The Drug Enforcement Administration (“DEA”) published a final rule on December 30th revising its import and export regulations governing controlled substances, listed chemicals and tableting and encapsulating machines. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System (ITDS); Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 96,992 (Dec. 30, 2016) (hereinafter “Final Rule”). The final rule implements recent amendments to the Controlled Substances Import and Export Act (“CSIEA”) for controlled substance reexports among members of the European Economic Area (“EEA”) as provided by the Improving Regulatory Transparency for New Medical Therapies Act. The final rule also revises reporting requirements for the unusual or excessive loss or disappearance of listed chemicals and for domestic transactions involving listed chemicals and tableting/encapsulating machines. DEA is also mandating electronic filing and reporting related to import/export permit applications, declarations and certain other import/export and domestic notifications and reports electronically through the DEA Diversion Control Division secure network application. The mandate represents DEA’s latest move from a paper-based system of applications, reports and communications to an electronic one.
In summary, while the electronic reporting and other technical amendments provide some benefits, in our view the Agency missed the opportunity to remove certain obstacles which have hindered re-exports of controlled substances since 2005. For example, DEA implemented certain required regulations based on the amendments to the CSIEA, but DEA rejected a comment to remove the 180-day re-export requirement on all exports. While the CSIEA amendments required that DEA eliminate this limit for exports to the EEA, the Agency could have eliminated this unreasonable restriction in all cases. Requiring product to be re-exported within an arbitrary 180 day time period has been a significant obstacle to many exporters where processing and distribution reasonably takes longer. Also, DEA rejected a request to limit re-export reporting where ownership is maintained by the U.S. exporter. In cases where the product has been transferred to other entities, complying with DEA reporting requirements within the 30 day limit is difficult and does not further U.S. interests.
While the final rule is effective on January 30, 2017, the industry has until June 28, 2017 to implement most of the requirements. We summarize the final rule’s most significant revisions below
1. The Final Rule Requires Electronic Submission of Import/Export Permits, Declarations and Certain Reports
The CSIEA and regulations promulgated by DEA require importers and exporters of controlled substances to apply for permits, submit declarations and/or file certain reports. As noted in DEA’s Notice of Proposed Rulemaking, Executive Order 13659 of February 19, 2014 directs DEA and other federal agencies to have the capabilities, agreements and requirements in place to allow electronic filing through the International Trade Data System (“ITDS”) and other data systems required for imported and exported goods. Revision of Import and Export Requirements for Controlled Substances, Listed Chemicals, and Tableting and Encapsulating Machines, Including Changes to Implement the International Trade Data System; Revision of Reporting Requirements for Domestic Transactions in Listed Chemicals and Tableting and Encapsulating Machines; and Technical Amendments, 81 Fed. Reg., 63,576 (Sept. 15, 2016). The final rule mandates submission of all applications and filings electronically through the DEA Office of Diversion Control secure network application to integrate required import and export procedures through the ITDS as directed by Executive Order 13659.
DEA clarified that permits expire no later than 180 calendar days after issue rather than the less exacting “six months.” DEA has also clarified how importers and exporters may amend or cancel permits. Declarations must continue to be filed at least 15 calendar days before the anticipated date of release by a customs officer at the port of entry or port of export, and while declarations did not previously expire, they now expire no later 180 calendar days after issue. As with import/export permits, the final rule also clarifies how to amend or cancel import/export declarations.
2. DEA Clarifies that Drop Shipments of Imports are Prohibited
There has been confusion within the industry as to whether imports of controlled substances could be drop shipped directly to customers. In many cases drop shipments are more efficient and reduces handling and the potential for diversion. Also, there have been cases where local DEA offices have been aware of such activity without objection further confusing whether such actions were permitted. However, in the final rule, DEA has clarified that the final destination of an import must be the registered location of the importer before being transferred to another location of the importer or delivered to a customer, thus prohibiting drop shipments.
3. DEA Narrowly Interpreted its Obligations to Promulgate Regulations on the CSIEA Amendments
Not all controlled substance reexports are created equal. The Improving Regulatory Transparency for New Medical Therapies Act (“2015 Act”), amended the CSIEA to allow additional reexportation of certain controlled substances among members of the EEA. The final rule implements additional reexportation to EEA countries under the 2015 Act. The CSIEA had provided that schedule I or II controlled substances and narcotic drugs in schedule III or IV could be exported from the U.S. for subsequent reexport from the recipient country to a second country, but allowed no further reexports. The 2015 Act removed certain restrictions on reexporting if every subsequent recipient country is a member of the EEA. The final rule implements the following changes:
- Allows unlimited reexports among EEA countries;
- Eliminates the 180 day period to complete reexport from the first country to the second country and subsequent countries;
- Does not require bulk substances to undergo further manufacturing within the first EEA country if the substance is reexported within the EEA;
- Does not require the exporter to provide product and consignee information beyond the first country prior to export from the U.S.; and
- Establishes a new DEA Form 161R-EEA for reporting reexports among EEA members through the DEA Diversion Control Division secure network application.
Of note, one commenter requested that the reexport provisions should apply to EEA member countries as of November 25, 2015, noting that the United Kingdom was a member of the European Union at that time. DEA replied that the 2015 Act is devoid of language stating that the EEA includes all members as of November 2015 so for the EEA provisions to apply, a country must be a member at the time the export leaves the U.S.
