Secure Handling of Ammonium Nitrate

A Report in Response to House Report 110-497 

Department of Homeland Security 

National Protection and Programs Directorate

October 2008
 

THIS PAGE INTENTIONALLY LEFT BLANK 
EXECUTIVE SUMMARY

Section 563 of the Fiscal Year (FY) 2008 Department of Homeland Security (DHS) 

Appropriations Act (P.L. 110-161) amends the Homeland Security Act of 2002 and provides the 

DHS with the authority to “regulate the sale and transfer of ammonium nitrate by an ammonium 

nitrate facility...to prevent the misappropriation or use of ammonium nitrate in an act of 

terrorism.” The Congress directed the National Protection and Programs Directorate to “provide 

a plan to implement this new provision, including an analysis of the resources required to do so, 

and a proposal for reallocating funding within the National Protection and Programs directorate 

for doing so.” 

In developing this report, the Department reviewed Section 563 requirements, and also 

conducted an assessment of other DHS and Federal Government security requirements that 

already cover portions of the ammonium nitrate (AN) supply chain or deal with identity 

verification and have the potential to overlap with the Section 563 program. 

For example, DHS reviewed the risk-based implementation activities under the Chemical 

Facilities Anti-Terrorism Standards (CFATS), which includes regulation of certain facilities 

possessing AN, and consulted with the DHS Screening Coordination Office (SCO) regarding 

existing identity verification measures. In addition, DHS reviewed United States Coast Guard 

(USCG); Transportation Security Administration (TSA); and Bureau of Alcohol, Tobacco, 

Firearms, and Explosives (ATF) regulations impacting AN security. For instance, USCG has 

imposed security requirements on AN as a “Certain Dangerous Cargo.” Under the Maritime 

Transportation Security Act (MTSA), USCG has also imposed security requirements on vessels 

transporting AN and on certain facilities using, storing, manufacturing or distributing AN. TSA 

performs threat assessments on transporters of AN who require a hazardous materials 

endorsement to transport AN, and ATF regulates the manufacture, importation, distribution and 

storage of certain AN explosive mixtures. 

The Department concludes that the implementation of Section 563 could result in a significant 

regulatory burden on individual Americans. In particular, this burden potentially affects the 

livelihood of American farmers who are unable to acquire AN as a fertilizer for their crops. 

Given the wide-ranging impact of Section 563 requirements, the Department strongly 

recommends careful consideration, including additional research and public exploration of 

certain key issues, before moving forward with a rulemaking that could impact hundreds of 

thousands of individual AN sellers and users. The Department believes that the following 

factors should be considered: 

• Current implementation of CFATS is addressing a prioritized number of larger AN 

production and distribution facilities in the AN supply chain. There are 711 preliminarily 

tiered high-risk facilities with AN at or over screening threshold quantities. 

• Development and implementation of Section 563 requirements will be resource-intensive 

and will force trade-offs with key implementation activities planned under CFATS 

program. 

• Based upon the Department’s experience, implementing this statute will provide a limited 

security benefit focused on a single chemical of interest at a high resource cost. 

i 
• It will be extremely difficult to ensure consistent execution of the program’s requirements 

as certain activities, such as the verification of buyer identity at the point of sale, are 

dependent upon the thousands of end points in a very distributed system. 

• Further, as the Department has experienced with several programs that implement 

requirements to screen individuals and verify identities, measures not initially identified 

as program requirements have had to be added (increasing both time and cost) in order to 

ensure that key program requirements are not easily circumvented and the intended 

security benefit is achieved. 

The Department is currently engaging with the Nation’s agri-businesses to better understand the 

implications of the impacts of the CFATS program on that community and to inform further 

CFATS implementation activity and Section 563 regulation development. As a result, the 

Department encourages the adoption of and is planning to execute a phased approach to address 

Section 563 requirements: 

Phase 1 

• Continued CFATS implementation, including agribusiness engagement and revised Top 

Screen submissions by that community. This will likely result in additional AN facilities 

falling under the CFATS program. 

• Adjustment of the Chemical Security Assessment Tool as necessary (develop portal for 

AN registrations). 

• Issue an Advance Notice of Proposed Rulemaking (ANPRM), soliciting comment on the 

best way to address the requirements of Section 563 and implementation options, and: 

o The issue of fee authority for this new program. 

o There continues to be debate concerning the detonability of AN at certain 

concentrations. The ANPRM would seek comment as to research being done in 

this area. 

Phase 2 

• Rulemaking for Section 563 requirements (notice, comments, issuance of Final Rule). 

• Science & Technology Directorate commences a study to determine if the detonability of 

AN can be reduced with the introduction of any type of additive, without reducing its 

effectiveness as a fertilizer. 

In summary, the Department is committed to improving chemical security, including the security 

of AN, across the Nation. Following additional engagement with the Nation’s agri-businesses 

and issuance of the ANPRM, DHS will be able to produce a more prudent and efficient 

regulation that is not duplicative of existing regulatory programs, takes into account lessons 

learned from existing DHS identify verification initiatives, and incorporates appropriate input 

from stakeholders through the comment process. The Department looks forward to working with 

Congress to improve security in this area. 

 

ii 
 

Contents 

Executive Summary ........................................................................... i 

Introduction .................................................................................... 1 

Background ..................................................................................... 3 

 I. History .................................................................................. 4 

 II. Chemistry of Commercial Ammonium Nitrate ................................. 5 

 III. The Ammonium Nitrate Supply Chain ........................................... 5 

The Chemical Facility Anti-Terrorism Standards ....................................... 8 

 I. Ammonium Nitrate Under CFATS ................................................ 9 

 II. Review of Treatment of Ammonium Nitrate End-Users Under CFATS ... 10 

 III. Risk-Based Performance Standards ............................................... 11 

Section 563: Secure Handling of Ammonium Nitrate Act ............................. 12 

 I. Population of Regulated Community .............................................. 14 

 II. Analysis of Cost of Regulatory Activities ......................................... 17 

Conclusion ........................................................................................ 33 

 iii 
 

INTRODUCTION 

Section 563 of the Fiscal Year (FY) 2008 Department of Homeland Security (DHS) 

Appropriations Act (P.L. 110-161) amends the Homeland Security Act of 2002 and provides the 

DHS with the authority to “regulate the sale and transfer of ammonium nitrate by an ammonium 

nitrate facility...to prevent the misappropriation or use of ammonium nitrate in an act of 

terrorism.” The Congress directed the National Protection and Programs Directorate to “provide 

a plan to implement this new provision, including an analysis of the resources required to do so, 

and a proposal for reallocating funding within the National Protection and Programs directorate 

for doing so.” 

In developing this report, the Department reviewed Section 563 requirements, and also 

conducted an assessment of other DHS and Federal Government security requirements that 

already cover portions of the ammonium nitrate (AN) supply chain or deal with identity 

verification and have the potential to overlap with the Section 563 program. 

For example, DHS reviewed the risk-based implementation activities under the Chemical 

Facilities Anti-Terrorism Standards (CFATS), which includes regulation of certain facilities 

possessing AN, and also consulted with the DHS Screening Coordination Office (SCO) 

regarding existing identity verification measures. In addition, DHS has reviewed United States 

Coast Guard (USCG); Transportation Security Administration (TSA); and Bureau of Alcohol, 

Tobacco, Firearms, and Explosives (ATF) regulations impacting AN security. For instance, the 

USCG has imposed security requirements on AN as a “Certain Dangerous Cargo,” regulates 

vessels transporting AN, and regulates security at ports receiving vessels with AN. Pursuant to 

the Maritime Transportation Security Act, (MTSA), the USCG also enforces security 

requirements over facilities located adjacent to the water, including facilities that may store, 

manufacture, use or distribute AN. TSA performs threat assessments on transporters of AN who 

require a hazardous materials endorsement to transport AN,1 and ATF regulates the manufacture, 

importation, distribution and storage of certain AN explosive mixtures.2

The Department concludes that the implementation of Section 563 could result in a significant 

regulatory burden on individual Americans. In particular, this burden potentially affects the 

livelihood of American farmers who are unable to acquire AN as a fertilizer for their crops. 

Given the wide-ranging impact of Section 563 requirements, the Department strongly 

recommends careful consideration, including additional research and public exploration of 

certain key issues, before moving forward with a rulemaking that could impact hundreds of 

thousands of individual AN sellers and users. The Department believes that the following 

factors should be considered: 

• Current implementation of CFATS is addressing a prioritized number of larger AN 

production and distribution facilities in the AN supply chain. 

 

 

1

 49 CFR § 1572.5; 49 CFR § 383.141. 

2

 71 Fed. Reg. 56,555 (Sept. 27, 2006) (listing “ammonium nitrate explosive mixtures” as regulated “explosive 

materials”). 

 1 
• Development and implementation of Section 563 requirements will be expensive and 

resource intensive and will force trade-offs with key implementation activities planned 

under CFATS program. 

• Based upon the Department’s experience, implementing this statute will provide a limited 

security benefit focused on a single chemical of interest at a very high resource cost. 

• It will be extremely difficult to ensure consistent execution of the program’s requirements 

as certain activities, such as the verification of buyer identity at the point of sale, are 

dependent upon the thousands of end points in a very distributed system. 

• Further, as the Department has experienced with several programs that implement 

requirements to screen individuals and verify identities, measures not initially identified 

as program requirements have had to be added (increasing both time and cost) in order to 

ensure that key program requirements are not easily circumvented and that the intended 

security benefit is achieved. 

• The issue of fee authority for this new program should be discussed with the Congress, 

and potentially noticed for comment in an Advance Notice of Proposed Rulemaking 

(ANPRM). 

• There continues to be debate concerning the detonability of AN at certain concentrations. 

This new program could be informed by research into whether there is a concentration 

that would represent a security enhancement without limiting AN’s effectiveness as 

currently used in commerce. Again, this is an issue that could be noticed for 

comment in an ANPRM. 

• As further detailed in this report, the Department is currently engaging with the country’s 

agricultural community to better understand the implications of the impacts of CFATS 

program on that community, to inform further CFATS implementation activity. The data 

gathered in support of CFATS might also lend itself to better informing the development 

of rulemaking for this new program, as the agricultural community is a major consumer 

of AN. 

 

Accordingly, and with the intent of satisfying Congress’s request, this report discusses: (1) the 

chemistry of AN, the AN value chain, and security issues surrounding AN in commerce; (2) the 

Department’s existing efforts to regulate the security of certain AN facilities by way of the 

CFATS; and (3) the requirements found within Section 563, potential options to satisfy those 

congressional requirements, and the associated cost estimates related to each option. 

