Token deterrent – Part 3 of 5

From The Oregonian, October 5, 2004

Token deterrent is part 3 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.

By rubber-stamping rather than stamping out dubious chemical distributors, issuing flurries of warning letters without penalties, DEA mounts a mere . . . Token deterrent.

Thomas Narog stood outside his rented storage unit in Fort Lauderdale, Fla., one day in July 1999 while a federal inspector checked the lock.

The 66-year-old semi-retired mortgage broker wanted to go into a new business, but he needed the U.S. Drug Enforcement Administration’s approval. He wanted to sell pseudoephedrine pills from the storage unit.

While Narog had no background in pharmaceuticals, he also had no criminal record, and neither did the man he claimed as his sole customer. The inspector handed Narog some brochures that warned pseudoephedrine can be used to make methamphetamine, then told him to report any suspicious orders to the DEA.

Two weeks later, Narog had his permit, and Seaside Pharmaceutical Co. was in business.

It proceeded to supply millions of pseudoephedrine pills to meth labs, federal law enforcement officials say.

The Narog case, outlined in DEA and court records, illustrates a central reason why the nation failed to keep vital chemicals from meth traffickers in the 1990s.

The DEA did not make full use of the powers it had won from Congress to shut down illicit sales of the key meth ingredients. Instead, it created an honor system that took distributors such as Narog at their word.

Some lied.

Narog was charged with supplying the meth trade, and his trial exposed gaps in DEA procedures.

The DEA inspector who reviewed Narog’s application testified that he never contacted Narog’s purported customer, an investor in a Florida grocery chain.

That customer, in turn, told the court that Narog had spoken to him about selling cigarettes, not pseudoephedrine.

DEA agents began watching Narog eight months after granting his license, when his TruChoice tablets started showing up in huge quantities at California meth “superlabs.” By then, DEA officials say, Narog had bought 17 million pseudoephedrine pills — enough to treat 600,000 colds for a week or make a day’s supply of meth for 3 million people.

Prosecutors said Narog’s business was part of a cross-country network of warehouses and intermediaries that routed the pseudoephedrine into California via Oregon. Narog was convicted in 2002 of supplying the meth trade, but an appeals court this year ordered a new trial because of improper jury instructions.

Narog applied for DEA registration under a federal law designed to prevent meth traffickers from obtaining the chemicals they needed. Companies that wanted to sell pseudoephedrine were typically asked to name their proposed customers and suppliers.

But the drug agency’s inspectors did not always require answers. And they did not consistently verify what they were told.

To keep a DEA permit, a dealer was supposed to record all purchases and sales, and report any suspicious customers.

But the drug agency rarely did random audits to see whether companies were complying, a review of DEA and court records shows.

The law, which took effect in 1997, empowered the agency to revoke a company’s license if allowing sales to continue was “inconsistent with the public interest.”

However, DEA records obtained by The Oregonian through the Freedom of Information Act show that 35 of 129 companies whose products were found in meth labs received three or more warning letters without losing their licenses. One registered pseudoephedrine seller on the East Coast remained in business after 47 warning letters — most recently in May 2003, the records show.

More than 200 DEA permit-holders did business from houses, mobile homes or apartments, The Oregonian’s investigation found. The newspaper found at least 11 companies listed addresses that are public storage facilities.

DEA and court records show that the agency gave pseudoephedrine permits to at least two companies convicted of federal crimes. One was convicted of interstate transport of stolen goods, the other of sales of counterfeit pharmaceuticals.

The DEA allowed some pill manufacturers to keep licenses despite repeatedly selling large quantities of cold tablets to people who were later convicted of meth trafficking.

Several current and former DEA officials said the drug agency has historically placed a greater emphasis on cocaine and heroin. Some veteran agents, they said, disparagingly referred to meth and other synthetic drugs as “kiddie dope.”

In a statement, the DEA called that characterization a “gross misrepresentation” of how its agents view methamphetamine.

The drug agency said it moved in 2000 to tighten scrutiny over companies that sell pseudoephedrine. The DEA said it now requires inspectors to verify customers, check criminal backgrounds and visit the business addresses listed by applicants.

The DEA said it has always accorded a “high priority” to the battle against meth traffickers and the criminals who supply their ingredients. Officials declined The Oregonian’s repeated requests to interview DEA Administrator Karen Tandy. However, Terry Woodworth, the agency’s deputy director of diversion control, acknowledged last year that the DEA had approved companies it should not have.

“It calls into question the effectiveness of the law, the effectiveness of the regulatory controls, the effectiveness of the regulatory implementation, as well as the effectiveness of the law enforcement,” said Woodworth, who has since retired.

