Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67951

Commission disclosing (1) the name and 

principal place of business of the 

standards development organization 

and (2) the nature and scope of its 

standards development activities. The 

notifications were filed for the purpose 

of invoking the Act’s provisions limiting 

the recovery of antitrust plaintiffs to 

actual damages under specified 

circumstances. 

Pursuant to section 6(b) of the Act, the 

name and principal place of business of 

the standards development organization 

is: Unified Abrasive Manufacturers 

Association, Cleveland, OH. The nature 

and scope of UAMA’s standards 

development activities are: UAMA acts 

as secretariat for two ANSI accredited 

standards committees which develop (1) 

specifications for safety in the use of 

bonded, coated and loose abrasives, 

excluding natural sandstones, including 

safety requirements for abrasive 

products, abrasive machines and 

accessories, and requirements for the 

proper storage, handling and mounting 

of abrasive products; and (2) 

identification and dimensional 

standards and standard test methods for 

bonded, coated and loose abrasive in the 

natural and manufactured categories.

Dorothy B. Fountain, 

Deputy Director of Operations, Antitrust 

Division.

[FR Doc. 04–25859 Filed 11–19–04; 8:45 am] 

BILLING CODE 4410–11–M

DEPARTMENT OF JUSTICE

Antitrust Division 

Notice Pursuant to the National 

Cooperative Research and Production 

Act of 1993—Video Electronics 

Standards Association 

Notice is hereby given that, on 

September 20, 2004, pursuant to section 

6(a) of the National Cooperative 

Research and Production Act of 1993, 

15 U.S.C. 4301 et seq. (‘‘the Act’’), Video 

Electronics Standards Association 

(‘‘VESA’’) has filed written notifications 

simultaneously with the Attorney 

General and the Federal Trade 

Commission disclosing (1) the name and 

principal place of business of the 

standards development organization 

and (2) the nature and scope of its 

standards development activities. The 

notifications were filed for the purpose 

of invoking the Act’s provisions limiting 

the recovery of antitrust plaintiffs to 

actual damages under specified 

circumstances. 

Pursuant to section 6(b) of the Act, the 

name and principal place of business of 

the standards development organization 

is: Video Electronics Standards 

Association, Milpitas, CA. The nature 

and scope of VESA’s standards 

development activities are: To facilitate 

and promote personal computer 

graphics through improved graphics 

standards for the benefit of the end user; 

to support and set industry-wide 

interface standards for the personal 

computer, workstation and computing 

environments; and to promote and 

develop timely, relevant, open 

standards for the display and display 

interface industry, ensuring 

interoperability and encouraging 

innovation and market growth.

Dorothy B. Fountain, 

Deputy Director of Operations, Antitrust 

Division.

[FR Doc. 04–25843 Filed 11–19–04; 8:45 am] 

BILLING CODE 4410–11–M

DEPARTMENT OF JUSTICE

Antitrust Division 

Notice Pursuant to the National 

Cooperative Research and Production 

Act of 1993—Window & Door 

Manufacturers Association 

Notice is hereby given that, on 

September 21, 2004, pursuant to section 

6(a) of the National Cooperative 

Research and Production Act of 1993, 

15 U.S.C. 4301 et seq. (‘‘the Act’’), 

Window & Door Manufacturers 

Association (‘‘WDMA’’) has filed 

written notifications simultaneously 

with the Attorney General and the 

Federal Trade Commission disclosing 

(1) the name and principle place of 

business of the standards development 

organization and (2) the nature and 

scope of its standards development 

activities. The notifications were filed 

for the purpose of invoking the Act’s 

provision limiting the recovery of 

antitrust plaintiffs to actual damages 

under specified circumstances. 

Pursuant to section 6(b) of the Act, the 

name and principal place of business of 

the standards development organization 

is: Window & Door Manufacturers 

Association, Des Plaines, IL. The nature 

and scope of WDMA’s standards 

development activities are: WDMA 

develops voluntary consensus industry 

standards pertaining to the design and 

manufacture of products, and the 

components of the products, of the 

window, skylight and door industry. 

WDMA is currently recognized by the 

American National Standards Institute 

(ANSI) as an Accredited Standards 

Developing Organization (SDO).

Dorothy B. Fountain, 

Deputy Director of Operations, Antitrust 

Division.

[FR Doc. 04–25870 Filed 11–19–04; 8:45 am] 

BILLING CODE 4410–11–M

DEPARTMENT OF JUSTICE

Drug Enforcement Administration 

[Docket Nos. 01–12; 01–13] 

Indace, Inc., c/o Seegott, Inc.; Malladi, 

Inc.; Suspension of Shipments 

On January 25, 2001, the thenAdministrator of the Drug Enforcement 

Administration (DEA) issued an Order 

to Suspend Shipment to Indace, Inc.,

c/o Seegot, Inc. (Indace) of Elgin, 

Illinois, notifying it that pursuant to 21 

U.S.C. 971, DEA had ordered the 

suspension of a shipment of 3,000 

kilograms of ephedrine hydrochloride, a 

listed chemical, from India into the 

United States. Indace indicated in its 

request for importation that the listed 

chemical was intended for further 

shipment to PDK Laboratories, Inc. 

(PDK) of Hauppage, New York. The 

Order to Suspend Shipment stated that 

DEA concluded that the listed chemical 

may be diverted to the clandestine 

manufacture of a controlled substance 

based upon the appearance of products 

manufactured from prior imports of 

ephedrine and pseudoephedrine 

destined for PDK at illicit criminal sites, 

including methamphetamine 

clandestine laboratories and dumpsites 

throughout the United States. 

On January 26, 2001, the thenAdministrator of DEA issued an Order 

to Suspend Shipment to Malladi, Inc. 

(Malladi) of Edison, New Jersey, 

notifying it that pursuant to 21 U.S.C. 

971, DEA had ordered the suspension of 

a shipment of 3,000 kilograms of 

ephedrine hydrochloride, a listed 

chemical, from India into the United 

States. Malladi also had indicated in its 

request for importation that the listed 

chemical was intended for further 

shipment of PDK and the Order to 

Suspend Shipment similarly stated that 

DEA had concluded the listed chemical 

may be diverted to the clandestine 

manufacture of a controlled substance, 

based upon the appearance of products 

manufactured from prior imports of 

ephedrine and pseudoephedrine 

destined for PDK at illicit criminal sites, 

including methamphetamine 

clandestine laboratories and dumpsites 

throughout the United States. 

67952 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

On February 8, 2001, PDK requested 

a hearing in both matters, asserting 

standing as a Respondent pursuant to 

the ruling in PDK Laboratories, Inc. v. 

Reno, et al., 134 F.Supp.2d 24 (D.D.C. 

2001). DEA complied with the District 

Court’s ruling and both matters were 

docketed before Administrative Law 

Judge (ALJ) Gail A. Randall. 

On March 8, 2001, the ALJ issued an 

order consolidating both matters for 

hearing purposes. Neither Indace nor 

Malladi requested a hearing in these 

matters. Following prehearing 

procedures, a hearing was held in 

Arlington, Virginia, on March 26–30, 

April 5–6, April 11–13 and April 16–17, 

2001. At the hearing, PDK and the 

Government called witnesses to testify 

and introduced documentary evidence. 

After the hearing, both parties filed 

proposed findings of fact, conclusions of 

law, and argument. 

On April 5, 2002, the ALJ issued a 

consolidated Recommended Rulings, 

Findings of Fact, Conclusions of Law, 

and Decision of the Administrative Law 

Judge (hereinafter ‘‘Recommendation’’

or ‘‘Opinion and Recommended 

Ruling’’) recommending that both 

suspensions be lifted and the exporters 

allowed to complete the shipments. On 

April 25, 2002, the Government filed 

Exceptions to the ALJ’s 

Recommendation. In response, on May 

21, 2002, PDK filed its Response to the 

Exceptions Filed by the Government. 

Subsequently, on June 5, 2002, the ALJ 

transmitted the record of these 

proceedings to the Deputy 

Administrator for final action pursuant 

to 21 CFR 1313.57. 

On December 13, 2002, pursuant to 21 

CFR 1313.57, then-Deputy 

Administrator John B. Brown III, issued 

his final order regarding the Indace and 

Malladi suspensions of shipments. The 

then-Deputy Administrator rejected the 

Opinion and Recommended Ruling of 

the Administrative Law Judge. That 

final order was subsequently published 

in the Federal Register on December 19, 

2002. See Indace, Inc. c/o Segott, Inc.; 

Malladi, Inc. (Indace/Malladi), 67 FR 

77805 (2002). 

In the ALJ’s Opinion and 

Recommended Ruling, she interpreted 

the terms‘‘listed chemical’’ and ‘‘the 

chemical,’’ as set forth in 21 U.S.C. 

971(c)(1) (hereafter ‘‘971’’), to be limited 

to the actual material to be imported, in 

this case, bulk ephedrine. In the event 

the Deputy Administrator disagreed 

with that interpretation, the ALJ made 

alternative findings and 

recommendations that the Government 

had not satisfied the ‘‘may be diverted’’

portion of 971. The then-Deputy 

Administrator rejected the ALJ’s 

interpretation of 971, finding:

The application of 971 is not limited to the 

imported form of the listed chemical. The 

Deputy Administrator concludes that the 

provisions of 971 apply to regulated 

transactions involving listed chemicals 

regardless of imported or exported form. i.e.,

bulk of finished products. The Deputy 

Administrator further concludes the 

provisions of 971 apply to finished products 

subsequently manufactured from bulk 

imported list chemicals.

Id., 67 FR at 77806.

The then-Deputy Administrator 

agreed with the ALJ that the evidence 

did not show, by a preponderance of the 

evidence, a violation by PDK of its 

obligation to report suspicious sales 

under 21 CFR 1310.05(a)(1) in 

connection with certain mail order sales 

of 25 mg. ephedrine products which 

occurred in 1995 and 1996. The thenDeputy Administrator further noted 

there had been testimony presented 

concerning ‘‘traditional’’ versus ‘‘nontraditional’’ markets for List I chemical 

products. However, in accord with his 

previous holding on this subject, he 

found the probative weight of the 

evidence introduced in this case to be 

minimal, without ‘‘some form of further 

extrinsic evidence to support these 

arguments.’’ Indace/Malladi, supra, 67 

FR at 77808, quoting Mediplas 

Innovations, (Mediplas) 67 FR 41256, 

41264 (2002). 

However, relying primarily on the 

issuance of a series of Warning Letters 

by DEA between 1999 and 2001, 

advising PDK that its ephedrine and 

pseudoephedrine products had been 

found at illicit methamphetamine 

manufacturing sites, the then-Deputy 

Administrator concluded sufficient 

evidence supported DEA’s contention 

that the chemicals may be diverted. 

Secondarily, the then-Deputy 

Administrator relied on PDK’s failure to 

report as exports, pursuant to 21 CFR 

1313.21(a), four shipments of ephedrine 

sold to Sun Labs of Canada between 

1994 and 1995, which had been 

delivered within the United States. 

In making his ruling the then-Deputy 

Administrator applied the ‘‘totality of 

the circumstances’’ test used in 

Mediplas, stating:

The Deputy Administrator notes the record 

is replete with PDK’s contentions that it has 

worked hard to evaluate its activities and to 

cooperate with DEA in stemming diversion. 