2 
BACKGROUND 

AN is a chemical that exists in multiple concentrations and physical forms, and each 

concentration or form may have different security implications. The Department is primarily 

concerned with AN when used as an explosive and/or as a fertilizer, which can then be mixed 

with fuel oil to create an explosive mixture known as Ammonium Nitrate/Fuel Oil (ANFO). 

Both of these forms (i.e., explosive and fertilizer coupled with liquid fuel oil) in the hands of 

terrorists have the potential to be detonated, causing catastrophic impacts on human health, 

safety, national security, the economy and critical infrastructure. 

AN is used domestically as a fertilizer and as an explosive. Primarily, AN is used as a fertilizer 

and is commonly found in agriculture-related operations nationwide and, given the availability of 

small-scale packaging (e.g., 50-pound bags), is susceptible to theft and misuse in making an 

improvised explosive device (IED). The fertilizer industry was proactive in developing a 

voluntary “know-your-customer” program in conjunction with the ATF, known as the 

“America’s Security Begins With You” campaign, following the 1995 attack on the Alfred P. 

Murrah Federal Building in Oklahoma City, Oklahoma. 

As an explosive, AN is used commercially (in the mining industry, for example) and can be 

stolen and detonated by terrorists. This form of AN is regulated by both the ATF, which 

addresses the regulation of explosives,3 and the Department of Transportation (DOT), which 

regulates explosives for the purpose of preventing incidents during transportation.4

 DOT also 

has issued Hazardous Material Regulation 232 (HM232) requiring security plans for facilities 

that ship and transportation providers that carry regulated hazardous materials. This would 

include several forms of AN including the high explosive and the fertilizer. 

In addition to the ATF and DOT regulations, DHS regulates AN in several fashions. TSAhas 

broad authority over security of all modes of transportation, spanning from point of entry to point 

of exit. These authorities are found primarily in the Aviation and Transportation Security Act of 

2001, which explicitly covers the transportation of cargo (such as AN). In addition to 

enumerating specific authorities, the statute broadly allows TSA to “exercise such other powers, 

relating to transportation security as the Under Secretary considers appropriate.”5

 With respect 

to AN, TSA exercises its authority by performing threat assessments on truck drivers who must 

receive a hazardous materials endorsement to transport AN.6

USCG also regulates AN in several fashions. Under MTSA7 the USCG has authority to regulate 

security both aboard maritime vessels and at facilities located in, under or adjacent to any waters 

subject to the jurisdiction of the United States. Through MTSA, the USCG regulates the security 

of many vessels transporting AN, as well as the security at many facilities using, storing, 

manufacturing and/or distributing AN. The USCG additionally has regulations specific to AN’s 

 

3

 71 Fed. Reg. 56,555 (listing “ammonium nitrate explosive mixtures” as regulated “explosive materials”). 

4

 49 CFR Parts 106, 107, 110, and Parts 171 through 180. 

5

 49 U.S.C § 114(f)(15). 

6

 49 CFR § 1572.5; 49 CFR § 383.141. 

7

 33 CFR Parts 101-106. 

3 
transportation8

 and requires written permission from the Captain of the Port before AN may be 

loaded on or unloaded from a vessel at any waterfront facility.9

USCG also has designated AN as a “Certain Dangerous Cargo”. Based on this designation, 

vessels carrying AN on water bodies other than certain portions of inland rivers must submit a 

Notice of Arrival prior to arrival in port.10 The required notice must contain information 

including the name of the vessel’s owner and operator, names of the last five ports or places 

visited, the amount of AN onboard, and personal information (e.g., full name, date of birth, 

nationality) for each crewmember onboard. Owners and operators of U.S. flag vessels carrying 

AN (or other dangerous cargoes) in bulk must have, and must operate in compliance with, a 

USCG approved vessel security plan. Likewise, owners and operators of facilities that receive 

vessels carrying AN in bulk must have and operate in compliance with a USCG approved facility 

security plan. 

The Department will do its best to work with its security partners to ensure that any requirements 

established pursuant to Section 563 are harmonized with the existing regulations impacting AN 

security. 

I. History 

Over the years, AN fertilizer mixed with fuel oil has been used as an explosive in terrorist 

attacks, both domestically and internationally. The Murrah Federal Building attack in Oklahoma 

City claimed the lives of 167 individuals and demonstrated firsthand how AN could be misused 

to perpetrate deadly terrorist attacks. In addition to the Murrah Building attack, the Provisional 

Irish Republican Army used AN as part of its London bombing campaign in the early 1980s. 

More recently, AN was used in the 1998 East African Embassy bombings and in the November 

2003 bombings in Istanbul, Turkey. Additionally, since the events of 9/11, stores of AN have 

been confiscated during raids on terrorist sites around the world, including Canada, England, 

India and the Philippines. 

It is important to note that fertilizer-grade AN is not explosive in and of itself and has never been 

used in a terrorist attack. Rather, terrorist attacks that employ AN-based explosives use AN 

mixed with a fuel oil of some kind. While pure, or “straight,” AN with a sufficient concentration 

of nitrates can be used as an explosives precursor, there is no scientific consensus regarding the 

detonability of straight AN. The minimum quantity (i.e., critical mass) of straight AN required 

for detonation, the size of conventional explosive charge (i.e., booster) necessary to detonate 

straight AN, and the actual yield (i.e., how much explosive energy arises) from a straight AN 

detonation are all currently unknown but are being researched. The Department is currently 

funding an ongoing study at Sandia National Laboratory to answer these questions. Preliminary 

results suggest that straight AN can be difficult to detonate with any reliability. 

 

8

 49 CFR § 176.410. 

9

 49 CFR § 176.415. See also 33 CFR Part 126 (regulating the handling of AN at waterfront facilities, and 

establishing penalties for handling AN without a permit); 46 CFR § 148.01-7 (regulating the bulk shipment of AN). 10 33 CFR Part 160, Subpart C. 

4 
The Intelligence Community is in agreement that terrorist organizations have and will likely 

continue to use explosives, including AN-based explosives, in future terrorist attacks. While 

preventing the misappropriation and misuse of AN on American soil could mitigate national risk, 

AN is only one of many chemicals that are susceptible to and suitable for misuse by terrorists. 

Regulating the AN supply chain for security is complicated both by the fact that AN has 

legitimate and important uses across the country and around the world and because terrorists’ 

tactics continue to change and evolve over time. 

II. Chemistry of Commercial Ammonium Nitrate

In addition to its common use as a fertilizer, AN is a widely used industrial chemical. It is used 

in the manufacture of plastics and pharmaceuticals. As discussed above, in the hands of a 

terrorist, AN can be used to produce a field-expedient (improvised) explosive when mixed with 

fuel oil. ANFO, the explosive, is also manufactured for legitimate purposes, including use in 

mining and construction. The terrorist version of ANFO has been successfully employed by 

terrorists in London, Istanbul, Oklahoma City and many other places. Given AN’s history, the 

ease with which it can be converted into an explosive, and the prevalence of AN in commerce, 

the Department has designated AN as a “Chemical of Interest” (COI) within the Department’s 

new risk-based CFATS regulation. 

Industrial-grade AN is used in commercial explosive manufacturing. It generally contains not 

less than 33 percent nitrogen. All major AN production facilities nationwide produce AN at or 

greater than 23 percent nitrogen concentration by weight. Consequently, the Department views 

the 23 percent threshold as the appropriate baseline for AN because it is the industry standard 

and, therefore, the concentration most typically found in commerce and thus most accessible by 

terrorists. Given that there is no scientific consensus as to when AN becomes ineffective as a 

weapon precursor, the Department chose 23 percent nitrogen by weight as the concentration 

level at which AN in solid form is regulated as a COI under CFATS. That decision was 

supported by the Federal Bureau of Investigation’s (FBI) Bomb Data Center, as well as by 

extensive interagency vetting, which included the U.S. Department of Agriculture (USDA). It 

was also consistent with public comment on draft Appendix A to the CFATS, which set the 

screening threshold quantities of chemical of interest under the program. 

III. The Ammonium Nitrate Supply Chain 

The AN product supply chain may be described as comprising five primary components: 

• Manufacturers and importers – companies that manufacture AN domestically, or 

import foreign-manufactured AN from overseas (or, alternatively, domestic AN that 

has been exported, repackaged overseas and then brought back to the United States); 

• Packagers – companies that market AN wholesale in both packaged form (sacks are 

most common) and bulk form to distributors; 

5 
• Distributors – companies that warehouse packaged AN and sell it wholesale to 

individual retail outlets. Many distributors are part of a retailing company; 

• Retailers – companies engaged in traditional retail sales supporting agriculture, and 

cooperative operations that buy goods for use in agriculture at wholesale on behalf of 

a farmer’s collective; and 

• Agricultural end users – farmers, both individual farm operators and agribusiness 

companies that may occupy several spots in the supply chain (including packager, 

distributor, and end user) that use AN as a fertilizer. 

AN reaches the agricultural end user through one of several paths. In some cases, farmers 

receive AN directly from the manufacturer. Other farmers may purchase AN from a retail 

supply store that purchased its AN from a broker, the terminal, or (less frequently) via an 

aftermarket repackager. Hence, while all of the above-cited elements may exist in the supply 

chain, there is no predominant model. The route from manufacturer to supplier can vary widely. 

In terms of manufacturing facilities, the Department estimates that there are 26 facilities that 

produce AN in the United States and an additional eight facilities that produce a compound of 

which AN is a primary ingredient. AN is also repackaged – although many manufacturers 

discourage this practice – in smaller quantities for sale in retail outlets. Fifty-pound bags of AN, 

however, are not sold at Home Depot, Lowes or other similar home improvement and hardware 

stores. These stores typically sell fertilizers for lawn and garden use and frequently use AN in a 

mix with phosphates and potash as the primary nitrogen source. Such bags of fertilizer typically 

contain approximately 40 pounds of soil with a handful of AN “prills”11 evenly mixed 

throughout the bag. 

Some cooperatives, or “co-ops,” and farm supply centers do sell pure fertilizer form AN in as 

little as 50-pound bags. More commonly, AN is sold as a “service” by entities that apply AN 

and other fertilizers to a farmer’s fields. Based on information from the National Council of 

Farmer Cooperatives, the Department believes that there are approximately 3,000 farmer-owned 

cooperatives in the United States. There is no data available which breaks down what percentage 

of fertilizer sold is AN or was applied directly to farmland by the co-op. 