“Certainly, we’ve learned some lessons,” he said. “We’ve made some mistakes.”

Big-money “medicine”

Congress began cracking down on the chemicals used to make methamphetamine in 1988. Each time new controls were imposed, the traffickers shifted to other chemicals that were unregulated.

By 1995, a combination of U.S. regulations and foreign export controls had shut down the supply of ephedrine, the main ingredient of meth at the time. So Mexican drug cartels, which had pioneered the superlabs in California that churned out 80 percent of the nation’s meth, began buying huge quantities of ephedrine’s chemical sibling, pseudoephedrine.

While Congress and the DEA slowly worked out a system to regulate pseudoephedrine from 1995 to 1997, imports to the United States surged by 27 percent, according to federal trade statistics. At the same time, sales of cold medication grew 4 percent. DEA officials think meth traffickers were stockpiling the chemical in anticipation of federal control.

The pills often were made by little-known purveyors of generic vitamins, herbal remedies and over-the-counter medicines on the East Coast. They sold their products to middlemen who supplied knickknacks and candy to gas station mini-marts.

Middle Eastern immigrants in the wholesale trade called their product dawa in Arabic. To their Mexican customers in California, it was la medicina. In any language, “the medicine” meant big money.

The volumes were staggering. Mainstream makers of cold pills sold their product in foil “blister packs” of 30 pills each. Pill companies catering to Mexican cartels packed their pseudoephedrine into bottles that held 120 pills, and the bottles were crammed into crates that held as many as 17,000 pills each.

Court records show that in 1997, at least five little-known companies suspected of supplying the meth trade rivaled the sales of the leading name-brand cold medicine, Sudafed.

But in December 1997, the DEA finally had the authority to control the last remaining aspect of the trade in meth chemicals.

The agency first had gained the authority to turn away imports of ephedrine powder, then the power to approve or reject companies seeking to sell ephedrine tablets. Now, it would decide who could sell pseudoephedrine products.

The meth trade, squeezed by each tightening of the chemical supply, was destined for a crushing blow. But only if the DEA took full advantage of its new powers.

Flawed enforcement

At first, the new system seemed to be working as a deterrent.

Mark Reichel, a federal public defender whose clients include drug suspects in Fresno, Calif., said meth cooks ran short of pseudoephedrine.

“There was a big freakout,” Reichel said. “They were just doing anything to get their hands on pills.”

On the street, federal data show, the purity of methamphetamine began to fall, as did several indicators of meth abuse such as rehab and emergency room admissions.

In California, DEA officials put pressure on businesses that sold pseudoephedrine products, including those produced by Hammer Corp., a major Georgia manufacturer. Hammer’s pills had been repeatedly found in California meth labs, according to a federal search warrant affidavit.

California agents pursued multiple criminal cases against some of the distributors. Three other purveyors of Hammer products withdrew their applications for DEA registration after the agency raised questions. By 1998, Hammer’s sales were down 75 percent from the year before.

But while the California DEA was turning up the heat, the DEA office in Atlanta, where Hammer was located, granted the company’s application to sell pseudoephedrine in April 1998.

“It kind of looks like the right hand doesn’t know what the left hand’s doing, doesn’t it?” said Samantha Spangler, a federal prosecutor in Sacramento who worked on the Hammer case. “I think there may have been that culture of lack of communication in law enforcement between the left coast and the right coast.”

Hammer’s products continued to show up in the hands of criminals after it was licensed, according to court records. The company eventually pleaded guilty to supplying the meth trade — its products tied to 71 meth labs, dumpsites, drug suspects and undercover purchases from 1996 through 1999.

Hammer officials did not respond to written questions from The Oregonian.

Beyond inconsistency, DEA’s approval process had deeper flaws.

In Newton, N.J., pill-maker Robert Occhifinto applied for a DEA permit in 1997 while serving an 18-month federal prison sentence for laundering $350,000 from ephedrine sales to a California meth maker.

Occhifinto’s application was filed on behalf of his company, NVE Pharmaceuticals, which continued operating in his absence. According to the DEA decision published in the Federal Register, the NVE application portrayed Occhifinto’s conviction as a failure to file proper paperwork. It also omitted another conviction for smuggling more than a kilogram of hashish from Jamaica, the DEA notice said.

DEA officials took two years to reject Occhifinto’s application. But the DEA allowed pending applicants to keep doing business during the review. In that time, Occhifinto’s company made 36 sales totaling 3.5 million pseudoephedrine tablets to a customer not registered with the DEA, the agency said.

