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Precursor chemicals and equipment Decision Regulation Impact Statement

Decision Regulation

Impact Statement

Attorney-General’s

Department

17 October 2016

Decision Regulation Impact Statement PwC i

Disclaimer

This Regulation Impact Statement (RIS) was prepared for the Attorney-General’s Department (AGD) pursuant to a contract with the AGD.

In preparing this RIS we have only considered the circumstances of AGD. Our RIS is not appropriate for use by persons other than AGD, and we do not accept or assume responsibility to anyone other than AGD in respect of our RIS.

The information, statements, statistics and commentary (together the 'Information') contained in this report have been prepared by PricewaterhouseCoopers Australia (PwC) from publically available information, material provided by AGD, and material provided through the consultation process. PwC may at its absolute discretion, but without being under any obligation to do so, update, amend or supplement this document.

The Information contained in this RIS has not been subjected to an Audit or any form of independent verification. PwC does not express an opinion as to the accuracy or completeness of the information provided. PwC disclaims any and all liability arising from actions taken in response to this RIS.

Limited liability by a scheme approved under Professional Standards Legislation.

Abbreviations

Decision Regulation Impact Statement PwC ii

Abbreviations

Abbreviation Description

ABS Australian Bureau of Statistics

ACC Australian Crime Commission

ACIC Australian Criminal Intelligence Commission

ACT Australian Capital Territory

AFP Australian Federal Police

AGD Attorney-General’s Department (Commonwealth)

AICS Australian Inventory of Chemical Substances

ATS Amphetamine Type Stimulants

COAG Council of Australian Governments

COSC Chemicals of Security Concern

DIBP Department of Immigration and Border Protection

EUD End User Declaration

eEUD Electronic End User Declaration

GHB Gamma-hydroxybutyrate

IGCD Intergovernmental Committee on Drugs

MDMA 3,4-methylenedioxymethamphetamine (commonly known as ecstasy)

NDPRAC National Drug Precursor Risk Assessment Capability

NICNAS National Industrial Chemicals Notification and Assessment Scheme

NPV Net Present Value

NSW New South Wales

NT Northern Territory

OBPR Office of Best Practice Regulation

PACIA Plastics and Chemicals Industries Association

PAG Precursor Advisory Group

PCHE Precursor Chemicals to Homemade Explosives

PGA The Pharmacy Guild of Australia

PIRG Precursor Industry Reference Group

PwC PricewaterhouseCoopers

RIS Regulation Impact Statement

TGA Therapeutic Goods Administration

Definitions

Decision Regulation Impact Statement PwC iii

Definitions

Drug of dependence means a drug with a higher potential for misuse, abuse and dependence.

End-users use the precursor chemical or equipment as part of their business or institutional processes (eg. to produce a product). End users do not on-sell the precursor chemical or equipment in the form in which is it received.

Importers import the precursor chemical or equipment into Australia.

Manufacturers produce the precursor chemical (or mixture containing or mixed with a precursor chemical) or equipment in Australia for on-sale.

Mixture means a substance which contains or is mixed with a precursor chemical.

Precursor chemical means a substance (including its salts, derivatives and isomers) and any salt of those derivatives and isomers that may be used in the preparation of a drug of dependence. It does not include a substance when contained in or mixed with another substance (i.e. a mixture).

Precursor equipment means key equipment used in the preparation of a drug of dependence.

Retailers sell the precursor chemical or equipment primarily to individuals and do not repackage or reformulate substances.

Wholesalers sell the precursor chemical or equipment primarily to businesses and institutions and do not repackage or reformulate substances.

Executive summary

Decision Regulation Impact Statement PwC iv

Executive summary This Consultation Regulation Impact Statement (RIS) examines proposed measures to reduce the risk of diversion of precursor chemicals and equipment used in the manufacture of illicit drugs.

All states and territories have controls to restrict the possession and sale of precursor chemicals and equipment through either criminal offences, licensing or permit processes. A key aspect of these controls involves recording the sales of scheduled precursor chemicals and equipment through end user declarations (EUDs). However, controls are not harmonised across jurisdictions, creating a range of vulnerabilities within the supply chain that organised crime groups are able to exploit. In particular, inconsistent record-keeping requirements mean that law enforcement agencies often lack visibility on the importation, sales and distribution of precursors.

The diversion of precursor chemicals and equipment is costly. Illicit drugs manufactured from precursors have economy-wide costs associated with crime, healthcare and accidents, and productivity.

This RIS considers three specific problems with the existing arrangements, namely:

inconsistencies in jurisdictional controls, both in terms of the type of controls and the list of precursor chemicals and equipment to which they apply

the lack of real-time submission and sharing of information about precursor sales with law enforcement agencies, and

limited collection and sharing of intelligence regarding the importation of precursor chemicals.

Domestic controls

Option 1: The status quo

Under the ‘status quo’ option, there are no changes to regulation or industry codes.

Option 2: Status quo with electronic EUDs

Under this option, existing legislative controls on precursor chemicals and equipment would continue, as would the precursor chemicals and equipment to which they apply. The only difference would be in relation to EUDs and associated requirements. All EUDs currently required under existing state and territory legislative regimes would be electronically entered on a central system and reported to law enforcement agencies in real-time.

Option 3: Nationally harmonised lists of precursor chemicals and equipment and associated legislative controls (with paper-based EUDs)

Under this option, there would be nationally consistent precursor controls, including harmonised lists of precursor chemicals and equipment. This would require legislative change in all jurisdictions.

For all chemicals and equipment on the proposed lists, state and territory legislation would require suppliers to either:

Scan and email the details of purchases made through an account to the police at the time of the transaction, with proof of identification (as an authorised account user) presented with every purchase.

Scan and email paper-based EUDs for any purchases by non-account holders to police at the time of the transaction. The purchaser would have to provide the supplier with proof

Executive summary

Decision Regulation Impact Statement PwC v

of identification, and payment by credit, debit card, or other traceable means. The supplier would not be required to otherwise store the EUD for record-keeping purposes.

Option 4: Nationally harmonised lists of precursor chemicals and equipment and associated legislative controls (with electronic EUDs)

This option is a combination of elements from some of the preceding options. Under this option, there would be a harmonised list of precursor chemicals and equipment and associated legislative controls, including the secure storage of precursors on that list, and the requirement to submit sales information to law enforcement agencies through an electronic system.

Option 5: An industry code containing nationally harmonised lists of precursor chemicals and equipment and associated voluntary controls

Under this option, existing regulatory controls and the precursor chemicals and equipment to which they apply would remain unchanged (i.e. no jurisdiction must amend or enact legislation).

However, there would be an industry code to support businesses that wish to go ‘above and beyond’ existing legislation and voluntarily implement the nationally harmonised controls and the precursor chemicals and equipment to which they apply.

Border controls

Option 1: Status quo

The status quo represents the continuation of existing arrangements for importation of precursor chemicals. Under this option, agencies will continue to share information on an ad hoc basis regarding the importation of regulated precursor chemicals.

Option 2: Status quo with enhanced cooperation and information sharing

Under this option, information currently collected on the importation of precursor chemicals through Customs (Prohibited Imports) Regulations 1956 (Customs Regulations), the National Industrial Chemicals Notification and Assessment Scheme (NICNAS)1 and Importer Declaration Forms (as required for consignments of greater than $1000 value) could be made available to a centralised Government agency, which could be distributed for use by Commonwealth, state and territory law enforcement agencies as appropriate.

Under this option, no further information provision requirements would be placed on importers, and no further information collection requirements would be placed on Commonwealth agencies, for high risk precursor chemicals. Formalised information sharing arrangements would be developed to support the complete and timely provision of information currently collected by Commonwealth agencies for use by law enforcement agencies.

Option 3: Mandatory notification scheme

This option would require the mandatory notification of the importation of high risk precursor chemicals. All importers of listed high risk precursors chemicals and equipment (except for precursor chemicals already controlled under the Customs Regulations) would be required to provide information about each consignment of high risk precursor chemicals. This may be achieved via a central agency or a central information collection system for distribution to Commonwealth, state and territory law enforcement agencies.

1 NICNAS does not collect information directly, but rather receives import data from the Department of Immigration and Border

Protection for the purposes of identifying potential importers of relevant industrial chemicals and registering them with NICNAS

Executive summary

Decision Regulation Impact Statement PwC vi

Cost benefit analysis The impacts of the options are categorised in terms of:

reduction in the social costs of illicit drugs

regulatory savings to business

regulatory costs to business, and

administrative savings and costs to government.

The reforms focus on the domestic diversion of precursor chemicals and equipment and the associated manufacture of illicit drugs. This RIS uses the (adjusted) social costs of amphetamine type stimulants (ATS) (of $4 billion annually, or $29.7 billion NPV over ten years) as a barometer for the social costs of all illicit drugs that can be manufactured using precursors on the model list. This is based on the following considerations:

while some of the precursor chemicals can be used to produce other illicit drugs (for example, heroin), the majority of precursor chemicals on the model list can be used to manufacture ATS, and

our adjustment of social costs scales down those costs by 20 per cent (reflecting ABS data that indicates that 80 per cent of ATS are produced domestically) – this does not, however, account for ATS made from imported precursors.2

On balance, the (adjusted) social costs of ATS represent a conservative (and the most substantiated) estimate of the social costs attributable to all illicit drugs examined in this RIS.

There is limited information with which to precisely estimate the key benefits associated with the options – the reduction in the social costs of illicit drugs. Given the magnitude of these costs, the options need only have a marginal impact on the problem to generate net benefits.

That said, it is useful to consider the various ways in which the options are expected to impact on the social cost of illicit drugs, and to give a feel for the relative size of these impacts to show which options are preferred.

Currently EUDs are paper based - and apart from in Western Australia and Queensland – are not submitted to police. This limits the use to which the information collected can be put, and implicitly, the deterrence value of collecting it. The electronic system would require chemical suppliers to enter all EUDs into a web based portal, which would give law enforcement agencies immediate access to information about precursor sales. An eEUD Business Case and the eEUD Working Party found that:

The key benefit of the proposed electronic system is its ability to automatically to alert law enforcement about suspicious precursor sales using pre-defined triggers. This would enable proactive investigation of illicit activity and enhance visibility of precursor distribution, new and emerging precursors, manufacturing trends and illicit drug availability across Australian jurisdictions.

Improved ‘data matching’ across jurisdictions would assist in deployment of resources to target higher value investigations and to undertake proactive deterrence strategies. This may also enhance collaboration in cross-jurisdictional/national responses.

A centralised system would reduce the resources that need to be devoted to on-site visits to suppliers and enable law enforcement to target their efforts towards strategic rather than compliance-based activities.

2 According to the ACC’s Illicit Drug Data Report, 1,505.2 kilograms of ATS precursors were imported in 2013-14.

Executive summary

Decision Regulation Impact Statement PwC vii

More broadly, by tracing sales through either an account, or via a traceable means (for non-account holders), law enforcement would be equipped with an audit trail with which to aid investigations and prosecutions.

For illustrative purposes, we conservatively assume this will lead to a 0.1 per cent reduction in social costs. The actual impact is likely to be higher, but will depend on how effectively law enforcement agencies use information derived from an eEUD system.

Harmonisation of legislative controls is assumed to lead to a 0.05 per cent reduction in the social costs of ATS produced from domestically diverted precursors. This reflects the finding that, even though states and territories already regulate many of the most frequently diverted precursors to some degree, harmonisation would tighten controls and eliminate regulatory gaps in relation to a consistent list of precursor chemicals and equipment. Harmonisation would involve the application of controls to particular precursors in each jurisdiction, including point of sale measures which act as a deterrent to individuals; restricted access to reduce theft or unauthorised diversion; and improved record keeping to provide an audit trail to aid law enforcement in investigations and prosecutions.

International studies on precursor chemicals found that the introduction of sales, reporting and storage controls led to significant reductions in illicit drug-related indicators.3 However, the gains in this case will not necessarily be as significant as these studies suggest, given that we propose to tighten existing controls (rather than introduce new controls for the first time).

The Productivity Commission has acknowledged the broader benefits of harmonisation: 4

“The Commission considers there is a strong case for nationally uniform controls to prevent chemicals from being diverted into illicit drug manufacture. While existing inconsistencies do not appear significant at present, they have the potential to undermine the effectiveness of the controls and/or lead to material regulatory burdens over the longer term.”

We have estimated that the combined impact of an eEUD system and harmonised legislative controls as the sum of the individual impacts listed above (0.1 per cent and 0.05 per cent respectively).

The benefits of an industry code (in terms of the reduction in social costs) are assumed to be broadly proportionate to the take-up of the code relative to harmonising controls through legislation. Therefore, just as the costs of a code are approximately 50 per cent of harmonisation through legislation, we assume that the benefits are 50 per cent of 0.05 per cent, or 0.025 per cent.

Regulatory costs and savings have been estimated by drawing on a survey of industry conducted for the purpose of this RIS, as well as other estimates of impacts (particularly around the cost of an eEUD system).

It is worth noting the relatively minor regulatory costs associated with the options. This is primarily a function of two factors:

controls are proposed to be applied to pure chemicals only (as opposed to mixtures). This reduces the number of affected businesses significantly, and

most businesses handle a small number of chemicals on the harmonised list, and those that are most frequently handled are regulated to varying degrees in most jurisdictions.

3 For example, a requirement to restrict sales and store precursors securely was attributed to a 48-71 per cent reduction in hospital

admissions in California, Nevada and Arizona following its introduction.

4 Productivity Commission (2008) Regulations of Chemicals Research Report, p.127

Executive summary

Decision Regulation Impact Statement PwC viii

Domestic controls

Of the options relating to domestic controls, Option 4 (harmonisation with eEUDs) produces the highest expected net benefit of $30.6 million NPV over ten years (with a range of $22.3 million to $39.6 million). In effect, it combines the benefits generated under Option 2 and Option 3.

While this option results in the highest regulatory and administrative costs (between $12.7 million and $36 million NPV over ten years), this is outweighed by regulatory savings to industry from harmonisation and no longer storing and processing EUDs (between $3.4 million and $15.9 million NPV over ten years) and the assumed reduction in social costs associated with illicit drugs ($44.5 million NPV over ten years). There are also administrative savings to government as a result of no longer processing paper-based EUDs submitted by businesses.

Public submissions responding to the Consultation RIS were overwhelmingly supportive of Option 4 as the preferred Domestic Controls option. Reasons for this support include:

Greater national consistency through harmonised controls will reduce regulatory burden on industry and improve industry efficiency5.

Having a nationally harmonised list of precursor chemicals and equipment would reduce the potential for individuals to exploit regulatory loop holes if certain precursors are not required to be recorded in certain jurisdictions.6

The current system through which paper-based EUDs are provided to law enforcement (as PDF files) on an ad-hoc basis through Requests for Information is resource intensive. An automated and electronic system is required if reporting is to be conducted on a larger scale.7

There are concerns around the need to include personal information on a paper-based EUD (under current regulatory controls), as there is a view that these are not always stored in a secure fashion. The eEUD scheme “appears to address these concerns”.8

Given this, Option 4 is the preferred option. A summary of the range of costs and benefits associated with each domestic controls option is provided in the table below.

5 ASMI submission, QPS submission, PACIA submission, Accord Australasia submission

6 PGA submission

7 ACIC submission

8 ASMI submission

Executive summary

Decision Regulation Impact Statement PwC ix

Costs and benefits of domestic controls options (low and high estimates, $million NPV over ten years)9

Option 2 Option 3 Option 4 Option 5

Low High Low High Low High Low High

Costs

Regulatory costs to business 4.9 18.6 4.5 13.9 9.3 32.6 1.6 6.6

Costs to government 3.4 3.4 - - 3.4 3.4 - -

Total costs 8.3 22.0 4.5 13.9 12.7 36.0 1.6 6.6

Benefits

Regulatory savings to business 3.3 15.8 0.0 0.2 3.4 15.9 0.0 0.1

Administrative savings to government

0.6 0.6 - - 0.6 0.6 - -

Assumed potential reduction in social cost of drugs

29.7 29.7 14.8 14.8 44.5 44.5 7.2 7.2

Total benefits 33.6 46.0 14.9 15.0 48.5 66.8 7.3 7.4

Net benefit 17.3 32.9 2.3 9.5 22.3 39.6 0.6 4.8

The cost and benefit components for Option 4 are outlined in the figure below.

Costs and benefits associated with Option 4 (harmonisation with eEUDs) ($ m)

While Option 4 is preferred, it is possible that harmonisation may take some time to be achieved. In this scenario, our preliminary analysis shows that there would be net benefits from implementing an eEUD system as a ‘stand-alone’ addition to existing controls (Option 2). In other words, ongoing efforts to harmonise should not delay the introduction of an eEUD system.

9 Due to the nature of Monte Carlo sampling techniques (ie the approach used to for the cost benefit analysis), low and high values

for the costs and benefits of each option will not necessarily correspond to the resulting net benefit values for each option.

-30 -20 -10 0 10 20 30 40 50 60

$ millions

Infrastructure costs

Training costs

eEUD system purchase

EUD Processing / storage savings (time)

EUD Processing / storage savings (financial)

Law enforcement avoided processing

Industry costs

Aus. Gov. costs

Industry benefits

Jurisdiction law enforcement benefits

Harmonisation costs

Harmonisation benefits

Time costs (additional EUD

-9.6

-9.5

-7.9

-3.4

14.2

0.6

-2.9

-2.5

-2.5

-1.4

3.0

-4.1 -4.1

-4.7

-4.5

0.1

6.5

0.7

-5.8 Low Mid High

44.5

39.6 30.6

-4.8

Reduction in social costs of illicit drugs

Estimated NPV 22.3

Executive summary

Decision Regulation Impact Statement PwC x

Border controls

In terms of border controls, importers already provide a significant amount of information to a variety of government agencies about consignments of precursor chemicals. Our preliminary assessment indicates there is scope to better utilise and share existing information between government agencies (as outlined in Option 2). This approach was largely supported by industry stakeholders, with PACIA suggesting that existing notification processes should be revisited and utilised to provide required information.

That said, feedback from government agencies noted shortcomings associated with existing controls and data, primarily:

existing Department of Immigration and Border Protection (DIBP) tariff codes are used to collect trade data (not for law enforcement purposes) and do not correlate with the model list of precursors (as multiple precursor list items fall under a single tariff code), and

existing notification processes would leave a number of chemicals uncontrolled at the border that are currently controlled in one or more jurisdictions.

The cost to industry of a mandatory notification scheme (Option 3) covering all 79 high risk chemicals is not expected to be significant (between $160,000 and $830,000 NPV over 10 years). The main cost of this option is to the Commonwealth Government, which has not been quantified but may potentially be significant depending on a range of factors including:

whether the scheme is self-reporting

whether additional resources will be required for compliance and enforcement

the volume of information collected through the scheme

the extent to which the scheme can be incorporated into the proposed eEUD system.

Any proposal affecting activities at the border may also impose costs on industry, particularly if clearance times are slowed.

The implementation of the scheme would result in more detailed information in relation to the identity of the importer and supplier of the precursor chemicals, as well as the description and quantity imported. This information would be collected for a greater range of chemicals (79 chemicals compared to 18 at present) and for all values of imports (currently Importer Declaration Forms are only required for consignments valued at over $1,000).

It is not clear whether the value of the additional information collected under such a scheme outweighs the increase in the regulatory burden imposed on business and the resulting cost to government (particularly if the $1000 threshold is eventually lowered or abolished). Moreover, best practice principles for the administration of regulation suggest that government should in the first instance seek to optimise the use of existing information before placing additional burden on industry and potentially duplicating parts of the data collection process.

As such, the preferred option for border controls is to implement Option 2 in the first instance (enhanced cooperation and information sharing) and assess the effectiveness of these measures over the medium term. As with aspects of domestic controls, this RIS assumes that any government costs associated with this would be met from existing resources.

Going forward, in conjunction with monitoring the effectiveness of Option 2, the Commonwealth Government proposes to work with stakeholders (including DIBP and Commonwealth, state and territory law enforcement) to further consider the feasibility and expected net benefits of a mandatory notification scheme and associated measures, including:

Executive summary

Decision Regulation Impact Statement PwC xi

the most appropriate mechanism through which mandatory notification would occur (eg whether the proposed eEUD system can be expanded to include requirements for notification of precursor production imports)

a full assessment of costs associated with implementing, operating and complying with the scheme, including to industry and government stakeholders

potential approaches to improve the usefulness of trade import data (e.g. requiring importers report against import tariff codes) and the potential costs and benefits to government and industry of the approach

the most appropriate government agency to manage the scheme, taking into account the purpose of the scheme, resourcing implications and additional funding requirements.

Mixtures

Some stakeholders have questioned whether mixtures would be captured by the options under consideration. This RIS focuses on the costs and benefits of controlling precursor chemicals in their pure form - that is, unmixed with any other substance. After targeted consultation, this RIS assumes that pharmacies and other retailers generally only supply precursor chemicals from the harmonised list in mixtures and so are not affected by the options.10

Existing state and territory precursor supply legislation also tends to focus on pure precursor chemicals rather than mixtures. The proposed measures will harmonise and tighten the controls applying to pure chemicals. In doing so, this could lead to an increased focus on the potential diversion of mixtures (although a variety of measures are in place to manage this risk, for example Project STOP).11

We have not undertaken a detailed cost benefit analysis in relation to the inclusion of mixtures in the harmonised list. Even so, for completeness, high level cost estimates are provided to give stakeholders some indication of potential cost increases that may occur under Option 4 (harmonisation of controls with the introduction of an eEUD system) if all mixtures were to be regulated in addition to pure chemicals. This analysis indicates additional costs (over and above those incurred by regulating pure chemicals) may be in the range of $85.2 million and $109 million NPV over ten years (noting that this cost estimate does not account for any impacts on supermarkets, which could be significant).

Further additions to the harmonised list of precursor chemicals and equipment

While outside the scope of the options considered in this RIS, it should be acknowledged that industry and government stakeholders have questioned how any future proposed additions to the harmonised list would be managed. As a general rule, law enforcement want maximum flexibility to quickly add to the list as circumstances change, whereas industry seeks to ensure that any addition is subjected to sufficient analytical rigour to ensure benefits exceed costs.

10 The exception to this relates to pure pseudoephedrine - data suggests that this is supplied by pharmacies on prescription

approximately 230 times across Australia each year. We have not yet quantified this potential impact.