Most co-op and agricultural supply stores that sell AN in bulk have regular customers, know 

those customers, and are aware of customers’ legitimate needs for AN. Some large farm co-ops 

and agricultural supply stores have proactively and voluntarily begun recording a buyer’s 

information, similar to some of the information required by Section 563. This information is 

kept along with a copy of the buyer’s government identification, usually a driver’s license. This 

practice is consistent with industry-sponsored security programs and, again, generally mirrors 

some of the requirements within Section 563. 

Scientific and laboratory supply stores sell highly concentrated AN to their customers; these 

laboratory supply stores typically sell AN in small base units in the range of 500 grams to 2.5 

 

11 Prills are small white balls of AN less than a centimeter in diameter. 

6 
kilograms. Several laboratory chemical supply companies will sell AN in 100-pound units. 

These sales typically occur through a distributor. To register, the buyer generally must provide 

his or her name, company, or school represented; a physical address; and a phone number. 

Purchasers are typically engaged in research of some sort and are often colleges and universities. 

Farmers typically purchase AN but rarely sell it. Consistent with industry-sponsored security 

approaches, farmers are often required to show valid identification to purchase AN. Farmers 

may store AN on-site, but it is often delivered and applied by the retailer or co-op at the time the 

farmer is ready to use it, rather than stored on the farm. 

7 
The Chemical Facility Anti-Terrorism Standards 

Section 550 of the Fiscal Year 2007 DHS Appropriations Act (P.L. 109-295) authorized the 

Department to require high-risk chemical facilities to complete security vulnerability 

assessments, develop site security plans, and implement measures designed to satisfy risk-based 

performance standards, as defined by the Department. To achieve the objectives set forth in 

Section 550, on April 7, 2007, the Department promulgated security regulations, better known as 

CFATS, which can be found at 6 CFR Part 27. CFATS, and the vulnerability assessment tools 

deployed therein, provide the Department with a mechanism by which to place high-risk 

chemical facilities into tiers, based on their security risk, and establish risk-based performance 

standards tailored to each risk tier. 

In a subsequent rulemaking published on November 20, 2007, the Department released the final 

Appendix A to the CFATS rule, a list of COIs and corresponding screening threshold quantities 

(STQs). This list identifies 322 COIs, including common industrial chemicals such as chlorine, 

propane, anhydrous ammonia and AN. A chemical is designated a COI if the Department 

determines that the chemical has the potential to create significant human life or health 

consequences if released, stolen, diverted or contaminated. Under the CFATS regulation, a 

facility that possesses one or more COIs that meet or exceed the applicable STQ must submit an 

online assessment questionnaire called a Top-Screen. The Top-Screen, a consequence-based 

assessment tool, is the Department’s preliminary means of evaluating whether a facility is highrisk and thus subject to the rule, and was designed to facilitate the receipt and analysis of 

information about facilities. That facility-specific information serves to inform the preliminary 

high-risk determination process. The CFATS rule became effective with the release of Appendix 

A on November 20, 2007, requiring facilities that possessed any COI at or above the applicable 

STQ on that date to submit their Top-Screens to the Department on or before January 22, 2008. 

Facilities that come into possession of any COI at or above the applicable STQ after November 

20, 2007, must complete and submit a Top-Screen within 60 calendar days of coming into 

possession of a COI that meets or exceeds the corresponding STQ. 

As discussed above, implementation and execution of the CFATS regulation requires the 

Department to identify which chemical facilities it considers high-risk. To facilitate this, the 

Department developed the Chemical Security Assessment Tool (CSAT) Top-Screen 

questionnaire. The Top-Screen builds on the assessment tool referred to as the Risk Analysis 

and Management for Critical Asset Protection (RAMCAP), which the Department developed 

with industry input. 

If a facility is not screened out during the Top-Screen process, the Department will make a 

preliminary determination that the facility is high-risk and assign the facility to a preliminary 

risk-based tier. All high-risk facilities must then complete the CSAT Security Vulnerability 

Assessment (SVA). In some cases, an Alternative Security Program (ASP) may be submitted in 

lieu of an SVA. Results from this online tool inform the Department’s final tier determination of 

a facility’s risk level. 

All high-risk chemical facilities fall into one of four risk-based tiers. Following review of the 

SVAs and ASPs, high-risk chemical facilities, including those AN facilities determined to be 

8 
high-risk, will be required to develop Site Security Plans (SSP), or ASPs in lieu of SSPs, 

addressing the CFATS Risk-based Performance Standards and the facilities’ identified 

vulnerabilities. A high-risk facility’s security measures must meet the performance standards for 

its respective tier. The higher a facility’s risk tier, the stricter the measures it will need to 

incorporate and the more frequent and rigorous its inspections will be. Inspections will both 

validate the adequacy of a facility’s SSP and verify the implementation of the plan’s measures. 

In developing the list of COIs and STQs identified in Appendix A, the Department examined 

chemicals categorized by the following three security issues, in addition to the common business 

and operational practices associated with the identified chemicals: 

• Release Chemicals –Toxic, flammable, or explosive chemicals that have the potential to 

create significant adverse consequences for human life or health if intentionally 

released or detonated; 

• Theft and Diversion Chemicals – Chemicals that have the potential, if stolen or 

diverted, to be used or converted into weapons; and 

• Sabotage and Contamination Chemicals – Chemicals that, if mixed with other readily 

available materials, have the potential to create significant adverse consequences for 

human life or health. 

I. Ammonium Nitrate Under CFATS

Corresponding to the previously discussed historical exploitation of AN, the CFATS program 

differentiates between two forms of AN to address the various applications and security issues 

associated with it: (1) the explosive, as defined by reference to DOT Hazardous Materials 

Regulations at 49 CFR § 172.101 (with more than 0.2 percent combustible substances, including 

any organic substance calculated as carbon, to the exclusion of any other added substance); and 

(2) the more common form frequently used as a fertilizer. In addition to STQs, Appendix A also 

identifies the specific security issue or issues associated with each COI. In some cases, different 

STQs are provided for a single COI based upon the different security issues presented. 

Appendix A identifies two security issues associated with both forms of AN: Release-Explosive 

and Theft/Diversion – Explosive/IED Precursor (EXP/IEDP). 

Along with chlorine and propane, AN is one of three chemicals for which a specialized approach 

has been developed under CFATS. This specialized approach for AN was developed in light of 

the circumstances surrounding its use (e.g., extensive use in the agricultural industry). Under the 

specialized approach to AN, AN as an explosive is treated the same as all DOT Division 1.1 

explosives subject to the CFATS regulation. Accordingly, the STQ for AN as a commercial 

grade explosive is 400 pounds if it presents a theft/diversion-EXP/IEDP security threat and 5,000 

pounds as a commercial grade explosive if it poses a release-explosive threat. However, AN in 

its more common, solid form (with a nitrogen concentration of 23 percent or greater) is treated 

differently, as AN in that form is largely used in the agricultural community as a fertilizer in 

amounts that typically exceed 400 pounds. Accordingly, in order to avoid unnecessarily 

9 
capturing small-scale agricultural operations in the regulatory regime, the Department 

established a 2,000-pound STQ for the fertilizer form of AN (rather than the 400 pound STQ 

used for all other theft/diversion-EXP/IEDP COI). 

II. Review of Treatment of Ammonium Nitrate End-Users Under CFATS

CFATS, together with other security programs identified above (e.g., those managed by TSA and 

USCG), already have regulatory implications across a significant portion of the AN supply/value 

chain. With respect to CFATS, the initial consequence screening activities of the CFATS 

regulation may capture, essentially, most elements of the value chain, from the largest 

manufacturers and importers, potentially down to individual large-scale agricultural users. 

More specifically, at the fertilizer theft/diversion STQ of 2,000 pounds, nearly all facilities that 

manufacture, distribute, or sell AN fertilizer would be required to complete the Top-Screen. The 

Department understands that even local retailers that sell AN in 50-pound bags and fertilizer 

application services (including farm co-ops) typically possess an excess of 2,000 pounds of AN 

onsite. It is important to note that although these facilities may be required to complete and 

submit Top-Screens, they may not necessarily be included in any subsequent CFATS regulatory 

activities. In fact, the Department believes that, based on review of their Top-Screens, the 

overwhelming majority of facilities closer to the end-user side of the AN value chain will either 

fall at the lower end of tiering determinations or, more likely, fall out of the regulatory program 

entirely. By falling outside of the regulatory program, the facility will no longer be subject to 

CFATS regulatory requirements, provided there are no material changes in the operations (e.g., 

in the COI holdings) of the facility that require a new Top-Screen. 

Although the intent of the CFATS program generally is not to include small-scale agricultural 

operations, some end users, given their operations, may be large enough to represent a high level 

of risk, which would be of interest to the Department within the CFATS regime. 

In part to better understand the AN distributor and end user landscape within the food and 

agricultural sectors, the Department has granted an extension for the Top-Screen submission 

deadline to agricultural end users under certain conditions. That extension, issued December 21, 

2007, and published in the Federal Register on January 9, 2008, has allowed the Department time 

to engage agri-business distributors and end users in dialogue regarding ways to refine CFATS to 

focus on the truly high-risk agricultural operations. The Department currently is gathering more 

information about these issues to determine whether any modification of the Top-Screen 

requirements might be warranted. As a result of this research and dialogue DHS may revise its 

approach toward COIs used in agricultural operations. 

If the Department determines that either the current approach is valid or selects a revised 

approach for agricultural end users under CFATS, DHS expects to give potentially covered 

agricultural end users 60 days to complete and submit a Top-Screen to the Department. Based 

on that information, DHS will make preliminary tiering determinations (including whether or not 

a given facility is considered high-risk) and notify end users of any applicable determinations, 

and covered facilities will then begin to implement any follow-on regulatory requirements. DHS 

10 
currently intends to make the agricultural end-user tiering determinations and to utilize the 

information gained during this process to better inform the development of the Section 563 

regulatory program. 

III. Risk-Based Performance Standards

CFATS requires high-risk facilities to comply with 18 risk-based performance standards. The 

standards themselves are broad and designed to promote a great deal of flexibility in how a 

facility meets standards applicable to it. For example, a regulated facility possessing AN as a 

theft/diversion-EXP/IEDP security issue would be required to meet the applicable performance 

standards for monitoring, shipping, theft or diversion, sabotage, personnel surety and all other 

standards applicable to that security issue. 

