Date="10/13/94" Citation="59 FR 51887" Group="legal" Type="PROPOSED RULE" Department="DEPARTMENT OF JUSTICE" Agency="DRUG ENFORCEMENT ADMINISTRATION (DEA), JUSTICE" Subject="Implementation of the Domestic Chemical Diversion Control Act of 1993 (Pub. L. 103-200)"

DEPARTMENT OF JUSTICE Drug Enforcement Administration 21 CFR Parts 1307, 1309, 1310, 1313 and 1316 Implementation of the Domestic Chemical Diversion Control Act of 1993 (Pub. L. 103-200) AGENCY: Drug Enforcement Administration (DEA), Justice. ACTION: Proposed rule.

DEPARTMENT OF JUSTICE Drug Enforcement Administration 21 CFR Parts 1307, 1309, 1310, 1313 and 1316 Implementation of the Domestic Chemical Diversion Control Act of 1993 (Pub. L. 103-200) AGENCY: Drug Enforcement Administration (DEA), Justice. ACTION: Proposed rule. + ------------------------------------------------------------ SUMMARY: DEA is proposing these regulations to implement the Domestic Chemical Diversion Control Act of 1993, which became effective on April 16, 1994, in order to provide additional safeguards against the diversion of regulated chemicals. DATES: Written comments or objections must be received on or before December 12, 1994. ADDRESSES: Comments and objections should be submitted in quintuplicate to the Deputy Administrator, Drug Enforcement Administration, Washington, D.C. 20537, Attention: Federal Register Representative/CCR. FOR FURTHER INFORMATION CONTACT: G. Thomas Gitchel, Chief, Liaison and Policy Section, Office of Diversion Control, Drug Enforcement Administration, Washington, D.C. 20537, Telephone (202) 307-4025. SUPPLEMENTARY INFORMATION: I. Introduction The Chemical Diversion and Trafficking Act of 1988, (PL 100- 690) (CDTA) was passed by Congress to control the diversion of certain chemicals (hereinafter referred to as listed chemicals) that are necessary for the illicit manufacture of drugs such as heroin, cocaine, methamphetamine and LSD. The CDTA and its implementing regulations, as set forth in Title 21, Code of Federal Regulations (21 CFR), parts 1310 and 1313, established a system of recordkeeping and reporting requirements through which DEA and the chemical industry could identify persons seeking to divert listed chemicals for the manufacture of illicit drugs. The CDTA allows for the tracking and, where necessary, control of domestic and international transactions involving listed chemicals. The CDTA has had strong success. The greatest impact has been in the international arena, with a significant reduction in exports of listed chemicals from the United States to countries that are known sources of cocaine. Domestically, the volume of chemicals available to clandestine laboratories was reduced. However, these successes also highlighted several shortcomings in the CDTA, including: 1. The CDTA provided a mechanisms for DEA, with the cooperation of the chemical industry, to identify persons engaging in suspicious transactions and, as needed, take action against those persons. However, lacking evidence that an individual knowingly supplied chemicals for the illicit manufacture of drugs, DEA's options were limited. 2. Persons engaged in the illicit manufacture of methamphetamine and methcathinone were able to obtain supplies of the listed chemicals critical to the manufacture of such drugs through the purchase of drug products that were exempted from the provisions of the CDTA. 3. Illicit drug manufacturers in foreign countries began to purchase their supplies of listed chemicals from countries other than the United States, on occasion utilizing the services of United States based brokers and traders to facilitate the transactions. To address these and other concerns, Congress passed legislation in late 1993 to amend the CDTA. II. The Domestic Chemical Diversion Control Act of 1993 (Pub. L. 103-200) The Domestic Chemical Diversion Control Act of 1993 (DCDCA) was signed into law on December 17, 1993, and became effective on April 16, 1994. The DCDCA is intended to close avenues used by illicit drug manufacturers to circumvent the CDTA. The main provisions of the DCDCA are as follows: 1. Precursor and essential chemicals have been redesignated as List I and List II chemicals respectively. 2. Any person who manufactures, distributes, imports or exports a List I chemical must obtain a registration from DEA. DEA is authorized to deny an application for registration or suspend or revoke a registration to manufacture, distribute, import or export a List I chemical, if it is established that such registration would not be in the public interest. 3. Transactions involving drug products marketed under the Food, Drug, and Cosmetic Act (FDCA) which contain ephedrine, either as the sole active medicinal ingredient or in combination with therapeutically insignificant quantities of another active medicinal ingredient, are now included in the definition of regulated transaction. Subjecting these products to the registration, recordkeeping and reporting requirements eliminates a virtually unrestricted source of ephedrine for illicit manufacturers of methamphetamine and methcathinone. The DCDCA also grants DEA the authority to remove the exemption for any other drug that contains a listed chemical if DEA determines that the drug is being diverted in order to obtain the listed chemical for use in the illicit manufacture of a controlled substance. 4. Brokers and traders based in the United States who arrange international transactions involving listed chemicals will be subject to the same reporting and recordkeeping requirements as exporters of listed chemicals, thus controlling a previously unmonitored source of chemicals for clandestine laboratories in foreign countries. 