11 Project STOP is an electronic system which captures sales of pharmaceutical products containing pseudoephedrine.

Decision Regulation Impact Statement PwC i

Contents

Disclaimer ....................................................................................................................................... i

Abbreviations ................................................................................................................................. ii

Definitions ..................................................................................................................................... iii

Executive summary ....................................................................................................................... iv

1 About this Regulation Impact Statement.............................................................................. 1

2 Background ............................................................................................................................. 3

3 Objectives ............................................................................................................................. 20

4 Domestic controls ................................................................................................................. 21

5 Border controls ..................................................................................................................... 42

6 Regulatory burden measurement ........................................................................................48

7 Consultation ......................................................................................................................... 50

8 Evaluation and conclusion ................................................................................................... 62

9 Implementation and review .................................................................................................68

Appendix A Background to the precursor chemicals and equipment ................................ 73

Appendix B Existing controls ................................................................................................ 77

Appendix C Organisations that use/handle precursor chemicals .......................................... 82

Appendix D Collection of information on importations ...................................................... 85

Appendix E Cost benefit analysis assumptions .......................................................................86

Decision Regulation Impact Statement PwC 1

1 About this Regulation Impact Statement

1.1 Purpose of this Decision RIS PricewaterhouseCoopers (PwC) has been engaged by the AGD to prepare this Decision RIS, which will examine the proposed measures to reduce the risk of diversion of precursor chemicals and equipment involved in illicit drug manufacture.

The purpose of a Decision RIS is ‘to draw conclusions on whether regulation is necessary and, if so, on what the most efficient and effective regulatory approach might be, taking into account the outcomes of the consultation process’.12

This Decision RIS follows the Council of Australian Governments (COAG) Best Practice Regulation Guidelines for regulatory proposals made by Ministerial Councils and National Standards (the Guidelines). This Decision RIS:

establishes the problem that governments are seeking to address

identifies a set of policy options to address the identified problem

assesses the costs and benefits of these options, and the effectiveness of each option in addressing the problem, and

uses the analysis to establish a preferred option for action.

This Decision RIS canvasses both regulatory and non-regulatory approaches, and includes a status quo or ‘no change’ option (recognising that not all problems have a cost effective solution through government action).

12 Council of Australian Governments (2007), Best Practice Regulation: A Guide for Ministerial Councils and National Standard

Setting Bodies, Canberra

About this Regulation Impact Statement


1.2 Report Structure This Decision RIS is structured as follows:

Chapter 2 provides the policy context and problems that governments are seeking to address in this RIS

Chapter 3 establishes the objectives of government action

Chapter 4 describes and assesses the domestic control policy options being considered in this RIS

Chapter 5 describes and assesses the border control policy options being considered in this RIS

Chapter 6 provides estimates of regulatory burden imposed by regulatory options

Chapter 7 outlines the approach to consultation that has informed this RIS and summarises stakeholder feedback

Chapter 8 summarises the findings of the RIS, and

Chapter 9 details implementation, monitoring and review options for the preferred option.


2 Background

A significant proportion of illicit drugs are produced in Australia using legally available precursor chemicals and equipment.

All states and territories have controls to restrict the possession and sale of precursor chemicals and equipment through either criminal offences, licensing or permit processes. A key aspect of these controls involves recording the sales of scheduled precursor chemicals and equipment through end user declarations (EUDs).

The Australian Government is primarily responsible for controlling precursor chemicals at the border. The Criminal Code Act 1995 includes criminal offences for importing, manufacturing or possessing precursor chemicals without appropriate licences. The Customs Regulations also list a number of precursor chemicals which can only be imported into Australia with a licence and permit.

However, controls on precursor chemicals and equipment (including schedules of precursors) are inconsistent across Australian jurisdictions. This has created opportunities for diversion which organised crime groups are able to exploit. It has also resulted in an increased regulatory burden on industry, which must comply with multiple different legal regimes.

Precursor chemicals listed under Commonwealth legislation also differ from precursor schedules in each jurisdiction. This means that some chemicals controlled in the states and territories can be imported into Australia without a permit or licence. As a result, local law enforcement often lacks visibility over direct importations of precursor chemicals.

The Precursor Advisory Group (PAG) - a cross-jurisdictional working group comprising Commonwealth, state and territory law enforcement and health officials - recently finalised a discussion paper outlining recommendations to reduce the diversion of precursor chemicals and equipment into illicit drug manufacture, including:

implementing nationally consistent controls and lists of precursor chemicals and equipment

developing a national eEUD system, and

strengthening border controls on high risk precursor chemicals.

The PAG consulted the Precursor Industry Reference Group (PIRG) in developing the recommendations, including representatives from the Pharmacy Guild of Australia (PGA), Accord and the Plastics and Chemicals Industry Association (PACIA). PIRG members generally support moves towards greater national consistency as it is likely to reduce the regulatory burden on industry.

Commonwealth, state and territory law and justice ministers considered the PAG discussion paper at the COAG Law, Crime and Community Safety Council (LCCSC) meeting on 22 May 2015. At the meeting, Ministers agreed to work towards more nationally consistent controls over precursor chemicals and equipment, and provided approval for AGD to arrange public consultation on the proposals through a COAG RIS process.

Background


2.1 The market for precursor chemicals and equipment

This RIS considers regulatory and non-regulatory options to enhance controls on the precursor chemicals listed in Table 1. The classification of these chemicals has been based on the National Drug Precursor Risk Assessment Capability (NDPRAC) assessments, which were completed by the Australian Federal Police (AFP) between July 2013 and December 2014. The list in Table 1 shows 79 high risk and 25 low risk precursor chemicals. Three chemicals were assessed by NDPRAC as not requiring controls. While individual jurisdictions attribute different risk levels to these chemicals, Table 1 is a nationally agreed assessment of precursor chemicals that are susceptible to diversion into illicit drug manufacture at a point in time. ]The list in Table 1 provides a starting point which can be built on as either new precursor chemicals are used or manufacturing methods evolve in the future. Many of these chemicals are already controlled to varying degrees under state and territory laws.

Table 1: Priority precursor chemicals

High Risk Low Risk

Ammonia, anhydrous Phenylacetic acid Bromosafrole

Lithium metal (in pure form) Formamide Sodium Cyanoborohydride

Hypophosphite salts Phenylacetyl chloride 1,3-Benzodioxole

Hypophosphorous acid Formic acid Platinum

Pseudoephedrine 1-Phenyl-2-bromopropane 4-aminobutanoic acid (GABA)*

Sodium metal (in pure form) 1-Phenyl-2-chloropropane 5-Bromo-1,3-benzodioxole

Iodine 1-Phenyl-2-iodopropane Anethole

Ephedrine Lithium Aluminium Hydride gamma-Buytrolactone (GBL)*

Phosphorous N-Methylformamide Piperazine

Phosphorous acid 1-Chlorophenyl-2-aminopropane

1 4-butanediol

Hydriodic acid Ammonium Formate 4-Allylpyrocatechol

Potassium Chlorophenyl-2-methylaminopropane

2-hydroxytetrahydrofuran

Hydrogen sulfide Chromic acids (including salts) 4-hydroxybutanal

Phenylpropanolamine Hydrobromic acid Gamma hydroxybutanoic acid

Methylamine N-ethylephedrine 2-Pyrrolidone

Nitroethane 1-Phenyl-2-propanol N-Phenethyl-4-piperidone

Benzaldehyde Ethanamine 4-hydroxybutanoic acid nitrile

Mercuric chloride Phenyl-1-propanone Propionic Anhydride

Mercury metal (elemental) Phenylalanine 1-hydroxycyclopentyl-(o-chlorophenyl)-ketone-N-methylimine (HCPKM)

1-Phenyl-2-Propanone (P2P) 1-Phenyl-2-nitropropene Anisaldehyde

1-Phenyl-2-Propanone bisulfite Benzyl bromide 4-hydroxypentanoic acid

Allylbenzene Benzyl chloride Ergocristine

alpha-phenylacetoacetonitrile (APAAN)

Norpseudoephedrine (Cathine) Ergotamine

N-ethyl pseudoephedrine Raney Nickel Lysergic Acid

Nitromethane Thorium (including salts) Piperidine

Thionyl chloride 1-phenyl-2-propanone oxime

Background


High Risk Low Risk

Trans-beta-methylstyrene Magnesium

Acetic anhydride Palladium

Boron tribromide Acetaldehyde

Sodium bis(2-methoxyethoxy) aluminium hydride

Bromobenzene

Sodium Borohydride N-Methylpseudoephedrine

Mandelic acid 3,4-methylendioxypropan-2-one glycidate (MMDMG)*

Methylammonium Salts Safrole

Phenylacetonitrile Sassafras oil (as source of safrole)

Pyridine Eugenol

Ethyl phenylacetate MDP2P

Formaldehyde Isosafrole

Methyl phenylacetate 3,4-Methylenedioxyphenylacetic acid (MDPAA)

N-Methylephedrine Piperonal

Phenylacetamide

This RIS also considers suitable controls over precursor equipment with a high risk of diversion for use in the manufacture of illicit drugs. The proposed model list of precursor equipment is based on the schedule in Category II of PACIA’s Code of Practice for Supply Diversion into Illicit Drug Manufacture (PACIA Code), and is shown at Table 2.

Table 2: Apparatus identified at high risk of diversion, PACIA Code, Category II13

Apparatus

Gas cylinders Hydrogen Sulfide

Hydrogen Chloride

Hydrogen

Ammonia

Methylamine

Glassware Round bottom reaction flask (500mL or greater)

Condenser (joint size B19 or greater)

Splash heads or distillation heads

Scientific apparatus Heating mantles (500mL or greater)

Pill presses (manual or mechanical)

Rotary evaporators

The estimated number of businesses using or handling these chemicals is shown in Table 3. Most are based in either NSW or Victoria. Further information on how these estimates were derived can be found in Appendix C.

13 Some jurisdictions do not assign limitations on sizes of controlled equipment- eg. glassware

Background


Table 3: Number of businesses handling precursors and equipment (on the model list) by supply chain node and jurisdiction

NSW VIC QLD SA WA TAS NT ACT TOTAL

Importers and manufacturers

364 341 242 61 122 17 - 6 1,153

Wholesalers 948 692 421 143 224 25 9 14 2,475

TOTAL 1,312 1,033 663 204 346 42 9 20 3,628

Source: PwC analysis, ABS (2015), ‘Counts of Australian businesses, including entries and exits’, June 2014 Cat. 8165.0

Figure 1 shows that survey respondents came from a wide variety of industries, most frequently manufacturing. ‘Other’ respondents operated in pharmaceutical and beauty industries.

Figure 1: Industry sectors of industry survey respondents

Source: PwC industry survey

Of the businesses that responded to the industry survey for this RIS, 41 per cent employed between 11 and 100 people, with another 47 per cent employing more than 100 people (see Figure 2). Some 8 per cent of businesses were non-employing.

Background


Figure 2: Average number of employees by respondents


Of responding businesses, the majority supplied fewer than five chemicals on the model list. Around 43 per cent of these supplied just one; mainly pseudoephedrine. One business reported supplying 66 of the chemicals on the model list.

Figure 3: Average number of precursor chemicals (on the model list) supplied by respondents


Of the model list, responding businesses reported that the most common precursor chemicals supplied are iodine, pseudoephedrine and formaldehyde (see Table 4), which are often supplied by retailers in mixtures. However, many of the chemicals on the model list were not supplied by survey respondents. Some 33 chemicals on the model list were not supplied by any respondents to the industry survey.

8%5%

41%

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Number of precursor chemicals sold

Background


Table 4: Most common precursor chemicals (on the model list) supplied by respondents

Precursor chemical Percentage of respondents supplying chemical

Iodine 24%

Pseudoephedrine 24%

Formaldehyde 21%

Formic acid 18%

1 4-butanediol 16%

Ammonia, anhydrous 16%

Formamide 11%

gamma-Butyrolactone (GBL)* 11%

Methylamine 11%

Phosphorous acid 11% Source: PwC industry survey

Of the precursor equipment on the model list, responding businesses reported that sales of ammonia gas cylinders, condensers and splash/distillation heads are most common (refer Table 5). Methylamine gas cylinders and pill presses were not reported to be supplied by any responding businesses to the survey.

Table 5: Most common precursor equipment (on the model list) supplied by respondents

Precursor equipment Number of businesses supplying equipment

Gas cylinder- Ammonia 11%

Condenser (joint size B19 or greater) 11%

Splash heads or Distillation heads 11%

Gas cylinder- Hydrogen Sulfide 8%

Gas cylinder- Hydrogen 8%

Round bottom reaction flask (500mL or greater) 8%

Heating mantles (500mL or greater) 8%

Rotary evaporators 8%

Gas cylinder- Hydrogen chloride 5%

Gas cylinder- Methylamine 0%

Pill presses (manual or mechanical) 0%


Based on survey responses, the level of awareness of the risks of diversion is high within industry. Only a small number of responding businesses considered that other businesses within their industry would have no or very slight awareness of diversion risks.

Background


Figure 4: Industry responses to "How aware do you think other businesses in your industry are of the risks of diversion to illicit drug manufacture associated with the chemicals and equipment in the model list?"


As Figure 5 shows, survey respondents reported high levels of compliance with existing legislative controls on point of sale procedures, secure storage of precursor chemicals and equipment, submission of EUDs to law enforcement for regulated precursors, and storage of completed EUDs.

Figure 5: Extent of compliance with existing controls by industry


Many survey respondents indicated that existing controls did confer some benefits on their business, mainly in the form of reduced reputational/liability risks (see Figure 6). Respondents who reported ‘other’ benefits identified that controls ‘continued to allow appropriate public access’ and resulted in ‘less potential for abuse’. Another noted that ‘these products [precursors] are sold to account holders only’.

3%6%

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47%

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Not at all aware (1) Slightly aware (2) Moderately aware(3)

Very aware (4) Extremely aware(5)

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Point of saleprocedures

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checks

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Not applicable as this control is notrequired in the jurisdiction inwhich I operate (5)

Fully adopted for all currentlyregulated precursors that myorganisation supplies (4)

Partially adopted for all currentlyregulated precursors that myorganisation supplies (3)

Partially adopted for somecurrently regulated precursors thatmy organisation supplies (2)

Not adopted for any currentlyregulated precursors that myorganisation supplies (1)

Background


Figure 6: Reported benefits to business from existing controls


2.2 Policy framework All Australian states and territories are signatories to the National Drug Strategy 2010-15, which includes a specific section on law enforcement. A draft of the new National Drug Strategy 2016-25 has been released for public consultation. The new Strategy identifies a number of activities that are applicable to precursor chemicals and equipment, as shown in the table below.

Table 6: Draft National Drug Strategy areas applicable to precursors

Approach Strategies

Regulating retail sale Licensing schemes for pharmacists, vets and other health professionals that sell pharmaceuticals

Coordinated medication management system

Electronic prescriptions to minimise the risk of dispensing errors and fraudulent alteration of prescriptions

Supporting workers at the point of supply

Supporting workers at the point of supply of illicit drugs, chemicals and equipment to reduce their misuse or diversion

Real time reporting of prescribing and dispensing events

Supporting prescribers and dispensers

Increase training and support for those at the point of supply of pharmaceutical drugs to reduce inappropriate supply, misuse and diversion

Border control Prevent or disrupt transnational supply of prohibited substances and precursors

Regulating or disrupting distribution production and distribution

Prevent, stop, disrupt or reduce production and supply Disrupt and dismantle criminal groups involved in production,

trafficking and supply of illicit drugs and precursors Target financial proceeds and the confiscation of assets arising

from illicit supply activities Regulate the legitimate trade of pharmaceuticals, precursors and

equipment used in the manufacture of illicit drugs

Enforcing legislation Asset confiscation

Search, seize and destruction powers

Source: Draft National Drug Strategy 2016-2025

0%

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Enhancedinventory

management

Reduced stockloss

Reducedreputational /liability risks

Other (specify)

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Not applicable/don't know(5)

To a great extent (4)

Somewhat (3)

Very little (2)

Not at all (1)

Background


In December 2015, COAG approved the National Ice Action Strategy, which was based on recommendations in the National Ice Taskforce’s final report. The Strategy delivers significant additional funding to the health sector, to reduce the demand for ice and help current users quit. The Strategy also includes a number of law enforcement initiatives to target major players in the ice trade, including increased international cooperation, enhanced intelligence sharing and improved controls on precursor chemicals and equipment.

The National Strategy to Prevent the Diversion of Precursor Chemicals into Illicit Drug Manufacture (National Precursor Strategy) supports the National Drug Strategy. Ministers endorsed the National Framework for the Control of Precursor Chemicals and Equipment in 2010.

With the assistance of the PAG, the National Precursor Strategy is being delivered against four broad outcomes:

1 enhanced intelligence and information sharing capacity among law enforcement and regulatory agencies

2 enhanced law enforcement, forensic and judicial responses through training

3 national regulatory approaches to control access to chemicals and equipment while recognising the legitimate needs of business and the public, and

4 awareness raising for key stakeholders on the problems and issues surrounding precursor chemical diversion.

At its core, the National Precursor Strategy seeks to address the diversion of precursor chemicals and equipment for illicit purposes, while recognising the need to reduce the compliance burden on legitimate users of precursors within industry.

2.3 Controls on access to and supply of precursor chemicals and equipment

State and territory legislation imposes requirements on wholesalers, manufacturers and end-users regarding their access to precursor chemicals and equipment within Australia. The Acts and supporting regulations are listed at Table 7. The focus of these controls is generally on precursors in their pure (unmixed) form, although regulation in some jurisdictions appears to encompass mixtures.

Table 7: Australian state and territory drug precursor legislation

Jurisdiction Acts and Regulations

New South Wales Drug Misuse and Trafficking Act 1985

Drug Misuse and Trafficking Regulation 2011

Victoria

Drugs, Poisons and Controlled Substances Act 1981

Drugs Poisons and Controlled Substances (Precursor Supply) Regulations 2010

Queensland Drugs Misuse Act 1986

Drugs Misuse Regulation 1987

Western Australia Misuse of Drugs Act 1981

Misuse of Drugs Regulations 1982

South Australia

Controlled Substances Act 1984

Controlled Substances (Poisons) Regulations 2011

Controlled Substances (Controlled Drugs, Precursors and Plants) Regulations 2000

Background


Jurisdiction Acts and Regulations

Tasmania Misuse of Drugs Act 2001

Australian Capital Territory

Criminal Code 2002

Criminal Code Regulation 2005

Northern Territory Misuse of Drugs Act

Misuse of Drugs Regulation

Controls on the supply of precursor chemicals and equipment vary across jurisdictions. In its discussion paper, the PAG noted that controls have evolved separately across jurisdictions, often in response to local issues. The NDPRAC risk assessments found that the lower level of control in some states and territories reflects lower levels of legitimate use by industry and the availability of precursors in these jurisdictions.

Of the chemicals assessed by NDPRAC, the supply of 53 of the 79 high-risk precursor chemicals is regulated by precursor control legislation either in all jurisdictions or in all but one state or territory.

Of the remaining 26 precursor chemicals, 25 of these are regulated in some, but not all jurisdictions. There is, however, no clear correlation between regulatory coverage and diversion risk. The Precursor Diversion Index (estimated by the NDPRAC) for these chemicals varies, from the highest possible rating of 66 to the lowest of 36. This rating reflects the inherent risk of diversion from legitimate domestic supply chains into illicit drug manufacture in Australia. This risk is determined by examining the economic and social impacts of the illicit drug it is used to manufacture, the potential harm posed by the diverted precursor in the production process. One high risk chemical identified by NDPRAC is not regulated in any jurisdiction. The Precursor Diversion Index of this chemical is 46.

Those seeking to import precursor chemicals must comply with a variety of controls. These controls are imposed for a number of different reasons which are not all related to reducing the risk of diversion into illicit drug manufacture. For example:

Under Customs Regulations, importers of scheduled precursor chemicals must obtain a permit and licence from the Drug Control Section (DCS) within the Department of Health. Information collected is used to fulfil Australia’s reporting obligations to the International Narcotics Control Board (among other international bodies) under the UN 1961 Single Convention on Narcotic Drugs and 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.

Importers of chemicals listed on the Australian Inventory of Chemical Substances (AICS), must first register with NICNAS within the Department of Health. Special permits are required to import non-AICS listed chemicals. Information collected through this mechanism supports a national system of notification and assessment under the Industrial Chemicals (Notification and Assessment) Act 1989. NICNAS fulfils Australia’s reporting obligations under the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade and the Stockholm Convention on Persistent Organic Pollutants.

Each air and sea arrival to Australia’s borders is also accompanied by a cargo report. The report describes cargo on board, estimated cargo weight, the country of origin and value. This information is used to assess goods for duty, Goods and Services Tax, and other taxes and charges.

A description of border reporting requirements and the information provided can be found at Appendix D.

Industry has developed voluntary measures to reduce the risk of diversion. The PACIA Code was first developed in 1994 to provide best practice guidance to chemical handlers and manufacturers to prevent the diversion of precursor chemicals. The Code was most recently updated in 2008.

Background


The Code categorises precursors according to their risk, and mandates the controls that should be applied to each category:

Category I: precursor chemicals require an EUD

Category II: precursor chemicals require EUDs for sale to non-account customers, and

Category III: precursor chemicals and apparatus require precautionary measures e.g. report suspicious activity to law enforcement agencies.

As precursor chemicals have a variety of legitimate uses, there are also a range of other regulatory frameworks that may apply to them. These include frameworks that regulate their use (eg. as medicines or industrial chemicals), their handling and transportation, and their potential diversion for other illicit uses. These are outlined in Appendix B.

2.4 Effectiveness of current controls It is not appropriate for this RIS to provide detailed information about existing weaknesses in the chemical supply chain. As such, this is a somewhat high level overview of regulatory gaps and potential vulnerabilities.

As stated above, the NDPRAC process undertaken by the AFP identified a number of precursor chemicals and equipment at risk of diversion because they were:

not subject to any controls under state and territory legislation in one or more jurisdictions - of the list of 79 high risk and 25 low risk precursor chemicals in Table 1, 34 chemicals are under some form of control in every state and territory, whereas thirteen are controlled by three or fewer states/territories, or

not subject to the same controls in one or more jurisdictions.

The inconsistencies in existing controls may encourage organised crime groups to engage in ‘jurisdiction shopping’ and procure chemicals in states or territories with relatively weaker precursor regulation.14

The NDPRAC risk assessments identified a number of vulnerabilities in the supply chain, including:

companies directly importing chemicals for consumption that are not bound by a requirement to complete an EUD (chemicals not on schedules of the Customs Regulations and in jurisdictions without regulation on EUDs)

falsification of information: including at point of sale, mislabelling of imported goods, theft and deception

emerging drugs that use different methods of manufacture or unregulated precursor materials, and

the lack of requirement to report loss, theft or suspicious activity to law enforcement (apart from in two jurisdictions).

In addition, the domestic diversion of precursors has been identified as a risk to legitimate transport chains, waste destruction facilities, pharmacies and chemical companies. These are vulnerable to exploitation through criminal and/or insider activity.15

14 Productivity Commission (2008) Chemicals and Plastics Regulation Research report, and eEUD Working Party Electronic EUD

System Report

Background


The recommendations in this Decision RIS address problems with jurisdictional inconsistency, the inefficiencies of a non-electronic EUD system and the direct importation of high-risk precursor chemicals. However, further work will be required to address the other weaknesses identified in the NDPRAC risk assessments, namely the falsification of information, emerging drugs and the lack of a requirement to report theft, loss or suspicious behaviour. This could occur either as part of the review process (outlined in Section 9.2) or as a separate body of work.