How the facility chooses to meet the required performance standard in its SSP is at the facility’s 

discretion, subject to final departmental approval. For example, a facility with a releaseexplosive hazard security issue may be able to satisfy the “shipping, receipt, and storage” 

performance standard by establishing clearly defined procedures for cataloging AN brought in or 

sent out of a facility and ensuring that the AN is properly secured while onsite. To meet the 

performance standard, the facility can consider a vast number of security measures, and might 

ultimately choose to institute a product stewardship program, develop a “know your customer” 

program, implement strict inventory control measures, and secure all transportation containers 

not actively in transit. As long as the specific measures are sufficient to meet the performance 

standard, DHS would approve the plan. 

11 
SECTION 563: SECURE HANDLING OF AMMONIUM NITRATE ACT 

Currently, the Department’s chemical security mission is predominantly focused on the 

implementation and execution of the CFATS regulatory program. DHS has recently completed 

one of the most critical phases of this regulatory period. After analyzing each of the 

approximately 32,000 Top-Screens received from potentially high-risk chemical facilities, the 

Department has identified over 7,000 of them as preliminarily high-risk based on the data 

submitted. On June 23, 2008, DHS began sending letters to all of the facilities from which it 

received a Top-Screen submission (excluding those facilities who were determined to be 

statutorily exempt from CFATS), informing each one whether or not it is a preliminarily highrisk facility and, if so, what risk-based tier it has preliminarily been placed in. Those facilities 

that were determined to be preliminarily high-risk have between 90 and 180 days (based on their 

risk tier) to complete and submit to DHS a Security Vulnerability Assessment or, in some cases, 

an ASP. 

As explained in detail above, upon receipt of the SVAs (or ASPs) from the preliminarily highrisk facilities, the Department will make final determinations regarding the risk level of each 

facility, and those facilities that are deemed high-risk after review of the SVA data will be 

required to develop and implement an SSP or an ASP in lieu of an SSP commensurate with their 

risk level. Each SSP or ASP has to be reviewed and approved by the Department, and must be 

implemented by the facility upon receipt of DHS approval. Ultimately, DHS will inspect each 

facility for compliance with its approved SSP or ASP. DHS is putting significant resources 

towards implementing this comprehensive, risk-based chemical security program, of which AN 

is already a part. At the same time, pursuant to Section 563, DHS is analyzing how best to draft 

regulations that would harmonize with existing regulatory programs that cover aspects of the AN 

supply chain. 

The Department has expeditiously conceptualized and continues to evaluate some potential 

approaches that may satisfy the requirements of Section 563, and has conducted a preliminary 

analysis of the resources that may be required to implement a regulatory program. The following 

information is the result of such efforts and reflects an initial projection of the tasks required, as 

well as the estimated resources necessary to support the execution of those tasks. Pursuant to 

Section 563 of the Act, DHS is to develop and implement a regulatory program covering the sale 

and transfer of AN for the purpose of preventing the misappropriation or use of AN in an act of 

terrorism. The following categories of activities and sub-activities are expected to be included in 

that program: 

Category 1: Registration Activities 

A. Registration Applications: AN Facilities and prospective AN Purchasers must apply for 

registration numbers from DHS in order to sell, transfer and/or purchase AN. This 

activity requires prospective registrants to provide specific identifying information to the 

Department. 

B. Terrorist Screening Database (TSDB) Checks: The Department must conduct a check of 

identifying information of all prospective registrants against identifying information that 

appears on the terrorist watch list, or the TSDB. 

12 
C. Registration Numbers: The Department generally must issue or deny registration 

numbers within 72 hours of receipt of an AN Facility or AN Purchaser’s complete 

registration application. 

Category 2: Point-of-Sale (POS) Activities 

A. Seller Verification of Purchaser’s Registration and Identity: At the point-of-sale, AN 

Facilities must verify that a potential AN Purchaser is registered with DHS (including 

verifying the AN Purchaser’s identity and registration number). 

B. Recordkeeping: All AN Facilities must keep records of sales or transfers of AN for at 

least two years after each transaction, with penalties for failing to maintain records 

appropriately. 

Category 3: Additional Regulatory Activities/Requirements 

A. Reporting Theft or Loss of AN: AN facilities and AN purchasers must report the theft or 

loss of AN to federal law enforcement authorities within one calendar day of discovery of 

the theft or loss. 

B. Inspections and audits: The Department must conduct or oversee regulatory compliance 

inspections and audits of AN Facilities’ records to ensure that regulated facilities are 

properly maintaining records, to monitor compliance with the requirements of the Act, 

and to deter or prevent misappropriation of AN for terrorist acts. 

C. Guidance Materials and Posters: The Department must develop guidance materials that 

1) set forth procedures for appealing a denial of an application for a registration number, 

and 2) help facilities identify suspicious AN purchases or attempted purchases or 

transfers and determine the appropriate course of action. The Department also must 

develop posters providing information on a seller’s record-keeping requirements and 

penalties for violating those requirements. 

Category 4: Administrative Activities 

A. Establishing Threshold Level of AN in a Substance: The Department must establish a 

threshold percentage of AN in a substance for it to be considered AN. As extensive 

consultation with federal agencies supported the Department’s establishment of an AN 

threshold percentage in Appendix A to CFATS, DHS expects to propose maintaining the 

same threshold percentage(s) in the new regulations under this Act. However, this 

threshold will likely be included in an ANPRM for public comment. 

B. Appeals and Penalties: The Department must establish an expedited appeals process for 

applicants denied a registration number. Specifically, DHS is required to resolve such an 

appeal within 72 hours of receiving a denied individual’s request for appeal. DHS also 

has the authority to assess civil penalties of up to $50,000 per violation of the regulations 

and thus must establish a process for managing both the assessment and potential appeal 

of those penalties. 

The remainder of this report contains an explanation of potential regulatory approaches for 

implementing Section 563 and a high-level evaluation of the costs that may be incurred by AN 

13 
Facility owners and operators, AN Purchasers, and the Department in the implementation of and 

compliance with these approaches. This evaluation begins with a statement of the estimated 

population of the regulated community, along with the assumptions used to develop that 

estimate. The evaluation then continues by providing estimates of the cost to both the 

Department and the regulated community of each of the regulatory activities required under the 

legislation. For certain activities where DHS is considering various approaches to 

implementation, the estimated costs associated with each of the different approaches under 

consideration are provided. 

I. POPULATION OF REGULATED COMMUNITY

For purposes of this analysis, the population of the regulated community used is based on broad 

estimates of the number of facilities that sell, transfer or purchase AN, as DHS does not know at 

this time the precise number of facilities that will incur costs from complying with Section 563 

and the related rules to be promulgated.12 As previously mentioned, the Department is currently 

gathering more information about the AN distributor and end user landscape in the agricultural 

sector to determine whether any modification of the CFATS Top-Screen requirements might be 

warranted, which may also inform a more refined estimate of the population that may fall under 

an AN regulation. 

Under the new statute, the regulated population is divided into two main groups: AN Facilities 

and AN Purchasers. As defined in Section 563, an “AN Facility” is “any entity that produces, 

sells, or otherwise transfers ownership of, or provides application services for” AN. Further, an 

“AN Purchaser” is defined as “any person who purchases [AN] from an [AN] facility. Notably, 

these population groups are not mutually exclusive, as the Department’s research has indicated 

that a vast majority of AN Facilities actually purchase AN from other AN Facilities, thereby 

rendering such facilities both AN Facilities and AN Purchasers. Accordingly, for purposes of 

estimating the cost that a potential regulatory program may incur to both the regulated 

community and the Department, DHS has divided the regulated population into three 

predominant groups: (1) entities that are AN Facilities, but not AN Purchasers; (2) entities that 

are both AN Facilities and AN Purchasers, and (3) entities that are AN Purchasers, but not AN 

Facilities. 

Group 1 – Entities that are AN Facilities, but not AN Purchasers

This first group of AN Facilities is intended to capture the facilities that produce and 

manufacture AN. Unless subject to a statutory exemption, all AN manufacturers will possess 

sufficient quantities of AN to require them to complete a CSAT Top-Screen, and may well be 

captured under the existing CFATS regulatory regime as high-risk chemical facilities. The AN 

manufacturers are also anticipated to fall under the AN regulations developed pursuant to 

Section 563. 

 

12 Please note that this required report necessarily makes assumptions about details of a future rulemaking to 

implement Section 563. Those assumptions do not imply that DHS has made any decisions on any specific 

provisions of proposed or final rulemaking required by Section 563. 

14 
Group 2 – Entities that are both AN Facilities and AN Purchasers 

The second group of AN Facilities consists primarily of the merchants of AN, including 

businesses along the supply chain that sell AN, but also purchase AN from an AN manufacturer, 

as described above. Entities found in this group include fertilizer mixers, farmer-owned 

cooperatives, wholesalers and retailers. The U.S. Census Bureau reports that approximately 534 

entities are engaged in the mixing of fertilizers, including AN. According to the National 

Council of Farmer Cooperatives, there are about 3,000 farmer-owned cooperatives. In addition, 

using Census data, the Department identified 7,600 wholesalers of fertilizer materials and 

approximately 11,300 nursery, garden center and farm supply stores that sell fertilizer materials. 

Thus, an estimated 22,460 entities are engaged in selling fertilizer materials, of which AN could 

account for a significant portion. It is important to note that these estimates likely overstate the 

number of entities that would be subject to the forthcoming rules under Section 563, as the 

Department has not yet determined the universe of entities that sell AN from those entities 

selling fertilizer materials other than AN. 

While fertilizer applicators sell the service of applying AN rather than selling AN directly to a 

third party (or otherwise additional entity), they nevertheless are included in this group, as 

Section 563 specifically includes application service providers in the definition of AN Facilities. 

Based on data from the 2006 Bureau of Labor Statistics, the Department estimates that there are 

3,300 fertilizer application services, although not all of those would necessarily apply AN 

fertilizer. 

Many of the entities encompassed by Group 2 are expected to possess sufficient quantities of AN 

to require them to complete a CSAT Top-Screen, and a significant portion of those are likely to 

be determined to be high-risk chemical facilities and thus captured by the CFATS regulatory 

regime, in addition to the forthcoming AN regulatory program.

Group 3 – Entities that are AN Purchasers, but not AN Facilities

The third and final population group of the regulated community, AN Purchasers, consists of 

those entities who purchase AN from an AN merchant facility, but are not AN Facilities. 