However, the record shows that diversion of 

PDK products has continued to occur, and 

that, based upon the Warning Letters 

received, PDK should have known its 

remedial actions were insufficient to stem the 

diversion of its List I chemical products. 

Moreover, the record shows evidence that 

PDK violated export regulations on at least 

four occasions by failing to file the required 

notifications of its shipments to Sun Labs. 

The totality of the circumstances therefore 

supports the Government’s assertion that the 

list chemicals sought to be imported and 

distributed to PDK may be diverted and 

furthermore that the Suspension Orders were 

proper and should be sustained, Mediplas, 67 

FR at 41,264. The fact that PDK products 

containing ephedrine and pseudoephedrine 

have been repeatedly found at the site of 

clandestine methamphetamine laboratories 

and dump sites is a significant indicator that 

these products may continue to be diverted 

to such illicit activities. 

* * * The Deputy Administrator finds 

that there was sufficient evidence at the time 

of the hearing to support DEA’s contention 

that the chemicals may be diverted. 

Mediplas, 67 FR at 41260–41261 * * * 

Therefore, the Deputy Administrator 

concludes that the suspensions set forth in 

the January 25 and 26, 2001 Orders to 

Suspend Shipments of ephedrine 

hydrochloride issued to Indace and Malladi 

were justified.

Indace/Malladi, supra, 67 FR at 77809. 

PDK filed a timely petition for review 

of the final order pursuant to 21 U.S.C. 

877 with the United States Court of 

Appeals for the District of Columbia 

Circuit and on March 26, 2004, the 

Court issued its opinion in PDK 

Laboratories Inc. v. U.S. Drug 

Enforcement Administration (PDK 

Labs), 362 F.3d 786 (D.C. Cir. 2004). 

Consistent with the District Court’s 

decision in PDK Labs Inc. v. Reno, 

supra, 134 F. Supp. at 31, the Court of 

Appeal concluded PDK had both 

prudential and Article III standing to 

challenge the suspension orders under 

the facts and circumstances of this cas. 

PDK Labs, supra, 363 F.3d at 791–794; 

see also PDK Labs Inc. v. Ashcroft, ll

F.Supp.2d ll, 2004 WL 1924930, 4 

(D.D.C., decided August 27, 2004). 

The Court of Appeal also ruled that 

the final order of December 13, 2002, 

should be set aside and remanded to 

DEA for a new final order. The entire 

Court concluded the then-Deputy 

Administrator had relied in significant 

part on PDK’s failure to file export 

notifications regarding the New York 

deliveries of tablets containing 

ephedrine to Sun Labs of Canada. 

However, the final order failed to 

distinguish or explain its apparent 

departure from the position taken by the 

agency in Alfred Khalily, Inc. (Khalily), 

64 FR 31289 (DEA June 10, 1999). PDK 

Labs, 363 F.3d at 798–799.

In applying his ‘totality of the 

circumstances’ approach to determining 

whether the listed chemical may be diverted, 

the Deputy Administrator ruled that PDK had 

violated an export notification regulation 

when it made four deliveries of tablets 

containing ephedrine between 1994 and 1995 

to Sun Labs of Canada in New York. 67 FR 

Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67953

1However, as the Court of Appeal indicated, ‘‘in 

holding that PDK has prudential standing, we have 

avoided placing a judicial interpretation on 

§ 971(c)(2), the hearing provision.’’ PDK Labs, 

supra, 362 F.3d at 794. The Deputy Administrator 

therefore declines to adopt a rule as DEA policy that 

a party in PDK’s position (i.e., a wholesale 

distributor/manufacturer or a downstream customer 

of such an entity), is entitled to a hearing under 21 

U.S.C. 971(c)(2) as a ‘‘regulated person to whom an 

order applies under paragraph (1)’’ of that 

subdivision.

at 77807–08. The Deputy Administrator did 

not explain how alleged export violations 

were relevant to determining whether PDK’s 

finished products might be used in 

methamphetamine laboratories. In any event, 

the Deputy Administrator failed to 

distinguish, indeed did not mention, Alfred 

Khalily, Inc., 64 FR 31389 (DEA June 10, 

1999), which held that a company selling List 

I chemicals to a foreign buyer but delivering 

the chemicals to the buyer in the United 

States ‘was not responsible for filing any 

export documentation.’ Id. at 31,293 n.2.

PDK Labs, 362 F.3d at 788. 

In addition to this ground for remand, 

a majority of the Court also concluded 

that remand was necessary for DEA to 

interpret 971(c)(1)’s provision 

authorizing DEA to ‘‘order the 

suspension of any importation * * * of 

a listed chemical on the ground that the 

chemical may be diverted to the 

clandestine manufacture of a controlled 

substance.’’ See PDK Labs, v. DEA, 362 

F.3d at 794–98. One judge issued a 

concurring opinion which, while 

agreeing remand was appropriate for the 

failure to distinguish Khalily, disagreed 

with the majority as to the need for DEA 

to provide further interpretation of 

section 971(c)(1). Id. at 799–810 

(Roberts, J., conc.). However, the 

majority analyzed the crux of the case 

as follows:

The main interpretive question in the case 

is whether, as the suspension orders assume, 

‘the chemical may be diverted’ includes the 

prospect that PDK’s ephedrine-containing 

pills in retail stores will be sold to, or 

shoplifted by, people who will then use the 

pills to produce methamphetamine [fn]. The 

Deputy Administrator concluded that the 

statute plainly meant what the suspension 

orders assumed. He reached this conclusion 

without mentioning any policy 

considerations or other means within the 

agency’s expertise. Apparently for this 

reason, DEA neither invoked Chevron v. 

NRDC, U.S. 837, 843–45 (1984), nor asks us 

to give special deference to the Deputy 

Administrator’s judgment about the meaning 

of the provision.

PDK Labs, supra, 362 F.3d at 794.

The majority viewed the then-Deputy 

Administrator’s final order as premised 

on an erroneous belief that the statute 

was ‘‘clear’’ and 971(c)(1)’s meaning 

‘‘plain.’’ Id., at 794–95. It held as 

follows:

We do not agree that the language of 

§ 971(c)(1) plainly covers the diversion of 

finished products, or drug products. That a 

statute is susceptible of one construction 

does not render its meaning plain if it is also 

susceptible of another plausible construction, 

as we believe this statute is. Section 971(c)(1) 

deals with importation (and exportation) of 

listed chemicals. It does not regulate what a 

drug manufacturer does with the chemical 

after receiving it; other sections of the 

[Controlled Substances Act, as amended] 

control that subject. When § 971(c)(1) states 

that DEA may stop the importation if ‘the 

chemical may be diverted to the clandestine 

manufacture of a controlled substance,’ one 

might ask: ‘Diverted from what?’ In context, 

a reading as plausible as the Deputy 

Administrator’s is that Congress meant only 

to cover diversions during importation. On 

this view, § 971(c)(1) would authorize 

suspension orders only if the imported 

chemical might not reach its intended 

destination—the legitimate, domestic 

manufacturer.

PDK Labs, supra, 362 F.3d at 796–97 

(italics in original). 

The majority further concluded,

In short, we do not agree that the meaning 

of § 971(c)(1) is as plain as it says it is. It may 

be that here, as in other cases, the strict 

dichotomy between clarity and ambiguity is 

artificial, that what we have here is a 

continuum, a probability of meaning. In 

precisely those kinds of cases, it is 

incumbent upon the agency not to rest 

simply on its parsing of the statutory 

language. It must bring its experience and 

expertise to bear in light of competing 

interests at stake. See Chevron v. NRDC, 467 

U.S. at 865–66, 104 S. Ct. at 2792–93. But it 

has not done so here and at this stage it is 

not for the court ‘to choose between 

competing meanings.’ [Citations].

PDK Labs, supra, 362 F.3d at 797–98. 

With this guidance in mind, the 

Deputy Administrator has considered 

the record in its entirety, along with the 

Court of Appeal’s ruling and, pursuant 

to 21 CFR 1313.57, hereby issues her 

final order regarding the Indace and 

Malladi suspension of shipments, based 

upon findings of fact and conclusions of 

law as hereinafter set forth. The Deputy 

Administrator is issuing one final order 

regarding both suspension cases since 

the same findings of fact and 

conclusions of law apply to both 

suspensions. Except as hereinafter 

noted, the Deputy Administrator rejects, 

in its entirety, the Opinion and 

Recommended Ruling of the 

Administrative Law Judge. Based upon 

her review of the record in this matter, 

including all submissions of both 

parties, and exceptions as filed, the 

Deputy Administrator adopts such 

findings of fact and conclusions of law 

as hereinafter follow. 

The Deputy Administrator finds that 

both Indace and Malladi are registered 

with DEA as importers of listed 

chemicals. Both importers were advised 

in the Orders to Suspend Shipment of 

their right to request a hearing. Neither 

importer chose to do so. Furthermore, 

the record reflects that the ALJ gave 

Indace an opportunity to participate in 

prehearing matters, but Indace did not 

respond. Accordingly the Deputy 

Administrator concludes that both 

Indace and Malladi have waived their 

right to a hearing pursuant to 21 CFR 

1313.54.

It is now the law of the case that in 

reference to this proceeding, PDK is ‘‘a 

regulated person to whom an order 

applies under 21 U.S.C. 971(c)(2) with 

respect to the suspension of List I 

chemicals to be imported on PDK’s 

behalf.’’ PDK Laboratories Inc. v. Reno, 

et al., supra, 134 F.Supp. at 31; PDK 

Labs, supra, 362 F.3d at 792–95. 

Accordingly, the District Court and the 

Court of Appeal have created a rule for 

this case.1

On January 25 and 26, 2001, DEA 

issued the Orders to Suspend Shipment 

to Indace and Malladi which are the 

subject of these proceedings. The Orders 

asserted as a basis for suspension that 

the ephedrine to be imported may be 

diverted to the illicit production of a 

controlled substance. They recited that 

DEA investigations revealed that 

products produced from prior imports 

of ephedrine and pseudoephedrine 

destined for PDK had appeared at 

clandestine methamphetamine 

laboratories in the United States. The 

Orders also indicated that traffickers 

utilize ephedrine and pseudoephedrine 

in the illicit production of 

methamphetamine, that PDK 

manufactures and distributes over-thecounter drug products containing the 

listed chemicals pseudoephedrine and 

ephedrine, that these products are 

distributed in strength, quantity and 

packaging unlike the traditional market 

(referred to by DEA as ‘‘gray market’’

products), and that these products are 

generally distributed and sold through 

non-traditional retail outlets. The 

Orders to Suspend Shipment also 

indicated that DEA data regarding 

clandestine laboratory seizures noted 

that gray market products are 

predominantly encountered in 

clandestine methamphetamine 

laboratories. 

The issue before the Deputy 

Administrator is whether or not the 

record as a whole establishes by a 

preponderance of the evidence that DEA 

should suspend the two shipments of 

ephedrine hydrochloride destined to be 

shipped from India to the United States, 

pursuant to 21 U.S.C. 971(c)(1) and 21 

CFR 1313.41(a). 

67954 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

2Now 21 U.S.C. 841(c)(2).

