Lobbyists and loopholes – Part 2 of 5

From The Oregonian, October 4, 2004

Lobbyists and loopholes is part 1 of 5 UNNECESSARY EPIDEMIC: A Five-Part Series by The Oregonian – 2004 / 2005 SEE – All five stories here.

This series of articles, written largely by Steve Suo, illuminated and encouraged Oregon’s legal strategy toward addiction which uses institutional punishment approach versus a medical approach which might offer an individual’s recovery as a primary goal. As of Spring of 2011, Oregon’s strategy has had no affect on the number of arrests or convictions for drug possession or distribution, and has resulted in thousands of deaths, and billions of misspent tax dollars.

Years of attempts by politicians, prosecutors and police to curtail sales of the two essential ingredients to make meth are hamstrung by… Lobbyists and loopholes

In his office on Washington, D.C.’s bustling Connecticut Avenue, five blocks north of the White House, drug lobbyist Allan Rexinger was scanning the Congressional Record one September day in 1986 when two words stopped him short.

“Ephedrine.” “Pseudoephedrine.”

The U.S. Drug Enforcement Administration wanted to require companies to keep sales and import records for these and 12 other chemicals used in making illegal drugs. Executives would have to give the DEA the documents when asked.

From his seven years protecting the interests of the pharmaceutical industry, Rexinger knew that ephedrine was important to sellers of nonprescription asthma and diet pills. Even more important, pseudoephedrine was the leading ingredient in the nation’s $3 billion cold medication market. Every major drug firm had a brand.

The controls, Rexinger suspected, were only the beginning, the first step toward making cold medicine a prescription drug.

The DEA had to be stopped.

Rexinger’s group prepared a counterattack. It was the first of many that would stall three major efforts over the next decade to regulate products sold by one of Washington’s most influential industries.

The lobbyists would repeatedly invoke the needs of tens of millions of cold sufferers and asthmatics who were buying pseudoephedrine- and ephedrine-based products over the counter. Meanwhile, they would forge alliances with Capitol Hill staffers, members of Congress and White House officials who would help them thwart the DEA’s plans. It was, the lobbyists believed, the only way to cope with a bureaucracy deaf to industry concerns.

Whenever federal officials tried to tighten control over the chemicals used to make methamphetamine, Rexinger and his colleagues swung into action. Again and again, DEA officials agreed to compromises that left open one or more crucial loopholes for traffickers to obtain their ingredients — the bulk of which are made in only nine factories worldwide.

A small group of federal officials, prosecutors and local cops understood the inner workings of the methamphetamine business and the threat it posed to Oregon, California and other states in the West. But their push for tougher laws was episodic, and they were repeatedly outmaneuvered by the pharmaceutical industry, which had far better access and influence over key decision-makers.

Meth traffickers relentlessly exploited the loopholes lawmakers left open.

By 1997, when the DEA completed its incremental struggle to control all levels of the trade in meth-related chemicals, an estimated 5 million Americans had tried methamphetamine.

As Rexinger studied the DEA’s first proposal to impose controls that fall day in 1986, he picked up the phone and sounded the warning.

Over the coming months, Rexinger would confront the bill’s congressional sponsors and challenge the DEA. Ultimately, someone would have to persuade the White House to intervene.

The idea man

The legislation that so riled the drug industry in 1986 was an idea scrawled on a cocktail napkin just a year before. Its author: a midlevel bureaucrat convinced that he could put drug traffickers out of business by cutting off the chemicals they needed.

Deputy Assistant Administrator Gene Haislip was an idea man. As an ambitious young attorney in the DEA Office of Chief Counsel, he had quickly set himself apart by suggesting new areas for legislation and then drafting it himself.

When Haislip was tapped in 1980 to run the agency’s tiny Office of Compliance and Regulatory Affairs, he began looking for ways to expand its mission beyond policing prescription drugs. His first opportunity came from Quaalude, a widely abused sleeping pill.

Haislip concluded that 90 percent of the world production of Quaalude’s legal chemical ingredient, methaqualone powder, was being bought by Colombian drug lords.

Haislip and his staff visited the countries that made methaqualone — China, Germany, Austria — and enlisted their help in halting the flow. Separately, Congress banned domestic sales of the prescription version of Quaaludes, which were made by just one company.