Specifically, this population group captures the end-use consumers of AN – those entities that do 

not sell AN to an additional entity. This group includes farms, construction businesses and 

mining facilities. According to the Census of Agriculture, approximately 1.08 million farms use 

commercial fertilizer, lime or soil conditioners. For the purposes of this analysis and based on 

industry consultations, DHS assumes that approximately half of these farms use AN. Of those 

farms assumed to incorporate AN into their operations, the Department estimates that only 20 

percent purchase AN directly from the AN Facility, store the AN on their premises, and apply 

the chemical to their land (thereby in possession of AN). Research has indicated the remaining 

80 percent of farms utilize fertilizer-application services and thus do not purchase, and are never 

actually in possession of AN, directly. Another 27,000 construction businesses and mining 

facilities purchase AN (to produce ANFO explosive mixtures). Many of the entities captured 

under Group 3 are either unlikely to possess sufficient quantities of AN to be required to do a 

Top-Screen or are unlikely to be determined to be high-risk after completing a Top-Screen and 

15 
SVA, and thus are unlikely to be captured under the CFATS regulatory program. However, most 

of them will be subject to the AN regulatory program. 

Table 1 provides an illustration of the regulated community population estimates assumed in this 

analysis. 

Table 1. Estimated Regulated Community Population 

# of Facilities 

Group 1 - Entities that are AN Facilities, but not AN Purchasers 

AN Manufacturers 26 

 Total 26 

Group 2 - Entities that are both AN Facilities and AN Purchasers 

Manufacturers/Fertilizer Mixers 534 

Wholesalers 7,600 

Co-ops 3,000 

Retailers 11,300 

Fertilizer applicators 3,300

 Total 25,734 

Group 3 - Entities that are AN Purchasers, but not AN Facilities 

Farms 110,000 

Mining 7,000 

Construction sites 20,000

 Total 137,000 

Total Estimated Regulated Community Population 162,760 

Pursuant to Section 563, the forthcoming AN regulatory program will ultimately impose 

disparate compliance requirements for AN Facilities and AN Purchasers, as previously noted. 

For the purposes of preparing a relevant and substantive cost estimate, it is important to 

recognize the estimated population factions within the overarching regulated community. 

As defined by Section 563, the estimated number of AN Facilities and AN Purchasers is 

provided in Table 2 on the following page. Note that the sum of these two categories is larger 

than the total estimated regulated community, as over 25,000 members of the regulated 

community are expected to be both AN Facilities and AN Purchasers. 

16 
Table 2. Estimated Number of AN Facilities and AN Purchasers

# of Facilities 

AN Facilities 

Entities that are AN Facilities, but not AN Purchasers 26 

Entities that are both AN Facilities and AN Purchasers 25,734 

 Total AN Facilities 25,760 

AN Purchasers 

Entities that are AN Purchasers, but not AN Facilities 137,000 

Entities that are both AN Facilities and AN Purchasers 25,734 

 Total AN Purchasers 162,734 

Additionally, these estimates likely overstate the size of the regulated community for the 

following reasons: the time constraints for this report rendered the Department unable to 

segregate those entities selling AN from those entities selling other fertilizer materials, excluding 

AN. Consequently, the Department assumes that a certain number of entities that sell fertilizers 

that do not contain AN and otherwise do not acquire/purchase AN have been captured in the 

population estimate described in this report. 

In addition, pursuant to Section 563, the Department may exempt persons who produce, sell or 

purchase AN exclusively to produce explosives under a license or permit issued under 18 U.S.C. 

Chapter 40. The Department may choose to exempt many, if not all, of the 27,000 construction 

sites and mines included in the estimated regulated community. For purposes of the following 

cost estimates, however, DHS has assumed that these entities will not be exempted and thus are 

captured under Group 3 – Entities that are AN Purchasers but not AN Facilities. 

II. ANALYSIS OF COST OF REGULATORY ACTIVITIES

This section of the document analyzes the potential cost to both the Department and the 

regulated community of the ten primary activities explicitly or implicitly required by Section 

563. For each activity, the document provides the likely approach to implementation, the 

assumptions used when performing the cost analyses, and the estimated costs to both DHS and 

the regulated community. 

For many of the activities required by Section 563, there are a variety of approaches available to 

DHS. The Department is proposing an approach that satisfies the statutory requirements, while 

incurring a minimal cost to the Federal Government. For certain activities, such as registration 

applications, where the Department is actively considering more than one approach, this report 

presents the estimated costs for the approaches currently under review. 

On the next page, Table 3 provides a breakdown of the estimated annual and five-year costs to 

both the Department and industry/the regulated community on an activity-by-activity basis. The 

cost estimates in Table 3 and the remainder of this analysis are intended to serve as high-level 

estimates, based on multiple assumptions and have been developed simply to inform the early 

analysis of various potential approaches warranting further consideration. A much more detailed 

17 
evaluation of the estimated costs to both DHS and industry will be prepared to support budget 

development and the regulatory evaluation required as part of the rulemaking process, pursuant 

to Executive Order 12866. 

Table 3. Activity-by-Activity Breakdown of Annual and Five-year Costs 

to DHS and Industry (in $ Millions) 

DHS 

Year 1 

DHS 

Years 2- 5 

(per year) 

DHS 

Years 1-

5 (total) 

Industry 

Year 1 

Industry 

Years 2-5 

(per year) 

Industry 

Years 1-

5 (total) 

Activity 1A: Registration Applications 3.3 .25 4.3 9.1 .45 10.9 

Activity 1B: TSDB Checks 5.7 1.4 11.3 0 0 0 

Activity 1C: Registration Numbers .25 .01 .3 0 0 0 

Activity 2A: Seller Verification of Purchaser’s 

Registration and Identity 0 0 0 4.8 4.8 24.2 

Activity 2B: Recordkeeping 0 0 0 64.3 57.0 292.3 

Activity 3A: Reporting of Theft or Loss of AN 0 0 0 .9 .9 4.6 

Activity 3B: Inspections and Audits 5.8 3.8 21.0 6.3 6.3 31.5 

Activity 3C: Guidance Materials and Posters .2 .01 .2 0 0 0 

Activity 4A: Establishing Threshold Level for AN in a 

Substance 0 0 0 0 0 0 

Activity 4B: Appeals and Penalties 1.1 .4 2.7 .8 .7 3.4

 Total Costs (without staffing costs) 16.35 5.87 39.83 86.2 70.15 366.8 

Staffing Costs (for 45 Federal Positions) 4.64 7.11 33.08 -- -- -- 

 Total Costs (including staffing costs) 20.99 12.98 72.91 86.2 70.15 366.8

ANALYTICAL ASSUMPTIONS

In the interest of good business practice or to comply with regulations promulgated by other 

federal and state agencies, many companies have previously dedicated substantial financial and 

human capital in order to enhance the security of their facility. The costs provided in this 

analysis do not capture those pre-existing resources, as many business have previously purchased 

point-of-sale equipment, as well as track and maintain records of AN transactions, and manage 

security and inventory of the AN at their facilities. Rather, this analysis summarizes best 

estimates of any incremental costs related to compliance with the new regulatory requirements 

applicable to the sale and transfer of AN. 

The regulatory program may produce certain benefits to the AN facility owners and operators, 

including improved security and monitoring of AN transactions, which will, in turn, improve 

inventory control, alert owners to loss and theft, and generally enhance product stewardship. 

There remains the question of the consistency in approach to verification related to transactions, 

as this activity is not controlled by DHS per Section 563. 

Cost of Industry Time 

Throughout this analysis, cost estimates have been developed based on the estimated amount of 

time assumed necessary to complete a particular activity and then multiplied by an average 

loaded hourly wage for a particular class of workers. The average hourly wages described below 

are from the Bureau of Labor Statistics, Occupational and Employment Survey, May 2006. The 

18 
hourly wages represent the wages at the 90th percentile except for those of the General and 

Operations Manager, which represent the 75th percentile (the 90th percentile was not reported). 

Each hourly wage is adjusted by 40 percent to account for the cost of benefits and other overhead 

charges. Table 4 presents the average hourly wages used in this report. 

Table 4. Hourly Wages (in $ Dollars) 

 90th percentile hourly wage 40% benefits 

Total loaded hourly 

Wage 

General & Operations Manager* 61.82 24.73 86.55 

Purchasing Manager 38.85 15.54 54.39 

File Clerk 15.15 6.06 21.21 

Sales Staff 21.53 8.61 30.14 

Auditor/Accountant 44.70 17.88 62.57 

Inventory Manager 54.45 21.78 76.23 

* General & Operations Manager at 75th percentile 

Cost to DHS of Developing the Regulations 

In addition to implementation costs, the Department will incur some costs to develop the 

regulations. Developing the regulations requires the following generic activities: 1) development 

of proposed and final regulations (including the development and release of an ANPR), 2) 

gathering and reviewing public comments on the proposed regulation, and 3) development of a 

regulatory evaluation (including a small business analysis). The cost of these activities is 

primarily the cost of the federal and/or contractor personnel necessary to perform these activities. 

Based on the performance of similar activities during the development of CFATS, it is estimated 

that approximately nine individuals, at a total two year cost of $2,320,545 will be necessary to 

develop the AN regulations. This is estimated to include two attorneys, four individuals 

dedicated to program management and policy analysis, two economists to support the 

development of a regulatory evaluation and associated small business analysis, and contractor 

support for the comment collection and review processes and related activities. A breakdown of 

the personnel needed to develop the AN regulations and the approximate cost for each is 

contained in Table 5. 

Table 5. Costs to DHS of Developing the AN Regulations 

Number of 

Personnel 2009 Costs 2010 Costs Total Cost 

Legal Support for Development of Regulations and Regulatory 

Evaluation, and Review of Comments (i.e., Attorneys) 2 $244,405 $398,003 $642,408 

Programmatic & Policy Support for Development of Regulations 

and Regulatory Evaluation, and Review of Comments 4 $371,027 $547,731 $918,758 

Economist Support for Development of Regulatory Evaluation 

(including Small Business Analysis) 2 $185,513 $273,866 $459,379 

Contractor Support for Comment Collection and Review 1 $150,000 $150,000 $300,000 

Total 9 $950,945 $1,369,600 $2,320,545 

19 
CATEGORY 1 – REGISTRATION ACTIVITIES 

Activity 1A – Registration Applications 

The first regulatory activity to occur will be the submission of applications for registration 

numbers. The Department expects to require that an owner of one or more AN Facilities 

provides the name, address, telephone number, designated point of contact and any other 

requested information for each AN Facility he or she owns. The Department also expects to 

require that each AN purchasing applicant provide DHS with his or her name, address and 

telephone number, as well as the intended use of the AN to be purchased. DHS is considering 

two primary methods in which this information can be collected: 1) electronically via a secure 

Web portal, and 2) via paper forms either faxed or mailed to the Department. If DHS elects to 

include face-to-face identification verification of the applicant, it may require that the application 

(whether electronic or paper) be completed and submitted at a local USDA Extension Service 

office (provided that DHS and USDA reach a cooperative agreement as authorized by Section 

563). 