5. Manufacturers of listed chemicals are required to provide DEA with annual reports regarding the manufacture of such chemicals. The reports will provide DEA with information regarding the volume of listed chemicals available in the United States. III. Implementation of the DCDCA To implement the DCDCA, DEA is proposing the following regulatory changes and additions: 1. A new part 1309 of Title 21, Code of Federal Regulations is to be added, setting forth the specific requirements for registration, the application forms to be used, the application fees, exemptions from the registration requirement, security provisions, and administrative procedures regarding approval or denial of an application, revocation of registration, and administrative hearings. With respect to the requirement of registration in the proposed Section 1309.21, DEA has granted a temporary exemption from the registration requirement pending implementation of the registration program, as set forth in an Interim Rule published in the Federal Register on March 24, 1994 (59 FR 13881). Under the CDTA, regulated persons consist of those firms engaged in the distribution, importation or exportation of chemicals. The DCDCA regulates drug products containing ephedrine which are distributed by retail distributors such as convenience stores, liquor stores, truck stops, gas stations, nutrition centers, etc. These retail outlets do not distribute any other listed chemicals and their activities consist solely of the sale of such products directly to walk-in customers. DEA has determined that retail distributors should be categorized separately in light of the limited scope and volume of their chemical activities. Pursuant to 21 U.S.C. 822(d), the Administrator may waive the requirement of registration. The Administrator is proposing in sec 1309.25 of these regulations to exempt persons registered with DEA to manufacture, distribute, dispense, import, or export a controlled substance from the chemical registration requirement for equivalent activities involving drug products that are regulated as List I chemicals pursuant to sec 1310.01(f)(1)(iv). This includes such traditional sources for these products as pharmacies, hospitals, pharmaceutical manufacturers, distributors, etc. Further, the Administrator proposes in sec 1309.27 to exempt from the registration requirement those persons who manufacture a List I chemical solely for internal use, with no subsequent distribution or exportation. With respect to the exemptions from the registration requirement, DEA has determined that persons who manufacture List I chemicals solely for internal use, without any subsequent distribution or exportation of such chemicals, should not be required to obtain a registration, since there is a low risk of diversion from such persons. It has also been determined that persons who are registered with DEA to manufacture, distribute, or dispense controlled substances shall not be required to obtain a separate registration to distribute drug products that are regulated as List I chemicals. Further, persons who are registered with DEA to import or export controlled substances shall not be required to obtain a separate registration to engage in the same activities with drug products which are regulated as List I chemicals. Persons registered to engage in activities with controlled substances are subjected to more comprehensive investigations by Federal and state authorities relating to their controlled substance registrations than is required for a chemical registration. The Administrator reserves the right in this proposal to cancel a person's exemption from the registration requirement, if continuation of the exemption would not be in the public interest. 2. Section 1310.01 is amended to revise the definitions of "regulated transaction'' and "regulated person'', and to add new definitions of "broker'' and "trader'', and "international transaction''. 3. Chemical mixtures that met the definition of "chemical mixture'' set forth in sec 1310.01(g) prior to the effective date of the DCDCA shall remain exempted from the definition of regulated transaction until DEA has promulgated final regulations regarding the procedures by which manufacturers may request exemption of chemical mixtures. 4. Section 1310.02 is amended to remove three chemicals from List I: d-lysergic acid, n-ethylephedrine and n-ethylpseudoephedrine; and to add to List I: nitroethane and benzaldehyde, as established by the DCDCA. In addition, the DEA chemical codes assigned to the listed chemicals have been added. 5. Section 1310.03 is amended to implement the requirement that manufacturers of listed chemicals report certain data to DEA. This requirement will only apply to bulk manufacturers of listed chemicals. 6. Section 1310.04 is amended to reflect the additions and deletions of the List I chemicals and to set forth the proposed thresholds for the new chemicals. With respect to the newly added chemicals Nitroethane and Benzaldehyde, records and reports must be kept only for those transactions, including cumulative transactions within a calendar month, which equal or exceed the proposed thresholds. 7. Sections 1310.05 and 1310.06 are amended to include a reporting requirement with respect to drug products containing ephedrine that are regulated as List I chemicals and to set forth the required format for the chemical manufacturer reports. Drug products containing ephedrine are legitimately distributed solely for human consumption. Thus, the distribution of 375 dosage units (approximately a two-month supply at the current recommended therapeutic dose) or more of such drug products in a calendar month to a person who is not registered with DEA to distribute or export a List I chemical would be considered extraordinary and therefore would have to be reported. 8. Section 1310.08 is amended to add international transactions to the types of transactions regulated. 