By 1984, Quaaludes had all but disappeared from the U.S. marketplace. It was the first time the DEA could claim total victory over a drug.

Haislip was certain the Quaalude story could be repeated. Flying home from Europe one day with his boss, Haislip sketched out a plan to place all drug-related chemicals under the same sort of system that tracked prescription drugs and narcotics.

Every chemical used in the illegal trade — from solvents that refined cocaine to essential ingredients in synthetic drugs such as PCP, LSD and methamphetamine — would fall under the Controlled Substances Act. Anyone who handled such chemicals would have to register with the DEA; each transaction from factory to final use would be reported to the government. Exports and imports would require permission from Haislip’s newly renamed Office of Diversion Control.

Given the go-ahead from DEA brass, Haislip gathered his staff at DEA headquarters one day in 1985. “Today, gentlemen, we are going to draft a new law,” he remembers saying.

From the beginning, Haislip had to adapt his bold proposal to what the DEA bureaucracy would accept. DEA officials reminded him that the agency had been buried in paperwork when Congress demanded reports on all sales of a chemical used to make the hallucinogen PCP.

Haislip scaled back. Companies buying and selling the key chemicals involved in the drug trade would be required to retain records that could be shown to DEA agents on demand.

Haislip also winnowed the list of chemicals to be controlled from dozens to 14, including both ephedrine and pseudoephedrine. Meth cooks were using ephedrine at the time, but DEA chemists knew pseudoephedrine would work just as well.

The legislation was ready by fall 1986, in time for final debate on a sweeping drug bill moving through Congress.

On Sept. 14, President Reagan and his wife, Nancy, called for a crusade against drugs.

“Each of us has to put our principles and consciences on the line — whether in social settings or in the workplace — to set forth solid standards and stick to them,” Nancy Reagan said in a 20-minute, televised address. “There is no moral middle ground.”

Nine days later, Senate Majority Leader Robert Dole, R-Kan., introduced the administration’s chemical control legislation as a potential addition to the omnibus House drug bill about to be debated in the Senate.

Haislip was confident his idea was on a fast track to the president.

Battle is drawn

Rexinger said he felt blindsided when he read about Dole’s bill in the Congressional Record.

His employer was the Proprietary Association, a trade group representing the nonprescription divisions of the nation’s largest pharmaceutical companies.

In the early 1970s, the Food and Drug Administration had launched a comprehensive study of over-the-counter drug ingredients. It ultimately led the agency to approve dozens of prescription-only products for sale without a doctor’s advice, including pseudoephedrine and nine other cough and cold ingredients in 1976.

Over the next 10 years, U.S. sales of pseudoephedrine products grew so fast that they outstripped the production capacity of the world’s main producers in Germany and Czechoslovakia.

Rexinger made an appointment with Dole’s staff. In the Republican leader’s office, he handed an aide a package of Sudafed. From Rexinger’s perspective, it was a proven, safe, effective and legitimate product that consumers needed.

“Your bill,” Rexinger recalled telling a Dole aide, “just made this product illegal.”

Dole could not be reached for comment, and his former chief of staff, Sheila Burke, did not remember the episode. But Rexinger recalled being told by a Dole staff member that the bill was not intended to harm the industry.

Weeks later, when Congress passed sweeping drug legislation with Dole’s support, it did not include Haislip’s chemical program. The final version asked the DEA to study the issue and report back by spring. Reagan signed it into law on Oct. 27, 1986.

Haislip still had momentum. But Rexinger had bought time.

The strategic compromise

Rexinger and his boss at the time, James D. Cope, say they spent the next months trying to get the DEA’s attention. They made appointments to see Haislip.

Rexinger and Cope, president of the drug association, felt their usual contacts at the Food and Drug Administration understood the needs of legitimate commerce. But they recall a much cooler reception at the DEA.

“DEA’s position was, ‘Look, this is too bad, but this is the only way we can really get a handle on this situation. We’ve got to know where this stuff’s going so we can make the busts,’ ” Rexinger said.

Cope said their demeanor indicated, “We’ll meet with you, but someone told us we have to meet with you bastards, and this is the way it’s going to be.”