For the purpose of this analysis, the Department assumes that each entity that is solely an AN 

Facility (Group 1) or that is both an AN Facility and an AN Purchaser (Group 2) will register 

two people (a primary and a backup) and an entity that is an AN Purchaser but not an AN 

Facility (Group 3) will register one person. Thus, a total of 188,520 registration applications are 

expected in the first year of the program. The Department estimates that there will be annual 

turnover of approximately five percent of the population, meaning there will be an additional 

9,426 applications submitted to the Department each year. 

DHS Costs 

Option 1 - Electronic submission 

To support electronic submission, the Department would need to develop a secure Web portal 

that is accessible by AN Facilities and prospective AN Purchasers via the Internet. The initial 

development cost of such a system on its own is estimated at $3.3 million, with annual operating 

and maintenance costs estimated at $250,000.13 If the Department is able to leverage CSAT or 

another existing secure Web portal, both the initial development costs and the annual operating 

and maintenance costs may be significantly lowered. 

Option 2 - Paper submission 

To support paper submission of application materials, the Department would need to hire staff to 

extract information manually from the submitted application form for performance of the TSDB 

check and submission into a registered user database maintained by the Department. It is 

estimated that the Department would incur a transaction cost of approximately $25 per 

registration application. With 188,520 applicants expected in the first year, the cost of handling 

 

13 These estimates were informed by the cost to DHS to develop, operate, and maintain the CSAT IT system as part 

of the CFATS effort. 

20 
the associated paper submissions is estimated at $4,713,000. Assuming a five percent annual 

turnover rate, approximately 9,426 new applications would be received each year, which would 

cost DHS approximately $235,650 annually. 

Requiring Submission at USDA Extension Service Office 

While the USDA will incur some costs if this option is selected, DHS will bear no additional 

costs above those associated with Options 1 or 2 unless the Department funds USDA’s 

operations in this activity. In order to develop a comprehensive coordinated effort with the 

USDA, DHS must conduct extensive research and establish a candid and substantive dialogue 

with the regulated community and the USDA. Such an undertaking is necessary for the 

Department to determine the specific regulatory approach for this authority, as Section 563 

requirements and security implications may be more appropriately addressed by the USDA. 

DHS may consider relinquishing registration activities to the USDA in order to support an 

enhanced identity verification process. 

For the purposes of this activity, the USDA extension offices dispersed throughout the United 

States or sites operated by other federal entities such as a United States Post Office, Federal 

Courthouse, and so forth, may provide non-agricultural users of AN a logistically feasible 

registration location, and may serve as the best possible approach to appropriately verifying an 

applicant’s identity and submitting completed registration applications, assuming DHS reaches 

appropriate agreements with such entities. Additional incremental costs to the agencies or the 

Department for this approach have not been estimated. 

 Industry Costs

Option 1 - Electronic submission 

Each prospective AN Facility or AN Purchaser applying for an AN registration number will 

spend approximately 45 minutes reading about the rule and procedures for registration before 

completing the registration application. If the application is online, the Department assumes it 

will take the applicant approximately 15 minutes to find the Website, enter information, submit it 

to the Department, and print and file a copy for his or her records. Assuming 188,520 applicants 

with an average per-applicant fully loaded hourly rate of $48, the initial year costs to industry/the 

regulated community of this option would be $9,048,960, with annual recurring costs of 

$452,448. 

Option 2 - Paper submission 

Each prospective AN Facility or AN Purchaser applying for an AN registration number will 

spend approximately 45 minutes reading about the rule and procedures for registration before 

completing the registration application. If the application is paper-based, DHS assumes it will 

take each applicant about 15 minutes to complete a paper application, fax or mail it to the 

Department, and file it for his or her records. Assuming 188,520 applicants with an average perapplicant fully loaded hourly rate of $48, the initial year costs to industry/the regulated 

community of this option would be $9,048,960, with annual recurring costs of $452,448. 

21 
Requiring Submission at USDA Extension Service office 

If the applicant is required to submit the form in person at a USDA Extension Service office, the 

Department assumes that in addition to the hour spent reading about the regulation and 

completing the application, it will take an average applicant one hour in transit to and from the 

USDA facility, thus doubling the cost to industry/the regulated community of either the direct 

submission of a paper or electronic form. 

Activity 1B – TSDB Check 

Section 563 requires that all AN registration applicants submit identifying information to be 

checked against the consolidated TSDB. 

 DHS Costs

As applicants cannot directly access the TSDB, the Department will bear the direct costs of the 

TSDB check. Based on discussion with the DHS Screening Coordination Office (SCO) and the 

TSA, ISCD estimates the total costs associated with processing an initial check of the TSDB will 

amount to approximately $30 per applicant, with process costs for annual re-verification 

amounting to an estimated annual cost of six dollars per applicant. This is the only check that 

will be conducted, as the statute only requires checks against the TSDB. Therefore, a more 

thorough commercial background investigation that includes criminal history and credit, which 

would cost an additional $250 or more per check, is not included in this analysis. 

To perform the TSDB check, the Department could leverage the TSDB portal being developed 

as part of the CFATS regulatory program, or could simply provide SCO with a list of applicants 

to screen. DHS has assumed a five percent turnover rate; thus, the annual cost for background 

checks on new applicants will be based on five percent of the base population. The estimated 

costs for this activity are contained in Table 6. 

Table 6. TSDB Costs 

Initial Year Year 2 Year 3 Year 4 Year 5 

Total Years 1-

5 

Number of Facilities & 

Purchasers Checked in TSDB for 

First Time 188,520 9,426 9,426 9,426 9,426 226,224 

Process Costs per Initial TSDB 

check $30 $30 $30 $30 $30 $30 

Cost of First Time TSDB Checks $5,655,600 $282,780 $282,780 $282,780 $282,780 $6,786,720 

Number of Facilities & 

Purchasers Re-Verified 0 188,520 188,520 188,520 188,520 754,080 

Process Costs per Re-Verification $6 $6 $6 $6 $6 $6 

Cost of Re-Verifications $0 $1,131,120 $1,131,120 $1,131,120 $1,131,120 $4,524,480 

 Total $5,655,600 $1,413,900 $1,413,900 $1,413,900 $1,413,900 $11,311,120 

 

22 
Industry Costs

As fee authority is not in the legislation, unless DHS charges prospective registrants an 

application fee for this service, all the costs will be borne by the Department, and there will be no 

cost to industry/the regulated community for this activity. 

Activity 1C – Registration Numbers 

Pursuant to Section 563, DHS is required to provide each approved AN Facility or AN Purchaser 

with a registration number. Currently, the Department intends to either e-mail or mail a letter or 

certificate with a registration number to each approved applicant. 

 DHS Costs

Regardless of whether e-mail or regular mail is used to distribute the letters/certificates, to help 

manage the registration number process, the Department would develop a basic AN registered 

user database. DHS estimates that a basic database meeting baseline security requirements 

would cost approximately $250,000 to develop and operate in the first year, with five percent 

annual maintenance costs in years two through five. If DHS e-mails the letters or certificates, 

than the cost of the database (and the salary of any personnel who manage it) are the only costs 

of this activity to the Department. 

If the letters or certificates are mailed, the Department will incur additional costs associated with 

the production and distribution of the letters. These additional costs are estimated to be $.80 per 

letter or certificate. Additionally, DHS assumes that 10 percent of registered entities will need a 

replacement letter or certificate each year due to loss of the original, and that there will be five 

percent turnover among the registered entity population each year. Based on these assumptions, 

the Department would bear first year letter/certificate production and distribution costs of 

$165,898 and annual production and distribution costs of $15,080 each year thereafter. The 

annual costs to DHS for this approach, including the costs for replacement letters and 

certificates, are summarized in Table 7. 

Table 7. Costs of Provision of Registration Numbers via Mail 

Initial Year Year 2 Year 3 Year 4 Year 5 

Total Years 

1-5 

Number of Registered Facilities & 

Purchasers Requiring Notification 188,520 9,426 9,426 9,426 9,426 226,224 

Annual Letter/Certificate Manufacturing 

Cost ($0.30 per item) $56,556 $2,828 $2,828 $2,828 $2,828 $67,867 

Annual Letter/Certificate Distribution 

Costs ($0.50 per item) $94,260 $4,713 $4,713 $4,713 $4,713 $113,112 

Number of Replacement 

Letters/Certificates 18,850 18,850 18,850 18,850 18,850 94,250

Annual Replacement Letter/Certificate 

Costs ($0.80 per card) $15,080 $15,080 $15,080 $15,080 $15,080 $75,400 

 Total $165,896 $22,621 $22,621 $22,621 $22,621 $256,380 

23 
 Industry Costs

There is no cost to industry related to registration numbers if the letters or certificates are mailed 

to them. If the letters or certificates are provided via e-mail, there may be some cost to the 

regulated community based on the need for some registrants who may not currently possess 

Internet access or an e-mail account to acquire such access or accounts. However, this cost is 

expected to be minimal. 

CATEGORY 2 – POINT-OF-SALE ACTIVITIES 

Activity 2A – AN Facility Verification of Registration and Identity of AN Purchasers 

Pursuant to Section 563B(e)(2)(D), the owner of an AN Facility must verify the registration 

including the identity of any AN Purchaser, as well as the identity of designated agents 

purchasing AN from the Facility. The Department is currently evaluating several approaches to 

support compliance with this requirement. For example, the regulatory program may require the 

AN Facility to perform a simple check of a prospective purchaser’s (1) state- or federal-issued 

identification (e.g., driver’s license, passport) and (2) AN registration number letter or certificate. 

 DHS Costs

Because the verification is performed solely by the AN Facility, the Department will bear no cost 

for this activity other than some relatively small initial costs to develop and distribute guidance 

on proper verification processes. 

 Industry Costs

The cost to industry/the regulated community of this activity is the incremental time spent during 

an AN transaction to verify the identity and AN registration number of the prospective 

purchaser. Accordingly, the overall cost would depend on the number of AN transactions that 

occur and the time it takes to perform a simple driver’s license or similar identity check, 

assuming that is all the regulations require. 

There is currently not enough information to estimate the number of AN transactions that occur 

each year. Some large AN Facilities will have many more transactions than others. For the 

purpose of this analysis, it is assumed that larger AN Facilities with existing equipment, 

software, and services to enable electronic transactions will record on average 500 transactions 

per year. Smaller, paper-based AN Facilities are assumed to process 250 transactions per year. 