3The Mini-Thin ephedrine based product 

involved in Daas, had been obtained by the 

defendant from Body Dynamics Incorporated (BDI) 

and sold to the All-Rite Market of Marysville, 

California between early 1996 and early 1997. Daas, 

supra, 198 F.3d at 1171–72. During this period, 

PDK was manufacturing the Mini-Thin products 

and distributing it exclusively through BDI. In 1998, 

after DEA executed a Federal search warrant on BDI 

and sent a Warning Letter to PDK concerning BDI 

labeled products being found at illicit sites, PDK 

terminated its contract with BDI.

There is no evidence that the 

shipments of bulk ephedrine 

hydrochloride would be diverted before 

reaching PDK, the intended recipient 

within the United States. Thus, if the 

ALJ’s interpretation of the terms ‘‘listed 

chemical’’ and ‘‘the chemical’’ as set 

forth in 971(c)(1) was correct, the 

suspensions could not be sustained. 

However, the Deputy Administrator 

rejects the ALJ’s interpretation of these 

critical terms and concludes they 

encompass more than just the imported 

or exported form of the listed chemical, 

in this case bulk ephedrine 

hydrochloride. Instead, the Deputy 

Administrator finds the applicable 

provisions of 971 apply to regulated 

transactions involving listed chemicals, 

regardless of their imported or exported 

form, i.e., bulk or finished products. The 

Deputy Administrator further concludes 

the terms at issue also apply to finished 

products subsequently manufactured 

from bulk imported/exported list 

chemicals. 

The Deputy Administrator believes 

that the term ‘‘listed chemical,’’ as used 

in 971(c)(1) should be construed broadly 

in light of that term’s use in other parts 

of the same statute, which was enacted 

by Congress in 1988. In the previous 

final order, the then-Deputy 

Administrator cited the Ninth Court of 

Appeal’s decision in United States v. 

Daas (Dass), 198 F.3d 1167 (9th Cir. 

1999). See, Indace/Malladi, 67 FR at 

77806. In that case, the defendant, who 

had been convicted under then-21 

U.S.C. 841(d)(2) 2 for distributing a 

listed chemical, argued the evidence 

was insufficient to support his 

conviction because that statute, which 

was enacted at the same time as 

971(c)(1), only criminalized the 

distribution of pure ephedrine or 

pseudoephedrine, not a chemical 

mixture containing these chemicals.

The Ninth Circuit rejected that 

argument, holding that ‘‘§ 841(d)(2) 

encompasses such mixtures as Mini 

Thins and Pseudo Thins.’’ Dass, 198 

F.3d at 1174. In particular, the Ninth 

Circuit noted that the ephedrine and 

pseudoephedrine in Mini Thins and 

Pseudo Thins ‘‘retain a separate 

existence,’’ (quoting Chapman v. United 

States, 500 U.S. 453, 461 (1991) and, 

therefore, that ‘‘[t]he ephedrine and 

pseudoephedrine in Mini Thins and 

Pseudo Thins are plainly ‘listed 

chemicals’ within the meaning of 

§ 841(d)(2).’’ Id., at 1175.3

For clarification, while Daas referred 

to the ‘‘plain’’ meaning of the phrase in 

the criminal statute, the Deputy 

Administrator does not view Dass as 

mandating the adopted interpretation of 

971(c)(1). However, as noted by the 

majority in PDK Labs, ‘‘There is logic in 

the Ninth Circuit’s reasoning, and in the 

Deputy Administrator’s reliance on the 

decision. When Congress uses the same 

word in different parts of a statute, it 

usually means the same thing. See 

Sullivan v. Stroop, 496 U.S. 478, 484 

(1990); Energy Research Found v. 

Defense Nuclear Safety Bd., 917 F.2d 

581, 583 (D.C. Cir. 1990).’’ PDK Labs, 

362 F.3d at 796.

However, the majority went on to note 

that logic is only one component of 

statutory interpretation. The words of 

the statute should be ‘‘read in context, 

the statute’s place in ‘the overall 

scheme’ should be considered, and the 

problem Congress sought to solve 

should be taken into account 

[Citations].’’ PDK Labs, 362 F.3d at 797. 

The Deputy Administrator finds that 

based upon the evidence in the record, 

the listed chemicals ephedrine and 

pseudoephedrine are marketed in 

prescription and over-the-counter drug 

products which have legitimate 

therapeutic uses as a bronchodilator and 

nasal decongestant, respectively. 

The Deputy Administrator also finds 

that over the past decades, DEA has 

been engaged in enforcement and 

regulatory activity to control the largescale diversion of chemicals, including 

ephedrine and pseudoephedrine, into 

the illicit manufacture of controlled 

substances. The controlled substance 

methamphetamine is easily produced in 

clandestine laboratories using either 

pseudoephedrine or ephedrine. The 

process of manufacturing 

methamphetamine is easily 

accomplished with minimal equipment 

and readily available chemical supplies. 

The Controlled Substances Act has 

always prohibited the illicit (i.e., 

without a DEA registration) manufacture 

of controlled substances. The earliest 

illicit methamphetamine laboratories 

used the freely available chemical 

phenyl-2-propanone, also known as 

phenylacetone or P2P, to produce 

methamphetamine, until that substance 

was itself scheduled as a controlled 

substance. In the 1980’s 

methamphetamine laboratories 

increasingly began to switch to an 

ephedrine process. The Chemical 

Diversion and Trafficking Act of 1988 

(CDTA), Pub. L. 100–690, established 

the basic scheme of chemical regulation 

and imposed reporting and record 

keeping and import/export notification 

requirements on certain regulated 

transactions involving chemicals, 

including bulk ephedrine. However, at 

the time, listed chemicals contained in 

drug products were exempted from the 

reporting and record keeping provisions 

of the CDTA. 

In response to these controls, illicit 

methamphetamine laboratories began to 

switch to targeted ‘‘single entity’’

ephedrine as a raw material. The 

Domestic Chemical Diversion Control 

Act of 1993 (DCDCA), Pub. L. 103–200, 

was then crafted to close the ephedrine 

‘‘loophole’’ by removing the exemption 

for ‘‘single entity’’ ephedrine products, 

and lowering its sales threshold. In 

addition, the DCDCA initiated a 

registration requirement for handlers of 

List I chemicals. 

Subsequently, illicit laboratories 

shifted to pseudoephedrine and 

combination ephedrine drug products as 

sources of raw material, prompting the 

passage of the Comprehensive 

Methamphetamine Control Act of 1996 

(MCA), Pub. L. 104–237, to establish 

additional controls and quantity 

thresholds for reporting transactions 

regarding listed chemicals. The MCA 

also established a Suspicious Orders 

Task Force, in part to assist in alerting 

the chemical industry to the many 

devices used by individuals who seek to 

divert large quantities of listed 

chemicals and listed chemical products 

into the illicit manufacture of controlled 

substances. 

Thus, there has been a series of 

legislative enactments intended to 

address the problems of illicit drugs, 

including methamphetamine. As illicit 

manufacturers altered methods of 

production and choices of precursor 

chemicals, Congress enacted legislation 

intended in significant part to brunt the 

efforts of criminals engaged in operating 

clandestine methamphetamine 

laboratories and to thwart or impede 

their obtaining the precursor chemicals 

required to manufacture controlled 

substances.

The Deputy Administrator finds 

nothing in the legislative history of 

these enactments compels the narrow 

interpretation of 971(c)(1) adopted by 

the ALJ in her Opinion and 

Recommended Ruling. Indeed, that 

history suggests Congress was very 

much concerned with the diversion of 

finished drug products containing 

ephedrine. See H.R. Rep. No. 103–

Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67955

379(I), at 6 (1993), reprinted in 1993 

U.S.C.C.A.N. 2983 [‘‘This provision 

removes the exemption * * * for drugs 

containing ephedrine * * * because 

these products are being diverted in 

significant quantities for the illicit 

manufacture of methamphetamine’’). As 

discussed in the initial final order, 

when the then-Acting Deputy 

Administrator made a report to the 

House of Representatives Committee 

considering the DCDCA, it indicated the 

legislation was intended, part, to close 

a ‘‘loophole’’ for those who divert 

ephedrine drug products. Id., at 5, 8 

(1993). 

As noted by the concurring opinion in 

PDK Labs, the DEA Acting 

Administrator’s report to the House 

explained that ‘‘the so-called ‘legal drug 

exemption’ which currently exempts 

drug products approved for marketing 

under the Food, Drug and Cosmetic Act 

from the regulatory provisions of our 

chemical control law had become a 

‘loophole’ exploited by clandestine 

laboratory operators. H.R. Rep. No. 103–

379, at 8. It is that loophole that the 

DCDCA and CMCA revoked for drugs 

containing ephedrine, see 21 U.S.C. 

802(39)(A)(iv)(I)(aa).’’ PDK Labs, 362 

F.3d at 803 (Roberts, J., conc.) (internal 

quotation marks omitted). 

However, the majority in PDK Labs 

observed that the 1993 House Report 

came out five years after the 1988 

enactment of 971(c)(1), that the DCDCA 

did not specifically amend section 971 

and the ‘‘loophole’’ being closed 

concerned record keeping and reporting 

requirements. PDK Labs, 362 F.3d at 

794–95. 

Nevertheless, the Deputy 

Administrator views the totality of these 

progressive enactments as part of an 

overall continuum of Congress’ intent to 

provide DEA the regulatory means to 

monitor the domestic production, 

manufacture and distribution of List I 

chemicals and prevent their illicit use in 

manufacturing methamphetamine, 

including the ability to prevent the 

importation of bulk chemicals that will 

be manufactured into chemical products 

after arriving into the United States and 

then diverted throughout the country to 

thousands of clandestine laboratories. 

The Deputy Administrator does not 

view the relevant enactments of 

Congress as expressing any clear intent 

that the term ‘‘listed chemical,’’ as used 

in 971(c)(1 ), was limited to the 

particular chemical being imported or 

that DEA, as the agency entrusted with 

administering that provision, could not 

consider and take action to prevent the 

import of bulk listed chemicals which 

were to be manufactured into finished 

products and then, in the downstream 

course of commerce, diverted to the 

illicit production of methamphetamine. 

If Congress wanted to make an 

express distinction between a bulk 

listed chemical and a finished product 

in section 971(c), it could have done so. 

For example, 21 U.S.C. 958(i) is the 

statute permitting registered 

manufacturers to challenge an 

application for a DEA registration that 

seeks to import bulk controlled 

substances. That provision explicitly 

states that it is limited to bulk 

manufacturers. Congress could have 

done likewise, but it did not make such 

a distinction between bulk and finished 

form list chemicals when it crafted 

section 971. 

The record reflects that once PDK 

receives its bulk ephedrine, it combines 

the ephedrine with the decongestant 

guaifenesin and binders to form a listed 

chemical product. Throughout this 

process, the chemical composition of 

the ephedrine is unaltered. Illicit 

methamphetamine manufacturers then 

purchase or steal the tablets and break 

the finished product down to its 

component parts. This, in effect, yields 

the same pure ephedrine that was 

imported for PDK. In this manner, the 

listed chemical itself—ephedrine—is 

diverted to methamphetamine 

manufacturing. As the concurring 

opinion described the process in PDK 

Labs,

At the time of its ‘diversion,’ the ephedrine 

extracted from PDK Mini-Two Way Action is 

just as much a listed chemical as when it was 

transported across the high seas in bulk form. 