Then, something changed.

“It took a telephone call,” Rexinger said, “to the highest levels of the United States government.”

“The pharmaceutical industry had well-placed people, and it was necessary to inform the White House that we weren’t making the progress that we felt we should be making with DEA.

“The White House basically intervened on our behalf,” Rexinger said.

Cope confirmed that a White House staffer arranged for a meeting with the DEA but didn’t recall who called whom. Haislip said he was unaware of any phone call but remembered that the meeting with the industry was arranged by the Executive Office of the President.

DEA officials met with industry representatives in the Indian Treaty Room of the Old Executive Office Building. Rexinger said White House involvement in the issue sent a clear message.

“It basically got DEA off the mark,” Rexinger said. “After that, we had useful negotiations with DEA.

“They realized that the pharmaceutical industry was willing to do what was necessary to protect the interests of legitimate drugs,” Rexinger said.

In April 1987, Attorney General Edwin Meese III reported back to Congress with a new legislative proposal. It looked identical to what the administration had proposed just six months before, with one difference.

It exempted from regulation any chemical — such as ephedrine and pseudoephedrine — turned into a legal drug product. Importers of raw ephedrine and pseudoephedrine powder had to keep records of their purchases and sales. Sellers of finished pills containing ephedrine and pseudoephedrine, meanwhile, did not.

The 31-word exemption left the drug industry out of the regulation, which is what Rexinger wanted.

“I don’t recall why, but I feel like we had to take it,” Haislip said.

“Certainly we didn’t like it, and we knew what it was about and where it was coming from,” Haislip said. “But sometimes you have to make a strategic decision. You’ve got to pick your fights. This is the way it is in this city.”

While Haislip was negotiating with the industry, prosecutors on the West Coast were developing their own ideas about how to choke the chemical supply.

In San Diego, Deputy District Attorney Hugh McManus had built a reputation for aggressively prosecuting dozens of major meth dealers. McManus noticed that when California legislators placed restrictions on ephedrine sales in 1987, the traffickers adapted, switching to unregulated chemicals.

McManus sat down and drafted a proposal for federal legislation to get ahead of the traffickers. Sellers of ephedrine and pseudoephedrine in any form, including finished cold pills such as Sudafed, would have to report all sales to the DEA. The agency also would have the power to impose controls on any comparable chemicals used by traffickers — without going back to Congress.

In the fall of 1987, U.S. Rep. Bill Lowery, R-Calif., introduced McManus’ bill and invited the California prosecutor to book a flight to Washington. The bill he wrote was headed for a hearing alongside Haislip’s.

A prophetic plea

On Sept. 16, 1987, two years after the first drafts, Haislip sat before the House Judiciary Committee’s Subcommittee on Crime to explain the compromises he had crafted.

Some members asked why he hadn’t attempted something more ambitious, like computerized tracking of every chemical sale.

“I am a little surprised, frankly, that you would only go this far,” said Rep. Larry Smith, D-Fla.

“Look at the number of labs you were able to break last year without any of this,” Smith said. “Just think of how many you could with it! Yet, I am looking, and I see a lot of things absent from the legislation.”

Haislip chose his words carefully. After all, his original proposal had gone much further. He told Smith the bill was a delicate balance of competing interests. The DEA’s aim, he said, was to fight crime without hindering legitimate commerce.

“We have perhaps designed a more modest approach,” Haislip said, “being conscious of the burdens on industry.”

Smith didn’t like that answer.

“What the hell does the modest approach have to do with the reality of law enforcement when it comes to drugs?” Smith said.

“I would be more than happy to work with the chemical manufacturers,” he said. “But frankly, I am interested in getting rid of drugs, and I really am tired of losing.”

A few days later, the committee followed up with a list of questions for Haislip’s boss, DEA Administrator John Lawn. The committee had seized upon the central compromise that Haislip made with the industry: regulating powder but not pills containing ephedrine and pseudoephedrine. Wasn’t this a loophole that would allow drug traffickers to get the same chemicals in a different form?

“Yes,” Lawn responded. “. . . It is highly unlikely, however, that this would occur.”

The next day, Congress heard a different story from McManus. The DEA’s strategy of regulating some chemicals while exempting others, he told Congress, gave meth cookers a road map.