This amounts to 9,660,000 transactions per year or just over one transaction per week per 

purchaser. Assuming that an identity check takes approximately 30 seconds per transaction and 

that both the average AN Facility sales clerk performing the check and the average AN 

Purchaser being checked make $30 an hour fully loaded, this activity costs industry/the regulated 

community $.50 per transaction, or $4,830,000. 

24 
Under Section 563, AN Facilities are not required to undergo training on how to properly 

perform an identity check. However, for implementation of meaningful purchaser verification, 

the Department may wish to require that each employee with authority to sell AN undergo 

training to: 

• Recognize a valid AN registration letter/certificate and appropriate identification, 

• Spot suspicious behavior, 

• Identify conditions to deny a transaction, 

• Record a transaction appropriately, and 

• Notify the appropriate federal entity and/or state or local law enforcement of suspicious 

purchases or transfers of AN and the theft or loss of AN. 

If the regulations either require such training or industry decides unilaterally to require training, 

assuming training takes one hour and the average facility trains eight sales clerks per year, 

industry will incur an additional $6,182,400 in training related costs. 

Activity 2B - Recordkeeping 

The second POS activity required under the legislation is recordkeeping. Pursuant to Section 

563B(e)(1)(A) of the Homeland Security Act, as amended by P.L. 110-161, an AN Facility must 

maintain a record of each sale or transfer of AN for at least two years from the date of sale or 

transfer. 

 DHS Costs

The costs for this activity reside solely with the AN Facilities. The Department may incur some 

costs related to inspecting or auditing a facility’s records, but those costs are covered under 

Activity 3B – Inspections and Audits. 

 Industry Costs

The costs to industry/regulated community associated with this activity are the costs of the time 

spent during each transaction collecting and recording the information required under the 

regulations, the costs of the time spent on ongoing recordkeeping activities throughout the year, 

and any capital investment costs a facility incurs in acquiring equipment to facilitate the safe 

storage of the AN transaction records. 

Transactional Recordkeeping Costs. The first costs are those associated with the time spent 

during each transaction collecting and recording the following information: 

• Name of purchaser, 

• Registration number, 

• Amount purchased (including units), 

• Date of transaction, and 

• Any additional information that DHS may reasonably require a facility to maintain to 

demonstrate compliance with the statute and the regulations. 

25 
For purposes of this analysis, the Department estimates that collecting and recording this 

information will take on average 2.5 minutes per transaction. Assuming again that an average 

AN Facility sales clerk and an average AN Purchaser each cost $30 per hour fully loaded, than 

the total annual cost to the regulated community of this sub-activity is $2.50 per transaction, or 

$24,150,000. 

Ongoing Recordkeeping Costs. DHS assumes that each AN Facility will spend 60 hours per year 

(an average of five hours per month) engaged in recordkeeping activities such as organizing, 

filing, photocopying, and reconciling AN transaction records, including possibly entering the 

data into an internal spreadsheet application. The Department assumes that a file clerk will be 

responsible for these activities, and that a file clerk costs approximately $21 an hour fully loaded. 

Based on these assumptions, DHS estimates the regulated community will incur annual ongoing 

recordkeeping costs of $32,457,600. 

Storage of Records. The Department assumes that each AN Facility will purchase an additional 

filing cabinet with locks to store AN transactions records. The estimated cost is $300 per 

facility, or $7,728,000. This would be a one-time cost for each facility incurred in year one; 

however, assuming a five percent annual turnover rate, new regulated facilities are expected to 

spend an estimated $386,400 annually on storage equipment. 

CATEGORY 3 – ADDITIONAL REGULATORY ACTIVITIES/REQUIREMENTS 

Activity 3A – Reporting Theft of Loss of AN 

Pursuant to Section 563 requirements, AN Facilities and AN Purchasers are required to report to 

federal law enforcement authorities the theft or loss of AN within one calendar day of becoming 

aware of the theft or loss. 

 DHS Costs

For the purposes of this preliminary estimate, DHS currently assumes that such reports will be 

made to existing federal law enforcement authorities (e.g., the FBI), and that whichever entity 

receives the report will initiate the appropriate investigatory actions. Accordingly, the 

Department envisions incurring no additional costs related to this activity. 

 Industry Costs

The cost to industry of this activity will be the time to gather details and report the theft or loss of 

AN. Because of the seriousness of theft or loss of AN, the total time to report a theft or loss is 

assumed to include two hours each for an inventory manager and sales person, plus one hour for 

the general manager. This includes the time for the reporter to organize useful details for law 

enforcement and conduct a brief investigation. There will likely be additional time for a 

necessary follow-up investigation. Strictly for purposes of this analysis, the Department assumes 

that two percent of AN Facilities and AN Purchasers will report loss or theft once per year. 

26 
Based on these assumptions, there will be 3,255 reports of theft or loss annually, at a total annual 

cost to industry of $918,188. 

Activity 3B – Inspections and Audits 

Pursuant to Section 563, the Department must either directly perform or oversee facility 

compliance inspections and/or audits. For purposes of this analysis, it is assumed that 25 percent 

of AN Facilities, or 6,440 facilities, will be inspected or audited annually. A typical inspection 

will include an examination of both the facility’s registration documents and its recordkeeping 

process, as well as an audit of some of the records of transactions involving AN. 

 DHS Costs

It is estimated that a typical inspection of one AN Facility – including preparation time, travel, 

on-site time, and report writing – will take a single inspector two days. DHS is considering the 

following three entities to perform such inspections: (1) the Department, (2) USDA (provided a 

cooperative agreement is reached), or (3) state agencies receiving delegations of authority in 

accordance with Section 563. Assuming an average inspection takes a single inspector two days, 

approximately 35 inspectors/auditors would be required to inspect or audit 6,440 facilities 

annually. 

Using the costs of the CFATS Inspector Cadre as a guide, it is estimated that $5,790,000 will be 

needed to hire, train, equip, provide office space to, and deploy 35 inspectors in year one of the 

AN program. In years 2-5, these activities are estimated to cost $3,805,000 annually. Note that 

this does not include the costs of salary and benefits for the inspectors or their support staff 

(those costs are addressed below under “Staffing Costs to DHS”). A breakdown of potential 

inspection and audit-related costs (excluding inspector salary and benefits) is contained in Table 

8 below. The specific inspection approach that the Department will employ warrants further 

consideration and extensive coordination with the USDA and individual state governors and 

relevant agencies. 

Table 8. Inspection and Audit Costs (excluding inspector salary and benefits)14

Initial Year Year 2 Year 3 Year 4 Year 5 

Total Years 1-

5 

Training (Year 1 - $30K per 

inspector; Years 2-5 - $12K 

annually per inspector) 

$1,050,000 $420,000 $420,000 $420,000 $420,000 $2,730,000 

Equipment & Vehicles (Year 1 - 

$18K per inspector; Years 2-5 - $9K 

per inspector annually) 

$630,000 $315,000 $315,000 $315,000 $315,000 $1,890,000 

Travel (Year 1 - $26K per 

inspector; Years 2-5 - $43K per 

inspector annually) 

$910,000 $1,470,000 $1,470,000 $1,470,000 $1,470,000 $6,790,000 

Office Space (Year 1 - $800K per 

office ; Years 2-5 - $400K per office 

annually) 

$3,200,000 $1,600,000 $1,600,000 $1,600,000 $1,600,000 $9,600,000 

 Total $5,790,000 $3,805,000 $3,805,000 $3,805,000 $3,805,000 $21,010,000 

 

14 Estimated costs per inspector and costs per office (with the exception of the initial year’s travel costs) were based 

on costs incurred or anticipated by the CFATS inspector cadre. As less travel is expected to occur in the first year of 

implementation of the AN regulations, the initial year’s travel costs were estimated to be approximately 60% of the 

costs incurred in the out years. 

27 
Please note that it can be assumed that a CFATS inspection will be significantly more 

comprehensive and technically challenging than an AN Facility inspection/audit may be, certain 

costs (e.g., training, salary) for the AN inspection program might turn out to be less than the 

costs incurred to perform those activities under CFATS. The Department has chosen to use 

CFATS costs as the basis for estimating the costs for these activities for AN inspectors for the 

following reasons: (1) it is possible that the same inspectors will be used to perform inspections 

under both CFATS and the AN regulations, and thus all inspectors will have to be trained and 

equipped to perform the more complex CFATS inspections; and (2) the Department does not 

know precisely what an inspection under the AN regulatory regime will entail at this time and 

thus cannot accurately estimate the related training costs. Similarly, the estimated office space 

costs are based on the CFATS cost estimates for establishing new regional offices for CFATS 

inspectors. If the AN inspectors can share space in facilities already established by the 

Department to house CFATS inspectors, actual office space costs are likely to be lower. 

 

Industry Costs

The primary cost of this activity to industry is the cost of preparing for and hosting an inspection 

or audit. If an audit is conducted off-site, the audited AN Facility would have to prepare and 

transmit a report of its recordkeeping that would likely include some sort of reconciliation of its 

AN sales and copies of its verification/transaction logs. The time required for an AN Facility to 

prepare and transmit the required information could range from as little as an hour for a small 

business to several days for a larger-volume business. For the purpose of this analysis, it is 

assumed that each audit will take eight hours of clerical time ($21.21 an hour) and two hours 

each for an inventory manager ($76.23 an hour) and general manager ($86.55 an hour) or 

equivalent to review. Based on these assumptions, each off-site audit would cost a facility 

$495.24. 

If an inspection or audit occurs on-site, it is assumed that they will be unannounced, and the cost 

to the AN Facility would be the cost of the time during which the inspection/audit takes place, 

not any preparation time. During the audit, the Department assumes that the facility manager (or 

equivalent position) and a clerical person will be on hand to retrieve the records and answer 

questions from the auditor. The time to complete the inspection/audit could range from as little 

as an hour for a small business to several days for a larger-volume business. For the purpose of 

this analysis, it is assumed that each audit will take eight hours each for clerical support ($21.21 

an hour), inventory manager ($76.23 an hour), and general manager ($86.55 an hour). Based on 

these assumptions, each on-site audit would cost a facility $1,471.90. 

Assuming 50 percent of inspections/audits are done off-site and the other 50 percent of 

inspections/audits are done on-site, the total annual cost to industry of this activity is $6,334,191. 