Thus, at least insofar as a listed chemical is 

readily extractable from its finished drug 

product, the text of section 971(c) treats 

transactions (including a ‘diversion’) in that 

drug as transactions in the listed chemical it 

contains. 

This interpretation comports with common 

sense. If a methamphetamine manufacturer 

steals, for the purpose of making 

methamphetamine, a bottle containing pure 

ephedrine, or pure ephedrine dissolved in 

water, or a bottle containing 50 ephedrine 

and 50 guaifenesin pills, we would not hear 

an argument that he did not divert a listed 

chemical because he also diverted a bottle, 

some water, or some guaifensin. The 

presence of packaging materials or other 

extraneous items does not vitiate the 

existence of the listed chemical. Here, a 

bottle of PDK Mini Two-Way Action contains 

pills each consisting of 25 mg of ephedrine 

and 200 mg of guaifensin and binders. For 

purposes of Section 971(c), the decongestant 

and the binders are extraneous materials, no 

more relevant to the analysis than the bottles 

and boxes in which the pills are packaged.

PDK Labs, 362 F.3d at 800–801 (Roberts, 

J., conc.). 

The Deputy Administrator agrees with 

this analogy and finds that it comports 

with that of the Ninth Circuit in 

interpreting ‘‘listed chemical’’ for 

purposes of 21 U.S.C. 841(d)(2) (now 

(c)(2)), discussed earlier. See United 

States v. Daas, supra, 198 F.3d at 1174–

75. 

While Congress may not have been as 

concerned about the diversion of 

ephedrine-containing products when it 

enacted section 971 as it was in the 

years that followed, as noted in the 

concurring opinion, ‘‘ ‘the fact that a 

statute can be applied in situations not 

expressly anticipated by Congress does 

not demonstrate ambiguity. It 

demonstrates breadth.’ PGA Tour, Inc.

v. Martin, 532 U.S. 661, 689 (2001) 

(internal quotation marks and citations 

omitted); accord Consumer Elecs. Ass’n, 

347 F.3d [291] at 298.’’ PDK Labs, 362 

at 802–03. 

Were the ALJ’s strict interpretation of 

section 971(c)(1) given effect, as a policy 

matter it would also create an arbitrary 

dual standard. For example, if a listed 

chemical is imported in bulk form and 

if it is a chemical that is not or will not 

be converted to a drug product, then 

under 971(c)(1), that chemical may be 

suspended based upon its diversion 

during any time in its distribution flow, 

i.e., from the initial importation 

downstream to the last retail handler. 

Under the ALJ’s interpretation, 

however, the suspension statute would 

be of limited use for those bulk 

products, such as ephedrine, that could 

be finished into an over-the-counter 

drug product somewhere along the 

distribution chain. In other words, as a 

matter of law, based solely upon the 

ALJ’s statutory interpretation, once the 

imported bulk ephedrine is converted 

into a drug product at some point in the 

distribution chain, it is no longer subject 

to being suspended pursuant to section 

971(c). 

Such an artificial distinction between 

over-the-counter drug products and 

other chemicals that will not be 

converted into any finished drug 

product is not tenable and is certainly 

inconsistent with the criminal penalty 

provisions of the law involving imports. 

For example, if DEA had facts to show 

that an importer had reasonable cause to 

believe that a listed chemical was to be 

imported, tableted, and distributed to a 

clandestine laboratory, then the 

importer would be subject to a lengthy 

term of imprisonment under 21 U.S.C. 

960(d)(3). However, even if DEA knew 

those same facts, under the ALJ’s 

standard, the import shipment could not 

be suspended. 

For consideration only of the policy 

issues involved in interpreting 971(c)(1), 

as opposed to the sufficiency of the 

evidence to show that in this particular 

case the List I chemical ‘‘may be 

67956 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

4 January 17, 1998, Shipment of 10,000 Kilograms 

of Potassium Permanganate, December 16, 1997 

Shipment of 20,000 Kilograms of Potassium 

Permanganate and November 17, 1997, Shipment of 

20,000 Kilograms of Potassium Permanganate; 

Suspension of Shipments (collectively referred to as 

Suspension of Shipment Cases).

diverted,’’ (inasmuch as no additional 

extrinsic evidence was introduced at the 

hearing regarding the gray market; see

Mediplas, supra, 67 FR at 41264; 

Indace/Malladi, supra, 67 FR 77808), a 

series of cases decided after this matter 

was litigated and/or originally acted 

upon by the then-Deputy Administrator, 

illustrate the problems DEA, state 

regulators and law enforcement agencies 

throughout the country currently face as 

a result of the proliferation of 

clandestine laboratories—using 

precursor chemicals, obtained by theft 

or purchase of listed chemical products 

which have often been made from bulk 

chemicals imported into the United 

States and then distributed to 

convenience stores and gas stations as a 

part of the grey market. 

See, e.g., OTC Distribution Co., 68 FR 

70538, 70539 (2003) (‘‘Pseudoephedrine 

bulk powder is usually imported from 

China or India, tableted by DEAregistered manufacturers, distributed to 

various distributors, wholesalers and 

then to retail outlets. Of DEA’s 

approximately 3,500 chemical 

registrants in 2000, over 3,100 were 

distributors. While illegal diversion can 

occur at any point in the distribution 

chain, it usually occurs after the 

manufacturer has sold its product to a 

distributor.’’; see also Branex 

Incorporated, 69 FR 8682, 8690–93 

(2004); Xtreme Enterprises, Inc., 67 FR 

76195, 76196–97 (2002); Sinbad 

Distributing, 67 FR 10232, 10233–34 

(2002). For additional background as to 

the diversion of List I over-the-counter 

chemical products after distribution to 

retail establishments as it bears on 

DEA’s interpretation of 971(c)(1), see 

also DEA’s Proposed Rules on Security 

Requirements for Handlers of 

Pseudoephedrine, Ephedrine, and 

Phenylpropanolamine, 69 FR 45616, 

45617 (2004). 

In sum, DEA and other Federal, State 

and local law enforcement agencies are 

faced with a growing problem of listed 

chemicals being imported into the 

United States in bulk form, which are 

then converted into List I chemical 

products, distributed to the grey market 

and diverted to illicit production of 

methamphetamine. Section 971(c)(1) is 

considered by DEA to be a significant 

component of the regulatory arsenal 

given it by Congress to combat this 

immense and growing public problem. 

If the language of a law is ambiguous 

and there exists two competing 

reasonable interpretations and the 

agency interpretation, which best suits 

its goals, is consistent with the intent of 

Congress, that interpretation should be 

granted great deference. Such a 

construct would be especially true here, 

because section 971 (similar to many 

other statutes under the Controlled 

Substances Act) is remedial and since it 

was passed to protect the public 

interest, it should be construed broadly 

to effectuate its purpose. See Jefferson 

County Pharmaceutical Association v. 

Abbott Laboratories et al., 460 U.S. 150, 

159 (1983) (holding that the RobinsonPatman Act had to be construed 

liberally and broadly to effectuate its 

purpose, which was to prevent anti-trust 

price discrimination); Federal Trade 

Commission v. Mandel Brothers, Inc.,

359 U.S. 385, 389 (1959) (holding that 

the Federal Trade Commission’s 

interpretation of a retail labeling act 

would be upheld because the legislation 

was remedial, i.e., it was enacted to 

protect consumers).

The Deputy Administrator therefore 

concludes that the interpretation 

adopted in this final order is consistent 

with the words of the statute, its place 

in the overall drug enforcement 

legislative scheme and the problems 

Congress was attempting to address. 

In adopting her limited interpretation 

of ‘‘listed chemical’’ under 971(c)(1), the 

ALJ cited three prior DEA cases in 

support of her position: Suspension of 

Shipment Cases,4 65 FR 51333 (2002); 

Yi Heng Enterprises Dev. Co., 64 FR 

2234 (1999); and Neil Laboratories, Inc., 

64 FR 30063 (1999). The Deputy 

Administrator finds these cases readily 

distinguishable, as they did not involve 

or discuss the question of chemical 

identity, which is at issue here. Instead, 

each of these cases dealt with other 

listed chemicals which were distributed 

in their original state and, unlike the 

PDK-bound imports, were not destined 

to be subjected to the introduction of 

fillers and coatings in order to transform 

them into over-the-counter drug 

products after importation and then 

placed into commerce.

While remanding, the Court of Appeal 

implicitly suggested that the thenDeputy Administrator’s interpretation of 

971(c)(1)’s ‘‘listed chemical’’ was 

permissible. However, in the majority’s 

view it was arrived at under the 

erroneous impression that the statute 

‘‘plainly meant what the suspending 

orders assumed.’’ PDK Labs, 362 F.3d at 

794. 

Disavowed of that view by the 

majority’s guidance, based on the 

foregoing, the Deputy Administrator readopts the interpretation given by her 

predecessor to 971(c)(1)’s terms ‘‘listed 

chemical’’ and ‘‘the chemical’’ and 

holds they apply to regulated 

transactions involving listed chemicals 

regardless of imported or exported form, 

i.e., bulk or finished products and that 

the provisions of 971 apply to finished 

products subsequently manufactured 

from bulk imported or exported listed 

chemicals. 

The Deputy Administrator does not 

view this interpretation as managed by 

the ‘‘plain language’’ of the 971(c)(1). 

Instead, based on its experience and 

expertise, DEA concludes this is a 

reasonable interpretation which is 

consistent with the intent and language 

of the statute. It is also compatible with 

an in furtherance of the will of Congress 

in enacting the overall series of drug 

control laws serving to deter the illicit 

manufacturing, distribution and use of 

controlled substances and in 

furtherance of DEA’s mission. 

Accordingly, should this final order be 

the subject of judicial scrutiny, it is 

requested that it be afforded appropriate 

deference. See, Chevron v. NRDC, supra, 

467 U.S. at 865–66; PDK Labs, supra, 

362 F.3d at 794. 

The ALJ also disagreed with the 

Government’s interpretation of 971(c), 

finding it would create a form of ‘‘strick 

liability’’ for the importers in this case. 

As discussed previously, although the 

suspension was directed against the 

importers, the party in interest in this 

proceeding is the manufacturercustomer of the importers. It is the 

conduct of that party, PDK, and its 

customers, and the fact that the product 

which it manufactured and distributed 

ended up in clandestine drug 

laboratories, that forms the basis of the 

Government’s contention that the 

ephedrine ‘‘may be diverted.’’

The then-Deputy Administrator 

concluded in Mediplas, supra, 67 FR 

41,256, published subsequent to the 

ALJ’s recommendation in the instant 

case, that whether a regulated person 

foresaw or knew of diversion was not a 

determining factor as to whether the 

listed chemical ‘‘may be diverted.’’

While knowledge of a regulated person, 

or its party in interest customer, may be 

relevant in a totality of the 

circumstances analysis, the ultimate 

issue is whether the listed chemical 

being imported into the United States 

‘‘may be diverted’’ and then, whether or 

not the Deputy Administrator should 

exercise her discretion to sustain the 

suspension of shipment. 

