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Mr. Chairman and distinguished members of the
Committee,
My name is Gene R. Haislip and I am presently a
consultant to the pharmaceutical and chemical industry on issues involving
controlled drugs and chemicals. I served for 29 years of my government career in
the US Drug Enforcement Administration and, for the last 17 years, was the head
of the agency’s Office of Diversion Control from which I retired as a Deputy
Assistant Administrator of DEA in March of 1997. This is the office responsible
for all of the control and enforcement programs dealing with legitimate drugs
and chemicals that are diverted into the illicit drug traffic. I am also now
assisting the United Nations Drug Control Program in the design and
implementation of a chemical control program in the Central Asian Republics
bordering Afghanistan.
I am very pleased to have this opportunity to
testify before you today on a subject of great importance to our fellow citizens
and one that has occupied so much of my professional effort. It is my sincere
hope that I will be able to make some small contribution to your deliberations.
Drugs and pharmaceuticals have become a major and
pervasive social concern both because of their life-giving benefits and, in many
cases their debilitating abuse. It is cru cial that we take measures to minimize
these abuses and at the same time, seek to insure that our citizens can rely
upon the efficacy, and purity of their medications. The extraordinary
availability of technology, the speed and ease of global commerce and the
ingenuity of the criminal mind have resulted in the massive diversion and
illicit manufacture of drugs of abuse and have also begun to undermine the
integrity of vital medicines by the trafficking in bogus, counterfeit products
which may cause the death or injury of innocent, unsuspecting persons.
Much of what I will relate in my testimony deals
with the problems of the diversion, clandestine manufacture and counterfeiting
of that smaller group of pharmaceuticals known as controlled substances.
However, the lessons of this experience are absolutely critical to understand
the challenges that we face in dealing with all classes of pharmaceuticals. In
most cases, the criminal technique employed for one, are essentially the same
for the other, except that in the case of non-controlled products, we lack many
of the basic tools with which to attack these problems. Hereafter, I will
attempt to develop this in greater detail, but first, some basic statement of
the situation is necessary to establish a context.
Nature of the Problem
The demand created by addicts and drug abusers is
obviously of quite a different nature than that of legitimate consumers for the
medicines they require. Yet there is a certain similarity which in both cases
may result in stimulating the traffic in counterfeit pharmaceuticals. Although
most people commonly think of the illicit drug traffic in terms of such drugs as
heroin, marihuana or illicit cocaine, in fact, many important legitimate drugs
are also powerful narcotics, stimulants or depressants that are frequently
sought by drug abusers.
Just like other consumers, drug abusers and
addicts have learned the various brand names and appearance of the drug products
they are seeking. Consequently, drug traffickers employ every criminal means
they can to obtain these legitimate products to sell to their customers at
tremendously inflated prices. But because of controls, it often happens that
these products cannot be obtained in sufficient quantity from legitimate sources
and drug traffickers undertake to counterfeit their own dosage forms to meet the
demand.
In a similar fashion, criminal organizations
sometimes seek to meet the legitimate demand for brand name pharmaceuticals by
counterfeiting inexpensive, perhaps entirely bogus dosage forms in order to
defraud both legitimate patients and manufacturers. If the legal and law
enforcement situation is inadequate to prevent such schemes, cheap, impure,
ineffective and perhaps highly toxic counterfeits can drive out the legitimate
product. This is the subject with which we are concerned in this hearing.
Methaqualone Diversion: A Prototypic Example
I know of no finer example of the capabilities of
international criminal groups to corrupt global commerce than the massive
illicit traffic in counterfeit Methaqualone tablets known as ‘Quaaludes’
which occurred in the early 1980s. It is for me, largely a personal story, but
briefly worth the telling because it illustrates how far such a problem can
develop. All of these same conditions continue to exist and generally
characterize the traffic in all diverted and counterfeit pharmaceuticals.
During the late seventies, a strong depressant
drug known as ‘Quaalude’ became a major drug of abuse, especially among
adolescents. This resulted in increasing addictions, overdose deaths, and an
extraordinary rate of automobile fatalities. At the time, a US company was
manufacturing about seven metric tons of the drug a year for legitimate medical
use and much of it was being diverted. Suddenly, it had become a drug which was
producing as many deaths and injuries as either heroin or cocaine.
By 1980, we had determined that the country was
being inundated by these Quaalude pills in such extraordinary quantities as to
far exceed national production. By reviewing the DEA daily enforcement reports,
it soon came to my attention that shipments containing one and two tons of these
pills were being seized almost weekly from small aircraft that had originated in
Colombia. The tablets turned out to be counterfeits but were equally potent and
usually contained the 300 milligrams of the drug just like the legitimate US
product.