“Merely listing the now-known precursors gives these imaginative chemists a lot of maneuvering room,” McManus said, “allowing them to come up with a new, unregulated precursor even before the new legislation is printed in the law books.”

McManus urged the committee to broaden the legislation that Haislip had written, authorizing the DEA to regulate chemical substitutes adopted by meth cooks. Otherwise, Congress would have to repeatedly push through new legislation as the criminals adapted.

“Meanwhile,” he said, “there is going to be another ton of methamphetamine shipped out of San Diego County.”

The chairman thanked McManus for his testimony. Congress went on to approve Haislip’s bill in late 1988 without McManus’ suggested changes. It took effect in August 1989.

Defeated but not surprised, McManus returned to San Diego.

“I knew before I got there,” McManus said. “It’s like one of these deals, other things I’ve been involved in as a DA, where everybody tells you, ‘You can take this case to trial, but you’re going to lose in the end.’ The fix is in, so to speak.”

Within months, McManus was proved right about the drug traffickers.

Finding the loophole

Ronald Lee Henslee was a prodigious supplier of California’s meth superlabs. The San Diego resident was caught with 1,200 pounds of ephedrine powder in 1989 but escaped a prison sentence, court records show. He was jailed later that year for violating his probation but continued to coordinate ephedrine shipments from prison through telephone calls to his girlfriend, according to prosecutors.

The federal investigation into how Henslee obtained his ephedrine led agents to a disturbing discovery: The loophole in Haislip’s law — which left ephedrine in pills unregulated — already was being exploited.

Henslee’s supplier, Pittsburgh-based Nationwide Purveyors, produced ephedrine pills called “Mini White Thins” for sale in magazines such as Hustler and High Times.

Before Haislip’s law took effect in August 1989, Nationwide Purveyors had a separate arrangement to supply Henslee with 55-pound barrels of raw ephedrine powder. As soon as the law required record-keeping of ephedrine powder sales, Nationwide Purveyors began shipping pills called “Mini-Thin Barrels,” which were exempt from regulation.

Nationwide Purveyors, its owner, Henslee and others eventually were convicted of supplying about 4 metric tons of ephedrine to the meth trade over two years — enough to make more than 49 million doses of meth.

The case surprised Haislip.

For the most part, his law was having a deterrent effect. By late 1990, U.S. exports of cocaine-refining solvents to Latin America had plummeted. And the total number of meth labs seized by drug agents had fallen.

But lawmakers in the West already were demanding that the government do more. They introduced legislation to expand Haislip’s law by requiring more information from chemical distributors.

“We have, most particularly on the West Coast, a problem now,” Sen. Slade Gorton, R-Wash., said in 1990. “We seek to address that problem now.”

Haislip resisted making radical changes to a law that he so recently had ushered onto the books and that his staff was still learning to enforce. On the other hand, Haislip could see from Nationwide Purveyors and other cases that the meth trade’s shift to ephedrine tablets would have to be addressed.

Back at the Proprietary Association, Rexinger was not happy about reopening the issue. To him, it seemed as though Haislip and the DEA were working behind the scenes to unravel the compromise they had struck.

“They would just keep going back to the Hill advocating their position without regard for the legitimate pharmaceutical industry,” Rexinger said. “I would get rumors of that from staffers up there.

“I would have to go up there,” he recalled, “and I’d just have to pull the plugs on them.”

Meth explosion

It took Haislip three years to close the loophole that made ephedrine pills common currency in the meth trade. While he negotiated with the pharmaceutical industry and prodded lawmakers, trafficking in methamphetamine exploded.

The Mexican cartels developed an additional source for ephedrine, buying bulk powder from overseas suppliers.

A flood of high-potency meth rolled eastward, through the Rockies and into the Plains. Between 1992 and 1994, the purity of meth on the street skyrocketed, from 46 percent all the way up to 73 percent. At the same time, the number of people entering rehab for meth doubled.

In 1993, after the DEA struck a new compromise with Rexinger’s group, Congress passed legislation that required sellers of ephedrine tablets to keep records of customers, report suspicious sales and register with the DEA. It was phased in from April 1994 through August 1995.

