Draft Civil Money Penalty Reduction Policy for Small Entities

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. 99N-1220]

Draft Civil Money Penalty Reduction Policy for Small Entities

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is issuing a draft

civil money penalty reduction policy for small entities as required by

the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

and the Presidential Memorandum of April 21, 1995. This draft policy is

being issued for public comment only and will not be implemented until

a final policy is published in the Federal Register.

DATES: Written comments on the draft policy may be submitted by August

16, 1999.

ADDRESSES: Submit written comments on the draft policy to the Dockets

Management Branch (HFA-305), Food and Drug Administration, 5630 Fishers

Lane, rm. 1061, Rockville, MD 20852. Comments should be identified with

the docket number found in brackets in the heading of this document.

See the SUPPLEMENTARY INFORMATION section for electronic access to the

draft policy.

FOR FURTHER INFORMATION CONTACT: Jeffrey B. Governale, Division of

Compliance Policy (HFC-230), Office of Regulatory Affairs, Food and

Drug Administration, 5600 Fishers Lane, Rockville, MD 20857, 301-827-

0411, FAX 301-827-0482.

SUPPLEMENTARY INFORMATION:

I. Background

The Food and Drug Administration (FDA) is issuing a draft civil

money penalty (CMP) reduction policy for small entities (draft penalty

reduction policy) as mandated by SBREFA (Pub. L. 104-121) and the

Presidential Memorandum of April 21, 1995 (60 FR 20621, April 26,

1995).

SBREFA was enacted on March 29, 1996, and seeks to improve the

regulatory climate for small entities by, among other things, requiring

agencies to establish small entity penalty reduction policies as

follows:

Sec. 223--Rights of Small Entities in Enforcement Actions

(a) In General--Each agency regulating the activities of small

entities shall establish a policy * * * to provide for the

reduction, and under appropriate circumstances for the waiver, of

civil penalties for violations of a statutory or regulatory

requirement by a

[[Page 26985]]

small entity. Under appropriate circumstances, an agency may

consider ability to pay in determining penalty assessments on small

businesses.

(b) Conditions and Exclusions--Subject to the requirements or

limitations of other statutes, policies or programs established in

this section shall contain conditions or exclusions which may

include, but not be limited to--

(1) requiring the small entity to correct the violation within a

reasonable correction period;

(2) limiting the applicability to violations discovered through

participation by the small entity in a compliance assistance or

audit program operated or supported by the agency or a State;

(3) excluding small entities that have been subject to multiple

enforcement actions by the agency;

(4) excluding violations involving willful or criminal conduct;

(5) excluding violations that pose serious health, safety or

environmental threats; and

(6) requiring a good faith effort to comply with the law.

A statement entered into the Congressional Record (142

Congressional Record S3242, daily ed. March 29, 1996) after enactment

of SBREFA explains that agencies have ``flexibility to tailor their

specific programs to their missions and charters'' and instructs

agencies ``to develop the boundaries of their program and the specific

circumstances for providing for a waiver or reduction of penalties''

(id. at S3244). To that end, SBREFA specifies that a penalty reduction

policy adopted by an agency may be subject to the requirements or

limitations of other applicable statutes. SBREFA also lists six

possible exclusions or conditions (see section 223 of SBREFA as quoted

previously in this document) that an agency may incorporate in its

policy.

This draft penalty reduction policy also complies with the

Presidential Memorandum of April 21, 1995, which directs agencies to

implement the policy of waiving penalties as follows:

1. Authority to Waive Penalties. (a) To the extent permitted by

law, each agency shall use its discretion to modify the penalties

for small businesses in the following situations. Agencies shall

exercise their enforcement discretion to waive the imposition of all

or a portion of a penalty when the violation is corrected within a

time period appropriate to the violation in question. For those

violations that may take longer to correct than the period set by

the agency, the agency shall use its enforcement discretion to waive

up to 100 percent of the financial penalties if the amounts waived

are used to bring the entity into compliance. The provisions in

paragraph 1(a) of this memorandum shall apply only where there has

been a good faith effort to comply with applicable regulations and

the violation does not involve criminal wrongdoing or significant

threat to health, safety, or the environment.

FDA has reviewed: (1) The Federal statutes it enforces which

authorize CMP's, (2) its current practices used to assess CMP's on

small entities, and (3) the appropriate conditions and exclusions for a

penalty reduction policy for small entities that violate the law. On

the basis of that review, FDA announces its draft penalty reduction

policy for small entities. FDA invites comments on this draft policy.

