ETHAN M. POSNER
Deputy Associate Attorney General
U.S. Department of Justice
Subcommittee on Oversight and Investigations
Committee on Commerce
United States House of Representatives
Sale of Pharmaceuticals on the Internet
May 25, 2000
Mr. Chairman and Members of the Subcommittee, Good Morning. I am Ethan Posner, Deputy Associate Attorney General at the Department of Justice. On behalf of the Department, I appreciate the invitation to appear today and describe the many efforts underway at the Department to address the sales of pharmaceuticals and other drugs on the Internet.
Like the Subcommittee and the other agency representatives who appear before you today, the Department of Justice recognizes that online drug sales present many important questions for enforcement authorities. On the one hand, Internet prescription drug sales have the potential to provide significant societal benefits, particularly to those such as the elderly and those living in rural communities who have difficulty going to traditional "brick and mortar" pharmacies. Online sales of prescription medications also may foster price competition, again to the benefit of consumers. On the other hand, the risks posed by online drug sales are obvious. First, online pharmacy sites often circumvent the traditional protections built into the doctor-patient relationship, such as a diagnosis based on a physical examination. Second, consumers may not be able to confirm the legitimacy of online pharmacies, many of which might be located overseas, increasing the risk that the drugs are mislabeled or counterfeit. Therefore, the Department of Justice has attempted, in establishing its enforcement strategy, to set a course that will protect the public from the dangers of online drug sales without undermining the benefits the Internet provides to consumers.
- The Role of the Department of Justice in Internet Drug Sales
The Department of Justice - through its Civil and Criminal Divisions, local United States Attorney's Offices, the Federal Bureau of Investigation, and other components -- enforces numerous consumer protection statutes for which the primary regulatory authorities are administrative agencies such as the Food and Drug Administration (FDA), the Drug Enforcement Administration (DEA), and the Federal Trade Commission (FTC). Over the past year, the Department has analyzed carefully the application of these statutes to online drug sales.
- Legal Theories: Enforcement under the Food, Drug, and Cosmetic Act
The Food, Drug and Cosmetic Act (FDCA) generally prohibits the manufacture and distribution of misbranded and adulterated drugs, thus requiring drugs to be labeled accurately and handled in ways that prevent them from becoming contaminated or misused. In 1951, to protect the public from abuses arising from the sale of potent prescription drugs, and to relieve retail pharmacists from burdensome and unnecessary restrictions on the dispensing of over-the-counter drugs, Congress established the system that currently governs the sale of prescription drugs. See 21 U.S.C. § 353(b)(1). Under that system, Congress relied on two health professionals - the patient's physician and pharmacist - to protect patients from the knowing or accidental misuse of medicines that are toxic or that have the potential for causing harm.
Accordingly, drugs that are considered prescription drugs under the FDCA may be distributed only with a valid prescription under the professional supervision of a licensed practitioner. See 21 U.S.C. § 353. A prescription drug is considered "misbranded" if it is not dispensed pursuant to a valid prescription in accordance with 21 U.S.C. § 353(b). Introduction or distribution of misbranded drugs into interstate commerce violates the FDCA. 21 U.S.C. § 331(a). An online pharmacy that provides prescription drugs without a prescription would therefore be in violation of this requirement. Legal action to curtail such conduct may be brought criminally or civilly. For a felony conviction, the government must establish that the defendant acted with an intent to defraud or mislead either the consumer or the government, or that the defendant is a repeat offender. Civil cases and misdemeanor prosecutions do not require proof of an intent to defraud or mislead.
For online pharmacies that offer online diagnosis, prescription, and distribution of medication, the issue is whether the online interaction results in a valid "prescription" under 21 U.S.C. § 353(b). This is a significant issue for online prescription drug sales based solely or primarily on an online questionnaire completed by the consumer. The legality of this practice often will turn on whether the relevant state law considers such a sale a valid prescription. If not, the online pharmacy may be found to be distributing "misbranded" medication in violation of the FDCA. In this regard, it is significant that Kansas, Maryland, and Washington have taken legal action against doctors, websites, and pharmacies that dispense prescription drugs over the Internet based upon an online questionnaire. We also recognize that the State Federation of Medical Boards has adopted the position that the "[p]rescribing of medication by physicians based solely on an electronic medical questionnaire clearly fails to meet an acceptable standard of care and is outside the bounds of professional conduct."
