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." Jim
Barnett of The Oregonian contributed to this report.

News researcher Margie Gultry also contributed.