[Federal Register Volume 71, Number 133 (Wednesday, July 12, 2006)]
[Notices]
[Pages 39365-39367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-10924]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


John Vanags Denial of Application

    On October 8, 2004, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to John Vanags (Respondent), d/b/a Distribution 
General. The Show Cause Order proposed to deny Respondent's application 
for a DEA Certificate of Registration as a distributor of List I 
chemicals on the grounds that Respondent's registration would be 
inconsistent with the public interest. See 21 U.S.C. 823(h).
    The Show Cause Order specifically alleged that Respondent was 
proposing to sell List I chemical products containing ephedrine, 
pseudoephedrine, and phenylpropanolamine to gas stations and 
convenience stores in the Chicago, Illinois area, and that these retail 
outlets constitute the non-traditional or ``gray market'' for these 
products. See Show Cause Order at 2. The Show Cause Order further 
alleged that many of these retailers ``purchase inordinate amounts of 
these products and become conduits for the diversion of listed 
chemicals into illicit drug manufacturing.'' Id. The Show Cause Order 
also alleged that Respondent admitted that he had no prior experience 
in the distribution of List I chemicals, see id., that Respondent was 
``unfamiliar with his customers,'' id. at 4, and that Respondent has 
``little familiarity with his potential suppliers.'' Id. Finally, the 
Show Cause Order alleged that granting Respondent's application for 
registration ``would likely lead to increased diversion of List I 
chemicals.'' Id.

     On October 8, 2004, DEA attempted to serve the Show Cause Order by 
certified mail to Respondent's business address as given in his 
application. The Order was, however, returned unclaimed. Thereafter, on 
March 24, 2005, a DEA Diversion Investigator (DI) personally served 
Respondent with the Show Cause Order.
    Since the effectuation of service, neither Respondent, nor anyone 
purporting to represent him, has responded. Because (1) more than 
thirty days have passed since Respondent received the Show Cause Order, 
and (2) no request for a hearing has been received, I conclude that 
Respondent has waived his right to a hearing. See 21 CFR 1309.53(c). I 
therefore enter this final order without a hearing based on relevant 
material in the investigative file and make the following findings.

Findings

    Ephedrine and pseudoephedrine are List I chemicals that, while 
having therapeutic uses, are easily extracted from lawful products and 
used in the illicit manufacture of methamphetamine, a schedule II 
controlled substance. See 21 U.S.C. Sec.  802(34); 21 CFR 1308.12(d). 
Phenylpropanolamine (PPA) is also a List I chemical, which can be used 
to manufacture methamphetamine. In November 2000, the FDA issued a 
public health advisory regarding PPA based on a study that found that 
use of PPA increases the risk of hemorrhagic stroke.\1\
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    \1\ More recently, on December 22, 2005, the FDA issued a notice 
of proposed rulemaking, which proposed to reclassify over-the-
counter PPA products as ``not generally recognized as safe and 
effective.'' U.S. FDA, Center for Drug Evaluation and Research, 
Phenylpropanolamine (PPA) Information Page http.//www.fda.gov/cder/drug/infopage/ppa/ (visited June 15, 2006).
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    Methamphetamine is an extremely potent central nervous system 
stimulant. A-1 Distribution Wholesale, 70 FR 28573 (2005). 
Methamphetamine abuse has destroyed lives and families, ravaged 
communities, and created serious environmental harms.
    Respondent is the owner of Distribution General, a sole 
proprietorship. The firm sells novelty items, sunglasses, lighters and 
collectibles to gas stations and convenience stores in the Chicago 
area.
    On April 3, 2002, Respondent applied for a DEA Certificate of 
Registration as a distributor of the List I chemicals ephedrine, 
pseudoephedrine, and PPA. On May 23, 2002, two Diversion Investigators 
(DIs) visited Respondent at the address of his proposed registered 
location, which at the time was a high crime area located in Maywood, 
Illinois.\2\ While the proposed location had a dead bolt lock, a pad 
lock, a magnetic contact switch on the back door, and bars on the 
windows, the building had been burglarized numerous times.\3\
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    \2\ At the time of the pre-registration investigation, 
Respondent's business was located at 17 North 5th Ave., Maywood, 
Illinois. At some point thereafter, Respondent moved his business to 
3129 Louis Sherman Drive, Steger, Illinois. Respondent, however, did 
not notify DEA of this fact until March 2005.
    \3\ The DIs also conducted a criminal background check on 
Respondent; the check revealed no adverse information.
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    Respondent told the DIs that he had handled over-the-counter 
medicine while serving in the U.S. Army Medical Corps, but that he had 
no experience in the distribution of List 1 chemicals. Respondent 
informed the DIs that he intended to sell List I chemical products to 
convenience stores and gas stations in the Chicago area.
    Respondent told the DIs that he had four suppliers: Biotek 
Pharmaceuticals, McNeil Consumer & Specialty Pharmaceuticals, Bayer 
Consumer Care Division, and Novartis Consumer Health, Inc. He also told 
the DIs that he intended to sell Alka Seltzer Plus Cold & Sinus, 
Theraflu, Efedrin and Tylenol PM.
    The DIs subsequently found various discrepancies in the information 
Respondent provided about his suppliers. For example, Respondent 
provided a phone number for McNeil, but the number was for the 
company's consumer hotline and not for its distribution center. 
Respondent provided an address for Bayer, but Bayer did not have a DEA 
registration at the address. Finally, the DIs noted that Respondent had 
only provided a phone number for Novartis and no address. The DIs thus 
concluded that Respondent lacked essential knowledge about his 
suppliers.
    The DIs also conducted verification visits at three entities that 
Respondent claimed to have done business with. The person working at 
the first entity--a convenience store--had not done business with 
Respondent's firm. The second entity was no longer in business. 
Finally, persons working at the third entity--a gas station--were not 
familiar with Respondent's firm.
    Subsequently, and without notifying DEA of this development for 
months, Respondent moved his business to a warehouse in a low crime 
area in Steger, Illinois. Respondent told the DIs that he did not have 
a complete security system but that he intended to add cameras, motion 
detectors and a surveillance system, which would allow him to monitor 
the warehouse from home. Respondent, however, has not submitted 
documentation that he ever upgraded his security system.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless I determine that