2.4.1 Indicators of effectiveness

A variety of indicators can be used to assess the effectiveness of existing controls in reducing the diversion of precursor chemicals and equipment into illicit drug manufacture:

market-related indicators – price, availability and purity of diverted precursor chemicals, increased importation of illicit drugs in their finished form via international ports

health-related indicators – hospital admissions, mortality/morbidity rates associated with clandestine laboratories, and

crime-related indicators – arrests, number of laboratory detections, reported thefts, seizures of diverted precursor chemicals and equipment.

Market-related indicators

Precursor control is largely a supply-side intervention. As it becomes more difficult to source precursors, production costs of the associated illicit drugs should rise (all else being constant) until suppliers develop new sources (often in other countries) or new manufacturing technologies. As such, market-related indicators, including price and availability, are relevant.

The United States Office of National Drug Control Policy has historically assessed the effectiveness of controls on precursors by monitoring the availability and price of the associated illicit drugs.

However, market–related indicators are also affected by levels of demand for precursors and the associated illicit drugs.

Ultimately, markets adapt to disruptions, so it is not only important to understand how large the initial effects of interventions to control precursors are, but also how durable they are.

Health-related indicators

The health-related impact of illicit drug manufacture is linked to the adverse events associated with the chemicals used during the manufacturing process. This can either occur through chronic ingestion or exposure to the chemicals or through inadvertent misadventure such as fires or explosions.

This information is likely to be available through individual health service activity data sets. However, creating the link back to illicit drug manufacture is not necessarily straight forward. This would rely on individuals volunteering the information that they are involved in the manufacturing of illicit drugs and providing an account of the chemicals to which they have been exposed.

15 Joint Submission of the Attorney-General’s Department, Australian Crime Commission, Australian Federal Police, Australian

Institute of Criminology, Australian Transaction Reports and Analysis Centre and Immigration and Border Protection portfolio (June 2015) Parliamentary Joint Committee on Law Enforcement Inquiry into Ice

Background


Background


Crime-related indicators

A number of crime-related indicators are collected and reported, including the number and type of clandestine laboratory detections, as well as domestic and border seizures of precursor chemicals.

Figure 7 shows the variability in the detection rate for Australia for some precursors listed on Table I of the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988. In particular, high levels of detection for pseudoephedrine and ephedrine have been observed in recent years.

Figure 7: Reported precursor diversions, Australia, Table I precursors, International Narcotics Controls Board 2013-14

Source: UN INCB 2014 report. Note: Safrole seizures have been removed

Indicators are also drawn from the detection of clandestine sites. Anecdotal evidence suggests that detections sometimes occur as a result of explosions or fires caused by mixtures of volatile chemicals. The number of recorded detections of clandestine laboratories has grown over the past four to five years. The highest recorded number of detections was during 2011-12 when 809 labs were discovered. Of the 770 labs detected during 2013-14, a significant proportion of detections were concentrated on the eastern seaboard.

Background


Figure 8: Number of detected clandestine laboratories by jurisdiction, 2004-05 to 2013-14

Source: Australian Crime Commission, Illicit Drug Data Report 2013-14

2.5 Social and economic costs of illicit drugs Effective interdiction in the market for precursors can affect the street price and purity of illicit drugs and the associated public health and crime outcomes.16 In this case, the precursor chemicals listed in Table 1 can be used to manufacture a variety of illicit drugs, as shown in Table 8. In estimating social costs, we focus on ATS, as the diverted precursors that are the focus of this RIS appear to be most often used to manufacture this drug.

Table 8: Illicit drugs manufactured from identified precursor chemicals

Amphetamine type stimulants

Opiates Other

Methamphetamine

Amphetamine

3,4-methylenedioxy-methamphetamine (MDMA)

Phenylcyclidine (PCP)

Gamma-Hydroxybutanoic acid (GHB)

1-Benzylpiperazine (BZP)

Para-methoxyamphetamine (PMA)

Methaqualone

Heroin

Fentanyl

Lysergic acid diethylamine (LSD)

Ketamine

16 Dobkin C. and Nicosia, N. 2005, The War on Drugs: Methamphetamine, Public Health and Crime, p.2.

Background


Previous studies (discussed further below) have sought to quantify the social costs associated with illicit drugs, including:

Health costs – including (but not limited to) costs associated with death, disability, medical costs of hospitalisation, and treatment costs

Crime costs – including (but not limited to) costs associated with higher rates of criminal activity (such as theft and violence) and greater resourcing requirements for police, courts and prisons

Road accident costs – incurred due to crashes caused by illicit drug use; and

Labour productivity costs – costs associated with reduced productivity attributable to drug use (such as reduced workforce size and increased absenteeism).

The studies that estimate the magnitude of these social costs in Australia include:

Collins and Lapsley17 estimated the total cost of illicit drug use in Australia as $8.2 billion in 2004-05 (excluding costs associated with the combined use of illicit drugs and alcohol). This estimated included tangible costs such as lost productivity in the workplace and home ($1.6 billion), healthcare costs ($202 million), road accident costs ($528 million), crime costs ($3.6 billion) and resources used in abusive consumption ($893 million). Additionally, intangible costs associated with loss of life ($1.2 billion) and pain and suffering ($70 million) were also incorporated in this figure. Inflating these figures to 2015-16 dollars provides a total cost estimate of $10.8 billion. It is important to note that this estimate includes costs attributable to cannabis. As a result, this figure is likely to overstate the costs relevant to the proposed reforms which are not expected to impact access to or use of cannabis.

The National Drug and Alcohol Research Centre (NDARC)18 published estimates of social costs related to illicit drugs across a number of drug categories including cannabis, cocaine, opiates, ATS and other illicit drugs. These estimates included costs associated with health effects, crime effects and road accidents. Labour markets effects were excluded on the basis that a causal relationship between drug use and labour market outcomes had not been robustly established. Total costs in 2005 dollars were estimated at $12.4 billion, with $3.7 billion of this attributable to ATS, the drug category most relevant to the proposed reforms. Inflated to 2015-16 dollars, the social cost estimates are $16.4 billion and $4.9 billion respectively.

The ACC19 provided estimates of the cost of illicit drug activity in Australia in 2013-14. It estimated these costs to be in the order of $4.4 billion annually (or $4.5 billion in 2015-16 dollars). The estimate includes costs associated with international payments for drug importations and health impacts such as injury, treatment costs, productivity loss and death. It does not include crime costs associated with drug use or costs incurred by the justice system. Given that this estimate includes items that are not explicitly ‘social costs’ (eg illegal payments for drug importations) and excludes costs related to crime, it is not wholly comparable to the Collins and Lapsley and NDARC figures.

17 Collins D and Lapsley H (2008) The costs of tobacco, alcohol and illicit drug abuse to Australian society in 2004/05,

http://www.health.gov.au/internet/drugstrategy/publishing.nsf/Content/34F55AF632F67B70CA2573F60005D42B/$File/mono64.pdf, accessed 27 April 2016.

18 Moore T (2007) Working estimates of the social costs per gram and per user for cannabis, cocaine, opiates and amphetamines,

https://ndarc.med.unsw.edu.au/sites/default/files/ndarc/resources/14%20Working%20estimates%20of%20the%20social%20costs.pdf, accessed 27 April 2016.

19 Australian Crime Commission (2013-14) 2013-14 Illicit Drug Data Report,

https://crimecommission.gov.au/sites/default/files/IDDR-201314-Complete_0.pdf, accessed 27 April 2016. Note that the ACC merged with CrimTrac on 1 July 2016 to form the Australian Criminal Intelligence Commission

http://www.health.gov.au/internet/drugstrategy/publishing.nsf/Content/34F55AF632F67B70CA2573F60005D42B/$File/mono64.pdf

http://www.health.gov.au/internet/drugstrategy/publishing.nsf/Content/34F55AF632F67B70CA2573F60005D42B/$File/mono64.pdf

https://ndarc.med.unsw.edu.au/sites/default/files/ndarc/resources/14%20Working%20estimates%20of%20the%20social%20costs.pdf

https://ndarc.med.unsw.edu.au/sites/default/files/ndarc/resources/14%20Working%20estimates%20of%20the%20social%20costs.pdf

https://crimecommission.gov.au/sites/default/files/IDDR-201314-Complete_0.pdf

Background


Of the estimates outlined above, we use the NDARC’s figure of $4.9 billion (in 2015-16 dollars) of the social cost of ATS use in Australia as our starting point. The reforms in this RIS focus on the domestic diversion of precursor chemicals and equipment and the associated manufacture of illicit drugs. This RIS uses the (adjusted) social costs of amphetamine type stimulants (ATS) (of $4 billion annually, or $29.7 billion NPV over ten years) as a barometer for the social costs of all illicit drugs that can be manufactured using precursors on the model list.

This is based on the following considerations:



On balance, the (adjusted) social costs of ATS represent a conservative (and the most substantiated) estimate of the social costs attributable to all illicit drugs examined in this RIS.



3 Objectives

A Decision RIS should clearly establish the objective of government action. This objective should relate to the statement of the problem (as provided in the previous chapter) and not prejudge a particular course of action.

The purpose of the statement of objectives in a Decision RIS is to provide a clear and succinct goal (or set of goals) for the policy options to address. The Decision RIS will assess the effectiveness of the options against this objective, or set of objectives.

The ultimate objective is to reduce illicit drug use, which has negative and lasting health, social and economic impacts on Australian communities.

This objective is supported by two intermediate objectives:

1. To reduce the availability and accessibility of precursor chemicals and equipment used for the manufacture of illicit drugs, while ensuring that industry is still able to access and use these materials for legitimate purposes.

2. To increase the timely sharing and completeness of intelligence to assist law enforcement agencies in tracking organised crime groups and taking action against illicit drug manufacturers.

Each objective is aligned with the National Precursor Strategy, including its objectives to:

enhance intelligence and information sharing capacity among law enforcement and regulatory agencies

enhance law enforcement, forensic and judicial responses through training

adopt national regulatory approaches to control access to chemicals and equipment while recognising the legitimate needs of business and the public, and

raise awareness for key stakeholders on the problems and issues surrounding precursor chemical diversion.

As previously stated, the National Precursor Strategy addresses aspects of the cross-jurisdictionally endorsed National Drug Strategy. The National Drug Strategy seeks to improve health, social and economic outcomes for Australians, through the prevention of harmful drug use and reduced effect of licit and illicit drugs in society.


4 Domestic controls

4.1 Nature and extent of the problem Legislative regimes adopt different approaches to the regulation of precursor chemicals and equipment with the aim of reducing the risk of diversion into illicit drug manufacture. These include, to differing extents between individual states and territories, controls on:

point of sale procedures (including identification, account registration and payment, EUDs, delayed supply)

record keeping (including reporting of suspicious sales, data retention, sales records and notification), and

access requirements (such as locked storage, personnel restrictions).

New South Wales, Victoria, Western Australia and South Australia categorise precursor chemicals in multiple schedules under their legislation, according to their risk profile. Queensland maintains one general schedule for precursor chemicals. While many similarities exist, the chemicals and equipment listed in these schedules are not fully consistent across jurisdictions.21

End User Declarations

Only two jurisdictions require mandatory submission of EUDs to law enforcement agencies, and so information relating to sales of precursors is not comprehensive and often paper-based, hindering the efficient flow and analysis of information.

The lack of real-time sharing of sales information across jurisdictions impedes law enforcement’s ability to analyse access to precursors at the state or national level, and track the movement of people and products across borders. This is particularly problematic where chemicals are purchased in one jurisdiction and intended for distribution to another state or territory.

Existing requirements surrounding EUDs mean that:

organised crime is able to exploit known vulnerabilities in the supply chain to access precursors;

the voluntary submission of EUDs to law enforcement appears to be low (in South Australia industry supplies only approximately 10 per cent of all completed EUDs to South Australia Police)

the delayed timing of the provision of data across jurisdictions may limit the effectiveness of law enforcement actions, and

the existing approach is administratively burdensome to law enforcement agencies and anecdotally, to industry.

21 Information about specific controls in each jurisdiction and the chemicals and equipment to which they apply, can be found at

Appendix B.

Domestic controls


In its discussion paper, the PAG identified that existing inconsistencies in controls allow organised crime groups to capitalise on cross-border vulnerabilities and access precursor chemicals and equipment in jurisdictions with relatively weaker regulation. Precursor trafficking routes tend to follow the path of least law enforcement resistance.22 These vulnerabilities include:

a lack of point of sale controls, which means that there may be limited deterrence to individuals seeking to access precursors for use in illicit drug manufacture

limited record keeping and reporting, which reduces the effectiveness and timeliness of law enforcement activities in identifying suspicious transactions, as well as information-sharing between state and territory police, and

unrestricted physical access to precursor chemicals, which increases the risk of diversion to illicit drug manufacture.

The Productivity Commission also found that inconsistencies can undermine the effectiveness of chemical regulation and that gaps are vulnerable to exploitation by organised crime groups.23 Further, inconsistencies could impose a material regulatory burden to businesses in complying with multiple regulatory regimes.

The report of the eEUD Working Party set out the following case studies, which highlight some of the issues with the existing situation.

Case study one:

A 2010 investigation into an explosion at a residential property in Queensland identified that the site had been used as a clandestine laboratory. The resident was a known suspected drug manufacturer and had been identified as attempting to purchase precursor chemicals and equipment from suppliers in Queensland in the previous 12 months. Current regulation in Queensland mandates the automatic submission of EUDs to Queensland Police. This information allowed Queensland Police to identify a suspicious pattern of transactions and enabled them to communicate with chemical companies to prevent supply to the individual.

It was found, by cross-referencing EUDs found onsite, that all controlled precursors chemicals at the clandestine laboratory had been sourced from either New South Wales or South Australia, where mandatory submission of EUDs to police is not required. Had EUD information been forwarded to the relevant law enforcement agency, the supply of precursors to this individual may have triggered an investigation and prevented the incident.

Case study two:

In 2014, a NSW Police strike force investigated the supply and distribution of precursor chemicals by a company established in NSW. The strike force found that the Director of the company purchased large quantities of precursors from a supplier in South Australia, and had done so for a period of time. While EUDs had been completed in South Australia, these were not provided to interstate police agencies, and so NSW were not automatically notified of the supply. Further investigation uncovered that the company had also been importing precursors, which had been deliberately mislabelled to avoid detection at the border.

It was later found that precursors secured from interstate and international suppliers had been on-supplied to a number of large clandestine laboratories in NSW and the ACT to produce methamphetamine. NSW Police attributed the failure to detect the supply of precursors (ahead of production) to the lack of a cross-jurisdictional alert and intelligence system.

22 Victorian Government (2010) Drugs, Poisons and Controlled Substances (Precursor Supply) Regulations, Regulation Impact

Statement (April 2010) p 44.

23 Productivity Commission (2008) Chemicals and Plastics Regulation Research report p 127

Domestic controls


4.2 Options to address the problem

Option 1: Status quo - Existing lists of precursor chemicals and equipment and

associated legislative controls

For this Decision RIS, the status quo is the continuation of current arrangements to manage the diversion risks associated with precursors. These arrangements include:

continuation of current controls, including any measures that businesses have adopted to limit reputational impact and to reduce inventory loss, and

ongoing efforts by Australian law enforcement and intelligence agencies to detect, disrupt and prevent illegitimate users from accessing precursors to illicit drugs.

Under current regulatory regimes, the requirements relating to point of sale procedures and access to precursors differ across jurisdictions. In its discussion paper, the PAG found that Victoria, Western Australia, South Australia and New South Wales have introduced the most comprehensive precursor controls which impose mandatory sales, reporting and storage requirements (subject to the scheduling of chemicals within each jurisdiction).

From the proposed list of precursor chemicals considered in this RIS, 34 chemicals are currently under some form of control in every state and territory, whereas thirteen are controlled by three or fewer states/territories. A summary of controls in each jurisdiction is at Appendix B.

Point of sale procedures (EUDs, account sales, and sighting of photo ID)

At the point of sale, EUDs are required in all jurisdictions, except for Tasmania, ACT and NT. An example of an EUD template and how it is used is provided at Appendix B.

Photo identification is required for purchases of scheduled precursor chemicals and equipment in NSW, Victoria, Queensland, Western Australia and South Australia.24

Purchasers are required to hold an account through which to make payment in NSW, Victoria and South Australia for purchase of certain precursor chemicals. Western Australia requires either an account or an EUD with photo identification for purchase of both precursor chemicals and equipment.

Submission of EUDs to Police

Queensland and Western Australia require mandatory submission of EUDs, generally through scanning and emailing a paper-based document to police.

NSW, Victoria and South Australia require that EUDs are made available to police upon request (during business hours).

Record keeping (EUDs and sales records)

In NSW and Queensland, EUDs must be retained for at least two years. In Victoria, Western Australia and South Australia, EUDs must be kept for up to five years.

Sales records are required in NSW, Victoria and Queensland for all scheduled precursor chemicals and equipment. Records must also be kept in South Australia for specified precursor chemicals.

24 Queensland and SA do not specify supply controls for precursor equipment

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Storage (restrictions on access)

NSW, Victoria, Western Australia and South Australia impose restrictions on access to precursor chemicals. Access is restricted only to the supplier or specified personnel to reduce the risk of theft or loss.

Option 2: Status quo with eEUDs

Under this option, existing legislative controls on precursor chemicals and equipment would continue, as would the lists of precursor chemicals and equipment to which they apply. The only difference would be in relation to EUDs and associated requirements. All EUDs currently required under existing state and territory legislative regimes would be electronically entered on a central system and reported to law enforcement agencies.

The eEUD system would consist of a web-based portal for suppliers to enter EUD information at the time of the transaction. Suppliers would no longer have to complete and store a paper-based EUD, or scan and email the EUD to law enforcement (in jurisdictions where this is required).

The eEUD system would allow for real-time monitoring and tracking of the distribution of precursor chemicals. A central agency would coordinate and analyse EUD data and distribute it to law enforcement agencies as required. The system would use pre-defined triggers to generate and circulate data reports to relevant law enforcement agencies. These agencies would also be able to search, identify and retrieve relevant data from the system.

Option 3: Nationally harmonised lists of precursor chemicals and equipment

and associated legislative controls (with paper-based EUDs)

Under this option, there would be nationally consistent precursor controls, including harmonised lists of chemicals and equipment (see Appendix E for more information). This would require legislative change in all jurisdictions.

For all chemicals and equipment on the proposed lists, state and territory legislation would require suppliers to either:

Scan and email the details of purchases made through an account to the police at the time of the transaction, with proof of identification (as an authorised account user) presented with every purchase.

Scan and email paper-based EUDs for any purchases by non-account holders to the police at the time of the transaction. The purchaser would have to provide the supplier with proof of identification, and payment by credit, debit card, or other traceable means. The supplier would not be required to otherwise store the EUD for record-keeping purposes.

Suppliers would also have to restrict or control access to the precursor chemicals and equipment on the list and ensure periodic checks are undertaken.

These controls represent base-level obligations that would apply across jurisdictions. Any additional controls currently in place in particular jurisdictions would still continue to apply under this option. For example, jurisdictional controls in relation to the recording of pseudoephedrine sales (both as mixtures and in pure form) will remain in place. Additionally, iodine-based antiseptic products sold in pharmacies and supermarkets will not be subject to point of sale procedures, record keeping and storage requirements as these are treated as compounds rather than pure form chemicals.

The table below shows the extent of proposed change associated with each aspect of this option.

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Table 9: Extent of proposed change under Option 3 among jurisdictions

Measure Jurisdictions in which change would be required

Proof of identification (photo) Tasmania, ACT, NT

Account sales Queensland, Tasmania, ACT, NT

Completion of EUD Tasmania, ACT, NT

EUD - automatic supply to police NSW, Victoria, South Australia, Tasmania, ACT, NT

Restricted storage – access only by supplier/authorised person

Queensland, Tasmania, ACT, NT

Sales record – item name, quantity, date, purchaser

Western Australia, Tasmania, ACT, NT

Sales record – min years retained (5 years) NSW, Queensland, South Australia, Western Australia, Tasmania, ACT, NT

Option 4: Nationally harmonised lists of precursor chemicals and equipment

and associated legislative controls (with eEUDs)

This option is a combination of elements from some of the preceding options. Under this option, there would be a harmonised list of precursor chemicals and equipment and legislation would require the secure storage of precursors on that list, and the submission of sales information to law enforcement agencies through an electronic system.

The proposed eEUD system would operate as set out below:

Purchase by an ‘account holder’ would require:

– the supplier to set-up an account for the purchaser in the eEUD web-based portal, which will include personal details (e.g. name, organisation, address)

– the purchaser to present proof of identification (as an authorised account user) with every purchase, and

– the supplier to update the sales information in the eEUD web-based portal, making it immediately available to law enforcement agencies.

Purchase by a ‘non-account holder’ would require that for each purchase:

– the supplier to complete an eEUD in the web-based portal with the purchaser’s information

– the purchaser to present proof of identification, and

– the purchaser to pay by credit, debit card, cheque or another traceable means.

There would not be any mandatory record keeping requirements as the information entered in the eEUD system is automatically sent to police through the web-based portal. Similar to Option 3:

A central agency would coordinate and analyse EUD data and distribute it to law enforcement agencies as required. The system would use pre-defined triggers to generate

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and circulate data reports to relevant law enforcement agencies. These agencies would also be able to search, identify and retrieve relevant data from the system.

All existing jurisdictional controls in relation to the recording of pseudoephedrine sales (both mixtures and pure form) would continue to apply.

Iodine-based antiseptic products would not be subject to controls.

Option 5: An industry code containing nationally harmonised lists of precursor

chemicals and equipment and associated voluntary controls

Under this option, existing regulatory controls and the precursor chemicals and equipment to which they apply would remain unchanged (i.e. no jurisdiction must amend or enact legislation).

However, there would be an industry code to support businesses that wish to go ‘above and beyond’ existing legislation and voluntarily implement the nationally harmonised controls and the precursor chemicals and equipment to which they apply. The proposed controls contained in the code would mirror the legislative controls identified in Option 3 above. That is:

The code would outline a harmonised list of precursor chemicals and equipment for control by suppliers, and

The controls for the harmonised list of precursor chemicals and equipment would specify that suppliers:

– Scan and email purchases of precursors made through an account to police. All account sales would require proof of identification (as an authorised account user) with each purchase.

– Scan and email paper-based EUDs with each precursor purchase made by a non-account holder to police. Each purchase would require proof of identification and its purchase to be made through a traceable means (such as by credit or debit card).

– Control access to scheduled precursors.

4.3 Cost benefit analysis

Number of affected businesses

This section sets out the cost benefit analysis of the options. Before doing so, it is useful to show the number of businesses across each point of the Australian supply chain that may supply precursor chemicals (as shown in Table 10 below), and are potentially affected by the proposed options. The precise impact on these organisations (if any) depends on the option under consideration and an assessment of how they are likely to respond to that option.

