Al-Alousi, Inc., Denial of Registration, 3561-3563 [05-1324]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 70, Number 15 (Tuesday, January 25, 2005)]
[Notices]
[Pages 3561-3563]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-1324]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 04-32]


Al-Alousi, Inc., Denial of Registration

    On March 16, 2004, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Al-Alousi, Inc. (AAI) proposing to deny its 
March 31, 2003, application for DEA Certificate of Registration as a 
distributor of list I chemicals. The Order to Show Cause alleged that 
granting AAI's application would be inconsistent with the public 
interest, as that term is used in 21 U.S.C. 823(h).
    According to the DEA investigative file, the Order to Show Cause 
was sent by certified mail to AAI at its proposed registered location 
at 8760 Greenwell Springs Road, Baton Rouge, Louisiana. On April 14, 
2004, AAI's owner, Mr. Humam Al-Alousi, requested a hearing and on 
April 26, 2004, Administrative Law Judge Mary Ellen Bittner ordered the 
parties to file prehearing statements by June 7, 2004. This date was 
later extended until August 24, 2004. As a result of AAI's failure to 
file a prehearing statement, Judge Bittner considered its hearing right 
to have been waived and issued an Order Terminating Proceedings on 
September 3, 2004. The investigative case file was then forwarded to 
the Deputy Administrator for a final order pursuant to 21 CFR 1301.46.
    The Deputy Administrator finds that AAI has waived its hearing 
right and after considering relevant material from the investigative 
file, now enters her final order without a hearing pursuant to 21 CFR 
1309.53(c) and (d) and 1316.67. The Deputy Administrator finds as 
follows.
    List I chemicals are those that may be used in the manufacture of a 
controlled substance in violation of the Controlled Substances Act. 21 
U.S.C. 802(34); 21 CFR 1310.02(a). Pseudoephedrine and ephedrine are 
list I chemicals commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance. As noted in 
previous DEA final orders, methamphetamine is an extremely potent 
central nervous system stimulant, and its abuse is a persistent and 
growing problem in the United States. See,  e.g., Direct Wholesale, 69 
FR 11,654 (2004); Branex, Inc., 69 FR 8,682 (2004); Yemen Wholesale 
Tobacco and Candy Supply, Inc., 67 FR 9,997 (2002); Denver Wholesale, 
67 FR 99,986 (2002).
    The Deputy Administrator's review of the investigative file reveals 
that AAI's president is Mr. Al-Alousi and his wife, Lois Al-Alousi, is 
vice-president. On or about March 31, 2003, an application was 
submitted by Mrs. Al-Alousi on behalf of AAI, seeking registration to 
distribute ephedrine and pseudoephedrine list I chemical products. 
Subsequently, AAI advised DEA that its application would only be for a 
registration to distribute pseudoephedrine products.
    In connection with the pending application, an on-site pre-
registration investigation was conducted at the proposed registered 
location in May 2003. Mr. Al-Alousi represented to investigators that 
he had purchased AAI in December 2002 and the company had previously 
done business at that location under a different name and owner.
    The investigators' review showed that a prior DEA investigation of 
the former company and its owner had been conducted which adduced 
substantial information that the company had distributed list I 
chemicals without a DEA registration and knowingly distributed large 
quantities of list I chemicals to methamphetamine laboratories during 
the mid-to-late 1990's. The former owner, a citizen of Lebanon, had 
been arrested by U.S. Immigration and Naturalization Service officers 
for willfully and falsely representing himself as a citizen of the 
United States.
    At the time of the DEA investigators' on-site pre-registration 
inspection of AAI's premises, the business sign still bore the former 
company's name and that name was also on a facsimile cover sheet and 
document which was sent by Mrs. Al-Alousi to DEA investigators during 
the pre-registration inquiry.
    Mr. Al-Alousi advised investigators that AAI was now a wholesale 
distributor of cigarettes, washing powder, oil, candy and novelty items 
to approximately 150 convenience stores