A quick check revealed that this synthetic drug
was not manufactured in Colombia and I set off for Colombia, and particularly
the port of Barranquilla, with the task of discovering the original source of
this material. As a result, the Colombian Customs and National Police were soon
making the seizures which permitted us to gradually piece together the entire
story of this traffic and put an end to it. It is one of the very few complete
victories of our enforcement efforts, in that this huge billion-dollar traffic
was eliminated. Here is what we found.
The Colombian drug traffickers had identified
every known source of the legitimate manufacture of this drug, which involved
countries in Western Europe, Eastern Europe a nd Asia and brokers and free trade
zones in many others. Through one technique or another, they were purchasing
virtually the entire global production of bulk Methaqualone powder for eventual
shipment to Colombia where it was rendered into counterfeit Quaalude tablets
exactly like the popular legitimate product produced in the US. As a result of
establishing the production capacities of these foreign facilities and the large
seizures which we began to make, I estimated that approximately 150 metric tons
of the bulk drug was being diverted and counterfeited each year. This was more
than twenty times the quantity of the legitimate pills then being manufactured.
In other words, the world’s factories were mostly supplying only the drug
traffic, and the legitimate product represented only about 5% of the total
availability. Congress finally eliminated all manufacture of this drug in the US
and it has also ceased to be manufactured globally.
Diversion Techniques
What is most instructive is the manner in which
all of this was accomplished. There were essentially two ways in which the
material was obtained from source manufacturers. The most common method was to
place orders through brokers, usually operating in the great free trade zones
such as Rotterdam or Hamburg, or in Switzerland. In this way, neither party
knows the identity of the other and the shipment is protected from scrutiny by
Customs authorities that routinely make no examination of goods in transit.
These are considered harmless because they are not staying in the country and
can do no harm to their temporary host! Moreover, if special labeling and
shipping arrangements are desired in order to evade attention while in transit
or upon arrival, it is easy to find a broker who will oblige. Essentially, the
drugs enter the free trade zone and disappear from the face of the earth. The
manufacturer may wonder who is ordering such quantities of drugs but has no
legal responsibility to inquire.
The other method of obtaining the drug was to
deal directly with the manufacturer. In one case, traffickers sent
representatives to a foreign factory with suitcases full of US dollars to
negotiate for multi-ton shipments. Their attempt to corrupt the management at
this factory – which was partly owned by the foreign national government –
was successful. As will be seen, similar, and even more blatant situations of
the absolute corruption of factory management have arisen.
IV. Clandestine
Production and Counterfeiting
In the case of Methaqualone, all of the active
pharmaceutical ingredients (APIs) were purchased from legitimate sources and the
actual counterfeiting occurred in Colombia. This is perhaps the easiest part of
any clandestine operation. Used multi-stage tableting machines are readily
available on the international market or they may be purchased new without
arousing suspicion. It is also probably easy to substitute candy machines, which
perform essentially the same functions as tableting machines. Counterfeiters are
also quite capable of manufacturing capsules, ampoules, and blister packs. This
is often seen on the Mexican border in the traffic in counterfeit steroids,
while capsules have been used for counterfeit amphetamines (Black Beauties)
beginning in the early seventies.
In the course of investigations of this type, it
is quite common to find that persons with professional experience in the
legitimate chemical and pharmaceutical industry have been recruited to perform
the technical functions for which they were trained. On occasion, these
individuals will in fact contact former colleagues still employed in legitimate
enterprises and who are usually innocent of the purpose, to obtain sources or
supplies.
If the desired bulk material (APIs) can not be
purchased, arrangements can be made for its production. This is more likely to
occur in those situations where legitimate facilities are experiencing financial
difficulties, such as in Eastern Europe or in developing countries. In one such
case, arrangements were made with the director and chief chemist of a struggling
East European factory to establish a secret production facility within the
company’s 17-acre campus. It was easy to obtain the necessary chemicals
without arousing suspicion and to relocate production equipment. To complete the
arrangement, a new, top-of-the-line tableting machine which could produce
400,000 tablets per hour was purchased from a German firm. In another case, in a
neighboring country, it happened that this factory was a producer of an
important precursor material and some of the management and personnel decided to
use it to establish an illicit production facility within the company.
Unfortunately, as a result of political upheavals and marginal economies, there
are many such situations like these, which are often ripe for corruption.