Table 10: Estimated number of organisations potentially affected by the options under consideration



364 341 242 61 122 17 - 6 1,153

Wholesalers 948 692 421 143 224 25 9 14 2,475

TOTAL 1,312 1,033 663 203 346 42 9 20 3,628

Source: PwC Analysis, ABS (2015), ‘Counts of Australian businesses, including entries and exits’, June 2014 Cat. 8165.0 and Pharmacy Guild of Australia, Northern Territory Branch (2015) Submission to the ‘Ice’ Select Committee.

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Estimates of regulatory costs and benefits

PwC in consultation with AGD developed an industry survey to collect information about the current costs and benefits incurred by industry, as well as the expected costs and benefits from potential regulatory changes. Monte Carlo techniques were employed to account for uncertainty (either where response rates to questions were limited, or estimates had large variances across respondents). This allowed costs and benefits to be estimated across ranges, rather than single point estimates, based on variances in underlying input assumptions. In some cases, it appears respondents to the survey may have answered on the basis of mixtures as opposed to pure chemicals. Where this has happened, most notably at the retail supply point, we have undertaken further consultation and adjusted the results. To the extent that other respondents have answered even partially based on mixtures, then both regulatory costs and regulatory savings may be overstated. Additional details about data sources and limitations are provided in Appendix E.

Impact on the social cost of illicit drugs

There is limited information with which to precisely estimate the key benefits associated with the options – the reduction in the social costs of illicit drugs (predominantly ATS) produced from domestically diverted precursor chemicals and/or equipment. Even so, this RIS uses a variety of assumptions in order to give a feel for the potential magnitude of these benefits, and how these compare the estimated costs of the options to business and government.

In particular, in terms of the impact of the options on social costs, this RIS makes the following assumptions:

The development of an electronic EUD (eEUD) system is likely to have the greatest impact on the social costs of illicit drugs. This capability would allow law enforcement to access and share information about the movements of high risk precursor chemicals and equipment (including the most frequently handled chemicals). For illustrative purposes, we conservatively assume this will lead to a 0.1 per cent reduction in the social costs of ATS produced from domestically diverted precursors. The actual impact is likely to be higher, but will depend on how effectively law enforcement agencies use information derived from an eEUD system.

Harmonisation of legislative controls is assumed to lead to a 0.05 per cent reduction in social costs. This reflects the finding that, even though states and territories already regulate many of the most frequently diverted precursors to some degree, harmonisation would tighten controls and eliminate regulatory gaps in relation to an expanded list of precursor chemicals and equipment.

The combined impact of an eEUD system and harmonised legislative controls is the sum of the individual impacts listed above (0.1 per cent and 0.05 per cent respectively).

The benefits of an industry code (in terms of the reduction in social costs) are assumed to be proportionate to the take up of the code relative to harmonising controls through legislation. Therefore, just as costs of a code are approximately 50 per cent of harmonisation through legislation, we assume that the benefits are 50 per cent of 0.05 per cent, or 0.025 per cent.

It is useful to consider other studies on precursor controls to assess whether assumptions around the impact of the options on social costs associated with illicit drugs are reasonable.

Research from the University of NSW found that Project STOP led to an increase in treatment seeking behaviour in Queensland. The study’s interrupted time series analysis comparing the impact of Project STOP in Queensland and Victoria on reported incidents

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showed a weak, but statistically significant reduction in drug manufacturing as a result of the implementation of Project STOP in Queensland, but not in Victoria.25

In terms of some of the international studies:

The US Chemical Diversion and Trafficking Act 1989 required suppliers to keep records of sales of precursor chemicals and equipment, and that import/export of precursors be notified to the relevant authority. According to two studies, implementation of the Act resulted in a 35 per cent decrease in hospital admissions and a 44 per cent decrease in arrests (for heroin and cocaine) in California.26 Another study found that purity decreased by 17 per cent and the price of illicit drugs increased by $93 across the US.27

The US Domestic Chemical Diversion Control Act 1995 increased reporting requirements and enforcement in relation to precursors. Retailers were required to restrict sales and store products containing precursors securely. One study found that implementation resulted in a 48-71 per cent decrease in hospital admissions in California, Nevada and Arizona28, while according to other studies California recorded a 39 per cent decrease in voluntary treatment admissions29 and 51 per cent decrease in arrests.30 Purity of cocaine decreased by 68 per cent and price increased by $35 across the US. 31

A 2011 study found that retail-level controls on precursors in the US had no impact on per capita methamphetamine laboratory seizures, but that a marginally significant decline in seizures of methamphetamine could be observed following the introduction of federal methamphetamine legislation in 2000.32

Mexican pseudoephedrine importation restrictions (using quotas based on an assessment of the legitimate need for the drug), required that distributors register customers in an electronic system, limit sales to <60mg per product per day and require immediate reporting of loss or theft. One study found that this reduced methamphetamine treatment admissions by 12 per cent.33

Other unquantifiable impacts

In its submission to the Consultation RIS, Queensland Police noted a number of unquantifiable factors that were not (and cannot) be included in the regulatory assessment. These include:

25 University of NSW ‘Drug Policy Modelling Program’, accessed at <https://dpmp.unsw.edu.au/project/impact-evaluation-and-

economic-evaluation-project-stop-third-party-policing>

26 Cunningham J. K., Liu L.-M. Impacts of federal ephedrine and pseudoephedrine regulations on methamphetamine-related

hospital admissions. Addiction 2003; 98: 1229–37; and Cunningham J. K., Liu L.-M. Impacts of federal precursor chemical regulations on methamphetamine arrests. Addiction 2005; 100: 479–88.

27 Cunningham J. K., Liu L.-M., Callaghan R. Impact of US and Canadian precursor regulation on methamphetamine purity in the

United States. Addiction 2009; 104: 441–53.

28 Cunningham J. K., Liu L.-M. Impacts of federal ephedrine and pseudoephedrine regulations on methamphetamine-related

hospital admissions. Addiction 2003; 98: 1229–37.

29 Cunningham J. K., Liu L.-M. Impact of methamphetamine precursor chemical legislation, a suppression policy, on the demand

for drug treatment. Soc Sci Med 2008; 66: 1463–73.

30 Cunningham J. K., Liu L.-M. Impacts of federal precursor chemical regulations on methamphetamine arrests. Addiction 2005;

100: 479–88.

31 Cunningham J. K., Liu L.-M., Callaghan R. Impact of US and Canadian precursor regulation on methamphetamine purity in the

United States. Addiction 2009; 104: 441–53.

32 Nonnemaker J, Engelen M and Shive D (2011) Are methamphetamine precursor control laws effective tools to fight the

methamphetamine epidemic? Health Economics (20) pp 519-531

33 Cunningham J et al (2010) Mexico’s methamphetamine precursor chemical interventions: impacts on drug treatment admissions

Addiction (105) pp 1973-1983

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The deterrence factor associated with regulating additional precursor chemicals.

The impact that law enforcement engagement has on industry compliance and willingness to assist police as ethical and morally responsible businesses within the community.

The level of current industry knowledge and further awareness-raising required to implement an eEUD system and / or harmonised controls.

Though not quantified in the following analysis, it is worth noting that these factors will have impacts on stakeholders in terms of both costs and benefits.

4.3.1 Option 1: Status quo

By its very nature, maintaining the status quo would not result in any additional implementation costs for industry. However, it would fail to address the identified vulnerabilities in the current regulatory framework to manage diversion risks associated with precursor chemicals and equipment. As a consequence, the current risk of diversion to illicit use - as well as associated costs and benefits to industry, governments and society – would remain unchanged.

Based on responses from the industry survey, we have estimated that transactions for importers and manufacturers and wholesalers result in approximately 58,000 EUDs being completed annually.34

4.3.2 Option 2: Status quo (with eEUDs)

Costs

Total regulatory and administrative costs associated with Option 2 are estimated to be between $8.3 million and $22.0 million NPV over ten years35 (summarised in Table 11 below). The major cost components are the infrastructure upgrade costs incurred by industry (estimated to be between $2.5 million and $9.4 million NPV over ten years), and the purchase of an off-the-shelf eEUD system (a cost incurred by the Australian Government), estimated to be $3.4 million NPV over ten years.36

No costs are assumed to be incurred in Tasmania, Northern Territory and ACT as no regulatory change is proposed in these jurisdictions under this option.

We have assumed that law enforcement agencies will not incur additional costs following the introduction of an eEUD system. We note that law enforcement agencies hold different views about the extent of additional resources required to best use the information submitted through the eEUD system. NSW Police advise that marginal additional resources may be required, but that these costs would be absorbed into ‘business as usual’, particularly in the larger jurisdictions. On the other hand, Victoria Police indicated that these costs would not be covered by ‘business as usual’ functions – there would be additional expenses associated with implementing new processes, policies and business change.

34 This assumes that there is currently 100 per cent compliance in jurisdictions with controls (NSW, Victoria, Queensland, South

Australia, Western Australia).

35 All ranges presented throughout this section represent values at the 5th and 95th percentile of simulated results. In other words,

90 per cent of iterations fall within these ranges. This approach excludes likely outliers (ie very low or very high estimates).

36 Business Aspect (2015) Feasibility Report, Part B: End User Declaration Project. As cost estimates are only available for the first

five years, we have assumed that operations and maintenance expenditure applied to years 1-5 is applicable to years 6-10. Cost estimate is inclusive of GST. Given that a detailed assessment has been undertaken to estimate this cost, no range is applied in the simulation. Note: The cost provided is an estimate only and accurate costs will be confirmed from the updated eEUD business case following an open tender for a commercial off-the-shelf solution

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Table 11: Costs associated with Option 2 (ten year NPV, $m)

Low (P5) Mid (P50) High (P95)

Infrastructure upgrade costs 2.5 4.7 9.4

Training costs 2.4 4.6 9.3

eEUD system purchase 3.4 3.4 3.4

Total costs 8.3 12.8 22.0

Source: Industry survey data and PwC calculations. Cost of eEUD system based on Business Aspect feasibility report (January 2015).

Benefits

Table 13 shows the range of benefits expected to result from the implementation of Option 2. Total benefits accruing to businesses from reduced regulatory burden are estimated to be between $3.3 million and $15.8 million NPV over ten years (from no longer processing and storing EUDs). Businesses in Tasmania, Northern Territory and ACT would not realise any benefits as there are no regulatory changes in these jurisdictions under Option 2.

A previous business case prepared by PwC in 2011 in relation to the establishment of an eEUD system found that it cost industry 16 cents on average to scan and email a paper-based EUD to law enforcement agencies. Given current estimate volumes, this cost is considered negligible and was not incorporated into the cost benefit analysis.

Additional benefits are assumed to be realised by law enforcement agencies as a result of no longer processing paper-based EUDs. Based on the 2011 business case, it is assumed that each EUD takes approximately 20 minutes for a law enforcement agency to process. Labour costs for law enforcement agencies in each jurisdiction are also based on the 2011 business case, inflated to 2015 dollars using the ABS Wage Price Index.37 We have relied on anecdotal evidence from law enforcement agencies, and applied assumptions where data was unavailable, to estimate the number of paper-based EUDs currently processed by law enforcement agencies.

In its submission to the Consultation RIS, the PGA noted that it expected time savings would be realised from completing an eEUD, rather than a paper-based EUD (based on experience with Project STOP). Conversely, results from the industry survey suggest that respondents did not anticipate a significant time saving through the proposed completion of eEUDs.

The cost benefit analysis applies the more conservative assumption that the time required to complete each type of EUD is comparable, and therefore businesses and customers would not obtain a benefit in terms of time savings.

However, estimates are provided to give an illustrative indication of potential benefits associated with time savings (to both businesses and customers). These estimates indicate that for every 10 per cent of time saved in completing an EUD, benefits to businesses and customers would be in the order of $30,200 annually, or $227,000 NPV over ten years. These estimates show that, if businesses and customers were to realise even marginal time savings through an eEUD system, benefits would be even greater than those quantified in the cost benefit analysis.

The key benefits of an eEUD system and the vulnerabilities it addresses are described in Table 12.

37 Australian Bureau of Statistics (2015) 6345.0 - Wage Price Index, Australia, September 2015.

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Table 12: Expected benefits of an eEUD system

Control measure Expected benefits

eEUD system (electronic notification)

The key benefit of the proposed electronic system is its ability to automatically alert law enforcement about suspicious precursor sales using pre-defined triggers. This would enable proactive investigation of illicit activity and enhance visibility of precursor distribution, new and emerging precursors, manufacturing trends and illicit drug availability across Australian jurisdictions.


Electronic provision of information limits human error inherent in paper-based systems, and minimises the time-lag associated with manual processing and intelligence analysis. In addition, electronic information-sharing would reduce the resources required to process EUDs, particularly if the coverage of chemicals was broadened.


By tracing sales through either an account, or via a traceable means (for non-account holders), law enforcement would be equipped with an audit trail with which to aid investigations and prosecutions.

Source: eEUD Working Party Electronic EUD System Report NDLERF (2011) Business Case for a national electronic system for the management of EUDs for scheduled precursors and equipment

These benefits are expected to lead to a decrease in the social costs of illicit drug activity. For illustrative purposes, we conservatively assume that a 0.1 per cent reduction in social costs would be achieved through the introduction of an eEUD system. The actual impact is likely to be higher, but will depend on how effectively law enforcement agencies use information derived from an eEUD system.

Applying the estimate of social costs relevant to domestically manufactured ATS ($29.7 billion NPV over ten years), this reduction would result in a benefit of $29.7 million NPV over ten years.

Table 13: Benefits associated with Option 2 (ten year NPV, $m)



3.0 6.5 14.2


0.3 0.7 1.6

Law enforcement avoided processing costs

0.6 0.6 0.6


29.7 29.7 29.7

Total benefits 33.6 37.5 46.0

Source: Industry survey data and PwC calculations.

However, it should be noted that Option 2 would not address issues associated with inconsistences in existing controls and the precursor chemicals and equipment to which they apply.

Summary

Figure 9 below summarises the quantified costs and benefits associated with Option 2. The expected net benefit associated with this option is $24.5 million NPV over ten years (with a range of $17.3 million to $32.9 million).

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Figure 9: Costs and benefits associated with Option 2

At a jurisdictional level, regulatory costs and benefits are highest in states with the greatest number of businesses (NSW, Victoria and Queensland), as the regulatory savings from no longer storing and processing EUDs outweigh the costs associated with adoption of an eEUD system.

In terms of the benefits derived from reducing social costs associated with illicit drugs, benefits are split between the Commonwealth Government and state governments in line with the estimated budgetary impacts of abuse of illicit drugs (both from an outlay and revenue forgone perspective).38,39 Using figures derived by Collins and Lapsley (2008), it is estimated that the Commonwealth Government incurs 16 per cent of costs associated with illicit drug abuse, while state governments incur 84 per cent of costs. The 84 per cent of benefits estimated to accrue to jurisdictions are apportioned based on population shares.40 It is assumed that no benefits will accrue to Tasmania, Northern Territory and ACT under Option 2 as no regulatory change would occur in these jurisdictions.

Table 14: Costs and benefits associated with Option 2, by jurisdiction (ten year NPV, $m)

Regulatory Costs

Regulatory Benefits

Assumed social cost reduction

Net benefits

Low High Low High Low High

NSW 2.2 6.0 1.5 5.7 8.4 5.0 10.8

VIC 1.8 4.7 1.2 4.4 6.6 3.8 8.4

QLD 1.1 3.0 0.7 2.8 5.3 3.5 6.5

SA 0.3 0.9 0.3 0.9 1.9 1.4 2.3

WA 0.6 1.6 0.6 1.7 2.9 2.2 3.7

TAS - - - - - - -

38 These costs are not additional to the $4.0 billion annual cost of illicit drug activity used as an estimate of total social costs. The

approach employed here is a means of allocating the assumed benefits (calculated from reducing the $4.0 billion cost) between Commonwealth and state governments, acknowledging that estimates of illicit drug activity costs are not broken down among the stakeholders whom incur the costs.

39 Collins D. and Lapsley H. (2008) The costs of tobacco, alcohol and illicit drug abuse to Australian society in 2004/05.

40 Using ABS 3101.0 Australian Demographic Statistics, Jun 2015.

-20 -10 0 10 20 30 40

$ millions


Training costs





Estimated NPV

-9.3

-3.4

14.2

0.6

3.0

17.3

6.5

0.7

Industry costs

Aus. Gov. costs

Industry benefits


Low Mid High

Reduction in social costs of illicit drugs 29.7

24.5 32.9

-9.4 -2.5

-2.4

-4.7

-4.6

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Regulatory Costs

Regulatory Benefits

Assumed social cost reduction

Net benefits


NT - - - - - - -

ACT - - - - - - -

Australian Government 3.4 3.4 0.0 0.0 4.7 1.3 1.3


4.3.3 Option 3: Nationally harmonised lists and controls (with paper-based EUDs)

Costs

The impact of this option on suppliers would differ according to where they are located, given the existing variation in controls and lists of chemicals and equipment to which they apply across Australian jurisdictions. That said, this option would impose additional costs on organisations as:

there may be additional precursor chemicals and equipment for which businesses are requirement to implement controls, and

the controls that they must implement will change because of harmonisation (i.e. there may be additional requirements to complete and submit EUDs to law enforcement, and securely store precursor chemicals and equipment).

Appendix E outlines in detail the number of additional precursor chemicals and equipment that would be regulated under this option, and the changes in controls as a result of harmonisation, by jurisdiction.

The key costs quantified for Option 3 are harmonisation costs to industry, and time costs incurred by purchasers which would be required to complete EUDs for a broader range of precursor chemicals and equipment. Appendix E provides a description of the methodology used to estimate these costs. Total quantified costs for Option 3 are estimated to be between $4.5 million and $13.9 million NPV over ten years (Table 15).



Harmonisation costs 3.1 4.3 6.1

Customer time costs (increased EUD coverage)

1.4 4.5 7.8



Benefits

Regulatory benefits associated with Option 3 relate to the expected reduction in regulatory burden to businesses that operate across multiple jurisdictions and are therefore currently required to comply with different sets of regulations.

All states and territories implement regulations to restrict the possession and sale of precursor chemicals through either criminal offences, licensing or permit processes. However, these controls and the lists of precursor chemicals and equipment to which they apply vary from jurisdiction to jurisdiction. In addition, issues relating to threshold weights, definitions, terminology, penalties and a wide range of different sales and reporting requirements, may also contribute to enforcement and compliance issues. The industry survey found that for businesses operating in multiple jurisdictions, the expected annual benefit of harmonisation is equal to $450 per business.

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We have assumed that the proportion of total businesses that operate across multiple jurisdictions is 0.9 per cent, based on assumptions applied in a previous RIS examining the impacts of regulatory harmonisation.41 Applying these figures to the estimated business population, total harmonisation benefits of Option 3 were estimated to be up to $0.2 million NPV over ten years. This relatively low benefit derives from the small number of multi-jurisdictional businesses that are expected to benefit from harmonisation.

Harmonisation is expected to generate:

Direct benefits from the application of certain controls to particular chemicals (see Table 16)

Broader benefits by closing regulatory gaps that may otherwise be exploited by those seeking to divert precursors into illicit drug manufacture.

Table 16: Expected benefits of specific domestic controls

Control measure Expected benefits

Point of sale measures (Proof of ID, account sales, completion of an EUD)

A requirement to provide identification and complete EUDs may act as a deterrent to individuals and, at a minimum, provide intelligence to law enforcement about suspicious precursor sales. Mandatory requirements may enhance compliance among businesses in tracing and recording sales of precursors. Tracing sales through either an account, or via a traceable means (for non-account holders), means that law enforcement would be equipped with an audit trail with which to aid investigations and prosecutions.

Access (restricted storage)

Restrictions on access to precursors stored by a supplier would likely reduce precursors diverted into illicit drug manufacture through theft, or other unauthorised diversion. This may also provide benefits to the supplier by enhancing inventory management.

EUD- automatic supply to police

A mandatory requirement to submit paper-based EUDs to police may have a deterrence effect to individuals who seek to divert chemicals for use in illicit drug manufacture. This requirement would also enhance the capacity of law enforcement to access details about precursor sales across Australian jurisdictions. However, EUDs would still be paper-based, which limits the broader benefits associated with disseminating information to law enforcement in real-time.

Improved record keeping would provide an audit trail to aid law enforcement in investigations and prosecutions. A requirement to submit records may enhance compliance among suppliers, and improve whole-of-supply chain documentation

Sales record (item name, quantity, date, purchaser and 5 years minimum retained)

Improved record keeping would provide an audit trail to aid law enforcement in investigations and prosecutions.

A requirement to retain records may enhance compliance among suppliers, and improve whole-of-supply chain documentation

Source: eEUD Working Party Electronic EUD System Report, COAG (2008), Report on the Control of Chemicals of Security Concern., Victorian Drugs, Poisons and Controlled Substances (Precursor Supply) Regulations 2010 RIS

The impact of harmonisation on social costs is assumed to be lower than that associated with the introduction of an eEUD system because states and territories already regulate the most frequently diverted precursors to some degree (indeed, the Productivity Commission found that current inconsistencies are not significant).

For illustrative purposes, we assume that harmonisation of controls will reduce social costs associated with illicit drug activity by 0.05 per cent (half of the assumed decrease under the introduction of an eEUD system).

This produces a benefit of $14.8 million NPV over ten years.

41 PwC (2012) Impact of the proposed national Model Work Health and Safety Laws in Victoria.

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Harmonisation benefits 0.0 0.1 0.2


14.8 14.8 14.8


It is worth noting a number of potential barriers to jurisdictions adopting harmonised controls that may impact the extent to which benefits are realised42, including:

potential impediments in smaller jurisdictions (eg Tasmania, Northern Territory and ACT) where large chemical industries are not established43

requirements for jurisdictions to consult with their respective justice departments to ensure any legislative change under a harmonised model is consistent with individual jurisdictions' legislative frameworks and intent of relevant legislation

To resolve these potential barriers, continued consultation should be continued with expert reference groups comprising stakeholders from industry, government and law enforcement.

Summary

Figure 10 below summarises the quantified costs and benefits associated with Option 3. This option is estimated to result in a net benefit of between $2.3 million and $9.5 million NPV over ten years, with an expected net benefit of $6.1 million.


Potential net benefits are highest in jurisdictions with relatively low harmonisation costs per business (in other words, in jurisdictions where current controls are closest to the proposed controls under a harmonised framework), and relatively high expected benefits from social cost reductions (which is a function of population). The same approach outlined in Option 2 is used to apportion social cost reduction benefits between the Commonwealth Government and jurisdictional governments.