Moreover, as discussed above, DEA refused to remove reexport restrictions outside of the EEA because the 2015 Act did not require it to do so. We continue to not see a distinction between EEA members and other signatories to the international treaties and disagree with DEA that the 180 day limit serves a useful anti-diversion or public policy function.
4. The Final Rule Provides Several Technical Amendments Regarding Listed Chemicals
The final rule requires regulated persons who import or export a listed chemical that meets or exceeds a threshold quantity to submit a declaration to DEA via a DEA Form 486/486A through the DEA Diversion Control Division secure network application also no later than 15 calendar days before the date of release by a customs officer at the port of entry or export. DEA requires notification at least three business days before the date of release by a customs officer at the port of entry for those entities with regular customer and regular importer status. Consistent with the controlled substance import/export permits, declarations expire in 180 calendar days. And as with controlled substance imports, the final destination of List I chemical imports must be the registered importer’s registered location. Brokers and traders must also electronically file notifications for international transactions involving listed chemicals that meet or exceed the thresholds not later than 15 calendar days before the transaction is to occur.
The final rule also mandates electronic submission of required monthly reports of domestic transactions involving ephedrine, pseudoephedrine, phenylpropanolamine, and gamma-hydroxybutyric acid (including drug products containing these chemicals/controlled substances) through the U.S. Postal Service or any private or commercial carrier required to be filed pursuant to 21 U.S.C. 830(b)(3). DEA is implementing a new DEA Form 453 to be completed and submitted through the DEA Diversion Control Division secure network application.
The final rule requires regulated persons to report orally, not in writing, any proposed regulated transaction with a person whose description or other identifying characteristic was provided by DEA, and DEA must approve the transaction. Regulated persons must orally report any regulated transaction involving an extraordinary quantity of a listed chemical, an uncommon method of payment or delivery, or any other circumstance the regulated person believes may indicate the chemical will be used in violation of the law at the earliest practicable opportunity to the DEA Field Division Office where they are located.
5. DEA Created a New Reporting Requirement for Unusual or Excessive Losses or Disappearances of Listed Chemicals.
The final rule also requires regulated persons to report any unusual or excessive loss or disappearance of listed chemicals orally to DEA “at the earliest practicable opportunity”. The regulations create a new form, a DEA Form 107, that must be electronically submitted through the DEA Diversion secure network application within 15 calendar days after becoming aware of the circumstances. Importers are responsible for reporting listed chemical losses after a shipment is released by the customs officer at the port entry, and exporters must report losses until a shipment has released at the port of export.
The final rule establishes guidelines for determining whether a listed chemical loss or disappearance is unusual or excessive and thus reportable. The guidelines for determining whether a listed chemical loss is unusual or excessive include:
- The actual quantity of the listed chemical;
- The specific listed chemical involved;
- Whether the loss or disappearance can be associated with access by specific individuals, or can be attributed to unique activities involving the listed chemical;
- A pattern of losses or disappearances over a specific time period, whether the losses or disappearances appear to be random, and the result of efforts taken to resolve the losses; and
- If known, whether the listed chemical is a likely candidate for diversion and local trends and other indicators of the diversion potential.
DEA notes that “[t]his language,” meaning the unusual or excessive loss factors, “is similar to the current regulatory language relating to theft and loss of controlled substances in § 1301.74(c).” Final Rule at 97,007. We do not agree. First, it is unclear whether all thefts of listed chemicals must be reported or whether a theft only needs to be reported if it is “unusual” or “excessive.” Second, it is very ambiguous as to what would constitute an “unusual” loss or disappearance. Third, we do not believe the criteria established here equates to the requirement for controlled substances. For example, “Significant” (controlled substance losses) is not necessarily “excessive” (chemical losses). Fourth, how listed chemicals must be reported is also more ambiguous than what is required for controlled substances. While registrants must report controlled substance losses in writing within one business day of discovery and follow-up with a DEA-106, regulated persons must first report chemical losses orally “at the earliest practicable opportunity” followed 15 calendar days later by a DEA-Form 107 filed electronically.
6. DEA Standardizes Transactions Involving Tableting and Encapsulating Machines
The final rule standardizes electronic reporting for regulated transactions involving tableting machines and encapsulating machines, including domestic, import, and export transactions, through use of a new DEA Form 452 through the DEA Diversion Control Division secure network application.
The final rule makes oral reporting of domestic transactions in tableting and encapsulating machines mandatory and requires electronic filing of the written report. Regulated persons must orally report domestic regulated transactions of a tableting machine or an encapsulating machine when an order is placed rather than at the earliest practicable opportunity after the regulated person becomes aware of the circumstances. Written DEA Form 452 must be filed within 15 calendar days after the order has been shipped by the seller.
DEA requires submission of Form 452 through the DEA Diversion Control Division secure network application 15 calendar days before the anticipated date of arrival at the port of entry or port of export. An importer or exporter cannot initiate a transaction involving a tableting machine or encapsulating machine until DEA has issued a transaction identification number. DEA also requires import shipments of tableting machines or encapsulating machines that have been denied release by customs to be reported to DEA through the DEA Diversion Control Division secure network application within five business days of denial.