CWK Enterprises, Inc.; Denial of Registration

    On July 23, 2004, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to CWK Enterprises, Inc. (CWK) proposing to deny 
its March 1, 2003, application for DEA Certificate of Registration as a 
distributor of list I chemicals. The Order to Show Cause alleged that 
granting CWK's application would be inconsistent with the public 
interest, as that term is used in 21 U.S.C. 823(h). The order also 
notified CWK that should not 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 CWK at its proposed registered location 
at 3065 McCall Drive, Suite 10, Atlanta, Georgia 30224. It was received 
on August 5, 2004, and DEA has not received a request for a hearing or 
any other reply from CWK or anyone purporting to represent the company 
in this matter.
    Therefore, the Deputy Administrator of DEA, finding that (1) thirty 
days have passed since delivery of the Order to Show Cause, and (2) no 
request for a hearing having been received, concludes that CWK has 
waived its hearing right. See Aqui Enterprises, 67 FR 12576 (2002). 
After considering relevant material from the investigative file, the 
Deputy Administrator now enters her final order without a hearing 
pursuant to 21 CFR 1309.53 (c) and (d) and

[[Page 69401]]

1316.67. The Deputy 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). Pseudoephedrine and ephedrine are 
list I chemicals commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance. As noted in 
previous DEA final orders, methamphetamine is an extremely potent 
central nervous system stimulant, and its abuse is a persistent and 
growing problem in the United States. See e.g., Direct Wholesale, 69 FR 
11,654 (2004); Branex, Inc., 69 FR 8,682 (2004); Yemen Wholesale 
Tobacco and Candy Supply, Inc., 67 FR 9997 (2002); Denver Wholesale, 67 
FR 99986 (2002).
    The Deputy Administrator's review of the investigative file reveals 
that on or about March 1, 2003, an application was submitted by the 
President of CWK, Mr. Charles In Kim, seeking registration to 
distribute ephedrine and pseudoephedrine list I chemical products. The 
application originally included phenylpropanolamine, but that listed 
chemical product was eventually deleted from the request.
    In connection with the pending application, an on-site pre-
registration investigation was conducted at the proposed premises. 
Investigators were advised that CWK, which was incorporated in 2001, 
was a wholesale distributor of general merchandise to convenience 
stores and gas stations.
    CWK was proposing to sell Mini-Thins and traditional single entity 
and combination pseudoephedrine products. Investigators noted that CWK 
had no products list, but the company officer referred to a catalogue 
produced by a national wholesaler.
    At the initial investigation, Mr. Chul Kim, CWK's Vice-President, 
also failed to provide DEA investigators an updated customer list for 
listed chemical products. Subsequently, a list of fourteen customers 
was provided to the investigators. A customer verification revealed 
that seven of these purported customers either did not know, or did not 
intend to do listed chemical business with CWK.
    DEA is aware that small illicit laboratories operate with listed 
chemical products often procured, legally or illegally, from non-
traditional retailers of over-the-counter drug products, such as gas 
stations and small retail markets. Some retailers acquire product from 
multiple distributors to mask their acquisition of large amounts of 
listed chemicals. In addition, some individuals utilize sham 
corporations or fraudulent records to establish a commercial identity 
in order to acquire listed chemicals.
    The illegal production of methamphetamine continues unabated within 
the DEA Atlanta region. The adjacent State of Tennessee leads the 
region in the number of clandestine laboratories seized, accounting for 
approximately 50 percent of the clandestine laboratories seized during 
the second quarter of 2002. When compared with the third quarter of 
2001, the increase in clandestine laboratory seizures is notable. 
According to later records for the Atlanta region, 360 clandestine 
laboratories were seized during the third quarter of 2002. Of the 360 
laboratories seized during that reporting period, 207 were located in 
Tennessee, 103 in Georgia, 35 in South Carolina and 15 in North 
Carolina.
    In the State of Georgia, there has been a consistent increase in 
the number of illicit laboratories and enforcement teams continue to 
note a trend toward smaller capacity laboratories. This is likely due 
to the ease of concealment associated with smaller laboratories, which 
continue to dominate seizures and cleanup responses.
    The adjacent State of Tennessee has a substantial methamphetamine 
abuse problem in the Chattanooga and Eastern Tennessee areas and DEA is 
aware of a past history of trafficking in precursors in these 
locations. Distributors or retailers serving the illicit 
methamphetamine trade observe no borders and trade across State lines. 
In fact, where precursor laws are stringent, out-of-state distributors 
often make direct shipments to retailers without observing State 
requirements.
    DEA knows by experience that there exists a ``gray market'' in 
which certain high strength, high quantity pseudoephedrine and 
ephedrine products are distributed only to convenience stores and gas 
stations, from where they have a high incidence of diversion. These 
gray market products are not sold in large discount stores, retail 
pharmacies or grocery stores, where sales of therapeutic over-the-
counter drugs predominate. Mini-Thins and other ``two-way'' ephedrine 
and single entity pseudoephedrine products are prime products in this 
gray market industry and are rarely found in any retail store serving 
the traditional therapeutic market.
    DEA also knows from industry data, market studies and statistical 
analysis that over 90% of over-the-counter drug remedies are sold in 
drug stores, supermarket chains and ``big box'' discount retailers. 
Less than one percent of cough and cold remedies are sold in gas 
stations or convenience stores. Studies have indicated that most 
convenience stores could not be expected to sell more than $20.00 to 
$40.00 worth of products containing pseudoephedrine per month. The 
expected sales of ephedrine products are known to be even smaller. Most 
convenience stores handling gray market products often order more 
product than what is required for the legitimate market and obtain 
chemical products from multiple distributors.
    Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an 
application for a Certificate of Registration if she determines that 
granting the registration would be inconsistent with the public 
interest. Section 823(h) requires that 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 of the applicant in the manufacture and 
distribution of chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety.
    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 Deputy Administrator may rely 
on any one or a combination of factors and may give each factor the 
weight she 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 Deputy Administrator finds factors four and five relevant to 
the pending application for registration.
    With regard to factor four, the applicant's past experience in the 
distribution of chemicals, the Deputy Administrator finds this factor 
relevant based on CWK's lack of knowledge and experience regarding the 
laws and regulations governing handling of list I chemical products. In 
prior DEA decisions, this lack of experience in handling list I 
chemical products has been a factor in denying pending applications for 
registration. See, e.g., Direct Wholesale, supra, 69 FR 11654; ANM 
Wholesale, 69 FR 11652 (2004);