The DEA immediately cracked down on the trade in ephedrine-based pills. And drug agents cut off the network of overseas connections that had delivered 170 metric tons of ephedrine to the cartels in less than two years — enough to make more than 2 billion doses of meth.

Haislip’s staff flew to India, the Czech Republic and Switzerland. Within months, those countries began enacting stricter export controls on ephedrine.

The combined domestic and overseas efforts prompted a steep drop in the purity of street meth. Indicators of meth abuse — from the number of people in rehab to emergency room patients with meth in their systems — plummeted.

But already, the cartels were changing tactics.

To get the pharmaceutical industry to accept restrictions on sales of pills containing ephedrine, Haislip had agreed to leave pills containing pseudoephedrine — a potential substitute in making meth — unregulated. For meth cooks in California, it was the next best thing.

The new ingredient

In the spring of 1995, DEA agents needed five tractor-trailer trucks to empty the warehouse at Clifton Pharmaceutical, a Pennsylvania pill maker whose owner had moved as much as 70 metric tons of ephedrine tablets to meth traffickers. The owner was headed to federal prison for five years.

Yet the news was not all good.

Federal agents sifting through Clifton’s records discovered that the company had switched to buying huge volumes of pseudoephedrine after the new law took effect. In less than 18 months, the company purchased 110 tons and converted most of it into unregulated pills.

It was, by then, a familiar story to Haislip and his staff. Twice they had struck compromises with the drug industry, agreeing to regulate one meth ingredient and not the other. Both times, meth cooks had seized on whatever the DEA left unregulated, just as McManus, the San Diego prosecutor, had predicted in 1987.

Haislip sent his chemists to the grocery store to buy various types of cold medicine containing pseudoephedrine — pills, capsules, liquids. The technicians returned to the DEA lab and started trying to extract useable pseudoephedrine from each product.

“The lab was able to make methamphetamine out of every size, shape and form,” said Terry Woodworth, the agency’s former deputy director of diversion control.

On Halloween Day 1995, the DEA announced plans to eliminate the loophole Haislip had accepted under pressure from Rexinger a decade before. Pseudoephedrine products, the agency said, would be treated like all other methamphetamine ingredients.

Haislip’s proposed rule seemed modest: Manufacturers and wholesale distributors would have to get DEA licenses and keep records if they sold more than 400 tablets of pseudoephedrine in one sale — enough for a 100-day cold at the normal dose.

But for drug executives, this was the moment Rexinger had warned about from the beginning.

An outright ban or prescription-only status for pseudoephedrine seemed easily imaginable.

A bag of pills

The pharmaceutical industry turned to a longtime ally, a member of Congress with enormous sway over DEA activity: Sen. Orrin Hatch, the Utah Republican who chaired the Senate Judiciary Committee, had also supported key legislation promoting generic drugs and curbing federal regulation of dietary supplements.

Within weeks of Haislip’s announcement, Hatch aide Michael Ashburn was dispatched to work on the pseudoephedrine issue. Ashburn, a University of Utah professor of medicine assigned to Hatch on a one-year fellowship, challenged the DEA to prove that traffickers were switching to cold pills.

“They said, ‘We know it’s the case,’ ” Ashburn recalled. “We said, ‘Show us. Show us the money, show us a list of arrests that came from where you found a popular brand of pseudoephedrine sitting on the floor.’ ”

DEA officials had to admit the shift had only recently begun. Pseudoephedrine had been found in 22 percent of labs busted in 1995, up from 11 percent the year before. But history told the DEA that traffickers would quickly make the transition.

“There was just no question in our minds that they were going to go there,” Woodworth said.

Facing resistance from the industry, the DEA found its own powerful friend in Sen. Dianne Feinstein, a California Democrat who was under pressure from her state’s drug agents and prosecutors to do something about the exploding meth problem.

In March 1996, Feinstein introduced a bill proposing enormous penalties for companies whose products repeatedly ended up in meth labs. The first occurrence would prompt a warning, the second a fine of as much as $250,000. The third time, the DEA could shut the company down. The agency wouldn’t have to prove intent, only that the company had been warned.

The bill languished in Hatch’s committee.