If it is not possible to corrupt the management
of a suitable facility, in some countries a criminal organization may rent an
existing facility during evenings or for weeks or weekends. But it may be more
expedient to build your own facility. There are examples in both Western and
Eastern Europe in which this has been done for drugs such as MDMA and
Methamphetamine. In these cases, very knowledgeable, well-funded criminal
organizations acquired a suitable site in the city or the suburbs and proceeded
to purchase brand new, top-of-the-line reaction vessels, tableting machines and
vats and piping and dryers. These were small but modern, up-to-date, elegant
production facilities costing more than a million dollars. In one of the more
fascinating cases, a group of traffickers purchased large lots of cocaine in
Colombia for distribution in Europe to finance their secret factory in a
European capital. This factory was intended to supply illicit markets in both
Europe and the US.
V. Packaging and Distribution
Counterfeit packaging is generally no more
difficult than counterfeiting tablets. In most cases, only the original legal
manufacturer of the real product can tell the difference, and then only on close
examination and search of records.
Distribution is probably the most difficult and
risky activity of pharmaceutical counterfeiters. If the product is destined for
the illicit drug traffic, it involves all of the risk attendant to the smuggling
of heroin or cocaine. If the product were intended for legitimate consumption,
the task would be much easier. The product itself appears to be legitimate and
would cross Customs barriers with less notice and suspicion, especially since
the services are focused on illicit drugs and commodities which require so much
of their effort. Certainly, it is easy to establish a ‘front company’ with
four or five employees to receive and market the goods to legitimate
distributors. Such ‘companies’ have been routinely used in the US to import
precursor chemicals for distribution to illicit manufacturers of Methamphetamine.
Of course, the ease with which this can be accomplished will depend on the
strength and enforcement of national legislation.
Diversity of
Counterfeit Pharmaceuticals
A. Drugs of Abuse
In the examples above, I have dealt primarily
with the controlled pharmaceuticals that concern DEA. Before turning to other
areas, I should like to complete this picture with a very brief summary, as the
example given is only remarkable because of its scope and effect upon the US.
In the early 1970s, large quantities of
secobarbital and amphetamine were imported into Mexico for the clandestine
production of counterfeit capsules for illicit distribution in the US. These
capsules closely resembled the products that had been previously obtained by
traffickers from the Mexican subsidiary of a US firm. When their source of
supply was cut off, they simply continued their illicit business with
counterfeits. The same situation appears to have developed as a result of the
control of steroids. When the diversion of these drugs was virtually eliminated
by act of Congress in 1990, sophisticated counterfeit products immediately
increased along the Mexican border.
In recent years, Europe, Africa, Asia, and the
Middle East have all experienced similar large-scale diversion and
counterfeiting of drugs of abuse. These include a variety of stimulant drugs
ranging from amphetamine to Fenetylline, pemoline, amfepramone, and phentermine.
It appears that both legitimate and clandestine manufacturing sources of bulk
material have been used at various times. Clandestine laboratory and
counterfeiting facilities producing such materials have frequently been seized
in the Balkans and major points of sale and distribution are focused on Africa
and the Middle East. Other commonly counterfeited products include Mandrax (the
European form of methaqualone), Diazepam (Valium), Flunitrazepam (Rohypnol) and
other benzodiazepines.
General Pharmaceuticals
The evidence suggests that the counterfeiting of
other classes of pharmaceuticals is equally widespread. The first international
effort to define the problem was a workshop organized by the World Health
Organization (WHO) together with the International Federation of Pharmaceutical
Manufacturers Associations (IFPMA) in Geneva in April of 1992. It found that the
counterfeiting of medicines had greatly increased and involved billions of
dollars annually. A recent list of actual case reports from various countries
included the following types of counterfeit medications: antibiotics, diuretics,
antimigraines, antiparkinsonians, analgesics, antispasmodics, muscle relaxants,
antianaemics, antihistamines, corticosteroids, anitfungals,vasodilators,
tranquillizers, vaccines, antimalarials, birth control pills and more. We may
say that most of the classes of drugs that can be marketed to consumers were
involved.
The WHO Department of Essential Drugs has
continued this work and in 1999, issued a very commendable set of guidelines for
the development of measures to combat the problem. This report took note of some
of the increasingly common ‘horror stories’ of the carnage caused by
defective counterfeit products such as deaths of children resulting from liver
damage caused by the inclusion of toxic substances and unplanned pregnancies
resulting from birth control pills containing no active ingredient.
The reason for their growing availability and
popular acceptance, as noted by WHO executive Dr. Suzuki at the World Health
Assembly in May 2000, is the combination of ‘profit and price’, the usually
dynamic of any drug traffic. Pharmaceutical counterfeiters, who do not have to
trouble themselves with producing a quality product, or paying for any of the
expensive research that originally created it, can concentrate on the
authenticity of appearance and still offer a bargain price. A speaker from the
Health Ministry in Benin observed that people were dying from counterfeit drugs
daily, but continued to buy them because of their relatively cheap price. While
visiting Nigeria some years ago, I found that the usual ‘pharmacy’ services
were offered on the street from the trunk of beat-up vehicles where, according
to experts, most of the modern medicines were counterfeits.