Occhifinto told a DEA appeals officer that he took steps to ensure his customers were legitimate; in fact, he told the DEA about the sales of 3.5 million pills to the unregistered customer. But the DEA cited the sale as one of the grounds for rejecting NVE’s application, effective December 1999.

Mountain Express

The DEA had the power to review records of companies registered to sell pseudoephedrine and ephedrine, but the biggest prosecutions of illegal chemical sales seldom arose from routine audits.

When the DEA shut down suppliers, it frequently came after a massive volume of their products had made their way to meth labs.

The most wide-ranging investigation after the pseudoephedrine law was enacted, for example, was initiated not by the DEA but by an alert security officer at a Federal Express office in Los Angeles.

In September 1999, the officer opened a suspicious box and found thousands of pseudoephedrine pills. When the recipient arrived, the FedEx employee tailed him to his destination and called the DEA, according to an investigator’s affidavit filed in federal court.

The package was sent by Hassan Zaghmot, an Aurora, Colo., resident whose application to sell pseudoephedrine was approved by the DEA in July 1998.

After receiving his license, Zaghmot fabricated an elaborate paper trail showing shipments to legitimate customers, according to government testimony. However, it proved unnecessary because the DEA didn’t check his records until after the FedEx tip.

The ensuing investigation of Zaghmot, dubbed Operation Mountain Express, revealed a national web of deception. DEA officials said businesses across the country had obtained DEA pseudoephedrine permits to form a 10-man syndicate called “the Commission” with Zaghmot. Its purpose, according to the DEA, was to set black-market prices and coordinate shipments.

By the time the agents shut down the ring in 2000, officials said, the Commission and its customers had moved an estimated 3 metric tons of pills to meth labs — enough for 36 million doses of meth at street purity.

Mitchel Krause, attorney for a Florida man convicted of illegally selling Zaghmot’s and Narog’s pseudoephedrine, said the DEA did little more than rubber-stamp the licenses of such wholesalers. He said the wholesalers appreciated that DEA officials were not watching closely.

“I don’t know if they looked the other way,” Krause said of DEA officials, “or whether they were just negligent in what they did.

“Maybe they didn’t think the defendants would figure it out.”

Cultural divide

The DEA has always been divided on the importance of controlling synthetic drugs and their ingredients.

The job of chemical control fell to civilian employees called diversion investigators. They had no authority to serve warrants, pay informants or claim overtime. Agency veterans say the door-kicking, Mafia-infiltrating special agents of DEA legend held meth in low esteem; they thought even less of unarmed bureaucrats. The funding flowed accordingly.

John Buckley, a retired diversion investigator, recalled watching an old-timer at DEA headquarters weighing the promotion of an agent who had made a career busting amphetamine dealers. “If it ain’t heroin,” Buckley recalled the reviewer saying, “he ain’t getting the grade.”

Gene Haislip, head of the DEA’s Office of Diversion Control from 1980 to 1997, said he once phoned Florida agents about a 1-ton load of ephedrine powder headed to California by truck.

“You’re sending us out to check on some (expletive) powder, when we’re up to our ears in cocaine?” Haislip recalled the Florida agents saying. “We don’t have time to do that.” The load was found only because a New Mexico state trooper happened to stop the truck on a traffic violation.

“They were working heroin, cocaine traffickers, the mob, organized crime, big cases,” said Portland agent Debora Podkowa, describing her early contacts with other DEA offices concerning East Coast chemical suppliers. “They looked at what we did in the West as ‘kiddie dope.’ ”

So deeply were these attitudes ingrained, when lawmakers offered money for 100 new chemical investigators and agents in 1989, the Justice Department declined, according to congressional records. Haislip’s office warned in 1992 that short staffing would allow for only “minimum fulfillment” of the DEA’s responsibility to control the chemical trade.

The agency now spends about $20 million a year — about 1 percent of its $1.7 billion budget — to monitor all manufacturers, importers and suppliers of drug precursor chemicals. It deploys 100 people to track 3,000 companies. By comparison, the agency fields more than 4,500 special agents to catch drug dealers.

Internal and external management critiques repeatedly flagged the agency’s ambivalence toward chemical control and the role of diversion investigators over three decades. By the late 1990s, the agency was fighting lawsuits from 250 current and former diversion investigators.

The investigators alleged their bosses routinely called on them to do the same criminal work as special agents, without the benefits or pay.

“The special agents always get the cars and best equipment,” said John Coleman, a retired DEA chief of operations and former head of the agency’s Boston and Newark, N.J., field divisions. Diversion investigators “are the 9-to-5 crew. They get what’s left over.”