FDA currently enforces the following amendments to the Federal

Food, Drug, and Cosmetic Act (21 U.S.C.) and the Public Health Service

Act (42 U.S.C.), which authorize CMP's under the referenced sections:

Radiation Control for Health and Safety Act of 1968 (21 U.S.C.

360pp),

Safe Medical Devices Act of 1990 (21 U.S.C. 333(f)),

Mammography Quality Standards Act of 1992 (42 U.S.C. 263b(h)),

National Childhood Vaccine Injury Act of 1986 (42 U.S.C. 262(d)(2)

and 42 U.S.C. 300aa-28),

Prescription Drug Marketing Act of 1988 (21 U.S.C. 333(b)),

Generic Drug Enforcement Act of 1992 (21 U.S.C. 335b), and

Food Quality Protection Act of 1996 (21 U.S.C. 333(f)).

II. Draft Civil Money Penalty Reduction Policy for Small Entities

The FDA's draft policy with respect to reducing or waiving civil

money penalties (CMP's) against a small entity is: FDA will consider on

a case-by-case basis whether to reduce or waive CMP's against a small

entity. In determining whether to reduce or waive CMP's against a

specific small entity, the following considerations will apply:

A. Except as provided in paragraph C below, penalty reduction or

waiver will not be available for any small entity if:

1. The small entity was subject to an enforcement action (e.g.

seizure, injunction or prosecution) by FDA within the last 5 years, and

is still under the same management;

2. Any of the small entity's violations involved willful conduct;

3. The small entity does not make a good faith effort to comply

with the law; or

4. Any of the small entity's violations pose serious health or

safety threats.

B. In considering whether FDA will reduce or waive a CMP, FDA may

consider:

1. The egregiousness of the violations;

2. The isolated or repeated nature of the violations;

3. The small entity's history (if any) of violations;

4. The amount of harm caused by the violations;

5. The degree to which a CMP will deter the small entity or

others from committing future violations;

6. The extent to which the small entity cooperated during the

investigation;

7. Whether the small entity corrected the violations within a

reasonable time period;

8. Whether the small entity has engaged in subsequent significant

remedial efforts to mitigate the effects of the violations and to

prevent future violations;

9. Whether the small entity voluntarily reported the violations

to FDA promptly after discovering them; and

10. The small entity's efforts to determine and meet its legal

obligations.

C. FDA may also consider whether to reduce or waive a CMP against a

small entity, including a small entity otherwise excluded from this

draft policy under paragraph A above, if the small entity can

demonstrate to the FDA's satisfaction that it is financially unable to

pay the penalty, immediately or over a reasonable period of time, in

whole or in part.

D. If a small entity corrects the violative conditions within a

reasonable time period, FDA may reduce the amount of any CMP that may

be imposed for the violations, up to the amount spent by the small

entity for corrective action. FDA may take into account the time in

which the small entity took corrective action and any difficulties the

small entity encountered when doing so.

Penalties Eligible for Reduction

The draft penalty reduction policy will apply to judicial and

administrative CMP's.

Exclusions From the Draft Penalty Reduction Policy

The draft penalty reduction policy shall not apply to any remedy

that may be sought by FDA other than CMP's.

SBREFA also permits an agency to apply penalty reduction to

violations discovered through a small entity's participation in a

compliance assistance or audit program operated or supported by the

agency or state. Although various units within FDA provide regulatory

guidance to small entities, FDA does not operate a formal compliance

assistance or audit program. Because FDA does not have a compliance

program of the type described in SBREFA, this condition is not included

in the draft penalty reduction policy.

[[Page 26986]]

Both SBREFA and the Presidential Memorandum exclude violations that

pose serious environmental threats from the penalty reduction policy.

Because FDA's enforcement efforts generally focus on actions that

affect the public health and safety, but not the environment, the

condition is not included in the draft penalty reduction policy. If a

small entity is eligible for CMP reduction, but has obtained an

economic benefit from the violations such that it may have obtained an

economic advantage over its competitors, FDA may seek the full amount

of the penalty. FDA retains this discretion to ensure that small

entities that comply with public health laws enforced by the agency are

not disadvantaged by those who have not complied.

FDA has determined that all CMP's assessed under the authority of

the Generic Drug Enforcement Act (GDEA) should be excluded from the

draft penalty reduction policy. Under GDEA, CMP's may be assessed for a

variety of intentional or ``knowing'' conduct related to abbreviated

new drug applications (21 U.S.C. 335b(a)). Also, GDEA permits CMP's for

debarred individuals who provide services in any capacity to persons

who have approved or pending drug product applications (id). Because of

the level of scientist required to assess a CMP under GDEA, FDA

believes it is not appropriate to consider reduction or waiver of

penalties in such cases.