- Other Enforcement Theories
Apart from enforcement under the FDCA, the Department can rely on other legal authorities. For instance, the Controlled Substances Act prohibits the dispensing of a controlled substance without a valid prescription. See 21 U.S.C. §§ 822, 829, and 841. A regulation issued by DEA defines "prescription" in a way that may exclude "prescriptions" for controlled substances that are obtained through an online questionnaire. Relying on these statutes, a grand jury in Maryland last year returned a 34-count indictment against a physician for dispensing several controlled substances, including phentermine and fenfluramine, without a legitimate medical purpose.
Another potential avenue for enforcement is the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45 et seq., under which the Department is authorized to proceed with a civil enforcement action in conjunction with the FTC. The FTC Act protects consumers from unfair or deceptive acts or practices. Many online pharmacies operate by making important representations to consumers. For example, the FTC has found websites that advertise that a physician reviews each application to purchase prescription medications. To the extent these representations are false or deceptive, or if a website operator sells prescription drugs and represents that the drugs are safe and effective without disclosing their possible adverse effects, then such operators may be engaging in unfair or deceptive trade practices.
Indeed, some online pharmacies may suggest that completion and analysis of an online medical questionnaire is the equivalent of a visit to a doctor's office. In our view, in almost all circumstances, that is not the case. In fact, some prescription drugs, such as Viagra, have package insert labeling that recommends that a physical examination be performed before prescribing. Because some of these websites appear to provide deceptive information, these sites may violate the FTC Act, and thereby subject the website operator to a civil enforcement action.
The Department can also pursue similar theories under the federal mail and wire fraud statutes whenever an online or other pharmacy defrauds consumers in any way. Whether such a suit would be criminal or civil, under 18 U.S.C. §§ 1341, 1343, or 21 U.S.C. § 332, would depend on the precise facts of the case and the evidence of fraudulent intent. Schemes involving the sale of drugs or health products over the Internet may violate other related federal criminal laws. Some websites offer to bill private or public health care programs or insurers for a "doctor's" advice or for the price of the drug or product itself. If any false representations are made to the insurer to obtain payment, violations of a number of federal criminal laws may occur, and the civil fraud laws also may be implicated.
- The Department's Experience In Related Areas
Although the Internet and online prescribing are recent phenomena, the Department has prosecuted similar conduct perpetrated using different media. In the 1950's, for example, the Department prosecuted doctors and pharmacists who sold prescription and other drugs by mail or to undercover agents without any prior examination or diagnosis. We have also brought many cases over the years against doctors and veterinarians for dispensing drugs without a valid prescription. More recently, the Department prosecuted several cases in which doctors prescribed and distributed anabolic steroids to athletes and entertainers. The evidence showed that they distributed steroids not to treat medical conditions, but for purely cosmetic purposes, and that they did not examine the patients before dispensing the steroids. In these cases, we argued successfully that under section 353(b) of the FDCA, one may distribute prescription drugs only if (1) there is a bona fide doctor-patient relationship, and (2) the distribution is pursuant to a course of individualized treatment for a legitimate medical purpose.
- Current DOJ Enforcement Activity, Training, And Coordination
- Indictments, Investigations
Just in the past year, the Department of Justice, working with its investigative partners at DEA, FBI, and FDA, has filed several cases involving sales of drugs on the Internet. In addition to the cases we have filed in court, the Department has opened, again in the past year, approximately 30 cases involving the sale of drugs on the Internet, of which approximately 20 involve the sale of prescription drugs by online pharmacies. Those 20 investigations encompass at least 60 different web sites. Our filed cases include:
In July 1999, the United States Attorney's Office in Maryland obtained the indictment of former Internet diet doctor Pietr Hitzig on 34 counts of illegal drug distribution. The indictment charges that between 1996 and 1998 Hitzig ran a Baltimore-based Internet practice through which he provided controlled substances such as phentermine and fenfluramine to patients worldwide based on their e-mail requests alone.
On September 30, 1999, a grand jury in the Middle District of Florida returned a thirty-one count indictment against Jose A. Perez Menchaca, Paul Cabaniss, and Bondtech-Klebrig Corporation alleging Internet sales of the unapproved drug gamma butyrolactone (GBL), an ingredient of Gamma hydroxy butyrate (GHB). A co-conspirator pled guilty to related charges last December.