9. Sections 1310.10 through 1310.15 are added to set forth the procedures regarding removal of the exemption from recordkeeping and reporting requirements of drugs distributed under the Food, Drug, and Cosmetic Act, the exemption from recordkeeping and reporting requirements of chemical mixtures, and the identification of drugs which contain ephedrine in combination with therapeutically significant quantities of another medicinal ingredient. 10. Section 1313.02 is amended to revise the definitions for "regulated person'' and "regulated transaction''; and definitions for "regular importer'', "established record as an importer'', "broker'' and "trader'', and "international transaction''; and to remove the definition of "regular supplier''. 11. Sections 1313.12, 1313.15 and 1313.21 are amended to set forth criteria regarding the waiver of the 15 day notification requirement for certain imports and exports of listed chemicals and the removal of the waiver of the 15 day notification requirement for exports of listed chemicals to specified countries. 12. Sections 1313.32, 1313.33 and 1313.34 are added to establish the notification requirements for brokers and traders engaging in international transactions. IV. Fees Section 1309.11 proposes the application fee for registration and reregistration of manufacturers, distributors, importers and exporters of List I chemicals, as authorized by section 3(a) of the DCDCA. The proposed fee was established pursuant to the Office of Management and Budget (OMB) Circular A-25, as revised on July 15, 1993 (58 FR 38142), which sets forth Federal policy regarding user fees. 1. Circular A-25, Section 6 provides that "[A] user charge * * * will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public.'' The section further requires that the user charge be sufficient to "* * * recover the full cost to the Federal Government for providing the special benefit.'' A special benefit is described as a Government service which "Enables the beneficiary to obtain more immediate or substantial gains or values (which may or may not be measurable in monetary terms) than those that accrue to the general public (e.g., receiving a patent, insurance, or guarantee provision, or a license to carry on a specific activity or business [emphasis added] or various kinds of public land use)''. Sections 822 and 957 of Title 21, United States Code, as amended by the DCDCA, require that any person who manufactures, distributes, imports or exports a List I chemical must obtain annually a registration in accordance with DEA rules and regulations. A registration to manufacture, distribute, import or export List I chemicals is a benefit under Circular A-25, in that it allows the registrant to engage in certain activities while a member of the general public may not. Therefore, the costs associated with DEA's issuance of a registration to manufacture, distribute, import or export a List I chemical; certain costs associated with advising registrants of their responsibilities; and maintenance of the integrity of the registration system must be recovered through assessment of a user fee. 2. Section 6(d) of Circular A-25 describes the requirements for determining the full cost of a service or benefit. "Full cost'' is defined as all direct and indirect costs, including, but not limited to: direct and indirect personnel costs, including salaries, fringe benefits (such as life and health insurance and retirement) and travel; physical overhead, including material and supply costs such as forms, postage, equipment, rent and utilities; management and supervisory costs; and the costs of enforcement, collection, research, establishment of standards, and regulation. Section 6(d)(1)(e) provides that the cost figures shall be established utilizing "the best available records of the agency and new cost accounting systems need not be established solely for this purpose.'' The cost of the services provided by DEA were determined by use of proven and accepted budget estimating techniques as outlined in the DOJ budget guidelines and OMB Circular A-11. Considerations for the Establishment of the Original Fee DEA has identified two distinct categories of chemical registrants: retail distributors, such as convenience stores, gas stations, truck stops, liquor stores, etc., whose regulated activities consist of the direct sale to walk-in customers of drug products that are regulated as List I chemicals; and non-retailers, such as manufacturers which distribute, distributors, importers and exporters of List I chemicals. Based upon contacts with the chemical industry and surveys of the industry over the past three years, DEA estimates that approximately 1,500 applications for registration will be received from non-retailers. Based on the information gathered from various sources, including association data, surveys of ephedrine manufacturers and distributors, and correspondence received from ephedrine distributors, DEA estimates that there may have been as many as 100,000 retail distributors that, prior to the April 16, 1994 effective date of the DCDCA, sold drug products that are now subject to regulation. However, estimating the number of persons who will continue to engage in activities with the regulated drug products is speculative, due to a variety of factors. Some retailers who engaged in this previously unregulated activity may decide to no longer sell items for which registration is required by law. Also, the activities of retail distributors may be affected by state laws, such as those in Wisconsin, Florida and Missouri, which require that drug products containing ephedrine as the sole medicinal ingredient may only be dispensed pursuant to prescription. Another consideration is the availability of alternative products that are not subject to the registration, recordkeeping and reporting requirements. DEA has learned that certain distributors of single-entity ephedrine products have already advised their retail customers to switch to such alternative