42 As noted by Queensland Police Service in its submission in response to the Consultation RIS.

43 Smaller jurisdictions are not expected to prioritise the regulation of these chemicals to the same extent given the lack of large,

established chemical industries

-10 -5 0 5 10 15 20

$ millions

Harmonisation costs

Time costs (additional EUD completion)


Estimated NPV

-6.1

-7.8

2.3

-3.1

-1.4

9.5

-4.3

-4.5

0.1

6.1

Industry costs

Industry benefits

Low Mid High

14.8Reduction in social costs of illicit drugs

Domestic controls



Regulatory Costs

Regulatory Benefits

Benefit of social cost reduction

Net benefits


NSW 1.6 4.7 0.0 0.1 4.0 -0.6 2.4

VIC 1.3 3.7 0.0 0.0 3.1 -0.5 1.9

QLD 1.1 3.0 0.0 0.0 2.5 -0.4 1.5

SA 0.2 0.7 0.0 0.0 0.9 0.2 0.6

WA 0.4 1.2 0.0 0.0 1.4 0.1 0.9

TAS 0.1 0.2 0.0 0.0 0.3 0.0 0.2

NT 0.0 0.0 0.0 0.0 0.1 0.1 0.1

ACT 0.0 0.1 0.0 0.0 0.2 0.1 0.2



4.3.4 Option 4: Nationally harmonised lists and controls (with eEUDs)

Costs

Costs associated with Option 4 largely reflect those under Options 2 and 3, with two key differences:

the nature of harmonisation costs will differ slightly under Option 4 compared to Option 3, due to differences associated with moving to an electronic, rather than paper-based system, and

a greater proportion of businesses will be affected by the implementation of the eEUD system in Option 4 compared to Option 2, as businesses in all jurisdictions would be required to comply (rather than only those in the five jurisdictions that currently require completion of EUDs).

A similar approach to Option 3 has been used to develop harmonisation costs across all jurisdictions. The approach and resulting harmonisation cost estimates can be found in Appendix E.

Based on these assumptions, total harmonisation costs are estimated to be between $2.9 million and $5.8 million NPV over ten years.

Similar to Option 3, buyers of chemicals and equipment would incur costs as a result of greater coverage of EUD requirements (the magnitude of these costs is assumed to be the same as Option 3). Industry costs of adopting the eEUD system (infrastructure and training costs) are marginally higher than under Option 2, as additional jurisdictions would be required to comply. Similar to Option 2, costs would be incurred by the Australian Government to procure the eEUD system ($3.4 million NPV over ten years). In total, costs associated with Option 4 are estimated to be between $12.7 million and $36.0 million NPV over ten years (Table 19).




Infrastructure upgrade costs 2.5 4.8 9.5

Training costs 2.5 4.7 9.5

Customer costs (increased EUDs) 1.4 4.5 7.8

eEUD system purchase 3.4 3.4 3.4

Total costs 12.7 21.5 36.0


Domestic controls


In its submission to the Consultation RIS, the Australian Criminal Intelligence Commission (ACIC) supported the proposal that it would take on the central role of collecting, analysing and disseminating information under Option 4. However, this support would be subject to the availability of additional funding, as the ACIC would not be in a position to fund this capability. The ACIC would need to scope and quantify costs associated with collecting, analysing and disseminating information, as well as integrating the eEUD system with other systems.

Benefits

Option 4 brings together the regulatory benefits of Options 2 and 3, namely:

harmonisation benefits to multi-jurisdictional businesses (up to $200k NPV over ten years)

time savings from no longer processing and storing EUDs ($3.0 million to $14.2 million NPV over ten years)

financial savings from no longer processing and storing EUDs ($0.3 million to $1.6 million NPV over ten years), and

elimination of the need for law enforcement to process paper-based EUDs ($550k NPV over ten years).

Similar to Option 2, the analysis applies a more conservative assumption that there is no time saving associated with completing an eEUD relative to a paper-based EUD (based on results from the industry survey).

Based on its experience with Project STOP, the PGA suggests that an eEUD system is likely to yield time savings. Under Option 4, High-level, illustrative estimates indicate that, for every 10 per cent reduction in the time taken to complete an eEUD relative to a paper-based EUD, annual benefits to businesses and customers would be in the order of $165,000 annually, or $1.2 million NPV over ten years.44 These estimates show that, if businesses and customers were to realise even marginal time savings through an eEUD system, benefits would be significantly greater than those shown in the cost benefit analysis.

In addition, there are potential benefits associated with the reduction in social costs associated with illicit drug activity. Option 4 is (broadly) a combination of Options 2 and 3 (the introduction of an eEUD system, and the harmonisation of precursor controls across jurisdictions).

For illustrative purposes, we assume that the impact of this option on social costs will be the sum of Options 2 and 3 – equal to a reduction in social costs of 0.015 per cent. This equates to a benefit of $44.5 million NPV over ten years.

44 Estimated benefits under Option 4 are greater than Option 2 as it is anticipated that a greater number of EUDs will be completed

and businesses in all jurisdictions will complete EUDs due to harmonisation.

Domestic controls






3.0 6.5 14.2


0.3 0.7 1.6


0.6 0.6 0.6


44.5 44.5 44.5



According to DIBP, post-import reporting and data matching may be used to detect and link criminal groups involved in the importation of high-risk precursor chemicals. This could be achieved through linking data captured through importer documentation with information from an eEUD system to assist in identifying any anomalies between import and on-supply of precursors. An integrated system would be enhanced if information collected through importer documentation and eEUDs is consistent and specific (such as requiring the inclusion of a Chemical Abstracts Service (CAS) number and Australian Business Number (ABN).

Summary

Figure 11 below summarises the quantified costs and benefits associated with Option 4. This option is estimated to result in a net benefit of between $22.3 million and $39.6 million NPV over ten years, with an expected net benefit of $30.6 million.


All jurisdictions accrue net benefits under Option 4 due to the magnitude of potential benefits associated with reduced social costs associated with illicit drugs.

The same approach outlined in Option 2 is used to apportion social cost reduction benefits across the Commonwealth Government state and territory governments. These benefits are highest in jurisdictions with the greatest population shares.

-30 -20 -10 0 10 20 30 40 50 60

$ millions


Training costs




Law enforcement avoided processing

Industry costs

Aus. Gov. costs

Industry benefits


Harmonisation costs


Time costs (additional EUD

-9.6

-9.5

-7.9

-3.4

14.2

0.6

-2.9

-2.5

-2.5

-1.4

3.0

-4.1 -4.1

-4.7

-4.5

0.1

6.5

0.7

-5.8 Low Mid High

44.5

39.6 30.6

-4.8

Reduction in social costs of illicit drugs

Estimated NPV 22.3

Domestic controls



Regulatory Costs

Regulatory Benefits


Net benefits


NSW 4.6 9.4 1.6 5.8 12.0 5.2 11.7

VIC 3.6 7.4 1.2 4.5 9.4 3.9 9.1

QLD 2.6 5.2 0.8 2.9 7.5 3.6 7.1

SA 0.7 1.5 0.3 0.9 2.7 1.6 2.7

WA 1.2 2.5 0.6 1.7 4.1 2.5 4.2

TAS 0.2 0.4 0.0 0.0 0.8 0.4 0.6

NT 0.0 0.1 0.0 0.0 0.4 0.3 0.3

ACT 0.1 0.2 0.0 0.0 0.6 0.4 0.5



4.3.5 Option 5: An industry code

Costs

The nature of costs incurred under Option 5 will be the same as Option 3. However, given the voluntary nature of the code, reduced compliance levels are likely to result in lower costs and benefits relative to the legislative options. The industry survey was used to estimate likely compliance with a voluntary industry code. The average responses across manufacturers / importers and wholesalers about rates of compliance were 46 per cent and 50 per cent respectively. The Monte Carlo simulation applied ranges to these inputs to test their impact on resulting costs and benefits.

Table 22 summarises quantified costs associated with adoption of the industry code, which are estimated to be between $1.6 million and $6.6 million NPV over ten years.




Customer time costs (increased EUD coverage)

0.5 1.8 3.7



Benefits

Similar to Option 3, benefits will accrue to businesses that are located in multiple jurisdictions. It is assumed that multi-jurisdictional businesses would be over-represented among businesses that comply with the new code, given they are more likely to benefit from doing so (through reduced regulatory burden associated with harmonising existing regulations). It is assumed that 80 per cent of multi-jurisdictional businesses would comply with the code, and therefore derive harmonisation benefits.

Additionally, there are potential benefits associated with reduced social costs of illicit drugs. Given that Option 5 is equivalent to Option 3 with a decreased compliance rate (due to the voluntary nature of the code), benefits would are to be proportionally lower in line with this reduced compliance. Given that costs associated with Option 5 are approximately 50 per cent of Option 3 costs, we assume that the achieved reduction in social costs is 50 per cent of those under Option 3 ($7.2 million NPV over ten years).

Even this may overstate the impact. For example, DIBP considers that the adoption of a voluntary code in isolation would not reduce the risk of precursor diversion or adequately address inter-jurisdictional issues.

Domestic controls






7.2 7.2 7.2



Summary

In aggregate, Option 5 is expected to produce net benefits of between $0.6 million and $4.8million NPV over ten years (with an expected value of $3.1 million). The cost and benefit components that inform this outcome are presented in Figure 12 below.


The same approach outlined in Option 2 is used to apportion social cost reduction benefits across the Commonwealth Government and state and territory governments.

The nature of costs and benefits across jurisdictions for Option 5 are similar to Option 3. However, given the assumed lower reduction in social costs (due to lower compliance), the resulting net benefits are lower.


Regulatory Costs

Regulatory Benefits


Net benefits


NSW 0.6 2.2 0.0 0.0 1.9 -0.3 1.4

VIC 0.5 1.8 0.0 0.0 1.5 -0.2 1.1

QLD 0.4 1.4 0.0 0.0 1.2 -0.1 0.9

SA 0.1 0.3 0.0 0.0 0.4 0.1 0.3

WA 0.2 0.6 0.0 0.0 0.7 0.1 0.5

TAS 0.0 0.1 0.0 0.0 0.1 0.0 0.1

NT 0.0 0.0 0.0 0.0 0.1 0.0 0.1

ACT 0.0 0.1 0.0 0.0 0.1 0.0 0.1


-6 -4 -2 0 2 4 6 8 10

$ millions

Harmonisation costs

Time costs (additional EUD completion)


-2.9

-3.7

-1.8

-0.5

-1.0

-1.8

0.1

Industry costs

Industry benefits

7.2Reduction in social costs of illicit drugs

Estimated NPV 0.6 3.1 4.8

Domestic controls


4.4 Regulation of mixtures While we have not undertaken a detailed cost benefit analysis in regard to the regulation of mixtures, an illustrative example is provided below to give some indication of potential cost increases that may occur under Option 4 (harmonisation of controls with the introduction of an eEUD system) relative to regulating pure chemicals only.

The industry survey asked respondents to estimate the additional costs likely to be incurred if regulations were extended to mixtures. Based on these responses, one-off costs are assumed to be between $240 and $620 per business, while ongoing costs are assumed to be between $195 and $415 per business.

A key impact of the inclusion of mixtures would be that affected businesses (and therefore transactions) would be expanded to include a range of retail businesses, particularly pharmacies, which sell a range of precursor chemicals as mixtures. In terms of the population of businesses affected, we have assumed that regulation of mixtures would capture all pharmacies, some cosmetics retailers (we assume that 95 per cent of these businesses would be affected) and some garden supply retailers, flower retailers and hardware supplies retailers (assumed that 20 per cent of businesses would be affected).

Finally, increased costs to consumers are estimated based on the expansion in coverage of chemicals requiring EUDs to be completed. Based on the industry survey, it is estimated that on average each business will require 75 additional EUDs to be completed annually.

Based on these scenarios, a high-level cost estimate for the regulation of mixtures under Option 4 is between $85.2 million and $109 million in additional costs in NPV terms over ten years. Around 70 per cent of these additional costs are incurred by pharmacies.

Table 25: High level cost estimates of regulating mixtures (ten year NPV, $m)

Cost estimate ($ million)

Lower bound per business costs 85.2

Upper bound per business costs 109.0


It should be noted that the above estimates exclude mixtures that would be purchased through supermarket retailers (for example, iodine mixtures used as antiseptics). The inclusion of controls on these transactions would see a significant uplift in regulatory costs. If mixtures sold through supermarkets were to become subject to controls, one potential outcome would be for some businesses to choose to no longer stock certain items in order to avoid the associated regulatory costs.


5 Border controls

5.1 Nature and extent of the problem Under existing arrangements, a variety of controls are imposed on importers of precursor chemicals and equipment.

Of the 79 high risk precursor chemicals identified by NDPRAC, 18 fall under the Customs Regulations. Data from the Drug Control Section (DCS) within the Department of Health shows that there are currently 41 businesses licensed to import these chemicals (see Table 26 below).

Table 26: Number of businesses licensed to import precursor chemicals covered by Customs Regulations

Jurisdiction Number of licensees

NSW 28

VIC 9

QLD 2

SA 2

WA -

TAS -

NT -

ACT -

Total 41

Source: Department of Health data

Importers of these chemicals must first obtain a licence and then a permit for each consignment from the DCS within the Department of Health. Consignments must be accompanied by an EUD filled out by the importer (and a customer EUD where the imported chemical is being on-supplied). The importer must present these to the Australian Border Force for each consignment and return copies of these documents to the DCS within 14 days (by hard copy, fax or scanned submission via email). This legislative regime is designed to prohibit the importation of certain precursor chemicals without a licence and a permit and to enable reporting to the International Narcotics Controls Board regarding movements of internationally controlled precursors.

There were 322 permits issued to licence holders to import these chemicals in 2014 and 360 in 2015 (see Table 27 below). Pseudoephedrine accounted for approximately 40 per cent of all import permits over this period.

Table 27: Permits issued to import precursor chemicals covered by Customs Regulations

Chemical 2014 2015

Pseudoephedrine 126 141

Phenylacetic acid 55 60

Ephedrine 41 35

Heliotropine (Piperonal) 36 35

Anthranilic acid 21 27

Gamma Butyrolactone 12 21

Phenylpropanolamine 14 16

Border controls


Chemical 2014 2015

Ergotamine 4 12

Ergometrine 15 6

Sassafras Oil 3 5

Phenyl-2-propanone 1 1

Safrole 4 1

Total 332 360

Source: Department of Health data

Information is generally shared between Commonwealth and law enforcement agencies on an ad hoc basis. However, the DCS provides licence and permit information to the ACIC on a monthly basis, and gives NSW Police the opportunity to comment on applications before they are approved under the regime.

The remaining 61 high risk precursor chemicals are only subject to import declaration requirements if the value of the import is greater than AUD $1,000. The requirement to lodge an import declaration form applies to all imported goods that arrive by mail, air or sea cargo, and is unrelated to the status of the consignment as being controlled under the Customs Regulations or a precursor chemical.45

To lodge an import declaration, importers may:

use the services of a licensed customs broker

complete an import declaration and present it at an Australian Border Force counter, or

lodge an import declaration electronically via the Integrated Cargo System (ICS). Users of the ICS must purchase a digital certificate to use the ICS.

Information provided for Import Declarations is lodged in the ICS. Information on non-import controlled precursor chemicals is currently shared with the ACIC, the AFP and some state and territory law enforcement agencies on an ad hoc basis.

The PAG has identified that border controls for precursor chemicals are not aligned to state and territory regulatory regimes. Under the current framework, direct importations of high-risk precursor chemicals may not be subject to reporting requirements, limiting law enforcement’s visibility of illicit precursor movements. As explained above, it is not appropriate for this RIS to provide detailed information on existing vulnerabilities in the precursor supply chain.

5.2 Options to address the problem

Option 1: Status quo- continuation of existing ad hoc information sharing and

regulation and the border

The status quo represents the continuation of the arrangements outlined above. While there are some controls imposed at the border, not all importations are covered (for example, consignments with a value less than AUD $1000). Moreover, information sharing appears to be ad hoc and, in some cases, partial at best.

45 At the time of development of this Decision RIS, the $1000 threshold for importation declaration was under review.

Border controls


Option 2: Status quo with enhanced cooperation and information sharing

Under this option, formal information sharing arrangements would be developed between Commonwealth agencies that collect importation data, and law enforcement agencies that seek to use it.

Information currently collected on the importation of high risk precursors through the Customs Regulations, NICNAS46 and Importer Declaration Forms (as required for consignments of greater than $1000 value) would be made available to law enforcement agencies. Information collected through existing mechanisms includes importer and exporter details, and the type and quantity of precursor imported. Under this option, no further notification requirements would be placed on importers of high risk precursor chemicals.

Option 3: Mandatory notification scheme

Under this option, all importers of high risk precursors on the harmonised schedule (which are not already regulated under the Customs Regulations) would be required to fill out a standardised online form for each consignment and submit it to a central government agency.

The form would capture information regarding the importer and exporter, and the substance imported. Under the proposed list of high risk precursor chemicals, an additional 61 chemicals would require mandatory notification under the scheme.

Under this option, a central government agency would collate and distribute information collected on imported precursors to law enforcement agencies. This data would relate to both chemicals that fall under existing Customs Regulations and those subject to a new notification scheme.

5.3 Cost benefit analysis This section seeks to provide an indication of the costs and benefits resulting from options for border controls. As the costs and benefits of Option 3 (greater information sharing) are difficult to quantify, they are discussed in qualitative terms.

Option 3 (mandatory notification scheme for imports) will impose costs on industry and potentially the Commonwealth Government, including DIBP (and its operational arm, the Australian Border Force (ABF)), and permit issuing agencies. The extent of the costs to Government and industry would depend on the method of implementing Option 3. Further analysis is required to identify and quantify these costs.

5.3.1 Option 1: Status quo

By its very nature, maintaining the status quo would not result in any additional implementation costs for industry. However, it would fail to address the identified vulnerabilities in the current regulatory framework to manage diversion risks associated with precursor chemicals and equipment. As a consequence, the current risk of diversion to illicit use - as well as associated costs and benefits to industry, governments and society – would remain unchanged.

46 NICNAS does not collect information directly, but rather receives import data from Australian Border Force for the purposes of

identifying potential importers of relevant industrial chemicals and registering them with NICNAS

Border controls


5.3.2 Option 2: Status quo with enhanced cooperation and information sharing

Costs

The main cost that arises from formalising information sharing arrangements between Commonwealth, state and territory government agencies are those associated with resourcing its administration and analysis.

It is not clear how costly this option would be for law enforcement agencies.

DIBP advises that costs to Commonwealth Government agencies depend on the operational impact, but that costs would be expected for IT and business process changes, and for data verification and analysis required to facilitate best use of data provided.

Benefits

Improved information collection and sharing will improve the efficiency of law enforcement agencies. This will potentially lead to a reduction in drug use and crime, due to improved productivity of current resources. Benefits are likely to be derived from potential efficiencies.

DIBP supports improved information sharing among law enforcement agencies and intelligence-gathering about the importation of high risk precursor chemicals. DIBP advises that enhanced information sharing could assist to identify points of diversion risk. This would also assist cargo targeting and profiling activities. Information captured through the ICS would provide many relevant details on importations to assist law enforcement agencies whilst avoiding additional impost on business. However, some deficiencies in manual reporting mean that data can be incomplete. Additionally, the tariff code system against which import declarations are made are captured at a higher level than the specific chemicals on the harmonised list. While some are declared at the statistical classification level, many will be grouped within a tariff code.

5.3.3 Option 3: Mandatory notification scheme

Costs

Under a mandatory notification scheme, the list of chemicals requiring a declaration would be expanded to all high risk precursor chemicals, which would result in a greater number of businesses being affected.

The precise number of businesses that would be likely to fall under this scheme is difficult to quantify, given the available data. In order to provide some idea of potential costs, data from the industry survey is used in combination with Department of Health data to estimate the likely increase in notifications for existing businesses, and the likely number of new businesses affected by the proposed regulation.

Based on the current number of licence holders (41) and total number of permits issued in 2015 (360), each business currently completes 9 notifications each on average annually. Importers that responded to the survey indicated that under this option, businesses would be required to complete approximately 30 mandatory notifications on average each year.

In terms of the number of new businesses that would be affected by this option, responses to the industry survey indicate that of the businesses importing at least one of the 79 high risk chemicals, 22 per cent currently complete mandatory notifications. Using this relationship to scale-up the current business population of 41 licence holders, it is estimated that approximately 185 businesses would be affected by the proposed scheme. The total number of notifications under this scheme is estimated to be approximately 5,550.

Applying these estimates (including ranges of input variables in order to better account for uncertainty), total costs of the scheme are estimated to be between $$160,000 and $830,000 NPV over ten years.

Border controls


The AFP has indicated that the estimates above may overstate costs associated with Option 3 as not all chemicals on the priority list are imported regularly. Based on the NDPRAC assessments, it was observed that of the seventy-nine chemicals on the priority list:

twenty-three chemicals were not recorded to have been imported at the border

twenty-six chemicals were recorded to be imported by very few organisations (less than five, in most cases only one)

eighteen chemicals were recorded to be imported by specialist importers who would already be providing information on these imports to TGA or other regulatory authorities

of the remaining twelve chemicals, pseudoephedrine is the only actual precursor and this is already a controlled precursor at the border.

According to the AFP, these findings indicate that only a small number of industries would be affected by introducing Option 3. Of these, most businesses would already have systems in place for regulatory reporting and adding additional chemicals to the list would not be a major burden.

Given that the costs estimates are already conservative (with a lower bound annual cost of approximately $21,000 in present value terms), the resulting costs appear largely consistent with AFP’s comments.

There are also likely to be cost implications for the central agency responsible for developing and maintaining the mandatory notification scheme. Given the uncertainty associated with these costs, they have not been quantified.

DIBP considers that there is a need to balance border controls with maintaining trade flows for industry to ensure Australia is competitive internationally. Requiring importers to submit an online form for every consignment of a high risk precursor, except those already covered by the Customs Regulations, could place a high compliance burden on legitimate users and would need to be considered in light of Australia’s international trade obligations.

Benefits

The key benefit of the notification scheme is an increase in the quantity and quality of information available to law enforcement agencies. DIBP currently shares import information on non-import controlled substances with law enforcement agencies on an ad hoc basis. This information may vary from jurisdiction to jurisdiction (due to inconsistent domestic controls) and may not always be comprehensive.

Presently, Import Declaration Forms capture information about the importation of consignments with values greater than $1000. Further, importers are only required to declare imported goods within broad tariff codes, which do not always align with the definitions or categories of precursor chemicals considered in this RIS. For example, a single tariff code may apply to multiple chemicals on the proposed harmonised list.

In addition, information collected from other avenues of reporting at the border – through Customs Regulations permits/licences administered by Department of Health and NICNAS importations – is not centrally collected for analysis, nor does it contain the same types of information. A comparison of information collected under existing border controls and that collected under the proposed mandatory notification scheme is at Appendix D.

One possible option is including the Chemical Abstracts Service (CAS) numbers in reporting under the proposed mandatory notification scheme or eEUD system. An integrated system, linking importer documentation with information from an eEUD capability, could provide additional benefits to border control in supporting cargo profiling and targeting activities. Through this option, DIBP advises enhanced collection and sharing of information would support law enforcement efforts to address the illicit diversion of precursor chemicals.