[[Page 39366]]

the registration would be inconsistent with the public interest. In 
making that determination, Congress directed that I consider the 
following factors:
    (1) Maintenance by the applicant of effective controls against 
diversion of listed chemicals into other than legitimate channels;
    (2) Compliance by the applicant with applicable Federal, State, and 
local law;
    (3) Any prior conviction record of the applicant 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.

Id.

    ``[T]hese factors are considered in the disjunctive.'' Joy's Ideas, 
70 FR 33195, 33197 (2005). I may rely on any one or combination of 
factors, and may give each factor the weight I deem appropriate in 
determining whether a registration should be revoked or an application 
for a registration be denied. See id. See also Energy Outlet, 64 FR 
14269 (1999). Having considered all of the factors in this case, I 
conclude that Respondent's application should be denied.

Factor One--Maintenance of Effective Controls Against Diversion

    The investigative file does not address whether Respondent will 
comply with DEA requirements pertaining to recordkeeping and reports. 
Furthermore, Respondent's initial proposed location presented a major 
security concern.
    Respondent, however, submitted a letter changing his business 
address before he received the Show Cause Order. Under DEA's 
regulations, ``[a]n application may be amended * * * without permission 
of the Administration at any time before the date on which the 
applicant receives an order to show cause.'' 21 CFR 1309.36.
    I acknowledge that Respondent's new location may well have provided 
adequate security had Respondent installed the alarm system he 
discussed with the DIs. I also acknowledge that the Government 
attempted to serve the Show Cause Order in October 2004, and the only 
reason the order was not received was because Respondent failed to 
notify DEA that he had changed his business address. Ultimately, I need 
not decide the issue of whether Respondent maintains effective controls 
against diversion because under agency precedent, there are numerous 
other grounds to deny the application.

Factors Two and Three--Compliance With Applicable Law and the 
Applicant's Prior Record of Relevant Criminal Convictions

    The investigative file contains no evidence that Respondent would 
not comply with applicable Federal, State, or local laws. Moreover, the 
investigative file indicates that Respondent has never been convicted 
of a criminal offense involving controlled substances or chemicals 
under Federal or State law. Both factors thus weigh in favor of 
granting Respondent's application.

Factor Four--Past Experience in the Manufacture or Distribution of 
Controlled Substances

    Respondent acknowledged that he has no prior experience in the 
manufacture or distribution of List I chemicals. Because of the 
potential for diversion, DEA precedent establishes that an applicant's 
lack of experience in distributing List I chemicals is a highly 
important consideration that weighs heavily against granting an 
application for registration. See Jay Enterprises, 70 FR 24620, 24621 
(2005); ANM Wholesale, 69 FR 11652, 11653 (2004); Extreme Enterprises, 
67 FR 76195, 76197 (2002). Respondent's lack of experience thus weighs 
against granting the application.