GHB is a black-market drug sold illicitly throughout the country for its alleged ability to cause euphoria, induce sleep, increase sexual arousal, and increase muscle mass. GHB consumption has caused serious adverse health effects, including vomiting, sudden and uncontrollable onset of sleep, uncontrollable shaking, coma, convulsions, and death. The indictment charges that Menchaca sold "GHB kits" from 1996 to October 1998. The criminal schemes were allegedly facilitated by computers through electronic communications and the Internet: According to the indictment, the defendants used a website to both advertise and solicit orders from customers within the United States and from around the world; used various aliases to pose as a "satisfied" customer while touting their GHB kits on computer "newsgroups;" and used email to communicate with each other and to advise international customers how to avoid detection of the kits' contents by foreign Customs.
On December 9, 1999, the United States Attorney's Office in Hawaii charged Kent Aoki Lee with one count of selling Viagra over the Internet. The indictment also charged the defendant with unrelated fraudulent activity. The defendant offered Viagra for sale through a website in the Japanese language. He did not require any form of prescription. On April 25, 2000, the defendant pled guilty to one count of wire fraud and one count of dispensing a misbranded drug.
On December 10, 1999, the Department filed a civil action to enjoin a purported dietary supplement manufacturer from distributing products that are actually promoted for the cure or treatment of disease. United States v. Lane Labs-USA, Inc., and Andrew J. Lane, No. 99-5782 (D.N.J.). The products, including shark cartilage "dietary supplement," a glycoalkaloid skin cream, and a rice bran extract "dietary supplement," are promoted through Internet links and other sources as being effective in treating or preventing cancers and HIV infection. The complaint seeks to enjoin the defendants from engaging in interstate commerce in these products, or any other products containing the same or similar ingredients, unless and until they are approved as drugs by the FDA.
On February 11, 2000, the United States Attorney's Office in the Eastern District of Louisiana obtained an indictment in a case involving the Internet distribution of marijuana. United States v. Aronov and Arizona Company Medical. Indictment followed a DEA investigation into the illegal sale of "medical marijuana" by Michael David Aronov via the Internet. Aronov and his business, Arizona Company Medical, were indicted on 7 drug distribution counts and 1 count of placing a written advertisement in a publication, the Internet, for the purpose of seeking, or offering illegally to receive, or distribute marijuana.
On March 2, 2000, the Federal District Court for the Eastern District of Missouri entered a preliminary injunction barring Syntrax Innovations, Inc., from manufacturing or distributing any product containing the thyroid hormone tiratricol. Prior to this order, the company had been marketing over the Internet a tiratricol-containing product called "Triax" as a dietary supplement for weight loss. The use of tiratricol can cause hyperthyroidism, which can lead to hypertension, insomnia, nervousness, cardiac arrhythmia, heart attacks, and strokes. The preliminary injunction bars Syntrax from selling any tiratricol products during the pendency of the litigation.
On April 20, 2000, the Department obtained a preliminary injunction against Christian Bros. Contracting Corp. and its president, Jason Vale, prohibiting them from making or distributing amygdalin, Laetrile, "Vitamin B-17," or apricot seeds during the pendency of the action. We brought suit after learning that the defendants were defrauding thousands of vulnerable cancer victims by advertising and selling apricots seeds and Laetrile products as a cure for cancer through numerous Web sites and millions of "spam" e-mails. On April 24, the Wall Street Journal discussed the impact this ruling may have on other Internet purveyors of unapproved drugs, in an article entitled "Judge Orders Online Laetrile Vendor to Quit Business, Signaling U.S. Stance."
On May 17, 2000, the proprietor of an Internet-based "virtual" retail business was indicted by a federal grand jury in Roanoke, Virginia, for the interstate marketing of the misbranded drug, nitrous oxide, a substance blamed for the death of a Virginia college student. The grand jury charged the defendant (of Tempe, Arizona) with selling nitrous oxide to customers in the Western District of Virginia via the web site BONGMART.com, which the defendant operates. The web site sold nitrous oxide and other drug paraphernalia.
Currently, a case involving individuals who solicited customers to buy unapproved drugs over the Internet is on trial in Baltimore. This case, which was indicted in June 1999, is likely to go to the jury soon.