Border controls


The AFP notes that additional benefits are likely to be realised in relation to a mandatory notification scheme, including:

Harmonisation with the state legislative requirements would remove ambiguity around controls

If the opportunity for diversion of precursors is decreased, there may be a subsequent decrease in other offences that flow from the laundering and reinvestment of the proceeds of crime.

A mandatory notification scheme would provide for comprehensive intelligence that may initiate and/or enhance investigations. The additional intelligence would support more proactive monitoring of precursors and law enforcement investigations.

The implementation of reporting and other controls may assist in deterring and preventing diversion, in addition to providing additional intelligence benefits to law enforcement.

The current system is dependent on tariff code identification of chemicals. The mandatory system will be independent of this, so any delays associated with tariff changes can be avoided.


6 Regulatory burden measurement

The following table details the expected regulatory burden associated with the options, in line with the OBPR Regulatory Burden Measurement Framework.47 All estimates represent expected costs over and above a business-as-usual (or status quo) scenario. As some aspects of the reforms are expected to reduce regulatory burden, these are included as negative values in the table. The group impacted by the regulations are businesses and all values are presented as average annual impacts over ten years. 48

The Regulatory Burden Measurement Framework does not include all of the cost types identified in this analysis, namely those incurred by government. These are considered as part of the wider cost benefit analysis above.

Table 28: Regulatory burden associated with proposed options (estimated annualised values)

Regulatory burden Burden type Average Annual

Impact (10 Years)

Domestic controls

Option 2

Cost to business to upgrade and maintain infrastructure Substantive compliance 752,500

Cost to business to train staff Substantive compliance 693,000

Reduction in regulatory burden

Time savings from no longer processing and storing documents Administrative compliance -966,000

Capital savings from no longer storing documents Substantive compliance -107,000

Total 327,500

Option 3

Costs to business to adopt harmonised controls Substantive compliance 640,200

Time costs to complete EUDs Administrative compliance 929,000


Harmonisation saving to multi-jurisdictional businesses Substantive compliance -15,000

Total 1,554,200

Option 4

Cost to business to upgrade and maintain infrastructure Substantive compliance 767,000

Cost to business to train staff Substantive compliance 706,200



47 OBPR Regulatory Burden Measurement Framework, February 2015

48 Differences arise between the annualised costing of the RBM tool against the discounted values presented in earlier options is

due to a range of factors including use of undiscounted values, rounding effects, averaging of one-off costs across the 10 year assessment period and exclusion of certain costs and savings included in the broader cost benefit analysis.

Regulatory burden measurement


Regulatory burden Burden type Average Annual

Impact (10 Years)


Time savings from no longer processing and storing documents

Administrative compliance -985,000

Capital savings from no longer storing documents

Substantive compliance -109,000

Harmonisation saving to multi-jurisdictional businesses

Substantive compliance -15,000

Total 1,899,600

Option 5




Harmonisation saving to multi-jurisdictional businesses Substantive compliance -12,000

Total 752,80049

Import controls

Option 3

Costs to complete import notifications Administrative compliance 59,000 Source: OBPR Regulatory Burden Measurement tool, cost calculations

49 These costs are a proportion of the costs under Option 3 (reflecting lower compliance rates under this option).


7 Consultation

The approach to consultation consisted of:

Consultation with the :

– PAG

– eEUD Working Group50

– PIRG

– key industry stakeholders

an online survey of industry, and

public comment on the Consultation RIS.

7.1 PAG and eEUD Working Group consultations

The PAG, eEUD Working Group and PIRG collectively represent the key stakeholders likely to be most significantly impacted by the proposed reforms. Participants in these stakeholder groups were consulted at the commencement of the RIS process in relation to the nature and extent of the problem to be addressed, and the options for addressing the problem. These groups were also asked to provide feedback on the Consultation RIS, which has been incorporated into this Decision RIS.

7.2 Online survey of industry participants An online survey was sent to industry through peak industry bodies, including members of PIRG, to gauge the extent of uptake of the proposed options, and broad compliance costs associated with these measures.

The survey targeted businesses from different jurisdictions and industries, including chemical manufacturing, agriculture, education, retail and manufacturing.

Data provided through the survey informed the background discussion in relation to the market for precursors, as well as the cost benefit analysis.

7.3 Public comment The Consultation RIS was released for public comment over a six week period (6 May 2016 to 17 June 2016). The purpose of this consultation was to capture feedback from stakeholders on the content of the Consultation RIS, particularly regarding the assumptions underpinning the assessment of industry stakeholder impacts. Views were also sought on the preferred options put forward in the Consultation RIS.

50 The eEUD Working Group comprises representatives from Commonwealth, state and territory law enforcement agencies, as well

as officials from relevant government regulatory agencies. The eEUD Working Group was established to investigate options for an electronic EUD system, including key considerations and interoperability needs across jurisdictions.

Consultation


7.4 Summary of feedback In total, eight stakeholders submitted a response to the Consultation RIS (see Table 29).51

Table 29: Submissions received on the Consultation RIS during the public comment period

Sub # Organisation Name

1 Australian Self-Medication Industry

2 Accord Australasia

3 National Industrial Chemicals Notification and Assessment Scheme (NICNAS)

4 Plastic and Chemicals Industries Association (PACIA)

5 Pharmacy Guild of Australia (PGA)

6 Australian Criminal Intelligence Commission (ACIC)52

7 Australian Federal Policy (AFP)

8 Queensland Police

In addition to the eight submissions received during the public consultation period, DIBP provided feedback in September 2016 in relation to border controls options.

This section summarises feedback from stakeholders in regard to the Consultation RIS.

7.4.1 Domestic controls

Supported option

Submissions predominantly supported the preferred option in the Consultation RIS (Option 4 – Nationally harmonised list of precursor chemicals and equipment and associated legislative controls, with eEUDs) in relation to domestic controls. Of the eight submissions received:

six supported Option 4 as the preferred option53

one did not explicitly state a preferred option, however was broadly supportive of an eEUD system (included in Options 2 and 4)54

one did not comment on domestic controls, and thus no preference was expressed.55

The key reasons for supporting Option 4 were:

Greater national consistency through harmonised controls would reduce regulatory burden on industry and improve industry efficiency56.


51 An additional submission to the Consultation RIS was received, however the stakeholder did not wish for comments to be made

public. Given this, content from this submission has not been included in the Decision RIS.

52 The Australian Crime Commission (ACC) and CrimTrac merged on 1 July 2016 to form the Australian Criminal Intelligence

Commission (ACIC). This report refers to the submission from the former ACC (which pre-dated the merger) as the ACIC submission

53 ASMI, PACIA, PGA, ACIC, AFP, Accord Australasia (in-principle)

54 Queensland Police

55 NICNAS


57 PGA submission

Consultation


The current system through which paper-based EUDs are provided to law enforcement (as PDF files) on an ad-hoc basis through Requests for Information is resource intensive. An automated and electronic system is required if this is to be conducted on a larger scale.58


Submissions raised a number of issues in relation to the implementation of Option 4, which are discussed in Table 30 below.

Table 30: Stakeholder feedback in relation to the preferred domestic controls option (Option 4)

Comment topic

Summary of stakeholder feedback How feedback is reflected

Inclusion of mixtures

Stakeholder feedback was varied in relation to whether mixtures should be included as part of the proposed regulations.

One submission stated a preference that mixtures be covered by the regulations, as “tighter controls on pure chemicals may result in increased diversion of mixtures, particularly pseudoephedrine. While Project STOP may mitigate some of the risk of diversion to mixtures, mandatory reporting under Project STOP does not cover all jurisdictions.”60 The AFP acknowledged in its submission that further discussions with relevant stakeholders would be required regarding the inclusion of mixtures within a harmonised list.

Other stakeholders expressed a preference for mixtures to be excluded, noting “it is often difficult, if not impossible, to isolate single substances from…mixtures” and “it would also be highly inefficient and costly to attempt to isolate substances from such mixtures…[as] precursor chemicals are used for the purposes of making profit, it is highly unlikely that high value formulated chemical products will be targeted.”61 Concern was also raised around the regulatory burden associated with applying controls to mixtures, with PACIA stating that it “supports the clear application of the legislation to pure substances, as it reduces the regulatory burden and provides clarity of application.”62

The PGA noted that excluding products purely on a mixture / pure form distinction could be problematic from a practical perspective, as:

In jurisdictions where recording of pseudoephedrine sales is mandated, pharmacies are currently required to record all sales (both mixtures and pure form). The PGA’s view is that current

The inclusion of mixtures is not within the scope of this RIS. While increasing controls on pure form chemicals may influence behaviour in relation to the diversion of mixtures (as per comments from the AFP), Accord Australasia noted that isolating pure form chemicals from mixtures is often difficult and highly costly.

Further, the QPS noted that applying the proposed controls to pure chemicals is consistent with the existing regulatory framework contained in Queensland legislation. Including mixtures in the harmonised list of precursor chemicals would require regulatory impact assessments at the jurisdictional level to assess industry impacts according to state-based precursor controls.65 This is not proposed at this time.

If mixtures are to be brought under regulatory controls in future, further work would be required, in consultation with law enforcement specialists and industry, in order to establish appropriate mixture thresholds.

In regard to the treatment of pseudoephedrine mixtures, the proposed regulations under Option 4 would not remove existing requirements for reporting of all pseudoephedrine sales (both pure form and mixtures). The Decision RIS clarifies this point in Section 4.2.

Additionally, while some antiseptic products include iodine in its pure form, these products are considered to be compounds, not pure products, and therefore would not be subject to EUD requirements under the proposed regulations. This would avoid the need for retailers and pharmacies to change storage and sales procedures for these products. The Decision RIS clarifies this point in Section 4.2.

58 ACIC submission

59 ASMI submission

60 AFP submission

61 Accord Australasia submission

62 PACIA submission

Consultation


Comment topic


regulations regarding the recording of pseudoephedrine sales must apply to future regulatory arrangements. Specifically, pseudoephedrine mixtures must continue to be subject to any EUD requirement.63

Conversely, some antiseptic products that contain iodine in its pure form are sold in pharmacies and supermarkets. If these were to become subject to EUD requirements, this could prove problematic, as they are not currently subject to specific storage requirements (ie they can be self-selected by consumers) and some may be sold in general retail. Subjecting these substances to EUD requirements could impose significant costs on businesses.64

Costs to government to implement proposed regulations

The ACIC supported the suggestion that it take a central role in analysing and disseminating information under the preferred option. However, the ACIC noted that this proposal would be subject to the availability of additional resourcing. Specifically, the agency “would need to scope and cost the capability required to conduct the proposed collection, analysis and dissemination of information…[the agency] will not be in a position to undertake this work without additional funding. Consideration would also need to be given to the costs required to integrate the eEUD [system] with other systems…as the business case developed by CrimTrac for the eEUD does not include these costs.”66

The Decision RIS notes in Section 4.3.4 that some costs likely to be incurred by the central agency responsible for collecting, analysing and disseminating information have not been captured, and that additional resources are likely to be required to fulfil this role.

Requirement to notify for commonly used and supplied products

PACIA expressed concern with the requirement to notify (through an eEUD) “every time a listed chemical/apparatus is purchased. For commonly used and supplied products, such as Hydrogen, this is a significant undertaking as this product in its various grades is transacted in volume on a daily basis. The current requirement in the majority of jurisdictions is to make this information available upon request.”67

PACIA proposed a variation whereby sales of such products that are delivered to an account holder at the specified address of an already lodged eEUD are not subject to the notification requirement, provided the order is placed by the company. Where the product is delivered to an account holder at a new address, then the eEUD should be updated at the point of purchase.

The Department notes PACIA’s concerns about the additional regulatory burden placed on businesses resulting from mandatory notification of sales for commonly transacted products. While there are likely to be additional costs incurred from mandatory notification requirements in the form of time costs to businesses, the Department expects this burden to be minor relative to the expected benefits from mandatory notification requirements for all precursor chemical sales. In particular:

if account holder information is pre-populated on supplier systems, there is not expected to be a significant increase in time required to complete the notification process

from an enforcement perspective, in order to increase the effectiveness of monitoring and compliance activities, a record of all precursor sales is considered necessary.

65 QPS submission

63 PGA submission

64 PGA submission

66 ACIC submission

67 PACIA submission

Consultation


Comment topic


Clarification of requirements around prior notice

PACIA’s submission sought clarity in relation to whether the current requirement in Western Australia to provide 48 hours prior notice before supplying ammonia to customers would be applied across all jurisdictions.

The RIS does not propose to introduce mandatory delay periods prior to supplying controlled precursor chemicals.

Consistent language, ready access and consistency with other compilations

In offering support for an agreed national list of precursor chemicals and equipment, ASMI suggested that “all authorities should use the same nomenclature as that used on the national list…the list should be readily accessible…[and] precursors that are included on the list should have their entries flagged when they appear on other compilations…so that persons dealing with the substance know that controls need to be complied with”.68

ASMI comments are noted, no changes have been incorporated into the Decision RIS.

Additional factors not included in analysis

The QPS submission stated that, while the methodologies employed in the Consultation RIS and assumed impacts on government and reduction in societal costs appear reasonable, a number of unquantifiable impacts are not (and cannot) be captured in the cost benefit analysis, including:

The deterrence factor associated with regulating additional precursor chemicals.

The impact that law enforcement engagement has on industry compliance and willingness to contribute as ethical and morally responsible businesses within the community.

The level of current industry knowledge and further awareness-raising required to implement an eEUD system and / or harmonised controls.

As noted by QPS, these factors are not able to be incorporated into the quantitative cost benefit analysis, however these points are noted in a qualitative sense in Section 4.3 of the Decision RIS.

Potential exemptions

QPS noted in its submission that consideration should be given to exempting “large volumes of chemicals legitimately used by large chemical companies, the resources sector and manufacturing sector. These levels would need to be individually assessed based on a levels of risk of diversion, impact on the community and potential for community harm for the precursor, clandestine manufacturing process and the drug manufactured…The sheer volume of the transaction makes it improbable that the sale would be for an illegitimate purpose without raising suspicions by the company involved.”69

QPS comments are noted. At this stage it is not proposed that large volume transactions would be exempted from eEUD requirements, given the regulatory burden imposed on customers and suppliers is expected to be relatively minor.

68 ASMI submission

69 QPS submission

Consultation


Comment topic


Potential barriers for jurisdictions adopting harmonised controls

The QPS submission identified the following factors as potential barriers to adopting harmonised controls across jurisdictions:

Potential impediments in smaller jurisdictions where large scale chemical industries are not established

Legislative change would require all jurisdictions to consult with justice departments to ensure any legislative change under a harmonised model is consistent with the individual states legislative framework and intent of the relevant legislation.

Queensland would need to consider alternate scheduling arrangements to bring its schedules in line with NSW, Victoria and Western Australia. From Queensland’s perspective, the dilution of current controls through harmonisation would undermine potential benefits to the community.

The Decision RIS notes these potential barriers in Section 4.3.3.

Potential for the eEUD system to replace Project STOP

The PGA submission noted that should an eEUD system be implemented “the Guild considers it could replace Project STOP as the system community pharmacy would use to record sales of pseudoephedrine products… the Guild currently bears the cost of maintaining and operating Project STOP which is a significant cost pressure for our organisation… The development of an electronic nationally available EUD system through this Consultation RIS provides an opportunity to relieve the costs pressures mentioned for the Guild and community pharmacy.”70

The replacement of Project STOP with the eEUD system is not considered as part of this Decision RIS.

The Department’s position is that Project STOP should be funded by the PGA or jurisdictional law enforcement agencies as these are the primary users and beneficiaries of the system. The requirement for pharmacies to participate in Project STOP is primarily a matter for jurisdictions – some have made participation mandatory while in others it remains voluntary.

Time savings for electronic EUDs vs paper-based EUDs

The PGA suggested that, based on experience with Project STOP, there are likely to be time savings associated with electronic EUDs compared with paper-based EUDs (based on the industry survey, the Consultation RIS assumed that the time required to complete each type of RIS was comparable). Specifically, “Project STOP can be integrated into a pharmacy’s Point of Sale (POS) system, allowing the pharmacist to quickly and accurately enter the product information. All records are saved automatically and be viewed by the relevant authorities at their discretion. A paper based EUD would require pharmacies to manually enter product information and would need to send away any records to the relevant authorities which also takes more time and staffing resources than an electronic EUD.”71

Results from the survey suggest that industry does not expect significant time savings from completing eEUDs compared to paper-based EUDs. The RIS applies this more conservative assumption in the cost-benefit analysis. However, high-level estimates of potential time savings have been calculated and are presented in Sections 4.3.2 and 4.3.4 (for Options 2 and 4).

70 PGA submission

71 PGA submission

Consultation


Other options

Other options proposed in the Consultation RIS in relation to domestic controls were generally not supported by stakeholders. It was acknowledged that Option 2 (status quo with the introduction of eEUDs) would have similar impacts reducing regulatory burden for suppliers and customers as Option 472, however if it were to be introduced, this should only be seen as an interim measure prior to the establishment of a nationally harmonised list of precursor chemicals and equipment, and associated legislative controls.73

Comments in relation to other options are included in Table 31 below.

Table 31: Comments received in relation to other options (domestic controls)

Option Comments

Option 1 (Status quo) Shortcomings of current approach

In regards to precursor controls, the PGA “does not consider the status quo to be an acceptable outcome. The deficiencies with the current processes and legal framework outlined in the RIS are well known and we strongly believe that appropriate action must be taken.”74

PACIA noted that currently there is “confusion and lack of clarity… due to the differing requirements in each jurisdiction” and that “it is well recognised that “inconsistencies in regulation such as these designed to prevent the manufacture of illicit drugs, create additional compliance cost for industry, inadvertently allows opportunities for diversion and hinders compliance.”75

Option 2 (Status quo with eEUDs)

Potential interim measure prior to harmonisation

The PGA “is open to supporting this option, but believes this should be seen as an interim measure prior to the establishment of a nationally harmonised list of precursor chemicals and equipment and associated legislative controls.”76

Option 3 (Nationally harmonised list of precursor chemicals and equipment and associated legislative controls, with paper-based EUDs)

Security of paper-based EUD storage

ASMI’s submission raised concerns around the security of paper-based EUDs, specifically that “members have previously expressed concerns about the need for an individual's personal information to be provided on the End User Declaration (EUD). Members’ experience with suppliers of these chemicals is that the completed EUDs (with the individual's personal information) are not routinely filed in a secure fashion (indeed some are stored in unlocked filing cabinets in general office areas). Members’ concerns were that important personal information needs to be securely stored and they had previously suggested that EUDs for businesses should not contain an individual's personal information…”77

Resource intensiveness to process paper-based EUDs

The ACIC submission noted that the current process for receiving and processing paper-based EUDs on an ad-hoc basis is resource intensive. Should this be done on a larger scale (as would occur under Option 3), it would need to be electronic and automated.

Option 5 (An industry code)

Industry code is largely redundant for pharmacies

The PGA noted in its submission that an industry code would be largely redundant for pharmacies as they are currently required to record sales of pseudoephedrine products under jurisdictional medicine and poisons legislation. Further, the Guild believes the uptake of such an industry code for community pharmacy in relation to the non-mandated recording of other chemicals would be low.

72 QPS submission

73 PGA submission

74 PGA submission

75 PACIA submission

76 PGA submission

77 ASMI submission

Consultation


7.4.2 Border controls

Supported option

In contrast to domestic controls, there was not a consensus among stakeholders in terms of a preferred option for border controls. Of the eight submissions received:

three supported Option 2 – Status quo with enhanced cooperation and information sharing (the Consultation RIS preferred option)78

two supported Option 3 – Mandatory notification scheme79

three either did not relate to border controls, or did not express a preferred option80

In addition to public submissions, further feedback was received from DIBP in September 2016 in regard to border control options. DIBP advised that a decision on increasing the number of chemicals controlled as prohibited imports should not be made without analysis of the impact on ABF resourcing requirements (including systems) and the impact on trade that may arise as a result of customs compliance activities. To capture all precursors on the harmonised list (including those that are not already captured by the Customs Regulations), there is potential for the domestic eEUD system to be used for mandatory reporting of precursor production or importation by industry. DIBP is supportive of Option 2 (enhanced cooperation and information sharing) while the feasibility and potential approaches of a mandatory notification system is explored in greater detail.

Option 2 – Status quo with enhanced cooperation and information sharing

The key reason provided in support of Option 2 was that “instead of adding additional requirements, the robustness of the existing notification process needs to be revisited and utilized to provide the information required”.81 This preference was informed by the view that “if parties are not notifying at this point of time, [and] therefore are illicitly import[ing] materials, our expectation is that they would not notify through any other process, hence negating the value of any new proposal.”82

Submissions that supported Option 3 (mandatory notification scheme) provided the following comments in relation to Option 2:

Under Option 2, the existing import tariff codes would remain integral to border controls, however these codes do not correlate with the model list of precursors (as multiple precursor list items fall under a single tariff code). This may impact “the effectiveness of option 2 by reduced quantity and quality of intelligence information regarding precursor imports.”83

Option 2 leaves “numerous chemicals uncontrolled that are currently controlled in one or more jurisdictions. This approach was a matter of concern for the National Ice Taskforce and the Serious and Organised Crime Coordination Committee and is inconsistent with the National Ice Action Strategy recommendations as it entrenches the legislative inconsistencies this work is trying to address.”84

78 PACIA, Accord Australasia (in-principle), NICNAS (in-principle)

79 AFP, ACC

80 ASMI, PGA, QPS

81 PACIA submission

82 PACIA submission

83 AFP submission

84 ACC submission

Consultation


How this feedback is reflected in the Decision RIS

Industry stakeholder support for Option 2 has been incorporated into the ‘Evaluation and conclusion’ chapter.

Discussion of Option 2 has been expanded to note the shortcomings of existing data, namely that:

existing import tariff codes are used to collect trade data (not for law enforcement purposes), and

a number of chemicals on the proposed harmonised domestic list will not be captured through existing controls.

Option 2 remains the preferred option of the Decision RIS. However, given support among some stakeholders for a mandatory notification scheme covering an expanded list of precursors, the Evaluation and conclusion chapter outlines a medium to long term approach through which:

the success of enhanced cooperation and information sharing is monitored and assessed over time, and

the feasibility of a mandatory notification scheme is explored in more detail, including likely resource implications for government.

Option 3 – Mandatory notification scheme

In providing support for Option 3, stakeholders noted it would provide “border and law enforcement agencies with oversight of the entire journey of precursors, from importation to end use. Without this option, companies which import chemicals (which are not currently required to get permits from TGA) for their use only will not be captured through the eEUD system, leaving a void in critical information.”85

The ACIC submission offered support for Option 3 as a way of addressing shortcomings it has identified with Option 2 (outlined above).