WHO reports that although counterfeit
pharmaceuticals are extremely common in developing countries, they have also
been found in developed countries as well. Indeed, the principal consumer
interest driving much of the counterfeit pharmaceutical market along the Mexican
border is also the desire for cheaper medications. Who wants to pay more when
you can pay less? Who wants to pay for another office visit to the doctor when
you can buy the drug that you have been using at a cheaper price on the other
side of the border, and without a prescription!
VII. Deficiencies in Control and Enforcement
Perhaps the greatest service that WHO has
rendered is to enumerate the current massive deficiencies in national and
international efforts to deal with the problem. I think that those of us who
work in the area of controlled drugs are particularly aware of this because of
the total lack of most of the tools, institutions and practices that we
regularly use. I am perhaps especially sensitive to this, having so often
experienced the frustrations of laboring to organize international enforcement
cooperation in the absence of clear and specific legal authority. This proved to
be an excruciating problem in dealing with the example I gave of Methaqualone
which, although the subject of an extraordinary illicit traffic was not under
legal control in most of the countries that were feeding it. The first attitude
is always the same; "We don’t have an obligation, we don’t have the
authority, and we don’t have the time." Let’s look at some of the
specifics.
The counterfeiting of pharmaceuticals is a
thoroughly international problem. Production and distribution seldom occurs
within a single country and often involves global commerce. Yet there is no
specific multilateral treaty imposing obligations to criminalize, report, or
cooperate in the suppression of this traffic, nor any international staff to
collect, analyze and disseminate information. This contrasts sharply with our
work in the area of drugs of abuse where we have had treaties since 1911 and a
Board and staff, which monitors their compliance.
Perhaps of most importance is the fact that, as a
result of efforts that DEA and others have made, a functioning, effective
informal international law enforcement effort has been constructed around these
agreements. The staff of the International Narcotics Control Board is daily
working with the law enforcement agencies of dozens of countries which all
communicate and cooperate together in operations to suppress illicit diversion
of both controlled drugs and chemicals. I assure you that the results are quite
impressive and have had significant impact on the traffic in a long list of
narcotics, stimulants, and depressants that are often diverted into the illicit
traffic, as well as chemicals for the manufacture of methamphetamine,
amphetamine, MDMA, cocaine, and heroin. This structure does not exist in
the area of counterfeit pharmaceuticals.
Since there is no treaty, there are also no legal
obligations to penalize certain actions, or designated agencies to
systematically collect intelligence or assist each other in investigations. I
would defer to the FDA for an account of the situation in the US, but in most
cases, I doubt that there is specific assignment of clear enforcement
responsibilities and mandate, together with dedicated personnel and resources.
Usually, such laws as exit are of a regulatory nature and are generally the
responsibility of the Health Ministries. The national law enforcement agency may
help out on a selective, ad hoc basis. This approach is lacking in the
advantages that we possess in the area of controlled drugs and chemicals. In
short, on a global level:
National laws are often inadequate,
International shipments are not searched or
verified in free trade zones,
There is a lack of dedicated enforcement
personnel and resources,
There is no systematic data base and no
requirement for one,
There is no specific treaty or set of uniform
international obligations,
There is no dedicated staff to monitor
compliance, and
There is no functioning, systematic international
law enforcement effort.
Future Challenge of the Global Economy
The pharmaceutical industry has become an
increasingly important part of health care and is deserving of specific
attention, regulation and protection from crime and corruption. It is clear that
there are strong financial incentives to engage in pharmaceutical
counterfeiting. The level of criminal activity can be expected to increase
rapidly with the globalization of commerce and the emphases on speeding this
commerce through Customs barriers. Moreover, the increasing variety,
effectiveness and elegance of pharmaceutical remedies will also increase these
financial incentives.
The potential damage from this criminal activity
is enormous and includes:
Injury to patients whose maladies go untreated
because of reliance upon substandard or entirely bogus counterfeit preparations,
Injury to patients who unwittingly consume
counterfeit preparations containing poisonous ingredients,
Damage to the entire public health system by
undermining public confidence in medications and the pharmaceutical delivery
system,
Damage to the pharmaceutical industry in terms of
lawful revenues and public confidence, and
Provision of additional financial support for
crime, violence and corruption.
I think that in so far as the United States is
concerned, we have thus far been spared most of the consequences of this
problem, although there is ample warning on our southern border of what it will
look like, if unattended. But to protect our people in the future, and to
establish an enforcement regime that will protect all people, we must invent
some things that do not now exist.
Thank you very much for your attention and for
this opportunity to contribute to your valuable work.
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