Just yesterday, a jury in the Middle District of Florida convicted two individuals of distributing prescription drugs in interstate commerce without a prescription with the intent to defraud and mislead. One individual was also convicted of distributing deprenyl, a misbranded prescription drug. The product "Liquid Deprenyl Citrate" was offered for sale on the Internet as a "fountain of youth" drug and for a long list of other diseases.
Training and Education
With the array of new and challenging issues posed by unlawful conduct on the Internet, it is critical to educate and train our prosecutors and agents about the applicable legal principles and the techniques and tools required to investigate unlawful online conduct. When someone sells drugs on the street corner, law enforcement is familiar with the steps required to investigate the crime. Similarly, when someone promises in a newspaper advertisement that he has the cure for cancer or AIDS, law enforcement typically know how to identify the responsible individual or entity. But when a web page makes similar claims, the methods for determining who is making the claim, where that person might be located, and how to obtain and preserve evidence present new challenges to law enforcement. For this reason, the Department of Justice has embarked on an active and wide-ranging training and education program. As part of our effort, computer crimes specialists and coordinators have been designated in each United States Attorney's Office. Other activities include:
In December 1999, the Department's Office of Legal Education conducted an Internet Fraud Seminar. This seminar, presented jointly with the National District Attorneys Association, addressed such topics as investigative approaches to Internet fraud, obtaining electronic evidence (for example, search warrants and the Electronic Communications Privacy Act), the online investigative principles and their application to Internet fraud investigations, and likely defenses in Internet fraud prosecutions.
In February 2000, the Department's Office of Legal Education sponsored a Computer Crimes and Electronic Evidence Seminar. This seminar, which will be repeated in July, assists attorneys in the prosecution of information technology crimes. Topics covered include telephone networks and telephone switching, investigative approaches to computer crimes, obtaining and using electronic evidence, Electronic Communications Privacy Act, data forensics and analysis, and online investigations.
In February 2000, the Department's Office of Legal Education also sponsored a presentation on Internet Prescription Sales at the Advanced Health Care Training seminar for experienced Assistant United States Attorneys. This course instructed prosecutors on how to investigate an Internet pharmacy case, how to charge an Internet pharmacy case, how to structure the agent's investigation, how to analyze the evidence, and what specific charges could be filed against rogue Internet pharmacies, web-sites, and prescribing professionals.
On several occasions in the past year, the Department, acting through the Executive Office for United States Attorneys, has alerted our 94 United States Attorney's Offices about online drug sales. We have also provided legal support about online drug sales to these offices. The Department also educates its attorneys and agents through the Health Care Fraud Working Group, which consists of experienced health care fraud specialists from the FBI, United States Customs Service, State Attorneys General Offices, the Department of Health and Human Services, and Assistant United States Attorneys from across the country.
Coordination with Other Federal and State Agencies
One of the most significant challenges we face in this area is coordination of enforcement policies and initiatives among a variety of federal, state, and other entities. We rely heavily, for example, on the hard work and dedication of federal and state investigating agencies such as the FDA. For this reason, just in the past year, we have hosted meetings of the Online Sales of Drugs and Medical Products Interagency Working Group, which has convened at least three times in the past year. That group consists of representatives from DOJ, DEA, FBI, FDA, the Customs Service, the Postal Inspection Service, the Department of Health and Human Services, the Department of Defense and the Defense Criminal Investigation Service, the National Association of Attorneys General, the Attorney General's offices of Kansas and Pennsylvania, and the Texas Department of Health. We have also hosted meetings of a subgroup of that Working Group to more closely coordinate law enforcement actions.
Finally, the Department coordinates with state law enforcement agencies and investigators. Just in the past six months, we have discussed online pharmacy enforcement issues with representatives from State Boards of Medicine and Pharmacy in Arizona, California, Texas, Virginia, North Carolina, and Ohio. Last month, we sent an online pharmacy "alert" to the Attorneys General of all 50 states, the National Association of Attorneys General (NAAG), the National District Attorney's Association, the National Sheriff's Association, and the International Association of Chiefs of Police. That alert highlighted the Department's concerns over online drug sales and offered the assistance of the Drug Enforcement Administration and the Department of Justice in investigating and prosecuting such cases. Department lawyers also participate in the NAAG working group that deals with online pharmacy issues.