The focus of the factual inquiry is the 

ultimate destination of the listed 

chemical, not the culpability of the 

regulated person. Indeed section 971(1), 

by its terms, makes no mention of a 

Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67957

5 In 1998, Congress amended the recordkeeping 

requirements of the CSA to include a negligence 

provision. See 21 U.S.C. 842(a)(5), (a)(10). Notably, 

however, Congress did not similarly amend section 

971(c) to include such a provision.

6To the extent a future reviewer should disagree 

with the Deputy Administrator’s reading of 

971(c)(1)’s ‘‘may be diverted’’ language and 

determine it is ambiguous, the agency position 

should be given due deference under Chevron, See, 

INS v. Anibal Aguirre, 526 U.S. 415, 425 (1999).

showing of intent, recklessness, 

negligence, knowledge, or any type of 

mens rea. Rather the plain language of 

the provision focuses solely upon 

whether the chemical ‘‘may be 

diverted.’’ Any contention that the ‘‘may 

be diverted’’ standard should be 

interpreted to contain a culpability 

element, cannot be squared with the 

plain language of that provision. See 

American Tobacco C. v. Patterson, 456 

U.S. 63, 68 (1982) (‘‘As in all cases 

involving statutory construction, our 

starting point must be the language 

employed by Congress and we assume 

that the legislative purpose is expressed 

by the ordinary meaning of the words 

used.’’ (internal quotations omitted); 

United States v. Green Drugs, 905 F.2d 

694,697–98 (3rd Cir. 1990) (holding that 

strict liability may be imposed for civil 

violations of the recordkeeping 

provisions of the CSA because ‘‘[o]ur 

starting point is, of course, the text of 

the statute itself, which plainly shows 

an absence of the scienter requirement 

for civil violations of the recordkeeping 

provisions.’’).5

While Mediplas was published after 

the ALJ issued her Opinion and 

Recommendation, the argument that an 

importer and, by logical extension, PDK 

as its party in interest, must have some 

degree of responsibility for the 

diversion, had previously been rejected 

by DEA ion a transshipment case. In Yi 

Heng Enterprises Dev. Co., supra, 64 FR 

2,234, a transshipper of potassium 

permanganate through a U.S. port 

argued it had committed no violations 

in the past when it sold listed chemical 

to customers in Colombia. Even though 

the record demonstrated the 

transshipper’s customers had committed 

numerous violations with listed 

chemicals purchased from the 

transshipper, that company contended 

that it had no control, and thus, should 

not be responsible for the transgressions 

of its downstream customers. Yi Heng 

unequivocally rejected this argument 

holding, ‘‘[t]he prior conduct of [the 

transshipper’s] customers * * * is 

clearly relevant in determining whether 

the shipments may be diverted.’’ Id., at 

2,235. 

To the extent the ALJ here concluded 

the Government’s interpretation of ‘‘may 

be diverted’’ represents a ‘‘radical shift 

in policy’’ that must be accomplished 

through rulemaking, as opposed to 

adjudication, the Deputy Administer 

disagrees. The statute’s language on this 

point and its meaning are sufficiently 

clear. DEA need not issue an array of 

regulations to anticipate every situation 

where a List I chemical may be diverted 

and the importer/exporter is entitled to 

an ‘‘agency hearing on the record in 

accordance with subchapter 5 of Title 

5.’’ 21 U.S.C. 971(c)(2). The statute 

clearly envisions permitting the agency 

to proceed by adjudication.

Further, the instant suspension orders 

entail no new standards. They simply 

require a determination of specific facts. 

Similarly, the Government’s position 

cannot be characterized as a ‘‘radical 

departure.’’ To the contrary, it is 

consistent with prior rulings, 

particularly Yi Heng and Mediplas.6

Applying the interpretations of 

971(c)(1) discussed above and the 

totality of the circumstances test applied 

in Mediplas and the initial action on 

this matter, the Deputy Administrator 

now determines whether evidence 

exists to support the suspensions, based 

upon a finding that the List I chemicals 

may be diverted. 

The Deputy Administrator finds DEA 

initiated a program intended to inform 

listed chemical registrants of situations 

when their listed chemicals products 

were discovered at illicit clandestine 

laboratory sites. According to DEA, a 

Warning Letter program was developed 

to assist registrants in identifying 

products that had been diverted and so 

they could decide appropriate remedial 

action. 

On March 19, 1998, DEA issued a 

Warning Letter to PDK indicating that, 

from April 2, 1997, through December 

20, 1997, PDK List I chemical products 

were found in 51 sites in Oklahoma, 

Missouri, Arkansas, Alabama, Kansas, 

California, Texas, Tennessee, Ohio, 

Florida, Iowa, Michigan, South Dakota, 

Arizona, Utah and Colorado, all in 

connection with the clandestine 

manufacture of controlled substances. 

For investigative reasons, DEA did not 

resume sending any Warning Letters to 

PDK until February 15, 2000, when it 

issued a Warning Letter indicating that 

during 1998–99, PDK’s ‘‘Max Brand 

Pseudo 60’s,’’ ‘‘Mini Tabs,’’ ‘‘Max Alert 

Pseudo,’’ ‘‘Mini Pseudo,’’ ‘‘Mini Two 

Way’’, ‘‘Mini Two Way Action’’ and 

‘‘Mini Thins’’ products were found in 

approximately 49 sites in eleven states, 

all in connection with the clandestine 

manufacture of controlled substances. 

On February 15, 2000, DEA issued a 

Warning Letter to PDK indicating that 

500 bottles of PDK’s ‘‘Max Brand MiniTabs’’ product were found on June 25, 

1999, in connection with the 

clandestine manufacture of controlled 

substances. 

On February 17, 2000, DEA issued a 

Warning Letter to PDK indicating that 

48 bottles of PDK ‘‘Mini Pseudo’’

product were found on October 26, 

1999, in Dooly County, Georgia; that 

1564 bottles of PDK ‘‘Mini Pseudo’’

product were found on March 24, 1999, 

in San Bernardino County, in California; 

that 8 bottles of PDK ‘‘Mini Two Way 

Action’’ product were found on March 

23, 1999, in Detroit, Michigan; that 

12,931 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

February 18, 1999, in Chatsworth, 

California; and that 40 bottles of PDK 

‘‘Mini Pseudo’’ product were found on 

February 12, 1999, in Seattle, 

Washington, all in connection with the 

clandestine manufacture of controlled 

substances. 

On February 28, 2000, DEA issued a 

Warning Letter to PDK indicating that 

96 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product and 144 bottles of PDK 

‘‘Two Way Max Brand’’ product were 

found on January 27,2000, in McCrory, 

Arkansas; and that 13 bottles of PDK 

‘‘Max Brand Pseudo 60’s’’ product were 

found on February 14, 2000, in Dallas, 

Texas, both in connection with the 

clandestine manufacture of controlled 

substances. 

On June 26, 2000, DEA issued a 

Warning Letter to PDK indicating that 1 

bottle of PDK ‘‘Max Brand Pseudo 60’s’’

product was found on December 22, 

1999, in San Dimas, California; and that 

143 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on January 6, 

2000, in Las Vegas, Nevada, both in 

connection with the clandestine 

manufacture of controlled substances. 

On June 6, 2000, DEA issued a 

Warning Letter to PDK indicating that 1 

bottle of PDK ‘‘Two Way Max Brand’’

product and 2 bottles of PDK ‘‘Max 

Brand Pseudo 60’s’’ product were found 

on January 6, 2000, in Sparta, 

Tennessee; that 4 bottles of PDK ‘‘Max 

Brand Pseudo 60’s’’ product were found 

on May 11, 2000, in Lawrence, Kansas; 

and that 5 bottles of PDK ‘‘Two Way 

Brand’’ product were found on May 19, 

2000, in Hamilton, Alabama, all in 

connection with the clandestine 

manufacture of controlled substances. 

On June 8, 2000, DEA issued a 

Warning Letter to PDK indicating that 9 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on May 11, 

2000, in Lawrence, Kansas; that 6 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on May 12, 

2000, in Signal Mountain, Tennessee; 

that 144 bottles of PDK ‘‘Max Brand 

67958 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

Pseudo 60’s’’ product were found on 

May 31, 2000, in Auburn, Washington; 

and that 2 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

June 5, 2000, in Ozawkie, Kansas, all in 

connection with the clandestine 

manufacture of controlled substances. 

On July 5, 2000, DEA issued a 

Warning Letter to PDK indicating that 

1,871 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

April 12, 2000, in Temecula, California, 

in connection with the clandestine 

manufacture of controlled substances.

On July 7, 2000, DEA issued a 

Warning Letter to PDK indicating that 6 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on December 

17, 1999, in Freeport, Florida; and that 

1 empty case indicating a volume of 144 

bottles of PDK ‘‘Two Way Max Brand,’’

and 78 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

April 14, 2000, in Sherman, Texas, all 

in connection with the clandestine 

manufacture of controlled substances. 

On July 7, 2000, DEA issued a 

Warning Letter to PDK indicating that 

672 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on February 

29, 2000, in Hillsboro, Oregon; that 12 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on March 23, 

2000, in Gales Creek, Oregon; and that 

3 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on April 6, 

2000, in Washington County, Oregon, 

all in connection with the clandestine 

manufacture of controlled substances. 

On July 13, 2000, DEA issued a 

Warning Letter to PDK indicating that 

157 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on July 7, 

2000, in Plano, Texas, in connection 

with the clandestine manufacture of 

controlled substances. 

On September 23, 2000, DEA issued 

a Warning Letter to PDK documenting 

that 24 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

June 21, 2000, in Las Vegas, Nevada; 

that 36 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

August 3, 2000, in Portland Oregon; that 

217 bottles and 2,880 packets of PDK 

‘‘Max Brand Pseudo 60’s’’ product and 

7 packets of PDK ‘‘Pseudo 60’s’’ product 

were found on September 8, 2000, in 

Las Vegas, Nevada, all in connection 

with the clandestine manufacture of 

controlled substances. 

On September 23, 2000, DEA issued 

a Warning Letter to PDK indicating that 

72 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on April 25, 

2000, in Copeville, Texas; that 2 bottles 

of PDK ‘‘Two Way Max Brand’’ product 

were found on May 2, 2000, in 

Charlotte, North Carolina; that 142 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on July 7, 

2000, in Reno, Nevada; and that 341 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product and 7 packets of PDK 

‘‘Pseudo 60’s’’ product were found on 

September 1, 2000, in Portland, Oregon, 

all in connection with the clandestine 

manufacture of controlled substances. 

On September 25, 2000, DEA issued 

a Warning Letter to PDK indicating that 

approximately 400 bottles of PDK 

‘‘Mini-Pseudo’’ product were found on 

September 7, 2000, in Fallbrook, 

California, in connection with the 

clandestine manufacture of controlled 

substances. 

On October 24, 2000, DEA issued a 

Warning Letter to PDK indicating that 

15 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on August 22, 

2000, in Cedar Rapids, Iowa; and that 

1,152 bottles of PDK ‘‘Max Brand 

Pseudo 60’s’’ product were found on 

March 14, 2000, in Turlock, California, 

both in connection with the clandestine 

manufacture of controlled substances. 

On October 27, 2000, DEA issued a 

Warning Letter to PDK indicating that 

287 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on October 

20, 2000, in Lake Havasu City, Arizona, 

in connection with the clandestine 

manufacture of controlled substances. 