The National Childhood Vaccine Injury Act (NCVIA) also has a

provision for CMP, for which intentional or knowing conduct is a

requirement for assessment of penalties. Section 2128(b) of the Public

Health Service Act (42 U.S.C. 300aa-28) states that a CMP may be

assessed when a vaccine manufacturer intentionally destroys, alters,

falsifies, or conceals records associated with the manufacture of

vaccines. Accordingly, FDA believes it is not appropriate to consider

reduction or waiver of CMP in cases involving this provision of the

NCVIA.

Definition of ``Small Entity''

Section 211(1) of SBREFA defines the term ``small entity'' as

having the same meaning as in section 601 of the United States Code (5

U.S.C. 601). Section 601 defines ``small entity'' as ``small

business,'' ``small organization'' and ``small governmental

jurisdiction.''

Under section 601(3) of 5 U.S.C., a ``small business'' has the same

meaning as ``small business concern'' under section 3 of the Small

Business Act (15 U.S.C. 632(a)), unless an agency, after consultation

with the Office of Advocacy of the Small Business Administration (SBA)

and after opportunity for public comment, establishes its own

definition.

Section 632(a)(1) of 15 U.S.C. defines a ``small business concern''

as an enterprise ``which is independently owned and operated and which

is not dominant in its field of operation'' (15 U.S.C. 632(a)(1)). The

SBA has further defined ``small business concern'' for a number of

specific industries based on the sizes of the enterprises and their

affiliations (see 13 CFR part 121 and the SBA Table of Size Standards).

When SBA determines whether an enterprise is a small business, it

generally counts the enterprise's affiliations (see 13 CFR 121.103).

Family enterprises or enterprises in which the same individual or

individuals have a controlling interest are aggregated for this

purpose. If the aggregate total of the affiliated enterprises exceeds

the size requirement for small businesses, none of the affiliated

enterprises is considered a small business.

Federal law defines ``small organization'' as a not-for-profit

enterprise which is independently owned and operated and not dominant

in its field (5 U.S.C. 601(4)). The U.S. Code defines a ``small

governmental jurisdiction'' as a governmental entity with a population

of less than 50,000 (5 U.S.C. 601(5)). The definitions of ``small

organization'' and ``small governmental jurisdiction'' may be changed

by agencies after an opportunity for public comment. The small business

definitions within the nutritional food labeling exemptions (21 CFR

101.9(j) and 101.36(h)) are not applicable to CMP's.

III. Regulatory Requirements

FDA is announcing a draft penalty reduction policy as required by

SBREFA. As a general statement of policy, the Administrative Procedure

Act does not require that FDA publish this draft policy for notice and

comment. However, under the Good Guidance Practices published in the

Federal Register of February 27, 1997 (62 FR 8961), FDA is providing

interested parties, particularly small entities, with an opportunity to

comment on the draft penalty reduction policy. This draft policy is

being issued for public comment only and will not be implemented until

a final policy is published in the Federal Register.

This guidance document represents the agency's current thinking on

the draft CMP reduction policy for small entities. It does not create

or confer any rights for or on any person and does not operate to bind

FDA or the public. An alternative approach may be used if such approach

satisfies the requirements of the applicable statute, regulations, or

both.

IV. Request for Comments

Interested persons may, on or before August 16, 1999, submit to the

Dockets Management Branch (address above) written comments on the

document entitled ``Draft Civil Money Penalty Reduction Policy for

Small Entities.'' Two copies of any comments are to be submitted,

except that individuals may submit one copy. Comments are to be

identified with the docket number found in brackets in the heading of

this document. Although all received comments will be considered by FDA

in formulating the final penalty reduction policy, the agency is not

obligated to respond to each comment. The agency will make changes to

the draft penalty reduction policy, as appropriate. Copies of the draft

policy and received comments may be seen in the Dockets Management

Branch between 9 a.m. and 4 p.m., Monday through Friday.

V. Electronic Access

A copy of the draft policy may also be downloaded to a personal

computer with access to the World Wide Web (WWW). The Office of

Regulatory Affairs (ORA) home page includes the draft policy and may be

accessed at ``http://www.fda.gov/ora''. The draft policy will be

available under ``Compliance References.''

Dated: May 11, 1999.

William K. Hubbard,

Associate Commissioner for Policy Coordination.

[FR Doc. 99-12390 Filed 5-17-99; 8:45 am]

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