This federal-state coordination recently led to a very successful crackdown on the "date rape" drug GHB, which was added as a "List I Chemical" under the Controlled Substances Act by the Hillory J. Farias and Samantha Reid Date-Rape Drug Prohibition Act of 1999. In February 2000, the California Department of Justice sought assistance in an investigation of the sale of GBL, a key GHB ingredient, via the Internet to persons in California. The Department of Justice, DEA, and the California Department of Justice combined resources to investigate an individual in Arizona who allegedly marketed GBL on the Internet under the name "Inova Products." On March 15, two days after the federal scheduling of GHB, the subject's premises were searched under a federal search warrant. The individual was arrested, extradited to California, and is being held in state custody. Inova allegedly sold GBL in 55-gallon drums that contained more than 98,000 doses each, with a street value of $5 per dose, or a value of almost $500,000 per drum. On March 15 and 16, 2000, California agents made controlled deliveries of 55-gallon drums of GBL to persons located in Orange County and San Mateo County, California. Two suspects were arrested and charges are pending. On March 28, federal agents arrested another Inova customer, a registered sex offender, after he accepted a controlled delivery of a 55-gallon drum of GBL in Florida. In April 2000, California agents arrested five additional Inova customers. Thus far, this effort has resulted in the seizure of more than 400 gallons of GBL and the identification of six GHB labs in three states.
Another example of federal and state coordination is the alliance entered into recently by the Kansas Attorney General's Office and the U.S. Attorney's Office for the District of Kansas. In addition to these two offices, the alliance includes representatives from the Kansas Pharmacy Board, Kansas Board of Healing Arts, Consumer Protection Division, the Medicaid Fraud and Abuse Division, and the Food and Drug Administration's Office of Criminal Investigations. In this coalition, state authorities have taken the lead in dealing with online pharmacies that may not satisfy state regulations but are attempting to offer legitimate pharmaceutical services. The Kansas authorities have found that these entities will generally conform their conduct to satisfy state regulations after notification. For its part, the U.S. Attorney's Office is assisting the state with the identification of individuals, including doctors responsible for illegal online pharmacy sites. In turn, Kansas authorities are taking legal action against doctors, websites, and pharmacies that dispense prescription drugs over the Internet in violation of state law on grounds that "prescriptions" issued based on online interaction are not valid.
The Internet Prescription Drug Sales Act of 2000
The Department of Justice supports the Internet Prescription Drug Sales Act of 2000, transmitted by Secretary Shalala to Speaker Hastert on May 2, 2000. As the FDA explains in its testimony, the Act would do the following:
require online pharmacies to be licensed in each State in which they operate or to which they deliver prescription drugs;
require compliance with all applicable Federal and State laws governing the practice of pharmacy, including those laws that require proper storage and handling of prescription drugs, proper record keeping, and other consumer protections;
require online pharmacies to post on their web site a notice of their physical location, a list of States in which the online pharmacy is licensed to dispense prescription drugs and a list of applicable license numbers, the name, degree, and license of the pharmacist in charge; a telephone number for contacting a licensed pharmacist associated with the website, and a statement that the online pharmacy shall dispense prescription drugs only upon a valid prescription by a licensed practitioner.
Under the Act, if the online pharmacy fails to comply with these requirements, the FDA could seek to prohibit the pharmacy from selling drugs online, after providing notice and opportunity for a hearing. Also, the Justice Department could seek criminal sanctions, civil money penalties, or an injunction from a federal court. The Act also provides the Justice Department with subpoena authority to obtain important records in connection with investigations into violations of the Act. Finally, the states are also authorized to bring civil actions against online pharmacies for violations of the Act.
In addition, the Act would provide consumers with the same level of protections they enjoy in traditional "brick and mortar" pharmacies. When an offline consumer walks into a traditional pharmacy, for example, he or she can readily identify the location of the pharmacy and the name(s) and license(s) of the pharmacist(s), all of which help to assure the consumer that the pharmacy satisfies the relevant health and safety requirements. Under the Act, online pharmacies will have to provide the same information to consumers and investigators.