On November 9, 2000, DEA issued a 

Warning Letter to PDK indicating that 

504 bottles and 35 boxes of PDK ‘‘Max 

Brand Pseudo 60’s’’ product were found 

on October 12, 2000, in Portland, 

Oregon, in connection with the 

clandestine manufacture of controlled 

substances.

On November 13, 2000, DEA issued a 

Warning Letter to PDK indicating that 

15 bottles of ‘‘Mini Tabs Two Way,’’ 5 

packets of PDG ‘‘Two Way Max Brand’’

product and 480 packets of PDK ‘‘Max 

Brand Pseudo 60’s’’ product were found 

on July 31, 2000, in Little Rock, 

Arkansas; and that approximately 1,700 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on July 26, 

2000, in Lawrence, Kansas, all in 

connection with the clandestine 

manufacture of controlled substances. 

On November 15, 2000, DEA issued a 

Warning Letter to PDK indicating that 

528 packets of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on September 

27, 2000, in South Jordan, Utah, in 

connection with the clandestine 

manufacture of controlled substances. 

On December 18, 2000, DEA issued a 

Warning Letter to PDK indicating that 

354 bottles of PDK ‘‘Ephedrine Two 

Way’’ product were found on August 12, 

2000, in Yakima, Washington, in 

connection with the clandestine 

manufacture of controlled substances. 

On December 28, 2000, DEA issued a 

Warning Letter to PDK indicating that 

12 bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on February 

24, 2000, in Stevenson, Alabama; that 1 

bottle of PDK ‘‘Max Brand Psuedo 60’s’’

and 1 bottle of PDK ‘‘Two Way 

Ephedrine Max Brand’’ product were 

found on September 6, 2000, in 

Russellville, Alabama; and that 144 

bottles of PDK ‘‘Max Brand Pseudo 

60’s’’ product were found on December 

12, 2000, in Dallas, Texas, all in 

connection with the clandestine 

manufacture of controlled substances. 

On January 23, 2001, DEA issued a 

Warning Letter to PDK indicating that 

25 bottles of PDK ‘‘Two Way Max 

Brand’’ product were found on June 20, 

2000, in Sicklerville, New Jersey; and 

that 369 bottles of PDK ‘‘Two Way Max 

Brand’’ product were found on 

December 6, 2000, in Carson City, 

Nevada, both in connection with the 

clandestine manufacture of controlled 

substances. 

It is recognized that the above 

Warning Letters reflect that 

pseudoephedrine listed products were 

found at these clandestine laboratories 

and dump sites, along with PDK’s 

ephedrine chemical products. However, 

DEA is aware that there is a close 

relationship between these two listed 

chemicals in the methamphetamine 

manufacturing process and PDK used 

the same or similar distribution chain to 

distribute both forms of listed chemical 

products. Based on agency experience, 

DEA knows that the same or similar 

methods of diversion are employed by 

clandestine methamphetamine 

manufacturers to obtain both 

pseudoephedrine and ephedrine listed 

chemical products and that a history of 

diversion of one product is probative as 

to the potential for diversion of the 

other. Thus, the Deputy Administrator 

concludes that the diversion of PDK’s 

pseudoephedrine chemical products 

reflected in the Warning Letters is 

highly relevant to the potential for 

future diversion of its ephedrine 

chemical products. 

The Government did not introduce 

evidence as to the quantity of other 

manufacturer’s listed chemical products 

that have been found to be diverted, 

only the quantities and types of PDK’s 

products which had been the subject of 

Warning Letters for the period at issue. 

It is also recognized that section 

971(c)(1) requires an exercise of agency 

discretion, given that all ephedrine 

chemical products require the 

importation of the listed chemical into 

the United States at some point in their 

manufacturing and/or distribution 

chain. Thus, literally every shipment is 

Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67959

subject to a theoretical possibility that it 

‘‘may’’ be diverted.

DEA recognizes that it and other law 

enforcement agencies are aware of and 

able to take action against only a small 

number of the total clandestine 

methamphetamine laboratories and 

dump sites in this country. Accordingly, 

the specific universe of PDK product 

diverted, vis a vis, all other 

manufacturers’ products, is a number 

which cannot be established with 

specificity. However, the Deputy 

Administrator notes that at a March 

1998 meeting between DEA and PDK, 

DEA personnel concluded that PDK’s 

listed chemical products were being 

reported as the most prevalently found 

products at illicit settings in this 

country, i.e., ‘‘PDK products were 

number one in terms of being seized at 

methamphetamine labs.’’ Tr. 1613. 

Given the quantities and diverse 

locations of PDK listed chemical 

products discovered at illicit sites 

reflected in the Warning Letters, DEA is 

able to draw a reasonable inference 

regarding the likelihood that the instant 

shipments may be diverted and to 

exercise its discretion as to the need to 

prohibit their import. 

In Mediplas, without having to 

undergo any attempt at a comparative 

statistical analysis, the Deputy 

Administrator found ‘‘the nine Warning 

Letters issued to Mediplas provided 

substantial evidence documenting the 

diversion of thousands of bottles of its 

previously imported List I chemical 

Products * * *.’’ Mediplas, supra, 67 

FR at 41262. In comparison, PDK’s 22 

Warning Letters detail diversion of 

thousands of bottles of its previously 

imported List I chemicals to 

approximately 140 illicit 

methamphetamine laboratory-related 

sites located in at least 18 states. 

The fact that a company’s product has 

been discovered in clandestine 

laboratories and dump sites has been a 

regular basis for DEA taking adverse 

action against manufacturers and 

distributors of List I chemical products, 

again without attempting statistical 

comparative analysis. See OTC 

Distribution, supra, 68 FR at 70544 (14 

Warning Letters in 21 months a factor in 

revoking registration of List I chemical 

product distributor); Sinbad 

Distributing, supra, 67 FR at 10233 

(registration as a distributor of listed 

chemical products denied in part 

because two potential suppliers of 

applicant had received 15 Warning 

Letters between them); CHM Suppliers, 

67 FR 9985, (2002) (same). 

In Neil Laboratories, Inc. v. Ashcroft, 

217 F. Supp.2d 80 (D.D.C. 2002), DEA 

had issued an immediate suspension of 

a List I manufacturer’s registration 

under 21 U.S.C. 824(d). The registrant 

challenged that action and the district 

court upheld the DEA order based, in 

part, on the fact that ‘‘Neil Labs received 

approximately 30 warning letters from 

the DEA between February 4, 1999, and 

March 11, 2002, that identified various 

instances in which Neil Labs’ product 

had been diverted to illicit uses.’’ Id., at 

87. 

The Deputy Administrator finds the 

record shows through testimony and 

documentary evidence that over a 

period of several years, PDK and DEA 

corresponded and met with the 

intention of resolving problems 

pertaining to the diversion of PDK’s 

ephedrine and pseudoephedrine 

products. Evidence presented by PDK 

indicated it had taken steps to 

implement controls in its plant and 

distribution chain and during this 

period, DEA permitted certain listed 

chemical shipments, destined for PDK, 

to be imported. Nevertheless, as 

documented by the Warning Letters, 

PDK’s products continued to appear at 

illicit settings in substantial amounts, 

despite remedial efforts undertaken or 

promised by the company. As the Court 

of Appeal observed in ALRA 

Laboratories, Inc. v. DEA, 54 F.3d 450 

(7th Cir. 1995), ‘‘An agency rationally 

may conclude that past performance is 

the best predictor of future 

performance.’’ Id., at 452.

As a collateral matter, it is noted that 

the individual responsible for 

implementing PDK’s operating 

procedures for responding to DEA 

Warning Letters was Mr. Michael 

Lulkin. Beginning in 1990, Mr. Lulkin, 

an attorney, had served as PDK’s outside 

counsel. In 1995, he was hired as inhome counsel and became PDK’s Vice 

President of Legal Affairs and 

subsequently it’s Director of 

Administrative Affairs. In 1998, Mr. 

Lulkin, along with PDK’s thenPresident, Mr. Michael Krasnoff, was 

convicted in Federal court of four felony 

counts relating to securities fraud, 

money laundering and mail fraud. The 

mail fraud offenses involved PDK. Mr. 

Lulkin was subsequently disbarred from 

the practice of law in 1999. 

PDK’s Board of Directors and its 

current President, Mr. Reginald 

Spinello, who had worked for Mr. 

Krasnoff as PDK’s Executive Vice 

President for Operations since 1991, 

allowed Mr. Krasnoff and Mr. Lulkin to 

remain associated with PDK. After 

resigning as President in 1998, Mr. 

Krasnoff continued to serve as a 

consultant to the company. Mr. Lulkin 

continues as an employee of PDK, 

where his duties include overseeing the 

company’s regulatory compliance. 

Neither of these personnel decisions, 

but particularly the retention of Mr. 

Lulkin as a key overseer of regulatory 

matters, despite his convictions for 

fraud and a felony against the company, 

generates confidence on the part of the 

Deputy Administrator that PDK is 

sufficiently committed to complying 

with the myriad of regulatory 

requirements designed to prevent 

diversion of listed chemicals. 

In sum, the Deputy Administrator 

finds, based on the foregoing, that the 

bulk ephedrine which is the subject of 

the Suspension of Shipment Orders is a 

‘‘listed chemical’’ that ‘‘may be 

diverted’’ and that the orders should be 

sustained. 

As discussed earlier, the full court in 

PDK Labs agrees remand was necessary 

because the then-Deputy Administrator 

had also concluded PDK violated export 

notification requirements in connection 

with the sale and delivery of ephedrine 

products to Sun Labs of Canada. 

Because the evidence showed the 

product was actually delivered to the 

customer within the United States, the 

Court concluded the then-Deputy 

Administrator had failed to explain the 

agency’s apparent divergence from its 

decision in Alfred Khalily, Inc., supra

65 FR 31,289 (1999). See PDK labs, 

supra, 362 F.3d at 798–99. 

In Khalily, the then-Deputy 

Administrator agreed with the ALJ that 

the respondent company was not 

responsible for filing export 

documentation regarding its sale of a 

listed chemical, hydriotic acid, to a 

Mexican based company, R.J. Meyer. 

The key findings were that ‘‘R.J. 

Meyers’s purchase orders revealed that 

the shipments were either consigned to 

Jose Gutierrez, and sometimes Gus 

Pimental c/o Sky Harbor Delivery in 

Tucson, Arizona, or to Jose Gutierrez c/

o Gus Pimental ata warehouse in 

Phoenix, Arizona’’ and ‘‘According to 

Respondent’s invoices, Respondent sold 

the hydriotic acid to R.J. Meyer, but it 

was shipped to Jose Gutierrez at Sky 

Harbor Delivery. These shipments were 

‘FOB Destination,’ which according to 

Mr. Khalily means that the shipper’s 

responsibility ends when the product is 

delivered to the specified location.’’

Khalily, supra, 64 FR at 31, 290. 

The chemicals had been shipped to 

the Arizona warehouse and 

subsequently picked up by Mr. 

Gutierrez who, it turned out, was not a 

representative of R.J. Meyer. The 

chemicals were then loaded into a rental 

truck and disappeared. R.J. Meyer’s 

personnel testified that the shipments 

never entered Mexico and DEA was 

67960 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

7Although he is no longer with PDK, Mr. Krasnoff 

was also quoted as saying in May of 1996, ‘‘it’s none 

of my business if someone gets high off of this 

stuff,’’ demonstrating an improper attitude for an 

officer of a DEA registrant and a cavalier approach 

toward complying with DEA regulations, including 

those pertaining to exports.

unable to determine their disposition 

after they left the Arizona warehouse.