Factor Five--Other Factors That Are Relevant To and Consistent With 
Public Health and Safety

    Numerous DEA cases recognize that the sale of certain List I 
chemical products by non-traditional or gray market retailers is an 
area of particular concern in preventing diversion of these products 
into the illicit manufacture of methamphetamine. See, e.g., Joey 
Enterprises, 70 FR 76866, 76867 (2005). As Joey Enterprises explains, 
``[w]hile there are no specific prohibitions under the Controlled 
Substances Act regarding the sale of listed chemical products to [gas 
stations and convenience stores], DEA has nevertheless found that 
[these entities] constitute sources for the diversion of listed 
chemical products.'' Id. See also TNT Distributors, 70 FR 12729, 12730 
(2005) (special agent testified that ``80 to 90 percent of ephedrine 
and pseudoephedrine being used [in Tennessee] to manufacture 
methamphetamine was being obtained from convenience stores''); OTC 
Distribution Co., 68 FR 70538, 70541 (2003) (noting ``over 20 different 
seizure of [gray market distributor's] pseudoephedrine product at 
clandestine sites,'' and that in eight month period distributor's 
product ``was seized at clandestine laboratories in eight states, with 
over 2 million dosage units seized in Oklahoma alone''); MDI 
Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding that 
``pseudoephedrine products distributed by [gray market supplier] have 
been uncovered at numerous clandestine methamphetamine settings 
throughout the United States and/or discovered in the possession of 
individuals apparently involved in the illicit manufacture of 
methamphetamine'').
    Numerous DEA final orders recognize that there is a substantial 
risk of diversion of List I chemicals into the illicit manufacture of 
methamphetamine when these products are sold by non-traditional 
retailers. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the 
risk of diversion was ``real, substantial and compelling''); Jay 
Enterprises, 70 FR at 24621 (noting ``heightened risk of diversion'' 
should application be granted); Y & M Distributions, Inc., 67 FR 10234, 
10235 (2002) (noting ``unacceptable risk of diversion'' in denying 
application). Under these and other cases, an applicant's proposal to 
sell List I chemicals into the non-traditional market weighs against 
the granting of a registration. So too here.
    There are other factors that support a finding that granting 
Respondent's application would be inconsistent with public health and 
safety. While Respondent represented that he intended to sell both 
traditional-market and gray-market products, the information he 
provided regarding both his potential suppliers and customers raises 
substantial concerns. The information with respect to several suppliers 
was incomplete. In addition, in DEA's experience, larger drug and 
consumer product companies typically distribute their goods through 
wholesalers; it would be unusual for these companies to deal directly 
with an entity such as Respondent's. At a minimum, the information 
Respondent provided regarding his suppliers suggests a lack of 
knowledge of the business.
    Moreover, Respondent's potential customers had either not done 
business with him, were not familiar with his firm, or were out of 
business. This information raises a substantial concern as to whether 
Respondent had any legitimate customers. Cf. Prachi Enterprises, Inc., 
69 FR 69407, 69408 (2004).
    Finally, I note that Respondent applied to distribute PPA. Most 
significantly, he did so more than a year after the FDA issued a public 
health advisory and asked drug companies to stop marketing products 
containing the

[[Page 39367]]

chemical. DEA has previously held that ``an applicant's request to 
distribute [PPA] constitutes a ground under factor five for denial'' of 
an application. ANM Wholesale, 69 FR 11652, 11653 (2004); see also 
Shani Distributors, 68 FR 62324 (2003). In light of the FDA's advisory, 
Respondent's proposal to sell PPA raises a serious concern that the 
purchasers of these products would ultimately use them to manufacture 
methamphetamine.
    Having considered all of the statutory factors, I conclude that 
granting the application would be inconsistent with the public 
interest. In particular, I find that Respondent's proposal to sell into 
the non-traditional market, his lack of experience in distributing List 
I chemicals, his evident lack of business knowledge, his provision of 
inadequate information regarding potential customers, and his proposal 
to sell PPA, greatly outweigh Respondent's lack of a criminal record 
and the finding that there is no evidence of non-compliance with 
applicable laws.

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823(h), and 28 CFR 0.100(b) and 0.104, I hereby order that the 
previously submitted application of John Vanags, d/b/a Distribution 
General, for a DEA Certificate of Registration as a distributor of List 
I chemicals be, and it hereby is, denied. This order is effective 
August 11, 2006.

    Dated: July 5, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-10924 Filed 7-11-06; 8:45 am]
BILLING CODE 4410-09-P