Like the FDA, the Department of Justice believes that the Act fills an important gap in current regulatory and enforcement authority. One of the most significant regulatory and investigative challenges in this area is the difficulty in identifying the name and location of the online pharmacy, a telephone number where the operator or pharmacist can be reached, and the State licensure information of the pharmacist in charge. The compliance requirements of the Act would require that online pharmacy sites provide this critical information under threat of civil or criminal sanction, benefitting both consumers and enforcement authorities.
The Challenge of Foreign Online Pharmacy Sales
An increasing percentage of online drug distribution is conducted by firms operating outside of the United States. Some of these off-shore sites sell prescription drugs approved by the FDA without a prescription; some sites sell drugs that have not been approved for sale in the U.S.; and other sites sell drugs that are classified as Controlled Substances in the United States.
Under U.S. law, it is illegal for a foreign-based online pharmacy to sell prescription drugs to consumers in the U.S. without a prescription. Prescription drugs dispensed within the U.S. without a valid prescription are misbranded under the FDCA. It is also illegal for a domestic or foreign online pharmacy to sell drugs not yet approved by the FDA. Likewise, it is illegal for an off-shore web site to sell controlled substances to consumers in the United States. Indeed, the foreign sale of pharmaceutical controlled substances to U.S. consumers via the Internet violates the United Nations Convention Against Illicit Traffic in Narcotics and Psychotropic Substances. Similarly, it is illegal under U.S. law for a consumer to order or obtain a controlled substance from an off-shore pharmacy for delivery in the U.S. If the operator of an off-shore online pharmacy that illegally sold controlled substances or unapproved drugs to U.S. residents enters the United States, he or she could be prosecuted in the U.S.
The difficulties inherent in any investigation and prosecution of an online pharmacy are magnified when the web site, the dispensing pharmacy, and the operator(s) are located overseas. But there are several actions that government agencies are taking and can take to address the investigative challenges posed by off-shore sales of drugs through the Internet.
First, the United States must continue to obtain the cooperation of foreign governments in reducing the use of the Internet to commit illegal activity. The United States already is working with other nations to address this problem. With the support and encouragement of the United States, the Council of Europe is drafting a Cybercrime Convention, which will define cybercrime offenses and address such topics as jurisdiction, international cooperation, and search and seizure. The Group of Eight ("G-8") nations are also working to enhance the abilities of law enforcement to investigate and prosecute computer and Internet-facilitated crimes; a G-8 working group recently established a 24-hour/7-day-a-week network of high-tech points of contact in each of the G-8 nations and in a number of non-G-8 nations. These and other instances of international cooperation will benefit the investigation and prosecution of many international cybercrimes, including those involving off-shore Internet pharmacies.
Next, the Justice Department and other enforcement authorities can work with American financial institutions to reduce the flow of money to these foreign web sites and their operators. Like domestic online pharmacies, off-shore online pharmacies often rely on credit card transactions processed by U.S. banks and credit card networks. Federal agencies already work cooperatively on occasion with financial institutions and credit card companies to investigate transactions that are made in furtherance of illegal activity. If enforcement agencies and financial institutions can stop even some of the credit card orders used for the illicit sale of controlled substances or prescription drugs, then the operations of some of these "rogue" online pharmacies may be disrupted significantly.
To enhance the Department's ability to act effectively in this area, it is important for prosecutors to have the option of seeking injunctive relief from a court. Under 18 U.S.C. § 1345, the Department has the authority to seek injunctive relief against "any person" who withdraws, transfers, removes, or dissipates any property (including money) traceable to a violation of a defined list of banking law and health care fraud offenses. See 18 U.S.C. § 1345(a)(1)-(a)(2)(B). The Department has relied on section 1345 to enjoin the dissipation of assets from particular bank accounts or other types of accounts. We recommend that 18 U.S.C. § 1345 (and the Administration's online pharmacy bill) be amended so that the Department can, where appropriate, seek to enjoin certain financial transactions traceable to unlawful online drug sales. Such an amendment would provide the Department with an important weapon to combat the harms posed by off-shore (and domestic) online pharmacies. We would be happy to work with Members of Congress on drafting such an amendment. We would also welcome the opportunity to work with Congress to formulate additional strategies to address the problem of violative off-shore (and domestic) Internet pharmacies.
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Mr. Chairman, thank you for the opportunity to present the views of the Department of Justice on this important topic. I would be pleased to answer any questions that you might have.