The then-DEA Deputy Administrator 

concluded, ‘‘While Respondent was 

selling above threshold quantities of 

hydriotic acid to a Mexican company, 

these sales were ‘‘FOB Destination’’

transactions and therefore Respondent’s 

responsibility ended when the 

chemicals were delivered to the 

warehouse in Arizona. Respondent did 

not send or take the listed chemicals out 

of the United States, nor was it the 

‘principal party in interest’ with the 

power and control for sending the 

chemicals out of the United States. 

Therefore, it was not responsible for 

filing any export documentation.’’

Khalily, 64 FR at 31293 (emphasis 

added). 

In the instant case, the then-Deputy 

Administrator concluded that ‘‘[g]iven 

the circumstances of these sales, and 

especially given that PDK actually 

believed the product was destined for 

export, that PDK should have complied 

with DEA export regulations in effect at 

the time.’’ 67 FR at 77808. He also 

concluded the ‘‘record shows that PDK 

violated DEA export regulations on at 

least four occasions by failing to file the 

required notifications of its shipments 

to Sun Labs.’’ 67 FR at 77809. 

Notwithstanding Khalily, under the 

unique facts of this case the Deputy 

Administrator agrees that PDK should 

have filed export notifications with 

DEA. 

The evidence shows that between 

1994 and 1995, PDK sold Sun Labs of 

Canada at least four shipments of 

ephedrine and ephedrine 

hydrochloride, a listed chemical. During 

these proceedings, the parties disputed 

whether these shipments were 

‘‘exports,’’ which required filing of a 

DEA Form 486 report within 15 days of 

the ‘‘export,’’ pursuant to 21 CFR 

1313.21. That regulation provides, in 

relevant part, ‘‘no person shall export or 

cause to be exported from the United 

States any [listed chemical] * * * until 

such time as the Administrator has been 

notified. Notification must be made not 

later than 15 days before the transaciton 

is to take place.’’ 21 CFR 1313.21(a). 

Neither PDK nor Sun Labs, nor their 

then-principals, were strangers. At the 

time, the President and owner of Sun 

Labs was Mr. Perry Krape, a former 

principal and a founder of PDK who, up 

until November of 2000, retained 8% 

ownership in PDK. 

The ALJ noted in her findings that Mr. 

Krasnoff, discussed earlier as the subject 

of felony convictions involving the 

company, was PDK’s President during 

this period. Mr. Krasnoff testified that 

these orders were delivered to Sun Labs 

at PDK’s facility in Hauppauge, New 

York. He further testified it was PDK’s 

belief that, after picking up the product, 

Mr. Krape’s immediate intention was to 

transport it to his storage facilities in 

New York. Although there was no 

testimony that the ephedrine product 

was actually shipped to Canada, the 

Deputy Administrator finds it 

reasonable to infer that it was destined 

for Canada and to only remain in the 

United States temporarily. 

The invoices indicated the customer 

was Sun Labs, located in Mississauga, 

Ontario, Canada. A DEA diversion 

investigator testified that ‘‘the address 

on the invoices and the shipping labels, 

the shipping documents, indicated it 

was going to Ontario, Canada.’’

Additionally, the investigator testified 

that each of the bills of lading for these 

transactions stated the ephedtine was 

being billed to and shipped to Sun Labs 

in Ontario, Canada. 

While there were no shipping charges 

on the invoices and the ‘‘Name of 

Carrier’’ on the bills of lading listed 

either ‘‘Pick-up’’ or ‘‘Perry Krape,’’ the 

invoices, which were introduced into 

evidence, stated a ‘‘Ship to’’ address of 

‘‘Sun Labs, Inc., 300–2400 Dun Dun St 

West, Mississauga ON L5K2R8.’’ The 

‘‘Bill to’’ address on the invoices was 

the same foreign location. The bills of 

lading further identified the ‘‘To 

Consignee’’ as Sun Labs Inc. at its 

Mississauga, Ontario address.

Mr. Krasnoff also assumed Sun Lab’s 

owner was going to distribute this 

product in Canada, as Mr. Krasnoff 

testified PDK had a ‘‘no-compete’’

agreement with Sun Labs in which Sun 

Labs agreed it would not sell ephedrine 

in PDK’s territory, which included the 

entire United States. Further, Mr. 

Krasnoff testified in reference to these 

transactions, that he ‘‘believe[d] that 

[Sun Labs] intention was to take the 

product to Canada at some point in time 

and that [Sun Labs] was putting together 

a distribution system in order to 

distribute that produce in Canada.’’

Finally, Mr. Krasnoff states that Mr. 

Krape had said he ‘‘was going to be the 

ephedrine king of Canada.’’ 7

For purposes of these export 

regulations, 21 CFR 1312.02, defines the 

term ‘‘chemical export’’ to cover more 

than just the physical sending or taking 

of the listed chemical out of the United 

States. Instead it provides ‘‘The term 

‘chemical export’ means transferring 

ownership or control, or the sending of 

listed chemicals out of the United States 

(whether or not such sending or taking 

out constitutes an exportation within 

the meaning of the Customs and related 

laws of the Unites States).’’ 21 CFR 

1313.02(a) (1995), now 21 CFR 

1300.02(b)(5) (italics in original, 

emphasis added). 

In Khalily, the shipment was 

consigned ‘‘F.O.B’’ to a buyer at an 

Arizona warehouse and the ALJ and 

then-Deputy Administrator were 

obviously focused on the implications 

of the ‘‘F.O.B’’ transfer i.e.,

‘‘Respondent’s responsibility ended 

when the chemicals were delivered to 

the warehouse in Arizona.’’ Khalily, 

supra, 64 FR at 31,293. Further, there 

was no evidence that the listed 

chemicals were ever sent to Mexico. The 

facts here are distinguishable. 

The invoices and bills of lading 

identify the listed chemical products as 

being purchased by and ‘‘shipped to’’

Sun Labs, a Canadian company at its 

foreign address in Ontario. While the 

bills of lading also indicated the product 

was going to be ‘‘picked up’’ at PDK’s 

Hauppauge premises, even if the 

product was not being immediately 

transported across the border, 

‘‘ownership’’ and ‘‘control’’ was 

knowingly transferred by PDK to a 

company located outside of the United 

States, thus falling within the definition 

of ‘‘chemical export’’—which ‘‘no 

person’’ (including PDK) ‘‘shall export 

or cause to be exported from the United 

States * * * until such time as the 

Administrator has been notified.’’ 21 

CFR 1313.21(a). 

While Mr. Krape apparently picked 

the listed chemicals up at PDK’s New 

York location, the Deputy Administrator 

concludes PDK knew the listed 

chemicals were going to be physically 

taken outside the United States, albeit at 

an uncertain date, which the company 

never sought to ascertain and/or report. 

Where ownership and control was 

transferred to a foreign company, under 

the unique facts of this case, the Deputy 

Administrator concludes that export 

regulations required PDK to notify DEA 

of the transactions. 

Compliance with regulatory 

requirements is relevant to the risk of 

diversion the listed chemicals will face 

as they progress through the chain of 

commerce from importation and/or 

exportation, manufacture and ultimate 

distribution through wholesalers and 

retailers. With regard to exports, DEA is 

aware that precursor chemicals can be 

brought into the United States from 

their countries of origin and then 

exported to other countries, where they 

are diverted to the manufacture of 

Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 67961

8For clarification should this final order be 

appealed, the Deputy Administrator finds that the 

evidence of diversion reflected in the series of 

Warning Letters provides a sufficient basis for 

sustaining the suspension orders, independent of 

the export notification infractions.

9However, again for clarification of future 

reviewers, notwithstanding the above findings, the 

Deputy Administrator finds that the evidence of 

diversion reflected in the series of Warning Letters 

provid3es a sufficient independent basis for 

concluding that the List I chemicals may be 

diverted and the suspension orders sustained.

methamphetamine and other controlled 

substances and then subject to being 

smuggled back into the United States. 

See e.g., Neil Laboratories, supra, 64 FR 

at 30,064 (exportation of 

pseudoephedrine from New Jersey to 

Mexico suspended because of risk of 

diversion). Further, the government’s 

evidence showed that Sun Labs had a 

toll free 800 number and took orders 

from customers in the United States for 

List I chemical products, thereby 

returning them to this country. 

Additional, the Government offered 

testimony that DEA ‘‘was beginning to 

see Canadian product showing up in 

large numbers in [clandestine] labs.’’ Tr. 

at 753. 

An exporter/transshipper’s failure to 

comply with the notification 

requirements of 21 CFR 1313.31 has 

previously been cited as a ground for 

suspending shipments. See e.g., Yi Heng 

Enterprises Dev. Co., supra, 64 FR at 

2,235 (respondent transshipper 

concedes point and DEA holds ‘‘it is 

undisputed that no advance notification 

of * * * shipments * * * was provided 

to DEA as required by the regulations 

and that this provides a basis for the 

suspension of these shipments.’’); 

Suspension of Shipments, supra, 65 FR 

at 51,338 (‘‘Finally, [the transhipper] 

failed to file advance notification of 

these shipments.’’).

The Deputy Administrator recognizes 

that PDK’s regulatory omissions are 

mitigated by the facts of their age and 

that the company’s failure to file 

notifications did not involve the specific 

shipments at issue in the suspension 

orders. Nevertheless, PDK’s noncompliance with regulatory 

requirements in these instances is 

considered relevant.8

The Orders to Suspend Shipments 

also alleged that in 1995, PDK made 

direct mail orders sales of its ephedrine 

chemical products to individuals who 

were later arrested and convicted of 

manufacturing and possessing 

methamphetamine with intent to 

distribute and admitted obtaining their 

precurser chemicals from PDK. Based 

on her view of the evidence, the ALJ 

declined to find that these sales were 

suspicious transactions which should 

have been reported by PDK pursuant to 

21 CFR 1310.05(a)(1). 

The evidence showed that David 

Chapin ordered and received over 

12,000 tablets of ephedrine, 25 mg, 

during February 1995 and Jason Young 

received over 8,800 tablets of the same 

product between June and October of 

1995. Based on his consultations with a 

pharmacist, a DEA diversion 

investigator deemed these sales to be 

excessive, given the individual 

therapeutic dosage units recommended 

in the Physician’s Desk Reference and 

the United States Pharmacy Index for a 

one month period of time. Based on a 

recommended dosage of six tablets per 

day, the investigator testified that 

‘‘[e]very individual (purchase) on the 

mail order from 1995 was excessive.’’

David Chapin was subsequently arrested 

for having an operational 

methamphetamine lab and stated that 

the PDK was the source of his 

ephedrine. He was subsequently 

convicted and sentence to 96 months in 

Federal prison. 

However, based primarily upon Mr. 

Krasnoff’s testimony, the ALJ concluded 

that PDK believed Chapin and Young 

were repackaging the single-entity 

ephedrine tablets purchased from PDK 

for resale, thus the quantities would not 

have appeared to be suspicious and 

need not have been reported to DEA. 

