Last week, DEA and DOJ announced a $59 million civil penalty settlement with eBay related to the failure to comply with Controlled Substances Act (CSA) requirements for identifying purchasers, maintaining records, and filing reports of individuals selling/purchasing pill presses and encapsulating machines. As stated in the press release, this was the fourth largest civil penalty settlement under the CSA and, ironically, did not involve the sale or distribution of any controlled substance. It also was the first CSA settlement with an e-commerce company on violations of the CSA but, given the environment on diversion and counterfeits, may not be the last.

The CSA and regulations promulgated by DEA regulate the sale, import, and export of tableting machines the same as they regulate List I chemicals. 21 U.S.C. § 830. While a DEA registration is not required to sell these products, by definition, any person selling these products is a "regulated person" and all sales of these products are considered "regulated transactions." 21 U.S.C. §§ 802(38), (39)(B). Thus, such persons are subject to identification, recordkeeping, and reporting requirements. In brief, in regard to proof of identity, the seller must obtain sufficient information to identify and document the identity of the purchaser. 21 C.F.R. § 1310.07. The regulations also require detailed information about each transaction involving a tableting machine, including the date, name and address, quantity, method of transfer, etc. 21 C.F.R. § 1310.06. Also, pursuant to 21 U.S.C. § 830(b) and 21 C.F.R. § 1310.05(b)(2), each regulated person must orally report "any domestic regulated transaction in a tableting machine or an encapsulating machine . . . when the order is placed with the seller." Also, a DEA Form 452 report must be electronically filed within 15 days after the order is shipped.

According to the eBay settlement agreement, the government contends that from October 2015 to the present, eBay did not comply with any of "the CSA's reporting and recordkeeping obligations" involving thousands of transactions. In addition to the tableting machines, the government alleged that eBay sold pill presses and counterfeit dies to hundreds of buyers. Also, DEA and DOJ contend, eBay did not verify purchaser's identification as required by the regulations.

The settlement agreement states that the government took into account eBay's compliance investments, implying that eBay was given some credit that may have reduced the amount of the fine. eBay also agreed to a policy of "Corporate Compliance Program and Reporting Requirements" which includes:

  • continued prohibition on listing on the website any pill press, tableting machine, or encapsulating machine;
  • continuing to maintain a Prohibited, Restricted, and Counterfeit Items Committee;
  • within 90 days, providing a report identifying any listing with sales that were removed or purchased items in violation of eBays policy within the prior year; and
  • quarterly reports of any listings with completed sales that are identified as violating eBay's policies and whose accounts eBays suspended.

Given the recent reports of counterfeit drugs, especially fentanyl, we would expect DEA and DOJ to continue strict enforcement of these requirements. See, e.g., DEA's Fake Pills Fact Sheet. This matter also raises anew the applicability and scope of laws and regulations to e-commerce platforms that, while not directly the seller or purchaser, is involved in facilitating such transactions. Of note, in August 2020, DEA announced a "proactive collaboration with online e-commerce companies" to inform and educate e-commerce companies about the requirements and importance of safeguarding these products and ensuring they do not get diverted. DEA reported that Amazon had already agreed to ban sales of tableting, encapsulating, and pill punch machines for its platform. It is unclear whether DEA had any conversations with eBay at that time.

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