[[Page 3562]]

and restaurants in the Baton Rouge area. He stated that all 150 of 
AAI's customers would be purchasing list I chemicals. In addition to 
its wholesale business, AAI operated a convenience store at the 
proposed registered address and many of its customers came to that 
location to pick up purchases at a check out counter. Given the 
facility's set-up, AAI's wholesale and retail customers and all of its 
employees would have physical access to the areas where the listed 
products would be stored.
    During the investigation, the Al-Alousi's were unable to provide 
investigators any records of sales and purchases and stated their 
records were transferred weekly to a bookkeeper. According to a list 
provided investigators, the great majority of AAI's customers were 
convenience stores and gas stations. It was also determined that 
neither Mr. nor Mrs. Al-Alousi had any prior experience in the 
distribution of list I chemicals.
    On July 9, 2003, investigators attempted to conduct verifications 
of twelve customers from AAI's list. Two addresses did not exist; one 
was a printing shop that was out of business; one was an apartment 
complex; one was a bar/pool hall; one was a fast-food stand; two 
alleged customers advised they had never done business with either AAI 
or its predecessor company; two others stated they only purchased paper 
and plastic products from its predecessor company and had never heard 
of AAI; and one stated he had purchased list I chemical cold products 
from AAI's predecessor but would not do so in the future and had never 
heard of AAI. The results of these verification attempts cast doubt on 
the veracity of Mr. Al-Alousi's representations regarding the nature of 
AAI's business and its prospective customers for list I chemical 
products.
    DEA is aware that small illicit laboratories operate with listed 
chemical products often procured, legally or illegally, from non-
traditional retailers of over-the-counter drug products, such as gas 
stations and small retail markets. Some retailers acquire product from 
multiple distributors to mask their acquisition of large amounts of 
listed chemicals. In addition, some individuals utilize sham 
corporations or fraudulent records to establish a commercial identity 
in order to acquire listed chemicals.
    DEA knows by experience that there exists a ``gray market'' in 
which certain high strength, high quantity pseudoephedrine and 
ephedrine products are distributed only to convenience stores and gas 
stations, from where they have a high incidence of diversion. These 
grey market products are not sold in large discount stores, retail 
pharmacies or grocery stores, where sales of therapeutic over-the-
counter drugs predominate.
    DEA also knows from industry data, market studies and statistical 
analysis that over 90 percent of over-the-counter drug remedies are 
sold in drug stores, supermarket chains and ``big box'' discount 
retailers. Less than one percent of cough and cold remedies are sold in 
gas stations or convenience stores. Studies have indicated that most 
convenience stores could not be expected to sell more than $20.00 to 
$40.00 worth of products containing pseudoephedrine per month. The 
expected sales of ephedrine products are known to be even smaller. 
Furthermore, convenience stores handling gray market products often 
order more product than what is required for the legitimate market and 
obtain chemical products from multiple distributors.
    Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an 
application for a Certificate of Registration if she determines that 
granting the registration would be inconsistent with the public 
interest. Section 823(h) requires that the following factors be 
considered in determining the public interest:
    (1) Maintenance of effective controls against diversion of listed 
chemicals into other than legitimate channels;
    (2) Compliance with applicable Federal, State and local law;
    (3) Any prior conviction record under Federal or State laws 
relating to controlled substances or to chemicals controlled under 
Federal or State law;
    (4) Any past experience of the applicant in the manufacture and 
distribution of chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety.
    As with the public interest analysis for practitioners and 
pharmacies pursuant to subsection (f) of section 823, these factors are 
to be considered in the disjunctive; the Deputy Administrator may rely 
on any one or a combination of factors and may give each factor the 
weight she deems appropriate in determining whether a registration 
should be revoked or an application for registration denied. See, e.g., 
Energy Outlet, 64 FR 14,259 (1999). See also, Henry J. Schwartz, Jr., 
M.D., 54 FR 16,422 (1999).
    The Deputy Administrator finds factors one, four and five relevant 
to the pending application for registration.
    As to factor one, maintenance of effective controls against 
diversion of listed chemicals into other than legitimate channels, the 
DEA pre-registration inspection documented that many of AAI's customers 
would be coming to the registered location to pick up their products. 
Under this procedure, AAI would not be able to adequately verify the 
location and legitimacy of its customers. Additionally the listed 
chemicals would be stored such that AAI's retail and wholesale 
customers, as well as all of its employees, would have access to the 
listed chemical products, thus increasing risk of diversion. 
Accordingly, this factor weighs against the granting of AAI's pending 
application.
    With regard to factor four, the applicant's past experience in the 
distribution of chemicals, the Deputy Administrator finds this factor 
relevant based on Mr. and Mrs. Al-Alousi's lack of knowledge and 
experience regarding the laws and regulations governing handing of list 
I chemical products. In prior DEA decisions, this lack of experience in 
handling list I chemical products has been a factor in denying pending 
applications for registration. See, e.g., Direct Wholesale, supra, 69 
FR 11,654; ANM Wholesale, 69 FR 11,652 (2004); Xtreme Enterprises Inc., 
67 FR 76,195 (2002).
    With regard to factor five, other factors relevant to and 
consistent with the public safety, the Deputy Administrator finds this 
factor weighs heavily against granting the application. Unlawful 
methamphetamine use is a growing public health and safety concern 
throughout the United States and the South. Ephedrine and 
pseudoephedrine are precursor products needed to manufacture 
methamphetamine and operators of illicit methamphetamine laboratories 
regularly acquire the precursor products needed to manufacture the drug 
from convenience stores and gas stations which, in prior DEA decisions, 
have been identified as constituting the grey market for list I 
chemical products. It is apparent that AAI intends on being a 
participant in this market.
    While there are no specific prohibitions under the Controlled 
Substances Act regarding the sale of listed chemical products to these 
entities, DEA has nevertheless found these establishments serve as 
sources for the diversion of large amounts of listed chemical products. 
See, e.g., ANM Wholesale, supra, 69 FR 11,652; Xtreme Enterprises, 
Inc., supra, 67 FR 76,195; Sinbad Distributing, 67 FR 10,232 (2002); 
K.V.M. Enterprises, 67 FR 70,968 (2002).
    The Deputy Administrator has previously found that many