Feinstein sent her aides on a shopping trip to buy as many pills as the DEA’s proposed regulations would allow in a single transaction. They returned with a bulging bag, two staffers recalled.

Feinstein summoned a group of drug executives to her office one day. Her staff brought in the shopping bag, stuffed with packets of pseudoephedrine, and dumped it on the table. Surely, Feinstein said, there must be some quantity that the executives considered legitimate for the DEA to police.

By late summer 1996, Hatch and Feinstein reached a compromise.

Sellers of pseudoephedrine would be subject to DEA registration and record-keeping — unless they sold only pseudoephedrine tablets in individually wrapped “blister packs.” Meth cooks so far seemed to prefer pills in bottles, because blister packs took time to empty.

Feinstein’s proposed “three strikes” rule, requiring progressively higher penalties each time a company’s products were found in meth labs, was watered down to affect only companies that showed “reckless disregard” for where their products went.

The deadline for distributors to start registering with the DEA was pushed back a year.

Hatch called the compromise a “more fair approach” than the DEA’s, which might have created so much red tape that companies would stop selling pseudoephedrine products.

By the time the Hatch-Feinstein law governing pseudoephedrine took effect in late 1997, the traffickers’ switch to pseudoephedrine was complete. Agents seized 422 pseudoephedrine-based labs in 1996, up from 93 the year before. Legal imports of pseudoephedrine had jumped 160 metric tons in three years, an increase of 41 percent.

“Greed gets ahead of safety”

In the 12 years that had passed since Haislip drew up his idea on an airline cocktail napkin in 1985, the issue had come full circle.

The DEA now had nearly all the powers Haislip had given away in order to build support within the DEA and in Congress. He retired in 1997, just as the agency was preparing to register pseudoephedrine dealers for the first time.

Each expansion of Haislip’s law had made a significant dent in the meth trade, though only temporarily. In a decade of compromises on the issue, meth grew from a relatively small West Coast trend to an epidemic that claimed users from Oregon to Oklahoma.

The traffickers continued to adapt. A DEA study reported that blister packs — the sole unregulated aspect of the pseudoephedrine trade — were found in 47 percent of meth labs seized in 1999 and 2000.

Feinstein now acknowledges the shortcomings in the law she wrote and has introduced new legislation to repeal that loophole.

The “reckless disregard” provision did not work out as planned, either. DEA officials say it has not resulted in a single fine against a pseudoephedrine supplier. Feinstein, told by The Oregonian that companies had stayed in business despite 30 to 40 warning letters, vowed to push additional legislation lowering the DEA’s burden of proof against pseudoephedrine distributors.

Feinstein said the industry’s influence remains an obstacle.

“There’s no question there’s a problem. There’s no question that pharmaceutical companies allow the problem to happen,” Feinstein said.

“This is one issue where greed gets ahead of safety.”

Hatch said he considers meth “a vicious drug” and takes seriously the need to battle the trade. But he said he remains wary of giving the DEA too much influence over sales of “a good cold medication.”

“I would like to find a way to solve it,” Hatch said of the meth problem. “On the other hand, we shouldn’t let a bureaucracy unilaterally, without legislative authorization, interfere with the marketplace.”

Haislip said he now recognizes that some of the compromises he accepted in the interest of progress created a less-than-ideal system.

“At the time that it occurred, the truth is, we would not have seen it as, ‘This is the Achilles’ heel building in here,’ because we really didn’t know that. I had the strong hope that it wouldn’t happen. I guess that was a little naive.”

Rexinger, the former lobbyist, said it would have made no sense to regulate all legitimate cough and cold products at once, simply on the chance that criminals might misuse them in the future. Getting the ear of the White House allowed the industry to make its case.

“Mind you, there was nothing bad going on here,” Rexinger said of his legwork in 1986. “I mean, this is the way government works. You use your contacts, and you try to get someone’s attention.”

McManus, who pleaded unsuccessfully with Congress in 1987 to regulate all potential meth ingredients immediately, retired in 1992. He recalled that he was far more successful locking up drug dealers than he ever was lobbying Congress.

“I wish that I knew the way to have gotten around it,” McManus said of the pharmaceutical industry’s maneuvering.

“I wish,” he said, “I could have done a lot more.”