In its response, DIBP considered that further exploring and assessing the introduction of a mandatory notification scheme should be undertaken to fully understand the potential costs and benefits of such a scheme. DIBP noted that mandatory notification through the addition of chemicals to the Customs Regulations could introduce significant regulatory burden on industry and potentially impact trade, and that expanding controls at the border to cover chemicals that have legitimate trade uses would likely:

impact on ABF resources and potentially impact its other operational functions performed at the border.

impact on efforts to facilitate the lawful trade in goods and reduce regulatory burden on industry.

The mechanism by which a mandatory notification scheme could be implemented needs to be explored in further detail. The costs and benefits to Government and industry (including the various options for how this can be achieved) need to be considered. DIBP suggests that a mandatory notification scheme linked with an eEUD system could operate without amendments to the Customs Regulations.86 This approach would still place an additional requirement on industry, but it would be less onerous than adding chemicals to the Customs Regulations and administering an import permit system.

How this feedback is reflected in the Decision RIS

Option 2 has been retained as the preferred option in the Decision RIS. However, the preference expressed by government agencies for the implementation of a mandatory notification scheme has been included in the Evaluation and conclusion chapter, noting that agreement is required on the specifics of this this scheme (such as additional funding requirements, the mechanism for sharing information among agencies and the agency best placed to assume the central agency role).

In particular, the Department considers a medium to long term approach is needed whereby the effectiveness of the preferred option (enhanced information sharing) can be monitored and assessed, and the feasibility of implementing a mandatory notification scheme can be determined. It is the view of the Department that a number of factors require further consideration prior to implementing a mandatory notification scheme, including the mechanism through which notification occurs (eg at the border or in country through an eEUD system), the full cost expected to be incurred by industry and government in administering and complying with the scheme, and the agency best placed to administer the scheme (and any resourcing implications associated with the role).

85 AFP submission

86 It should be noted that regardless of the mechanism chosen, some form of legislative change will be required in order to mandate

the reporting of imports.

Consultation


Additional points raised in relation to Option 3 are outlined in Table 32 below.

Table 32: Stakeholder feedback in relation to border controls Option 3 (Mandatory notification scheme)

Comment topic


Additional benefits of Option 3

The AFP in its submission noted that a range of benefits associated with a mandatory notification scheme have not been captured in the Consultation RIS cost benefit analysis, including:

Harmonisation with the state legislative requirements would remove ambiguity around controls.

If the opportunity for diversion of precursors is decreased, there may be a subsequent decrease in other offences that flow from the laundering and reinvestment of the proceeds of crime.

A mandatory notification scheme would provide for comprehensive intelligence that may initiate and/or enhance investigations. The additional intelligence would support more proactive monitoring of precursors and law enforcement investigations.

The implementation of reporting and other controls may assist in deterring and preventing diversion, in addition to providing additional intelligence benefits to law enforcement.

The current system is dependent on tariff code identification of chemicals. The mandatory system will be independent of this, so any delays associated with tariff changes can be avoided.

The benefits outlined in the AFP submission have been noted in the cost benefit analysis for Option 3 (Section 5.3.3).

Costs to industry

The AFP suggested that costs for Option 3 estimated in the Consultation RIS may be overstated as not all chemicals in the priority list are imported regularly. Based on the NDPRAC assessments, it was observed that of the seventy-nine chemicals on the priority list:

twenty-three chemicals were not recorded to have been imported at the border

twenty-six chemicals were recorded to be imported by very few organisations (less than five, in most cases only one)

eighteen chemicals were recorded to be imported by specialist importers who would already be providing information on these imports to TGA or other regulatory authorities

of the remaining twelve chemicals, pseudoephedrine is the only actual precursor and this is already a controlled precursor at the border.

According to the AFP, these findings indicate that only a small number of industries would be affected by introducing Option 3. Of these, most businesses would already have systems in place for regulatory reporting and adding additional chemicals to the list would not be a major burden.

Conversely, DIBP suggests the analysis may underestimate costs to industry, given uncertainty around the volume of precursors currently imported and the time required for businesses to enter information into the mandatory notification system. Additionally, DIBP considers the number of businesses impacted by the notification scheme may be underestimated as there may be businesses not included in the survey that would be captured by additional regulation.

The points raised by the AFP in relation to likely costs associated with Option 3 are noted in Section 5.3.3 of the Decision RIS.

The costs estimated in the Consultation RIS were based on responses to the industry survey, which asked respondents to estimate the number of notifications they would expect to complete under the mandatory notification scheme. The lower bound estimate equates to a relatively minor annual cost of approximately $21,000 annually in present value terms, which appears consistent with AFP comments that the burden is potentially only minor.

Noting the limitations of the analysis identified by DIBP in terms of the volume of precursors currently imported and number of businesses likely to be affected, the range of cost estimates derived are considered reasonable and have not been amended in the Decision RIS.

Consultation


Comment topic


Central agency responsible for collection and dissemination of information

While supportive of Option 3 as the preferred option, the ACIC did not support the suggestion that it assume the central agency role for collection and dissemination of information. The ACIC noted that it “is not responsible for customs and border control and recommends that an agency with this remit such as the Department of Immigration and Border Protection or Australian Border Force be considered as the central agency.”87

In its submission the AFP stated that “consideration could be paid to the Australian Border Force taking responsibility for mandatory reporting due to their responsibility in relation to their mandate to reduce illicit drug supply at the border. This would also mean that compliance activity would be easier to action than if it were managed by an intelligence agency, where there may be barriers to dissemination of intelligence/information in a timely manner due to dissemination protocols.”88

The descriptions of Options 2 and 3 have been amended to remove reference to the ACIC as the body that would assume the central agency role. While there is general support from ACIC, AFP and DIBP to further explore the implementation of a mandatory notification scheme, at present no agency is willing to take responsibility for implementing and operating the system on an ongoing basis. It is noted that assuming the central agency role may have resourcing implications which have not been quantified in the Decision RIS. Further analysis is required in the medium to long term to assess the potential costs associated with a scheme (to both industry and government) and identify the agency best positioned to oversee it.

Other issues

The following table outlines additional issues raised in relation to border controls.

Table 33: Other issues in relation to border controls options

Comment topic


Description of NICNAS role

NICNAS clarified its role and obligations associated with precursor chemicals under the Industrial Chemicals (Notification and Assessment) Act (ICNA Act), noting that text in the Consultation RIS “may create the impression with some readers that specific obligations associated with precursor chemicals exist under the ICNA Act, resulting in the collection of information by NICNAS. NICNAS receives import data from Australian Border Force which is used to identify potential importers of relevant industrial chemicals for the purposes of registering them with NICNAS as an ‘introducer’ of industrial chemicals. It is rare that the chemical information contained in this data is sufficient to identify the actual chemical being imported; generic use descriptions or tariff code descriptors are often used.”89

The NICNAS submission goes on to state that “NICNAS does on occasion obtain information on potential precursor introduction as part of reporting obligations or through enquiries made to NICNAS regarding restrictions on certain chemicals.”

The Decision RIS has been amended to clarify the role of NICNAS.

87 ACIC submission

88 AFP submission

89 NICNAS submission

Consultation


Comment topic


Import licences and permits

The AFP submission raised concerns regarding “the process for issuing and monitoring of suitability to hold a licence. It is noted that there are existing difficulties regarding the provision of law enforcement information for the purpose of issuing a licence due to concerns regarding the protection of sensitive operational information.”90

Further, the AFP queried “the extent and type of information provided [under the approval regime] and whether it is sufficient for assessment of suitability to hold a licence. Additionally AFP has concerns that once issued, a licence may not be cancelled upon identification of a significant breach; rather the individual may be allowed to continue importing until the licence eventually expires.”91

The AFP suggested that further consideration be given to potential measures to monitor licence and permit arrangements with immediate cancellation for significant breaches.

Issues raised by AFP in relation to the licence / permit scheme are noted. The RIS does not propose changes to the existing licence/permit scheme administered by the Office of Drug Control within the Department of Health. Law enforcement agencies may wish to separately explore this issue with the Department of Health, either bilaterally or using existing forums for cooperation.

90 AFP submission

91 AFP submission


8 Evaluation and conclusion

All states and territories have controls to restrict the possession and sale of precursor chemicals and equipment through either criminal offences, licensing or permit processes. A key aspect of these controls involves recording the sales of scheduled precursor chemicals and equipment through end user declarations (EUDs). However, controls are not harmonised across jurisdictions, creating a range of vulnerabilities within the supply chain that organised crime groups are able to exploit. In particular, inconsistent record-keeping requirements mean that law enforcement agencies often lack visibility on the importation, sales and distribution of precursors.

The diversion of precursor chemicals and equipment is costly. Illicit drugs manufactured from precursors have economy-wide costs associated with crime, healthcare and accidents, and productivity.

This RIS considers three specific problems with the existing arrangements, namely:

inconsistencies in jurisdictional controls, both in terms of the type of controls and the list of precursor chemicals and equipment to which they apply

the lack of real-time submission and sharing of information about precursor sales with law enforcement agencies, and

limited collection and sharing of intelligence regarding the importation of precursor chemicals.

In line with the COAG Best Practice Regulation Guidelines, this Decision RIS identifies a preferred option that generates the greatest net benefit for the Australian community. Cost benefit analysis has been undertaken for the proposed options to address vulnerabilities within the existing domestic and border regulatory framework.

By its very nature, maintaining the status quo would not result in any additional implementation costs for industry. However, it would fail to address the identified vulnerabilities in the current regulatory framework to manage diversion risks associated with precursor chemicals and equipment. As a consequence, the current risk of diversion to illicit use– as well as associated costs and benefits to industry, governments and society – would remain unchanged.

8.1 Domestic controls Table 34 below summarises the key costs and benefits that have been estimated for each domestic controls option.

Of the options relating to domestic controls, Option 4 (harmonisation with eEUDs) produces the highest expected net benefit of $30.6 million NPV over ten years (with a range of 22.3 million to $39.6 million). In effect, it combines the benefits generated under Option 2 and Option 3.

While this option results in the highest regulatory and administrative costs (between $12.7 million and $36.0 million NPV over ten years), this is outweighed by regulatory savings to industry (from harmonisation and no longer storing and processing EUDs, estimated to be between $3.4 million and $15.9 million NPV over ten years) and the assumed potential reduction in social costs associated with illicit drugs ($44.5 million NPV over ten years).

Public submissions responding to the Consultation RIS were overwhelmingly supportive of Option 4 as the preferred option. Reasons for this support include:

Evaluation and conclusion


Greater national consistency through harmonised controls would reduce regulatory burden on industry and improve industry efficiency92.


The current system through which paper-based EUDs are provided to law enforcement (as PDF files) on an ad-hoc basis through Requests for Information is resource intensive. An automated and electronic system is required if this is to be conducted on a larger scale.94


Given this, Option 4 is the preferred option for domestic controls. However, our preliminary analysis shows that there would be net benefits from implementing an eEUD system as a ‘stand-alone’ addition to existing controls (Option 2). Given that harmonisation may take some time to be achieved, ongoing efforts to harmonise should not delay the introduction of an eEUD system.

Table 34: Costs and benefits of domestic controls regulatory options (low and high ranges, $million NPV over ten years)

Option 2 Option 3 Option 4 Option 5

Low High Low High Low High Low High

Costs

Regulatory costs to business

4.9 18.6 4.5 13.9 9.3 32.6 1.6 6.6

Costs to government 3.4 3.4 - - 3.4 3.4 - -

Total costs 8.3 22.0 4.5 13.9 12.7 36.0 1.6 6.6

Benefits

Regulatory savings to business

3.3 15.8 0.0 0.2 3.4 15.9 0.0 0.1

Administrative savings to government

0.6 0.6 - - 0.6 0.6 - -


29.7 29.7 14.8 14.8 44.5 44.5 7.2 7.2

Total benefits 33.6 46.0 14.9 15.0 48.5 66.8 7.3 7.4

Net benefit 17.3 32.9 2.3 9.5 22.3 39.6 0.6 4.8

This analysis includes the (adjusted) social costs of ATS use (of $4 billion annually, or $29.7 billion NPV over ten years) as a conservative estimate for the costs of all illicit drugs that can be manufactured using the chemicals and equipment examined in this RIS. This is based on the following considerations:


93 PGA submission

94 ACIC submission

95 ASMI submission





As outlined in the Executive Summary, there is limited information with which to precisely estimate the key benefits associated with the options – the reduction in the social costs of illicit drugs. Given the magnitude of these costs, the options need only have a marginal impact on the problem to generate net benefits.

That said, it is useful to consider the various ways in which the options are expected to impact on the social cost of illicit drugs, and to give a feel for the relative size of these impacts to show which options are preferred.

Currently EUDs are paper based - and apart from in Western Australia and Queensland – are not submitted to police. This limits the use to which the information collected can be put, and implicitly, the deterrence value of collecting it. An electronic EUD (eEUD) system would require chemical suppliers to enter all EUDs into a web based portal, which would give law enforcement agencies immediate access to information about precursor sales. An eEUD Business Case and the eEUD Working Party found that:

The key benefit of the proposed electronic system is its ability to automatically to alert law enforcement about suspicious precursor sales using pre-defined triggers. This would enable proactive investigation of illicit activity and enhance visibility of precursor distribution, new and emerging precursors, manufacturing trends and illicit drug availability across Australian jurisdictions.



More broadly, by tracing sales through either an account, or via a traceable means (for non-account holders), law enforcement would be equipped with an audit trail with which to aid investigations and prosecutions.

For illustrative purposes, we conservatively assume this will lead to a 0.1 per cent reduction in social costs. The actual impact is likely to be higher, but will depend on how effectively law enforcement agencies use information derived from an eEUD system.

Harmonisation of legislative controls is assumed to lead to a 0.05 per cent reduction in the social costs of ATS produced from domestically diverted precursors. This reflects the finding that, even though states and territories already regulate many of the most frequently diverted precursors to some degree, harmonisation would tighten controls and eliminate regulatory gaps in relation to a consistent list of precursor chemicals and equipment. Harmonisation would involve the application of controls to particular precursors in each jurisdiction, including point of sale measures which act as a deterrent to individuals; restricted access to




reduce theft or unauthorised diversion; and improved record keeping to provide an audit trail to aid law enforcement in investigations and prosecutions.

International studies on precursor chemicals found that the introduction of sales, reporting and storage controls led to significant reductions in illicit drug-related indicators.97 However, the gains in this case will not necessarily be as significant as these studies suggest, given that we propose to tighten existing controls (rather than introduce new controls for the first time).

The Productivity Commission has acknowledged the broader benefits of harmonisation: 98

“The Commission considers there is a strong case for nationally uniform controls to prevent chemicals from being diverted into illicit drug manufacture. While existing inconsistencies do not appear significant at present, they have the potential to undermine the effectiveness of the controls and/or lead to material regulatory burdens over the longer term.”

We have estimated that the combined impact of an eEUD system and harmonised legislative controls as the sum of the individual impacts listed above (0.1 per cent and 0.05 per cent respectively).

The benefits of an industry code (in terms of the reduction in social costs) are assumed to be broadly proportionate to the take-up of the code relative to harmonising controls through legislation. Therefore, just as the costs of a code are approximately 50 per cent of harmonisation through legislation, we assume that the benefits are 50 per cent of 0.05 per cent, or 0.025 per cent.

It is worth noting the relatively minor regulatory costs associated with the options. This is primarily a function of two factors:

controls are proposed to be applied to pure chemicals only (as opposed to mixtures). This reduces the number of affected businesses significantly, and

most businesses handle a small number of chemicals on the harmonised list, and those that are most frequently handled are regulated to varying degrees in most jurisdictions.

97 For example, a requirement to restrict sales and store precursors securely was attributed to a 48-71 per cent reduction in hospital

admissions in California, Nevada and Arizona following its introduction.

98 Productivity Commission (2008) Regulations of Chemicals Research Report, p.127



8.2 Border controls In terms of border controls, importers already provide a significant amount of information to a variety of government agencies about consignments of precursor chemicals. Our preliminary assessment indicates there is scope to better utilise and share existing information between government agencies (as outlined in Option 2). This approach was largely supported by industry stakeholders, with PACIA suggesting that information obtained through existing notification processes could contribute to the overall picture of precursor diversion.

That said, feedback from government agencies noted shortcomings associated with existing controls and data, primarily:

existing DIBP tariff codes are used to collect trade data (not for law enforcement purposes) and do not correlate with the model list of precursors (as multiple precursor list items fall under a single tariff code), and

existing notification processes would leave a number of chemicals uncontrolled at the border that are currently controlled in one or more jurisdictions.

The cost of implementing a mandatory notification scheme (Option 3) on industry to cover all 79 high risk chemicals is not expected to be significant (between $160,000 and $830,000 NPV over 10 years). That being said, there would also be costs to government to collect and utilise this information which have not been quantified. The significance of costs incurred by government would depend on a range of factors including:

whether the scheme is self-reporting

whether additional resources will be required for compliance and enforcement

the volume of information collected through the scheme

the extent to which the scheme can be incorporated into the proposed eEUD system.

The implementation of this scheme would result in more detailed information about the identity of the importer and supplier of the precursor chemicals, as well as the description and quantity of chemical imported. Additionally, this information would be collected for a greater range of chemicals (all 79 high risk chemicals compared to 18 at present) and for all values of imports (currently Importer Declaration Forms are only required for consignments valued at over $1,000).

It is not clear whether the additional information collected under such a scheme outweighs the increase in the regulatory burden imposed on business, the impact on trade and the cost to government, noting many of these imports are for legitimate purposes. Moreover, best practice principles for the administration of regulation suggest that government should in the first instance seek to optimise the use of existing information before placing additional burden on industry and potentially duplicating parts of the data collection process.

As such, the preferred option for border controls is to implement Option 2 in the first instance (enhanced cooperation and information sharing) and assess the effectiveness of these measures over the medium term. As with aspects of domestic controls, this RIS assumes that any government costs associated with this would be met from existing resources.

Going forward, in conjunction with monitoring the effectiveness of Option 2, the Commonwealth Government proposes to work with stakeholders (including DIBP and Commonwealth, state and territory law enforcement) to further consider the feasibility and expected net benefits of a mandatory notification scheme and associated measures, including:



the most appropriate mechanism through which mandatory notification would occur (eg whether the proposed eEUD system can be expanded to include requirements for notification of precursor imports)

a full assessment of costs associated with implementing, operating and complying with the scheme, including to industry and government stakeholders

potential approaches to improve the usefulness of DIBP trade data by requiring individual reporting of precursors on the harmonised list (eg through changes to the Customs Tariff Act 1995), including the associated costs to industry and government, and

the most appropriate government agency to assume the central agency role under the scheme, including likely resourcing implications and any additional funding requirements.


9 Implementation and review

This section provides a high level overview of implementation steps and indicative timeframes, as well as the proposed review process to assess the effectiveness of the proposed measures in future.

9.1 Implementation

9.1.1 Harmonisation of controls It is anticipated that, following endorsement of the preferred option by LCCSC, states and territories would adopt the decision and make it enforceable through primary or subordinate legislation. This process would require consideration of whether existing legislation could be amended, or if new legislation needs to be drafted.

Implementation of harmonised controls would largely be the responsibility of jurisdictions – each would need to determine the changes required to effectively implement the agreed option. The timing of implementation is uncertain, given the difficulties in anticipating passage of state and territory legislation. Subject to the agreement of states and territories, it is anticipated that jurisdictions would seek to enact legislative change before the end of 2018.

9.1.2 eEUD system The ACIC proposes to commence procurement of the eEUD system in the second half of 2017 (calendar year). The ACIC plans to convene a ‘requirements gathering’ working group in early 2017, consisting of state and territory law enforcement agencies (with NSW Police to co-chair). The working group will validate the requirements identified in the CrimTrac Outline Business Case, and will produce a requirements document that will be circulated to other relevant government stakeholders (including Commonwealth agencies and state and territory justice departments) and industry representatives (most likely through the PIRG forum). The ACIC plans to develop detailed implementation timeframes for the eEUD system once a vendor has been selected through the procurement process.

9.1.3 Enhanced information sharing Relevant government stakeholders would commence preliminary discussions about implementation of enhanced information sharing arrangements before the end of 2017 (calendar year). These discussions would likely occur through the PAG forum (which includes DIBP, the ACIC and state and territory law enforcement agencies). These discussions would be most beneficial following the introduction of harmonised precursor lists in each jurisdiction, as this would allow border agencies to generate a single standardised report for dissemination across state and territory law enforcement agencies.

Implementation and review


9.2 Review In terms of reviewing the effectiveness of the extension of the measures, the following considerations are relevant:

9.2.1 Impacts

Enhanced business capacity to prevent, detect and deter access to precursor chemicals and equipment by individuals and groups seeking to divert and use these in the manufacture of illicit drugs.

Increased business and community contribution to intelligence and law enforcement.

Increased harmonisation and uniformity of outcomes across the Commonwealth, states and territories.

9.2.2 Outcomes

Increased number of suspicious transactions identified, reported, and prevented from diversion into illicit drug manufacturing process.

9.2.3 Outputs

Increased visibility and action by law enforcement agencies on diverted precursor chemicals and equipment.

Monitoring and evaluation of the effectiveness of law enforcement interventions on illicit drug supply.

9.2.4 Proposed review process

Reviewing the feasibility of a mandatory notification scheme

The Commonwealth Government proposes to convene a joint PAG and PIRG meeting by the end of 2020 (calendar year) to discuss the effectiveness of existing measures and the feasibility of a mandatory notification scheme. These discussions would be contingent on the extent to which implementation of the recommended options in this RIS occurs. It is expected that industry would be consulted closely in evaluating any potential scheme, as there is likely to be significant impacts on industry, and potentially on Australia’s international trade obligations.

Reporting mechanism

It is anticipated that an annual noting paper would be provided to Commonwealth, state and territory law and justice Ministers to outline the status of recommendations, subject to an ongoing assessment of the effectiveness and need for an annual reporting process. This paper would be prepared in consultation with PAG and PIRG, particularly around any identified implementation challenges and potential improvements to the national precursor framework.


Appendices

Appendix A Background to precursor chemicals and equipment .......................................... 73

Appendix B Existing controls .................................................................................................... 77

Appendix C Organisations that use/handle precursor chemicals .......................................... 82

Appendix D Collection of information on importations .......................................................... 85

Appendix E Cost benefit analysis assumptions .......................................................................86


Appendix A Background to precursor chemicals and equipment

The classification of precursor chemicals in the RIS is based on the NDPRAC assessments, which were completed by the AFP between July 2013 and December 2014.

Risk assessments have used a consistent methodology which draws on the following factors to assess the underlying risk of diversion (independent of existing or potential regulation). Table 35 summarises the outcomes of those assessments.