[[Page 69402]]

Xtreme Enterprises, Inc., 67 FR 76195 (2002).
    With regard to factor five, other factors relevant to and 
consistent with the public safety, the Deputy Administrator finds this 
factor weighs heavily against granting the application. Unlawful 
methamphetamine use is a growing public health and safety concern 
throughout the United States and Southeast. Ephedrine and 
pseudoephedrine are precursor products needed to manufacture 
methamphetamine and operators of illicit methamphetamine laboratories 
regularly acquire the precursor products needed to manufacture the drug 
from convenience stores and gas stations which, in prior DEA decisions, 
have been identified as constituting the grey market for list I 
chemical products. It is apparent that CWK intends on being a 
participant in this market.
    While there are no specific prohibitions under the Controlled 
Substances Act regarding the sale of listed chemical products to these 
entities, DEA has nevertheless found these establishments serve as 
sources for the diversion of large amounts of listed chemical products. 
See, e.g., ANM Whilesale, supra, 69 FR 11652; Xtreme Enterprises, Inc., 
supra, 67 FR 76195; Sinbad Distributing, 67 FR 10232 (2002); K.V.M. 
Enterprises, 67 FR 70968 (2002).
    The Deputy Administrator has previously found that many 
considerations weighed heavily against registering a distributor of 
list I chemicals because, ``[v]irtually all of the Respondent's 
customers, consisting of gas station and convenience stores, are 
considered part of the grey market, in which large amounts of listed 
chemicals are diverted to the illicit manufacture of amphetamine and 
methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at 76197. As 
in Xtreme Enterprises, Inc., lack of a criminal record and intent to 
comply with the law and regulations are far outweighed by CWK's lack of 
experience and the company's intent to sell ephedrine and 
pseudoephedrine exclusively to the gray market. The Deputy 
Administrator is further troubled by CWK's providing DEA investigators 
misleading information, indicating the company cannot be trusted to 
handle the responsibilities of a registrant.
    Based on the foregoing, the Deputy Administrator concludes that 
granting the pending application would be inconsistent with the public 
interest.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in her by 21 U.S.C. 
823 and 824 and 28 CFR 0.100(b) and 0.104, hereby orders the pending 
application for DEA Certification of Registration, previously submitted 
by CWK Enterprises, Inc., be, and it hereby is, denied. This order is 
effective December 29, 2004.

    Dated: November 10, 2004.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 04-26309 Filed 11-26-04; 8:45 am]
BILLING CODE 4410-09-M