While the Deputy Administrator agrees 

there was no evidence introduced that 

PDK specifically knew of the buyers’

illicit manufacturing, the evidence 

indicates a disturbing willingness on the 

part of PDK to turn a blind eye toward 

diversion of its product. 

The ALJ specifically fond that Mr. 

Kranoff told DEA investigators in a May 

1996 investigation concerning these 

sale, that he could care less who ordered 

what and how much. He also stated that 

‘‘it’s none of my business if someone 

gets high off this stuff.’’ Significantly, 

the ALJ found Mr. Krasnoff’s sworn 

testimony at the hearing, in which he 

denied making these statements, to be 

incredible. The Deputy Administrator 

agrees that this witness was not credible 

and that his credibility is also 

diminished by his convictions of felony 

offenses involving moral turpitude. 

When pressed on cross-examination 

as to his belief that ‘‘smallest of 

distributors were repackaging or 

reselling,’’ Mr. Krasnoff testified that:

We got the sense that there was a network 

of distributors who distributed his product 

that we manufactured either in a 

Tupperware-type setting of [sic] door to door 

sales, and/or some of them distributing the 

product through the mail, ad hoc mail order 

companies.

Tr. 1993 (emphasis added). 

The Deputy Administrator finds this 

testimony, suggesting that mail order 

recipients were emptying tablets out of 

a 1,000 count bottle and reselling them 

in a Tupperware setting or door to door 

to be incredible, particularly when 

considered in light of its self-serving 

nature, Mr. Kraasnoff’s other untruths 

while testifying, and his fraud based 

felony convictions. Accordingly, the 

Deputy Administrator finds that the 

subject sales should have been reported 

as suspicious. Further, this evidence 

establishes that in 1995, PDK, sold 

ephedrine products directly to 

individuals who diverted them to illicit 

purposes. 

However, it also noted these 

transactions occurred a number of years 

ago, Mr. Krasnoff’s relationship with 

PDK has finally been severed, PDK 

ceased its mail order sales and the 

company has reported a series of 

suspicious sales to DEA on other 

occasions. Nevertheless, the Deputy 

Administrator finds that PDK’s past 

attitude and its engaging in these 

transactions, along with its failure to 

report them as suspicious, are relevant 

as to whether the current suspensions 

should be sustained.9

At the hearing, DEA witnesses 

testified regarding traditional retail 

outlets and non-traditional retail outlets 

and the types of listed chemical 

products distributed to these outlets. 

The traditional market is characterized 

by a short distribution pattern to large 

chain grocery stores, large chain 

convenience stores, large chain drug 

stores, large discount retailers and large 

chain convenience stores. These 

products are packaged in blister packs 

and are 30 mg in strength. The nontraditional outlets are characterized by a 

very lengthy distribution chain of listed 

chemical products packaged in higher 

strength and in bottles of 60 or more 

dosage units. The higher strength 

products are those products usually 

found at the illicit methamphetamine 

production sites.

The Suspicious Orders Task Force 

also identified as suspicious, customers 

who resell large volumes of listed 

chemical products to the ‘‘independent 

convenience store’’ market. While PDK 

does not currently distribute List I 

chemical products directly to the public 

or to retail sales outlets, including 

convenience stores, witnesses indicated 

that through its distribution scheme, 

PDK is the largest supplier of generic 

List I chemical products to the 

convenience store market. 

Since the hearing on this matter, a 

series of DEA final orders have 

addressed the distribution of listed 

67962 Federal Register / Vol. 69, No. 224 / Monday, November 22, 2004 / Notices 

10However, as noted earlier, for the limited 

purpose of interpreting the term ‘‘listed chemical’’

as it appears in section 971(c)(1) and the policy 

implications of the alternatives, the findings and 

conclusions contained in the above cited cases are 

considered relevant to DEA’s application of the 

agency’s current knowledge and expertise.

chemical products through the gray 

market and in particular, through 

independent convenience stores. In 

Mediplas, my predecessor discounted 

the probative weight of the 

Government’s ‘‘anecdotal’’ evidence 

‘‘without some form of further extrinsic 

evidence to support these arguments.’’

Mediplas, supra, 67 FR at 41,264. In 

sustaining the shipments in the initial 

final order here, my predecessor noted 

the evidence in PDK’s hearing was 

‘‘essentially identical’’ to the evidence 

in Mediplas. Accordingly, he applied 

the same rule and declined to find that 

the Government’s evidence of PDK’s 

gray market distribution chain 

supported the suspension orders. See, 

e.g., Indace/Malladi, supra, 67 FR at 

77808. 

In Branex, Incorporated, supra, 69 FR 

at 8696 while then-Acting Deputy 

Administrator, I approve use of the 

above Mediplas evidentiary standard:

In deference to my predecessor’s ruling in 

[Mediplas], a finding regarding convenience 

stores [as] conduits for the diversion of listed 

chemicals does not necessarily translate to a 

finding regarding the existence of the socalled ‘traditional’ versus ‘non-traditional’

markets for products containing ephedrine 

and pseudoephedrine. Rather, in Mediplas, 

the then-Deputy Administrator found there 

was little probative value to such evidence, 

and the probative weight of evidence 

regarding traditional and non-traditional 

markets is ‘minimal without some form of 

further extrinsic evidence to support these 

arguments [Citation].’ The Acting Deputy 

Administrator notes further, my 

predecessor’s conclusion that a registrant’s 

sale of large quantities of list I chemicals do 

not, in and of themselves, demonstrate that 

the chemicals may be diverted.

Branex, supra, 69 FR at 8693. 

However, at the Branex hearing the 

Government did introduce substantial 

extrinsic evidence satisfying the 

Mediplas standard. In that regard, I 

held:

The Acting Deputy Administrator concurs 

with Judge Bittner’s conclusion that the 

government met the Mediplas evidentiary 

requirement by showing that Respondent 

sold pseudoephedrine to customers that did 

not have a reasonable expectation of being 

able to resell the product to a legitimate 

customer base. Specifically, the Government 

presented a relevant comparison analysis 

involving the marketing and sale of bottled 

pseudoephedrine products to a relatively 

small market by OTC Distribution (a supplier 

of listed chemicals to Respondent) versus 

that of nationally recognized pharmaceutical 

manufacturers and distributors of those 

products (i.e., Pfizer and the L. Perrigo 

Company). The Acting Deputy Administrator 

also finds telling, the testimony of Pfizer and 

Perrigo representatives that neither were 

aware of OTC Distribution as a possible 

competitor. More persuasive however, was 

the testimony and documentary evidence 

prepared by the Government expert in 

statistical analysis, Jonathan Robbin. * * *

[T]he Acting Deputy Administrator . . . 

finds compelling Mr. Robbin’s conclusion of 

the unlikelihood that convenience stores 

would sell more than $27.00 worth of 

pseudoephedrine per month to consumers 

purchasing decongestant products, as 

purportedly sold by Respondent’s customers. 

The Acting Deputy Administrator further 

credits Mr. Robbin’s finding regarding the 

inconceivability of customers purchasing a 

year’s supply of list I chemical products from 

convenience stores and related 

establishments on a monthly basis. 

The Acting Deputy Administrator also 

finds persuasive the conclusion of Mr. 

Robbin that the pseudoephedrine products 

supplied by Respondents to its customers did 

not follow the normal channel of distribution 

of goods of this kind. This finding is given 

further credence when one considers the 

quantities of pseudoephedrine the 

respondent sold to its convenience store 

customers and the exorbitant price some of 

these customers were willing to pay the 

Respondent for those products. The Acting 

Deputy Administrator finds that the 

compelling nature of Mr. Robbin’s market 

study casts doubt on the legitimacy of the 

Respondent’s customers, and brings some 

context to the diversion of the respondent’s 

listed chemical product.

Branex, supra, 69 FR at 8,693; see e.g., 

Xtreme Enterprises, Inc, supra, 67 FR at 

76,197 (denying registration as a listed 

chemical distributor after testimony by 

Mr. Robbin on graymarket and holding 

that applicant’s positive factors were 

‘‘far outweighed’’ by lack of experience 

and ‘‘the fact that she intends to sell 

ephedrine almost exclusively in the gray 

market.’’). See also Value Wholesale, 69 

FR 58,548 (2004) (citing Xtreme 

Enterprises, Inc. and denying 

registration inpart on intent to distribute 

to grey market); K & Z Enterprises, Inc., 

69 FR 51475 (2004) (same); William E. 

‘‘Bill’’ Smith d/b/a B&B Wholesale, 69 

FR 22559 (2004) (same); John E. McCrae 

d/b/a J & H Wholesale, 69 FR 51480 

(2004) (same); SPA Dynamic 

Wholesalers, 68 FR 61466 (2003) (citing 

Robbin study and denying registration 

as distributor to grey market). 

While DEA has concluded in the 

above series of cases that grey market 

establishments, such as convenience 

stores and gas stations, constitute 

sources for the diversion of listed 

chemical products and can form the 

basis for adverse action against 

registrants and potential registrants, the 

Government’s evidence which formed 

the basis for those holdings was not 

presented at PDK’s hearing. Thus, PDK 

has not had an opportunity to refute or 

contest that evidence and it is outside 

the record. 

Accordingly, the Deputy 

Administrator will continue to apply 

the Mediplas evidentiary standard to the 

instant record and declines to find that 

the vidence concerning the gray market 

introduced in this specific case supports 

a factual finding that the listed 

chemicals which are the subject of the 

two suspension orders ‘‘may be 

diverted.’’10

In arriving at this decision, the 

Deputy Administrator has considered 

PDK’s stature and business activities in 

the business community, its efforts at 

compliance, as well as the evidence 

available to DEA up to the time of the 

hearing. The Deputy Administrator 

finds that there was sufficient evidence 

at the time of the hearing to support 

DEA’s contention that the chemicals 

may be diverted. ‘‘As the Deputy 

Administrator has previously noted, 

[e]vidence of a violation of law is not 

necessary to demonstrate that 

suspensions were lawful.’’ Mediplas, 

supra, 67 FR at 41,262 citing 

Suspension of Shipments, supra, 65 FR 

at 51337. Therefore, the Deputy 

Administrator concludes that the 

suspensions set forth in the January 25 

and 26, 2001, Order to Suspend 

Shipments of ephedrine hydrochloride 

issued to Indace and Malladi were 

justified. 

Accordingly, the Deputy 

Administrator of the Drug Enforcement 

Administration, pursuant to the 

authority vested in her by 21 U.S.C. 971 

and 28 CFR 0.100(b) and 0.104, hereby 

orders that the suspensions of the above 

described shipments, be, and hereby 

are, sustained, and that these 

proceedings are hereby concluded. 

This final order is effective 

immediately.

Dated: November 9, 2004. 

Michele M. Leonhart, 

Deputy Administrator.

[FR Doc. 04–25695 Filed 11–19–04; 8:45 am] 

BILLING CODE 4410–09–M

DEPARTMENT OF JUSTICE

Drug Enforcement Administration 

Manufacturer of Controlled 

Substances; Notice of Application 

Pursuant to Section 1301.33(a) of Title 

21 of the Code of Federal Regulations 

(CFR), this is notice that on August 19, 

2004, ISP, Freetown Fine Chemicals, 

Inc., 238 South Main Street, Assonet, 

Massachusetts 02702, made application