“Swimming with sharks”

While diversion investigators fought internal battles over their proper place within the DEA, the agency faced pressure from the outside to rein them in.

A trade group alleged harassment when a member was subpoenaed for refusing to answer parts of a 34-question DEA application. A mail-order business said the DEA was intruding on its customers’ privacy by demanding their names and addresses. The U.S. Small Business Administration warned the DEA that the registration process “could have a tremendous impact” on an important segment of the economy.

Congress proposed in July 1998 to reduce the penalty for failing to report or keep proper records to $500 from $25,000. The Clinton administration assured lawmakers there was no need: The DEA did not plan to punish chemical registrants.

Mary Lee Warren, deputy assistant attorney general, testified that most chemical diversion investigations resulted in “at most, a letter of admonition.”

DEA officials were aware of the concerns. From the beginning, they had pushed back the deadline for registering and allowed companies to sell pseudoephedrine while the DEA reviewed their applications. Later, they lowered the registration fee to $116 from a proposed $595. Headquarters officials asked field offices to report monthly how many companies were processed.

In the field, investigators recognized that rejecting a company could create huge delays. Applicants could contest rejections before one of the agency’s three administrative law judges, who also heard appeals filed by the nation’s 1 million registered doctors and retail pharmacies. Hearings took six months to schedule, and a final decision could take two years.

Diversion investigators experienced in regulating prescription drug sales found themselves confronting an entirely different clientele.

“Now, all of a sudden, we’ve got some guy operating out of his garage,” recalled Detroit investigator Jim Geldhof. “He says, ‘I’m handling pseudoephedrine, and I’m going to sell to these gas stations.’

“In a way,” Geldhof said, “we were kind of swimming with the sharks with these guys.”

Meanwhile, staffing was limited. Agency officials ultimately decided to devote only six hours to investigate each applicant, after initially estimating 14 hours was needed. For follow-up audits, the agency could spare the equivalent of six people to check up on the nation’s 3,000 DEA-registered distributors.

“With the volume we were receiving, just a flood of applications in ’97, the perceived pressure was on to get them over, get them done,” said Marsha R. Jones, a DEA diversion program manager working in Detroit at the time.

Learning experiences

Operation Mountain Express, the investigation that began with a tip from FedEx, ended in July 2000 with the arrest of 140 people accused of supplying pseudoephedrine to Mexican drug cartels operating in California. Days later, Attorney General Janet Reno held a news conference to tout it as a DEA success story.

“This operation should send a message,” Reno said. “. . . Whether you are a dealer, a manufacturer, or one who makes it all possible by providing the chemical ingredients, you will be held accountable.”

Tandy, then a top narcotics attorney under Reno, was livid. She noted that the DEA itself had licensed many of the people charged with supplying pseudoephedrine to meth traffickers. According to people familiar with the case, Tandy posed a steely question to DEA officials afterward.

How, Tandy asked, could you let this happen?

Today, Tandy runs the DEA. President Bush chose her in 2003 to be the first woman to lead the agency, part of the Justice Department.

DEA officials, federal prosecutors and state regulators say Mountain Express made the agency more skeptical of people seeking to sell pseudoephedrine.

Frank Sapienza, a retired DEA chemicals official, said the agency’s approach toward applicants used to be “looking at the glass as half full, instead of half empty.”

Now companies must show a good reason for selling the product, said Geldhof, the Detroit investigator.

“We really are looking now to say, ‘Unless there’s a really good basis for it, we’re going to deny this thing,’ ” he said.

The agency said it is doing a better job tracking the sales of the nation’s 3,000 registered pseudoephedrine distributors. From 2001 to 2003, the DEA conducted what it called “periodic investigations” of more than 1,300 of those companies.

On average, that meant each company stood a one-in-seven chance of being visited by an inspector each year.

The DEA said it has moved to revoke or deny licenses to 143 companies.

After the Mountain Express case, pseudoephedrine brokers in the United States began looking for a new, unregulated source of pills.

Canada required no license to sell pseudoephedrine. U.S. brokers began hauling pseudoephedrine by the truckload from Quebec to Detroit to Los Angeles. From 1997 to 2001, Canada’s legal imports of pseudoephedrine quadrupled to about 140 metric tons.

Under U.S. pressure, Canada responded in 2003 with a DEA-style licensing system for pseudoephedrine dealers.

The haven provided by Canada demonstrated that control over the chemicals needed for meth required more than U.S. regulation. It would also take help from the handful of nations where pseudoephedrine is made.