Table 35: NDPRAC priority precursor chemicals

High Risk Low Risk

Ammonia, anhydrous Phenylacetic acid Bromosafrole

Lithium metal (in pure form) Formamide Sodium Cyanoborohydride

Hypophosphite salts Phenylacetyl chloride 1,3-Benzodioxole

Hypophosphorous acid Formic acid Platinum

Pseudoephedrine 1-Phenyl-2-bromopropane 4-aminobutanoic acid (GABA)*

Sodium metal (in pure form) 1-Phenyl-2-chloropropane 5-Bromo-1,3-benzodioxole

Iodine 1-Phenyl-2-iodopropane Anethole

Ephedrine Lithium Aluminium Hydride gamma-Buytrolactone (GBL)*

Phosphorous N-Methylformamide Piperazine

Phosphorous acid 1-Chlorophenyl-2-aminopropane

1 4-butanediol

Hydriodic acid Ammonium Formate 4-Allylpyrocatechol

Potassium Chlorophenyl-2-methylaminopropane

2-hydroxytetrahydrofuran

Hydrogen sulfide Chromic acids (including salts) 4-hydroxybutanal

Phenylpropanolamine Hydrobromic acid Gamma hydroxybutanoic acid

Methylamine N-ethylephedrine 2-Pyrrolidone

Nitroethane 1-Phenyl-2-propanol N-Phenethyl-4-piperidone

Benzaldehyde Ethanamine 4-hydroxybutanoic acid nitrile

Mercuric chloride Phenyl-1-propanone Propionic Anhydride

Mercury metal (elemental) Phenylalanine 1-hydroxycyclopentyl-(o-chlorophenyl)-ketone-N-methylimine (HCPKM)

1-Phenyl-2-Propanone (P2P) 1-Phenyl-2-nitropropene Anisaldehyde

1-Phenyl-2-Propanone bisulfite Benzyl bromide 4-hydroxypentanoic acid

Allylbenzene Benzyl chloride Ergocristine


Norpseudoephedrine (Cathine) Ergotamine

N-ethyl pseudoephedrine Raney Nickel Lysergic Acid

Nitromethane Thorium (including salts) Piperidine

Thionyl chloride 1-phenyl-2-propanone oxime

Background to precursor chemicals and equipment


High Risk Low Risk

Trans-beta-methylstyrene Magnesium

Acetic anhydride Palladium

Boron tribromide Acetaldehyde

Sodium bis(2-methoxyethoxy) aluminium hydride

Bromobenzene

Sodium Borohydride N-Methylpseudoephedrine

Mandelic acid 3,4-methylendioxypropan-2-one glycidate (MMDMG)*

Methylammonium Salts Safrole

Phenylacetonitrile Sassafras oil (as source of safrole)

Pyridine Eugenol

Ethyl phenylacetate MDP2P

Formaldehyde Isosafrole

Methyl phenylacetate 3,4-Methylenedioxyphenylacetic acid (MDPAA)

N-Methylephedrine Piperonal

Phenylacetamide

Three chemicals were assessed by NDPRAC as not requiring controls: Anthranilic acid; N-Acetylanthranilic acid; and, Ergometrine.

Additional to the risk assessments, jurisdictions have identified the need to consider controls on the apparatus used in the manufacture of illicit drugs. Category II of the PACIA Code identified a list of high risk precursor equipment, which is reproduced in Table 36.

Table 36: Apparatus identified at high risk of diversion, PACIA code, category II

Apparatus

Gas cylinders Hydrogen Sulfide

Hydrogen chloride

Hydrogen

Ammonia

Methylamine

Glassware Round bottom reaction flask (500mL or greater)

Condenser (joint size B19 or greater)

Splash heads or Distillation heads

Scientific apparatus Heating mantles (500mL or greater)

Pill presses (manual or mechanical)

Rotary evaporators



Characteristics of the proposed precursor chemicals schedule

To differing extents, the chemicals assessed as being at high or low risk of diversion by NDPRAC are listed in the PACIA Code. Of the chemicals identified, 96 of the 104 proposed for control are listed in the PACIA Code as per Table 37.

Table 37: Categorisation of precursor chemicals under the PACIA Code

Eight chemicals proposed under this RIS are not currently included in Category I, II or III of the PACIA code. These are:

High risk precursor chemicals:

1-Phenyl-2-Propanone bisulfite

Chlorophenyl-2-methylaminopropane, and

Phenyl-1-propanone.

Low risk precursor chemicals:

Piperazine

N-Phenethyl-4-piperidone

1-hydroxycyclopentyl-(o-chlorophenyl)-ketone-N-methylimine (HCPKM)

Anisaldehyde, and

Ergocristine.

Commonwealth regulations also place additional controls on the importation of some of the proposed precursor chemicals. For example, Thionyl chloride is a prescribed good under Schedule 11 (chemical weapons) under the Customs Regulations.

Additionally, some precursor chemicals are not listed on the AICS, and so require permits to be obtained from NICNAS to be able to import them. These are at Table 38.

Table 38: Non- AICS listed chemicals (permit required from NICNAS)

High risk precursors

1-Phenyl-2-Propanone bisulfite


N-ethyl pseudoephedrine

Trans-beta-methylstyrene

N-Methylephedrine

Phenylacetamide

1-Phenyl-2-bromopropane

1-Phenyl-2-chloropropane

1-Phenyl-2-iodopropane

Category I Category II Category III Not listed

Number of high risk precursor chemicals

38 37 1 3

Number of low risk precursor chemicals

13 7 5



Chlorophenyl-2-methylaminopropane

1-Phenyl-2-nitropropene

1-phenyl-2-propanone oxime

3,4-Methylenedioxyphenylacetic acid (MDPAA)

Low risk precursors

4-Allylpyrocatechol

4-hydroxybutanal

1-hydroxycyclopentyl-(o-chlorophenyl)-ketone-N-methylimine (HCPKM)

Lysergic Acid


Appendix B Existing controls

A summary of state and territory regulatory differences is presented in Table 39.

Table 39: Summary of state and territory regulatory frameworks

Measures PACIA NSW VIC QLD WA SA TAS ACT NT

Schedule Schedule Schedule Schedule Schedule

1 2 3 1 2 3 1 2 3 1 2 1 2 3

Proof of identification (photo)

Alert list only

Account or EUD

+ID

Sa

le pro

hib

ited if seller is a

wa

re of in

tend

ed m

isuses

Sa

le pro

hib

ited if seller is a

wa

re of in

tend

ed m

isuses

Sa

le pro

hib

ited if seller is a

wa

re of in

tend

ed m

isuses

Account holder only

Alert list only

Account or EUD

+ID

Payment made through an account

Alert list only

* * * * Account or EUD

+ID

End user declaration

* Alert list only

* * * *

EUD available on request (business hours)

Alert list only

* *

EUD- automatic supply to police

Alert list only

Storage – restricted storage required

Storage –

Existing controls


Measures PACIA NSW VIC QLD WA SA TAS ACT NT

Schedule Schedule Schedule Schedule Schedule

1 2 3 1 2 3 1 2 3 1 2 1 2 3

access only by supplier/person

Sales record – item name, quantity, date, purchaser

Sales record – min years retained

2 2 2 2 5 2 2 2

Sales record- on request (business hours)

Extract: PAG Discussion Paper – Attachment D, current at 2013, * indicates sales which can be made either through an account or upon completing an EUD

Existing controls


Other related regulatory controls and standards A wide variety of other legislative controls are imposed on various aspects of the manufacture, distribution, and supply of chemicals for a variety of policy objectives (often related to safety). The transportation of precursor chemicals is guided by the Australian Dangerous Goods Code, which covers the transport of dangerous goods including vehicle requirements, and transfer, safety and documentation procedures. Many of the precursor chemicals considered in this RIS fall under the umbrella of the Australian Dangerous Goods Code, which has been implemented across all jurisdictions in Australia. Related regulations and standards impose specific requirements on the use of various chemicals. These are shown in Table 40.

Table 40: Related chemical regulations and standards

Industrial chemicals

Industrial Chemicals (Notification and Assessment) Act 1990, and supporting regulations

The Act establishes NICNAS, which was developed to assess the risks posed by industrial chemicals, register importers of those chemicals, maintain the AICS, and undertake analysis, audit and enforcement action against companies in accordance with the Act.

Poisons

State-based poisons legislation and regulation

SUSMP No 10 – February 2016 (Poisons Standard)

The Poisons Standard promotes the uniform scheduling of substances, labelling and packaging requirements for inclusion in state and territory legislation. It classifies medicines and poisons in schedules, and includes model provisions and controls for drugs and poisons. State and territory poisons legislation can refer to the Poisons Standard as published or enact state or territory variations to it.

Medicines, and drugs

Therapeutic Goods Act 1989, Therapeutic Goods Regulations 1990

The Therapeutic Goods Administration (TGA) regulates the supply of medicines and other therapeutic goods using a risk-based approach. In doing so, the TGA classifies medicines, assesses compliance and implements regulatory controls for medicines, and undertakes monitoring of supply and use.

Chemicals of security concern

National Code of Practice for Chemicals of Security Concern 2016

The National Code of Practice was established in 2013 to provide best practice guidance to sectors that work with high risk chemicals that could be used to make homemade bombs. The code was revised in May 2016, with 15 high-risk chemicals identified as precursors to homemade explosives.


End User Declarations An example of an EUD template is shown in Figure 13. EUDs are filled out upon purchase by customers, alongside presentation of photo identification. Details of the customer are collected in a standardised manner on an EUD form, and then scanned and emailed or faxed to the relevant law enforcement agency by the supplier (in jurisdictions where this is required). Jurisdictions that mandate the use of EUDs require that hard copies be retained over a specified period of time. EUD forms used among jurisdictions capture information such as:

product information, including the quantity and size distributed

the intended use, as declared by the customer, and

the customer’s details, including specifics of their ID, and contact details.

EUDs can capture information regarding the sale of multiple precursor chemicals if sold concurrently to a customer.

Figure 13: Sample EUD form

Source: PACIA code extract

Existing controls


Upon receipt of EUDs, some law enforcement agencies transcribe information into internal systems – typically an excel spreadsheet – and run a person of interest/criminal check on the details provided. If the check identifies anomalies, an investigation may be triggered. Agencies will take different actions in then engaging with suppliers to notify them of investigations, or in providing feedback on EUDs.


Appendix C Organisations that use/handle precursor chemicals

The chemical industry in Australia is extensive. There are an estimated 40,000 chemicals approved for use in Australia, which are formulated into over 400,000 trademarked products.99

While there is a reasonable understanding about the aggregate size of the chemical industry in Australia, there is little available information about market characteristics for particular chemicals. To overcome this lack of data, we adopted the approach taken in the 2014 Chemicals of Security Concern (COSC) RIS to estimate the population of affected businesses.

First, in line with the framework used in the NDPRAC risk assessments, we conceptualised the supply chain for precursors according to six nodes. This is shown in Table 41.

Table 41: Supply chain nodes

Node Description

Importers Import the precursor chemical or equipment into Australia.

Manufacturers Produce the precursor chemical (or mixture containing or mixed with a precursor chemical) in Australia for on-sale and consumption.

Wholesalers Sell the precursor chemical or equipment primarily to businesses and institutions and do not repackage or reformulate substances.

Source: AGD

Second, we used ABS data to identify populations of businesses that could potentially use or handle the toxic chemicals of security concern. We then estimated what proportion of these populations actually use or handle the chemicals relying on proportions outlined in the COSC RIS and other updates.

In the COSC RIS, these proportions were calculated by determining how prevalent the toxic chemicals were across each population and then applying a standardised proportion, as indicated in Table 42. Given the differences between the 84 toxic chemicals of security concern and the 104 illicit drug precursor chemicals at risk of diversion, some amendments to the COSC proportions have been made. These assumptions are contained in Table 43.

99 COAG (2008), Report on the Control of Chemicals of Security Concern, Canberra.

Organisations that use/handle precursor chemicals


Table 42: Proportions applied to population data based on assessment of prevalence

Assessed prevalence level across ABS category Proportion of ABS population applied

Very High 95% of population

High 80% of population

Medium 50% of population

Low 20% of population

Very Low 5% of population

Source: PwC

Table 43: Breakdown of population figures and assumptions for Domestic Controls options

Node Total

Population

Assessed proportion handling

toxic industrial or agricultural chemicals

Estimated proportion handling precursor chemicals

and/or equipment

Estimated Population

Source and assumptions


2,305 Low (20%) Medium (50%)

1,153

Using ABS statistics, we identified the total number of businesses across Australia that are classified as ‘Basic Chemical and Chemical Product Manufacturing’ (ANZSIC Subdivision 18). The proportion was assessed as ‘Medium’ not ‘Low’ for two reasons. First, while the definition of the ABS classification is broad, early consultations suggest that the listed chemicals in the NDPRAC are imported and manufactured by a larger number of businesses. Second, unlike the COSC RIS, businesses that reformulate or repackage the chemical and on sell to Wholesalers, Retailers or End users are included in Importers and Manufacturers, not considered separately as “Manufacturers”.

Source: ABS (2015), ‘Counts of Australian businesses, including entries and exits’, June 2014 Cat. 8165.0.

Organisations that use/handle precursor chemicals


Node Total

Population

Assessed proportion handling

toxic industrial or agricultural chemicals

Estimated proportion handling precursor chemicals

and/or equipment

Estimated Population

Source and assumptions

Wholesalers 4,950 Low (20%) Medium (50%)

2,475

Using ABS statistics, we identified the total number of businesses across Australia that are classified as ‘Pharmaceutical and Toiletry Goods Wholesaling’ (ANSIC Code 3720) and ‘Industrial and Agricultural Chemical Product Wholesaling’ (ANSIC Code 3323) The proportion was assessed as ’Medium’ not ‘Low’ because, as discussed above, early consultations suggest that the listed chemicals in the NDPRAC are wholesaled by a larger number of businesses.

Source: ABS (2015), ‘Counts of Australian businesses, including entries and exits’, June 2014 Cat. 8165.0.

Source: PwC analysis of ABS and IBISWorld data and AGD

Using the analysis above, we concluded that the following number of businesses use or handle at least one precursor. This is summarised in Table 44.

Table 44: Summary of population by jurisdiction and supply chain node



364 341 242 61 122 17 - 6 1,153

Wholesalers 948 692 421 143 224 25 9 14 2,475

TOTAL 1,312 1,033 663 204 346 42 9 20 3,628


Appendix D Collection of information on importations

Table 45: Information collected through existing border controls, and that which would be covered under a mandatory notification scheme

Information source Customs - declaration import

Customs – cargo import

Customs Regulations NICNAS (registered importers and special permits)

Mandatory notification scheme

Coverage All imports over $1000 Accompany all air and sea cargo arrivals

Imports of 18 chemicals controlled under Act (must be licensed importer and seek permits from the Department of Health)

17 chemicals are non-AICS listed and fall under special permit requirements All importers of AICS-listed chemicals must be registered and must keep records- annual registration and reporting (for commercial importers), online consignment-based reporting (for low volume importers)

All imports of 61 high risk chemicals – those of the 79 high risk chemicals not covered under Customs (Prohibited Imports) Regulations

Information required:

Importer name/business and ABN

(partial)

Supplier details (including country of origin)

(partial)

Importer address

Consignment description (which may include chemical description/CAS number)

(general, includes tariff class, but not

precursor specification)

(annual licence basis) (permit basis, annual for low volume importers)

Amount imported (volumetric/weight of chemical)

(partial- as categorised under

tariff code)

(gross weight- not mandatory)

(annual licence basis) (annual basis)

Date of export


Appendix E Cost benefit analysis assumptions

Data sources and limitations PwC in consultation with AGD developed an industry survey to collect information in regard to current costs and benefits incurred by industry, as well as expected costs and benefits from potential regulatory changes. In total, 78 responses were submitted, though not all were complete.

For questions with a very low response rate, proxies have been used (for example where response rates by wholesalers have been inadequate to develop an average, the figure for manufacturers has been used as a simplifying assumption). Additionally, respondents skewed towards large businesses (the average business sizes in terms of employment for importers and manufacturers, wholesalers and retailers were 407, 435 and 130 respectively), requiring all cost estimates to be scaled down to produce a weighted average that was representative of businesses across each sector.100 The resulting weighted average was applied to the business count estimates derived through analysis of ABS business count data.

Where insufficient data has been obtained from the industry survey, we have relied on estimates and approaches utilised in previous regulatory impact assessments.

Given the limited number of responses received through the survey, a high degree of uncertainty exists in regard to the costs and other key assumptions associated with various regulatory changes. Rather than simply calculate average values for these inputs and apply them across all businesses, a Monte Carlo approach is used to estimate a range of potential outcomes and better account for uncertainty. A description of Monte Carlo analysis is provided in Box 1 below.

Box 1: Monte Carlo Simulation

Monte Carlo simulation is a mathematical approach to estimating and evaluating the range of potential values of a variable (e.g. cost of an input, time taken to complete an activity etc.) in circumstances where there is uncertainty surrounding the exact value a variable is likely to take.

It is based on repeated random sampling of values from defined probability distributions for the uncertain assumptions (in this case, 10,000 iterations are undertaken to estimate distributions). The impact of these sampled assumption values on the calculated outcome for the variable is recorded and a range of statistical information reported for the distribution of these outcomes.

Monte Carlo analysis can improve the understanding of risk in key variables during decision-making processes, versus more traditional strategies of evaluating based on single ‘point’ estimates of values or a limited number of scenario or sensitivity tests. The output from a Monte Carlo analysis is a distribution of the potential outcomes based on the combined impact of multiple variable assumptions.

100 Responses were scaled down across four business size categories: ‘non-employing’, ‘1-19 employees’, ‘20-199 employees’ and

‘200+ employees’. These scaled down estimates were then multiplied by the proportion that each category comprised of the total sector, and summed to provide a weighted average. Business size data was obtained from ABS 8165.0 Counts of Australia Businesses, including Entries and Exits, June 2010 to June 2014.

Cost benefit analysis assumptions


Underlying input distributions

Cost estimates provided in the industry survey tended to span a wide range, though there was aggregation around averages toward the lower end of the scale. To account for this distribution of responses, a lognormal distribution is applied to most assumptions, which creates a positive skew (capturing potentially large, but less frequent values). The figure below provides an example of a lognormal distribution applied to an input.

Figure 14: Lognormal distribution

For inputs with a more even distribution profile (eg time taken to complete an EUD, adoption rates for the voluntary industry code), a triangular distribution is applied. The figure below provides an example of a triangular distribution.

Figure 15: Triangular distribution



Domestic controls assumptions

Option 2: Status quo with electronic EUDs

Cost assumptions

Results from the industry survey indicated that:

expected one-off infrastructure upgrade costs were between $0 and $750 per business, with an average of $215 per business

expected ongoing infrastructure costs were between $0 and $750, with an average of $190 per business

expected one-off training costs of between $0 and $750 per business, with an average of $195 per business, and

expected ongoing training costs of between $0 and $750 per business, with an average of $190 per business.

Benefit assumptions

Results from the survey indicated that:

importers / manufacturers spent on average 5 hours per year storing and processing EUDs, and

importers / manufacturers spent between $0 and $150 per business per year on storing EUDs, with an average of $30.


Option 3: Nationally harmonised lists of precursor chemicals and equipment and associated legislative controls (with paper-based EUDs)

Table 46: Expected changes under harmonisation

Effect of harmonisation on each jurisdiction

NSW VIC QLD WA SA NT TAS ACT

Number of additional precursor chemicals and equipment

29 15 50 36 8 61 103 114

Changes in controls as a result of harmonisation

EUD – automatic

supply to police

EUD – retain for

minimum of 5 years

Sales record – retain for a minimum of 5 years

EUD – automatic

supply to police

Account holder only

Payment made

through an account

EUD – retain for

minimum of 5 years;

Storage – restricted

storage required

Storage – access only

by supplier/person

Sales record – retain

for a minimum of 5

years

Sales record – item

name, quantity, date,

purchaser

Sales record – retain for a minimum of 5 years

EUD- automatic

supply to police


for a minimum of 5

years

Proof of identification

(photo)

Account holder

Payment made

through an account


EUD- automatic

supply to police

EUD – retain for

minimum of 5 years


storage required


by supplier/person



purchaser


for a minimum of 5

years


(photo)

Account holder

Payment made

through an account;

End user declaration;

EUD- automatic

supply to police

EUD – retain for

minimum of 5 years


storage required


by supplier/person



purchaser


for a minimum of 5

years


(photo)

Account holder

Payment made

through an account


EUD- automatic

supply to police

EUD – retain for

minimum of 5 years


storage required


by supplier/person



purchaser


for a minimum of 5

years


Harmonisation cost assumptions

The industry survey asked respondents to estimate the expected costs that would be incurred in moving to a harmonised system with paper-based EUDs.101 As there were not sufficient responses from each jurisdiction or each business type to develop robust cost estimates of harmonisation, the following approach was taken:

A simplifying assumption was made that the costs of harmonisation will not differ across business types

Harmonisation costs in NSW, Victoria, SA and WA were assumed to be broadly similar given the required changes outlined in Table 46. Based on survey responses from businesses in these jurisdictions, an average one-off and ongoing harmonisation cost was estimated and applied to these states (the ‘base’ cost estimate)

For remaining jurisdictions, the base cost estimate was scaled up according to the assumed level of regulatory change required in each jurisdiction relative to the ‘base’ states (in relation to the number of additional precursors to be controlled, and the type of controls implemented). Given the lack of data, high-level assumptions were made applying best judgement about the precise impact of each individual change.

Monte Carlo techniques were applied to develop input cost ranges and account (at least to some degree) for the uncertainty around cost estimates.

Scaling factors applied and resulting cost estimates are outlined in the table below.

Table 47: Scaling factors and resulting per business cost estimates in each jurisdiction

Jurisdiction Scaling factor Average one-off

harmonisation cost ($)

Average ongoing harmonisation cost

($)

NSW 1x 157 143

VIC 1x 157 143

QLD 1.5x 236 215

SA 1x 157 143

WA 1x 157 143

TAS 2x 314 286

NT 2x 314 286

ACT 2x 314 286 Source: Industry survey data and PwC calculations.

Customer time cost assumptions

The greater coverage of precursors and controls will see an increase in the number of EUDs required to be completed by customers. Based on the industry survey, an estimate of the increase in EUDs per business per year was derived (31), as well as the average time to complete an EUD (8.5 minutes). Distributions were applied to these estimates to account for uncertainty.

101 Only respondents with operations in a particular jurisdiction were asked to quantify the expected costs in that region.



Option 4: Nationally harmonised lists of precursor chemicals and equipment and associated legislative controls (with eEUDs)

Option 4 applied the same approach as Option 3 to estimate harmonisation costs across jurisdictions. Average costs estimates are outlined in the table below.

Table 48: Scaling factors and resulting per business cost estimates in each jurisdiction

Jurisdiction Scaling factor Average one-off

harmonisation cost ($)

Average ongoing harmonisation cost

($)

NSW 1x 148 136

VIC 1x 148 136

QLD 1.5x 222 204

SA 1x 148 136

WA 1x 148 136

TAS 2x 296 272

NT 2x 296 272

ACT 2x 296 272 Source: Industry survey data and PwC calculations.

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precursor chemicals and equipment · precursor chemical) or equipment in australia for on-sale....

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