Activity 3C – Guidance Materials and Posters 

Pursuant to Section 563, the Department is required to develop and provide to the regulated 

community primarily two types of guidance documents: 

28 
• Guidance on the procedures for appealing a denial of a registration application to the .2% 

(approximately 377) of applicants estimated to be denied a registration number and 

• Guidance (to the approximately 25,760 AN Facilities) on the identification of suspicious 

AN purchases and appropriate actions to be taken. 

Additionally, DHS is required to develop and provide to AN Facilities materials suitable for 

posting that provide notification of the recordkeeping requirements and the penalties for 

violating such requirements. 

 DHS Costs

The costs associated with developing the guidance documents and posters are expected to be 

relatively small. The bulk of the costs related to these efforts will be in the reproduction and 

dissemination of the final guidance materials and posters. It is estimated that these guidance 

materials will cost $0.85 each per recipient to reproduce and distribute, while the posters will 

cost approximately $6.50 each per recipient to reproduce and distribute. With an estimated 377 

applicants receiving the first guidance document and an additional 25,760 AN Facilities 

receiving the second guidance document, the total cost for developing, reproducing, and 

distributing the guidance materials is estimated at $22,217. Assuming an annual turnover rate of 

five percent, an additional 1,307 guidance documents will be produced annually thereafter, at a 

cost of $1,111 per year. An estimated 25,760 posters will need to be produced in the first year, 

which will cost the Department approximately $167,440. Assuming a turnover rate of five 

percent, the Department will spend approximately $8,372 per year on posters after year one. 

 Industry Costs

It is assumed that DHS will bear the cost of producing and distributing the guidance materials 

and posters to the regulated community. Thus, the cost to industry for this activity will be 

minimal. 

CATEGORY 4 – ADMINISTRATIVE ACTIVITIES 

Category 4A - Threshold Percentage of AN in a Substance 

Under Section 563, the Department must establish a threshold percentage of AN in a substance 

for it to be considered AN. Because DHS has already made similar determinations in 

promulgating Appendix A to CFATS, the additional cost related to this activity for either DHS or 

industry should be relatively minimal. 

Category 4B – Penalties and Appeals 

Pursuant to Section 563, the Department has the authority to assess civil penalties of up to 

$50,000 per violation of the regulations. How DHS will enforce violations and collect fines 

likely will depend on the inspection approach taken. If the Department performs the inspections, 

it can identify and report violations internally and collect fines directly. If DHS outsources 

29 
inspection authority, it likely will have to be notified by the states or USDA inspectors of 

violations then initiate enforcement actions and collect fines. 

It is not possible to accurately predict the number of AN Facilities that will be assessed penalties 

for noncompliance. It is also not possible to estimate the number of facilities assessed penalties 

that will appeal that penalty assessment. Strictly for purposes of this cost analysis, the 

Department has assumed that one percent of all AN Facilities (258 facilities) will be assessed 

penalties annually and that half of those (129 facilities) will appeal their penalty. 

In addition to appeals of a penalty, applicants denied registration numbers also have the right to 

appeal, and DHS must, to the extent practicable, resolve appeals within 72 hours. Historically, 

approximately 0.2 percent of all individuals screened through the TSDB are found to be a 

potential security risk based on the TSDB search results.15 Based on this historical average, the 

Department estimates that approximately 377 applicants will be denied registration numbers in 

the first year of the AN regulations, and approximately 19 will be denied registration numbers 

each year thereafter. It is difficult to estimate the percent of these denied applicants who will 

appeal the ruling, so for the purposes of this analysis, DHS has assumed all individuals found to 

be a security risk based on the TSDB screening will appeal the finding. 

DHS Costs

Penalties and Appeals of Penalties: The primary cost of assessing a penalty will be associated 

with the decision-making process leading up to the assessment of a penalty and the follow-up 

tracking to ensure payment. It is estimated that these activities will cost approximately $500 per 

facility, meaning that penalty assessments are estimated to cost approximately $129,000 

annually.

The cost of an appeal likely will vary greatly depending on the specific factual circumstances 

surrounding the penalty, and the arguments raised in challenging the penalty. This makes it 

extremely difficult to estimate the average cost of an appeal to DHS. For purposes of this cost 

analysis, the Department has assumed that a typical appeal of a penalty will cost DHS 

approximately $2,500, for an estimated annual cost of $322,500. 

Appeals of Denials of Applications for Registration Numbers Similarly, the cost of an appeal of 

a denial of an application for a registration number likely is case-specific and very difficult to 

estimate. However, for purposes of this analysis, the Department estimates that the average cost 

to DHS of such an appeal will be $2,000. Based on these assumptions, the total expected annual 

cost for appeals of denials of registration numbers during the first year is $754,000, and $38,000 

for each year thereafter.

 

15 Because the legislation specifically requires a search of the TSDB only, the estimated hit rate of provided (0.2 

percent) is for a search of the TSDB only. If additional databases are searched for potential threat indicators, the hit 

rate is estimated to be closer to 2 percent, which would increase the costs for this activity by a factor of ten. 

30 
Table 9. Appeals of Denials of Application for Registration Numbers 

Initial Year Year 2 Year 3 Year 4 Year 5 

Total Years 1-

5 

Number of Facilities & 

Purchasers Applying for 

Registration 188,520 9,426 9,426 9,426 9,426 226,224 

Estimated Percentage of 

Applicants who are Denied and 

who Appeal 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 

Estimated Number of Applicants 

who are Denied and who Appeal 377 19 19 19 19 453 

Cost to DHS per Appeal $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 

 Total $754,000 $38,000 $38,000 $38,000 $38,000 $906,000 

Industry Costs

Penalties and Appeals of Penalties The cost of an appeal may vary greatly depending on the 

specific factual circumstances surrounding the penalty, but in all cases would likely involve the 

time of the general manager, inventory manager, attorneys, corporate managers and clerical time. 

For purposes of this cost analysis, the Department has assumed that a typical appeal would cost a 

facility approximately $5,000 in legal fees and time spent working on the appeal. Thus, 

assuming 129 facilities a year appeal penalties, the cost to industry of this activity is $645,000. 

This cost estimate does not include the actual amount of any penalties paid by a facility found to 

be in noncompliance either before or after an appeal.

Appeals of Denials of Applications for Registration Numbers: It is assumed that individuals 

requesting an appeal will be required to file and serve a Notice of Appeal, Brief, and any other 

necessary filings. The Department assumes it would take an applicant a total of six hours to 

prepare the needed paperwork to appeal. Using an average loaded hourly rate of $54.39 for a 

denied applicant, the estimated cost per appeal is $326, for a total first year cost to industry of 

$123,043, and $6,152 every year thereafter.

STAFFING COSTS TO DHS 

Implementation of the new AN-related responsibilities will require the Department to expand its 

existing Infrastructure Security Compliance Division organization. This includes costs 

associated with the performance of management, oversight, tracking, reporting, and 

administration activities in support of the Division’s AN-security related activities, as well as the 

actual issuance of registration numbers, performance of TSDB checks, performance of 

inspections and audits, and implementation of other regulatory required activities. DHS 

estimates that 45 individuals, at a first year cost of approximately $4,640,298 and a second year 

cost of $7,112,873, will be required to carry out this new regulatory responsibility. The 

breakdown of the roles of the individuals and the estimated cost per individual can be found in 

Table 10 on the following page. 

31 
Table 10. DHS Staffing Costs for Implementation of AN Regulations 

Number of 

Personnel 2009 Costs 2010 Costs 

Programmatic and Policy Support 7 $649,296 $958,529 

Legal Support 1 $122,202 $199,002 

Administrative Support 2 $152,312 $205,495 

Inspectors/Auditors16 35 $3,716,488 $5,749,847 

Total 45 $4,640,298 $7,112,873

ADDITIONAL POTENTIAL INDUSTRY COSTS NOT INCLUDED IN THIS ANALYSIS 

Industry Costs 

Additional legal liability If an upstream AN Facility is responsible for its customers’ 

compliance with the AN rules, an additional liability may be created. It is possible that umbrella 

liability insurance premiums could increase as a result; however, there is not enough information 

at this point to determine the cost associated with this additional liability. 

Industry guidance: In addition to the Department guidance, AN Facilities will likely develop 

and distribute their own guidance materials (such as current “Be Secure for America” efforts). 

Industry will incur the cost of printing and distributing the industry guidance. 

Capital Investments: This analysis assumes that AN Facilities will use existing technologies to 

comply with the AN rule. In reality, due to the inefficiencies of paper-based recordkeeping, 

some AN Facilities may make capital investments in hardware and software to allow faster 

electronic verification and recordkeeping. 

Increased wait times: All customers at a facility that sells AN, to include those customers not 

necessarily attempting to purchase AN, will incur longer wait times as AN registrations are 

verified and transactions are recorded through the methodology employed by the facility. These 

costs could be mitigated through the hiring of additional workers or through the acquisition of 

technology to support expedited recording of AN transactions, at a cost to industry. 

 

16 Estimated staffing cost of inspectors/auditors depends primarily on the Federal General Schedule (GS) pay grade 

at which the individuals are hired. Because it is unclear at this time (a) what precisely an AN inspection will entail, 

and (b) whether or not AN inspectors also will be asked to perform CFATS inspections, it is unclear at what pay 

grade the AN inspectors will be hired. Accordingly, the actual inspector/auditor salary costs may be noticeably 

higher or lower depending on the grade at which staff eventually are hired. 

32 
CONCLUSION 

Over the past few months, the Department has made significant progress not only in establishing 

some basic parameters for developing regulations focused specifically on securing AN under 

Section 563, but also in implementing regulations (e.g., CFATS) that are helping to secure 

portions of the AN supply chain immediately. Going forward, DHS will continue its effort to 

define an appropriate regulatory structure for securing the sale and transfer of AN, in accordance 

with Section 563, as well as identifying and securing high-risk facilities that manufacture, 

distribute, sell, store, or use AN. Immediate next steps related to securing AN include: 

• Issuance of an Advanced Notice of Public Rulemaking describing potential regulations 

for implementing Section 563 and asking for public comment on certain aspects of the 

potential regulatory approach. 

• Continued outreach and partnership with the agricultural community to identify how to 

best accomplish the mission of Section 563 and the Department’s security goals while 

minimizing the impact on the agricultural community. 

• Further analysis of the potential approaches to implementing Section 563. 

• Continued coordination with other federal security partners to ensure harmonization of 

any Section 563 efforts with related efforts. 

• Development and issuance of proposed regulations under Section 563 for public review 

and comment. 

• Development of a regulatory evaluation/detailed industry cost assessment for regulations 

implementing Section 563, as well as a detailed assessment of costs to the Federal 

Government of implementing Section 563. 

33