products to avoid the registration and recordkeeping requirements. Therefore, for purposes of establishing the initial fee, DEA estimates that 10,000 applications will be submitted by retail distributors. The number of applications is important only when considering apportionment of indirect costs associated with initial registration. For the first year of the registration program, this amount will constitute $22.00 of the total fee. Thus, a larger or smaller number of applicants would not result in any significant increase or decrease in the registration fee. During the implementation of the DCDCA, DEA will focus on processing applications, conducting pre-registration and follow- up investigations and the creation and dissemination of information regarding the registrant's responsibilities under the DCDCA. DEA expects that the majority of its chemical control resources will be required to handle the applications which will be submitted immediately following implementation of the regulations. Once the pre-registration process for existing businesses has been handled, the primary focus of DEA's chemical control program will be investigations of violative firms and registration denial or revocation proceedings. Such enforcement activities protect the integrity of the registration system by ensuring that registrants continue to meet the requirements of the DCDCA. DEA's activities will include, but not be limited to, extensive investigation and collection of documentation regarding violative practices by registrants; attorney review and preparation by DEA's Office of Chief Counsel; staff and attorney time to prepare for proceedings to deny or revoke a registration; Administrative Law Judge and staff to conduct registration denial hearings; and DEA budget and controller staff time for budget planning, accounting and auditing of fees collected. The benefits of these activities accrue to the over-all registrant population and the costs for such activities must be averaged across the entire registrant population. However, as described earlier, the expected registrant population and the extent of these enforcement activities are speculative at this time. Therefore, the costs associated with these activities have not been included in this initial fee, since they are indirect costs that would have to be averaged across a presently unknown population of applicants. After the registration process is completed and the registrant population and extent of activities necessary to protect the integrity of the system has been determined, DEA will revise its fee schedule to recover the full costs of its chemical control program, as required by Circular A-25. DEA will publish in the Federal Register its revised fee schedule and invite comment by interested parties. In light of the above, the initial registration fee will be based upon the cost of processing the individual application, the associated investigation of the qualifications and suitability for registration, and the creation and dissemination of information regarding the responsibilities under the DCDCA. Reregistration fees under this proposal will include enforcement and compliance costs associated with maintenance of the integrity of the registration and control system. These fees will not include enforcement costs of reviews of records and reports of fully complaint registrants exclusively to identify leads to possible illicit drug laboratories. The Initial Registration Investigation The fundamental purpose of the pre-registration investigation is to determine the fitness and suitability of the applicant to engage in the activities for which registration is requested and to ensure that the applicant is familiar with its responsibilities to prevent the diversion of regulated products or chemicals. This will be accomplished through an on-site visit to the applicant (following receipt and processing of the application for registration by clerical personnel) by DEA Diversion Investigators. During this on-site visit, the applicant's responsibilities with respect to security, record-keeping and reporting will be discussed; the applicant's existing provisions for security, record-keeping and reporting, if any, will be reviewed, along with previous sales and customers; and the applicant will be provided with material, such as the Chemical Handlers Manual, regarding chemical trafficking and controls. In addition, the investigator will perform background checks on the applicant, owner and employees, and prepare the necessary reports summarizing the results of the registration review. Retail distributors engage in a limited activity as regulated by the DCDCA. By contrast, non-retail chemical firms may deal in a range of List I chemicals, in bulk lots or, pursuant to orders received by mail, telephone, facsimile or other electronic means. Consequently, the average pre-registration investigation for a retail distributor will entail less DEA investigative time than for a non-retail chemical firm. Method for Collection of Fees For the initial registration fee, DEA has established separate costs for processing the application, and for conducting the pre-registrant investigation. Both costs will be incurred by the applicant prior to their initial registration under the DCDCA. As noted above, DEA anticipates receiving 1500 applications from non-retail chemical firms and approximately 10,000 applications from retail distributors. DEA will place priority on the completion of the pre-registration investigations of non-retail chemical firms. All non-retail applications will be processed and reviewed within the first year of the effective date of this regulation. Therefore, the full fee (application and pre-registration investigation costs) must be submitted with the application. Because of the demands for resources to conduct registration reviews of non-retail applications and