[[Page 3563]]

considerations weighed heavily against registering a distributor of 
list I chemicals because, ``[v]irtually all of the Respondent's 
customers, consisting of gas station and convenience stores, are 
considered part of the grey market, in which large amounts of listed 
chemicals are diverted to the illicit manufacture of amphetamine and 
methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at 76,197. As 
in Xtreme Enterprises, Inc., Mr. and Mrs. Al-Alousi's lack of a 
criminal record and stated intent to comply with the law and 
regulations are far outweighed by their lack of experience and the 
company's intent to sell pseudoephedrine products almost exclusively to 
the gray market.
    The Deputy Administrator is also troubled by AAI's failure to 
provide accurate customer information to DEA investigators, indicating 
the company cannot be trusted to handle the responsibilities of a 
registrant. Further, its continued or implied use of its predecessor's 
name, an entity which prior investigations had linked with the 
diversion of listed chemicals to illicit laboratories, raises questions 
about AAI's customer base and the risk that its products might be sold 
to previous customers of AAI's predecessor and then diverted to illegal 
purposes.
    Based on the foregoing, the Deputy Administrator concludes that 
granting the pending application would be inconsistent with the public 
interest.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in her by 21 U.S.C. 
823 and 824 and 28 CFR 0.100(b) and 0.104, hereby orders the pending 
application for DEA Certificate of Registration, submitted by Al-
Alousi, Inc., be, and it hereby is, denied. This order is effective 
February 24, 2005.

    Dated: December 30, 2004.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-1324 Filed 1-24-05; 8:45 am]
BILLING CODE 4410-09-M