for other chemical control activities, DEA will be unable to process and review all of the applications submitted by retail distributors within the first year following the effective date of the final rule. As a consequence, retail distributors will be subject to a split fee schedule for their initial registration. Each retail distributor will include with their application the established fee to cover the costs of processing the application. Based on available resources, DEA will identify and notify approximately 1500-2000 of the retail applicants that they are scheduled for pre-registration review in the first year. Each applicant so identified will be required to pay the additional established cost for the registration investigation prior to commencement of the review. Based upon the volume of applications received, DEA may conduct additional retail registration investigations in the first year. In the second year, DEA will redirect resources spent conducting non-retail pre-registration investigations to the retail level. DEA anticipates an additional 6,000 to 8,000 pre-registrant investigations to be conducted in the second year. These retail distributors will similarly be notified of the investigation fee to be paid. They will not be required to submit another application fee. However, if a retail distributor fails to submit the required investigation fee within 30 days after notification by DEA, that retail distributor's application will be withdrawn. Reregistration Fees Following the completion of the initial registration process, DEA will dedicate ongoing resources to insuring the controls of the DCDCA are being maintained, protecting the integrity of the system, and providing assistance, guidance, and interpretation of the chemical control requirements to the registrants. These costs, along with application processing costs will establish the basis for the annual reregistration fee. Since many of these costs will be averaged across the registrant population, it is only possible to establish a reregistration fee at this time based upon estimated populations. After the full second year of the regulations implementing the DCDCA, the fee schedule will be reviewed, as required by Circular A-25, and a new fee structure proposed for public comment, based upon the actual registrant population. As stated above, DEA will complete the registration process for all non-retail applicants in the first year. Investigative resources devoted to these pre-registration investigations (approximately 12 workyears) will be directed towards completion of the pre- registration process of retail distributor applicants in the second year. At the non-retail level, DEA will dedicate eight workyears of investigator time to conduct follow-up investigations of approximately 75 non-retail firms. Each investigation will require a comprehensive review of each registrant's records, reporting systems and security provisions to ensure that the registrant is complying with the chemical control requirements, and chemicals are not being distributed to persons seeking to divert them. Investigators will conduct a comprehensive on-site review of the registrant's records; verification of transactions and purchasers, including record checks of and visits to purchasers; travel; and report preparation. This cost, plus the reregistration processing fee and the above listed indirect costs averaged over the estimated 1500 non-retail registrants will constitute the non-retail reregistration fee. At the retail level, due to the large volume of firms and the general lack of experience in the required record-keeping and reporting requirements, DEA will conduct a greater number of follow-up investigations. However, in light of the anticipated smaller volumes of regulated transactions of such firms, each follow-up is scheduled for a smaller amount of on-site time. DEA anticipates that two Diversion Investigator workyears will be required to conduct follow-up investigations at the retail level. This cost, plus the reregistration processing fee and above listed indirect costs averaged over the estimated 2000 retail distributors registered in the first year will constitute the reregistration fee. As DEA completes the second year of the chemical registration program, the bulk of the retail distributor new applications will have been processed, thus freeing the resources assigned to conduct the registration investigations. In the following years, there will be a greater number of registrants submitting applications for reregistration. DEA will dedicate proportionally greater resources to these registrants. As noted earlier, following the initial two years of the registration program, DEA will conduct a review of the fee structure and, as needed, publish a notice in the Federal Register regarding amendment of the fee schedule. Registration Costs. The costs associated with the registration process are as follows. DEA estimates that 1,500 non-retail applications and approximately 10,000 retail applications will be received. As previously stated, the personnel costs listed below include all direct and indirect costs, including salaries, fringe benefits (such as life and health insurance and retirement) and travel; physical overhead, including material and supply costs such as forms, postage, equipment, rent and utilities: Costs for Processing an Application and Issuing a Retail Distributor Registration -------------------------------------------------------------+----------------- -------+--------------- | | -------------------------------------------------------------+----------------- -------+--------------- | | COST FOR PROCESSING A RETAIL DISTRIBUTOR APPLICATION | | -------------------------------------------------------------+----------------- -------+--------------- Clerical Time {1}........................................... | .25 hours....... .